FSA

Question 1

Most jurisdictions require companies to file …… accounts in accordance with local accounting standards.

1- Annual
2- Quarterly
3- Monthly

Answer 1

Annual

Question 2

If the company has its shares quoted on a stock exchange, a more comprehensive set of audited annual accounts will be required, usually compliant with either US ……….. (for the companies listed on exchange in the US) or …………. (for companies listed on other major stock exchanges)

1- GAAP, IFRS
2- IFRS, GAAP

Answer 2

GAAP, IFRS

Question 3

Quoted companies are also required to make unaudited interim financial disclosures either …….(Canada, Japan, and the US) or ……. (Australia, the EU and the UK)

1- Quarterly, Annually
2- Annually, Half yearly
3, Half yearly, Quarterly
3- Quarterly, Half yearly

Answer 3

Quarterly, Half yearly

Question 4

As quoted companies normally have a number of subsidiaries, the accounts are required to be produced on a …….. basis, i.e., treating the group of companies as if it was a single ……. for accounting purposes.

Answer 4

Consolidated Basis, Entity

Question 5

Profit and loss account, maybe shown as one single document, or it may be divided into two parts (the income statement and the statement of comprehensive income), this is the statement showing the company’s total income and expenses for the last financial year, and its profit or loss for that year

Answer 5

The statement of comprehensive income

Question 6

The statement of the company’s assets and liabilities as at the end of the financial year

Answer 6

The statement of financial position also referred to as the balance sheet

Question 7

The statement showing the sources and uses of cash during the financial year, and the net cash position at the end of that year

Answer 7

The statement of cash flows

Question 8

A breakdown of the different elements contributing to changes in the company’s equity over the year, and notes to the financial statements - which provide breakdowns of the more complex items, as well as explanations and additional information, such as the company’s accounting policies.

Answer 8

The statement of changes in equity

Question 9

True or False

Narrative reporting include:
1. The chairman’s statement
2. Reports by the CEO and other directors
3. A strategic report containing a fair review of the company’s business
4. An audit report
5. A director’s report

Answer 9

True

Question 10

True or False

Companies that are traded on a stock exchange must publish these accounts by the deadline specified by the exchange, usually between six and eight months after the year-end.

Answer 10

False
Four and Six months

Question 11

IFRS have been adopted by an increasingly wide number of countries and markets. with the exception of those companies quoted on US stock Exhange.

Who has developed the IFRS?

Answer 11

International Accounting standards board (IABS)

Question 12

Generally, a parent will be treated as controlling its subsidiary if it owns more than … of the subsidiary’s shares (a simple majority)

1. 20%
2. 49%
3. more than 50%

Answer 12

more than 50%

Question 13

A company may be treated as an associate if the parent company owns or controls a significant shareholding (generally, ….)

1. 10%-30%
2. 50%-80%
3. 20%-49%

Answer 13

20%-49%

Question 14

Parent does not have a significant shareholding. instead, the parent is a passive minority shareholder that holds less than 20% shares, with only the right to receive dividends. The company is classified as:

1. Associate
2. Subsidiary
3. Investment

Answer 14

3. Investment

Question 15

True or False

The parent company if a group of companies must produce both consolidated financial statements, showing the contribution of its subsidiaries, associates, and investments, and company accounts.

Answer 15

True

Question 16

True or False

Minority interest represents the proportion of the subsidiary’s earnings which belong to the third party owning the minority interest in the subsidiary

Answer 16

True

Question 17

Company M owns 90% of the shares in its subsidiary, Company T. Company M has profit after tax of
$100,000; Company T has profit after tax of $50,000. In summary, Company M’s profit will be shown in
the consolidated accounts as follows:

Answer 17

Consolidated Accounts 150,000

Less:minority interest* (5000)

Profit attributable to Company M’s ordinary shareholders 145,000

Question 18

Provides a snapshot of the company’s financial position at a particular date

1. Income statement
2. Balance sheet
3. Cash flow

Answer 18

2. Balance sheet

Question 19

True or False

Intangible Assets are assets which are capable of being touched and observed, such as buildings, machinery, plant, vehicles, office equipment and computers.

Answer 19

False

Tangible Assets

Question 20

True or False

In the UK, all tangible fixed assets with a limited economic life must be depreciated (or written down) over their useful economic lives.

Answer 20

True

Question 21

True or False

Intangible Assets cannot be touched or observed such as patents, trademarks, licences and other intellectual propertty.

Answer 21

True

Question 22

True or False

Goodwill arises when the parent company acquires a subsidiary for a price which is lower than the fair value of the subsidiary net tangible assets

Answer 22

False

Greater than the fair value of the subsidiary net tangible assets

Question 23

True or False

If the company has a surplus on a retirement benefit scheme, this surplus maybe shown in current assets

Answer 23

False

Non-current assets

Question 24

True or False

Inventory consists of three items:
1. Raw materials: which have been bought but, as at the balance sheet date, not yet used in producing goods.
2. (WIP): products in the process of being manufactured
3. Finished Goods: products which have been made, but not yet sold as the year-end

Answer 24

True

Question 25

True or False Receivables represents amounts owned by customers for goods provided or services rendered

Answer 25

False Receivables represents amounts (owning from) customers for goods provided or services rendered

Question 26

Explain the relationship between Inventory, Receivables and Cash?

Answer 26

Inventory: raw materials, unfinished goods, finished goods which are unsold, these will be turned into receivables Receivables: Finished goods which have been sold but not paid for. these will be sold later for cash Cash: received in exchange for finished goods, sold and paid for

Question 27

True or False An increase in Accounts Receivable and Inventory is a decrease in cash flow

Answer 27

True

Question 28

True or False An increase in Accounts Payable is a decrease in cash flow

Answer 28

False

Question 29

Which one is not a non-current asset? 1. Property, Plant and Equipment 2. Intangible Assets 3. Cash and Cash Equivalents 4. Investments In Associates 5. Financial Investments 6. Retirement Benefit Surplus

Answer 29

3. Cash and Cash Equivalents

Question 30

Which one is not a current asset? 1. Inventories 2. Property, Plant and Equipment 3. Trade and Other Receivables 4. Other Financial Assets 5. Cash and Cash Equivalents

Answer 30

2. Property, Plant and Equipment

Question 31

Which one is not a current liability? 1. Bank overdrafts 2. Bank loans 3. Trade and other payables 4. Financial instruments 5. Other financial liabilities 6. Current tax

Answer 31

4. Financial instruments

Question 32

A company has a current assets of 1,067.3 and current liabilities of 832.9 What are the net current assets?

Answer 32

234.4

Question 33

Which one is not a non-current liability? 1. Bank loans 2. Borrowings 3. Deferred income 4. Financial Instruments 5. Deferred tax liabilities 6. Retirement benefit obligations

Answer 33

1. Bank loans

Question 34

This includes bank loans, bonds, debentures or mortgages due for repayment in more than one year? 1. Borrowing (debt) 2. Bank loans 3. Bank overdrafts

Answer 34

1. Borrowing (debt)

Question 35

Situation when the company anticipates an expense arising in the future, but when the amount and timing of that expense is not yet certain. 1. Borrowing (debt) 2. Provision 3. Retirement benefit obligations

Answer 35

2. Provision

Question 36

When a company has a deficit on its pension scheme (i.e., its future liabilities outweigh the value of the assets in the scheme), this is shown in long-term liabilities? 1. Borrowing (debt) 2. Provision 3. Retirement benefit obligations

Answer 36

3. Retirement benefit obligations

Question 37

True or False Borrowings, Provisions, and Retirement benefit obligations fall under non-current liabilities

Answer 37

True

Question 38

100 million ten-year loans, repayable in equal instalments over the life of the loan. At the beginning of the year, one instalment is due to be paid by the year-end and is thus a current liability. The statement of financial position will show?

Answer 38

Current liability: 10 million Non-current liability: 90 million

Question 39

True or False Contingent Liabilities (potential, rather than certain, obligations when the amount and timing are Uknown) are recorded in the balance sheet

Answer 39

False Contingent Liabilities are off-balance sheet items, an explanatory information disclosed in the notes to the accounts

Question 40

Which one is not a shareholders' equity item? 1. Called up share capital 2. Share premium account 3. Retirement benefit obligations 4. Capital redemption reserve 5. Share options reserve 6. Other reserves 7. Retained earnings Shareholders' equity 1. Non-controlling interest Total Equity

Answer 40

3. Retirement benefit obligations

Question 41

True or false A revenue reverse is created when the company has made a profit from its trading activities and retained some or all of this profit within the business.

Answer 41

True

Question 42

True or false Capital reserves can be used to pay dividends to shareholders

Answer 42

False Capital reserves are not distributable and cannot be used to pay dividends to shareholders. Correction: Revenue reserves can, as they are distributable, i.e., can be used to pay dividends to shareholders.

Question 43

True or false Capital reserves generally represent wealth created for the company out of some change to the company's capital base.

Answer 43

True

Question 44

True or false If a company has accumulated losses (so that it has a deficit on retained earnings reserve), it is not allowed to pay dividends until it has accumulated enough profits to create a positive balance

Answer 44

True

Question 45

A company might have 1 nominal value shares in issue, and be preparing to issue 1 million shares, the appetite in the market for the shares is strong, and the company has a good track record, so investors are prepared to pay a premium of, say, 1.50 for the shares bringing the price to 2.50 per share. the total funds raised will be 2.5 million How will the effect of the share issue accounts be recorded?

Answer 45

Assets Liabilities Increase Cash 2,500,000 Increase Share Capital 1,000,000 Increase Share Premium Reserve 1,500,000 Total 2,500,000 2,500,000

Question 46

True or false The share capital shown in the statement of financial position comprises the issued share capital of the company, i.e., the shares which are currently in issue and owned by shareholders. directors may increase the issued share capital by issuing new shares to raise capital, providing that they have the approval of shareholders to do so.

Answer 46

True

Question 47

True or false Some jurisdictions require shares to have a par value, i.e., a price below which they cannot be issued, eg, the UK, while others such as Canada, Australia and many states in the US, allow shares to be issued with no par value

Answer 47

True

Question 48

True or false In the accounts, we can see depreciation in two places. the first of these is in the statement of financial position, where we can see the value of assets reducing in value in consecutive periods. the second place is in the company's income statement, where the depreciation is shown as an expense.

Answer 48

True

Question 49

True or false Non-current assets are shown in the statement of income at net book value (NBV), which is simply the cost of the asset less the accumulated depreciation to date

Answer 49

False In the statement of financial position

Question 50

Smithson purchases a new item of plant costing 20,000. the company expects the plant will have a scrap value of 5000 at the end of a ten-year asset life. company policy is to depreciate the asset in equal annual amounts (straight-line)

Answer 50

asset value - scrap value/expected useful life of asset 20,000 - 5,000/ 10 Years

Question 51

True or False Reducing balance depreciation reduces the book value of the asset by a set percentage each year (rather than by an equal amount). this results in a higher depreciation charge in the early years of the asset's life but a lower charge in the later years

Answer 51

True

Question 52

True or False The statement of comprehensive income (also known as the profit and loss account) is intended to provide a formal record of the company's performance over a particular accounting period.

Answer 52

True

Question 53

True or False A company may choose to present its statement of comprehensive income in only one way

Answer 53

False It can be presented in two ways 1. As two separate documents, the first shows all the components of profit or loss (from revenue to profit/loss for the year). and is named the income statement. the second starts at profit/loss for the year, and shows all other, non-regular elements of comprehensive income, such as exchange rate movements. this is then named the statement of comprehensive income. this dual-statement approach is more common for UK companies 2. the company is permitted to present all of this information in a single document; this is then named the statement of comprehensive income.

Question 54

Total value of goods and/or services that the company has supplied and invoiced during the accounting period. 1. COGS 2. Gross Profit 3. Turnover (or sales or revenue)

Answer 54

3. Turnover (or sales or revenue)

Question 55

Direct costs associated with the production of goods and/or services supplied by the company 1. COGS 2. Gross Profit 3. Turnover (or sales or revenue)

Answer 55

1. COGS

Question 56

Represent the profitability of the principal activity alone and thus is a useful indicator of the basic efficiency of the company's core trading process. 1. COGS 2. Gross Profit 3. Turnover (or sales or revenue)

Answer 56

2. Gross Profit

Question 57

True or False Operating (indirect) expenses represent the remaining ongoing costs of running the business. Some companies divide operating expenses into separate categories, such as distribution and administrative expenses.

Answer 57

True

Question 58

True or False Only revenue expenses are recorded on the income statement

Answer 58

True

Question 59

Money spent to buy non-current assets, such as plant, property and equipment. This is not shown in the income statement, which instead shows depreciation over the life of the asset. It is shown in the cash flow statement, and its effects (i.e., increase in assets and capital) are reflected on the balance sheet 1. Revenue Expenditure 2. Capital Expenditure

Answer 59

2. Capital Expenditure

Question 60

Money spent in order to generate revenue, and is, therefore, shown both in the income statement and the cash flow management 1. Revenue Expenditure 2. Capital Expenditure

Answer 60

1. Revenue Expenditure

Question 61

Represents trading profit plus/less income and expense from non-core business related activities 1. Gross profit 2. Profit before taxation 3. Profit for the year 4. Operating profit (EBIT)

Answer 61

4. Operating profit (EBIT)

Question 62

True or False Finance income and finance costs show the cost of borrowing money, and the income from financial investments including cash deposits. these may also be referred to as interest costs and interest income

Answer 62

True

Question 63

Company's profit after all deductions except taxation and dividends 1. Gross profit 2. Profit before taxation 3. Profit for the year 4. Operating profit (EBIT)

Answer 63

2. Profit before taxation

Question 64

True or False Any corporation tax still unpaid at the year-end will appear on the statement of financial position as a current liability

Answer 64

True

Question 65

All deductions, except dividends. this profit may be used to pay dividends, or it may be retained in the business, and transferred to the retained earnings. it represents the consolidated profit generated by the group of companies 1. Gross profit 2. Profit before taxation 3. Profit for the year 4. Operating profit (EBIT)

Answer 65

3. Profit for the year

Question 66

True or False These are other items show separately, under the heading of other comprehensive income (OCI) 1. Actuarial gains or losses on defined benefit pension schemes 2. Profits or losses on revaluation of assets 3. Gains or losses on financial instrument hedges

Answer 66

True

Question 67

A statement that shows how a company's cash has been generated over the accounting period and how it has been expended. The statement is vital in helping investors, lenders and directors understand whether the company is generating adequate cash to invest, pay its suppliers, support its pensioners, service its capital providers 1. The income statement 2. The statement of financial position 3. The statement of cash flow

Answer 67

3. The statement of cash flow

Question 68

Cash flows arising from generating revenue and meeting the company's costs of managing its operations 1. Operating activities 2. Investing activities 3. Financing activities

Answer 68

1. Operating activities

Question 69

Cash flows arising from the management of the company's assets, both in investing in new assets and selling existing ones 1. Operating activities 2. Investing activities 3. Financing activities

Answer 69

2. Investing activities

Question 70

Cash generated from raising new loans and issuing new shares; and cash spent on repayments of loans and redemption of shares 1. Operating activities 2. Investing activities 3. Financing activities

Answer 70

3. Financing activities

Question 71

True or False Revenue is shown in the income statement as cash received, and not based on sales invoiced

Answer 71

False Revenue is shown in the income statement is based on sales invoiced, and not on cash received

Question 72

True or False Expenses, as shown in the income statement, are based on costs incurred during the year, rather than invoices paid

Answer 72

True

Question 73

In the Cash Flows from Operating Activities. an item has to be deducted any reduction, and added in any increase 1. Trade Receivables 2. Inventories 3. Trade Payables

Answer 73

3. Trade Payables

Question 74

In the Cash Flows from Operating Activities. an item has to be added in any reduction, and decreased in any increase 1. Trade Receivables 2. Inventories 3. Trade Payables

Answer 74

1. Trade Receivables 2. Inventories

Question 75

Cash flow activities that relate principally to acquisitions or disposals of non-current capital assets such as land, buildings, machinery, and other significant investments. This is referred to as capital expenditure 1. Cash flow from operating activities 2. Cash flow from investing activities 3. Cash flow from financing activities

Answer 75

2. Cash flow from investing activities

Question 76

True or False The statement of cash flows records the payment of the consideration as and when it is actually paid, rather than when the transaction is completed

Answer 76

True

Question 77

A section of a cash flow that might include interest received and dividend income 1. Cash flow from operating activities 2. Cash flow from investing activities 3. Cash flow from financing activities

Answer 77

Interest and dividend income may be included either under cash flows from operating activities or cash flows from investing activities, at the discretion of the company and its auditors

Question 78

A statement of cash flows that shows fund flows arising from the company's capital sources, including income from raising new debt or issuing new shares, and cash outflows for debt redemptions and repayment, or share buybacks. it also includes purchases of shares for the employee share scheme 1. Cash flow from operating activities 2. Cash flow from investing activities 3. Cash flow from financing activities

Answer 78

3. Cash flow from financing activities

Question 79

A section of a cash flow that might include interest payment 1. Cash flow from operating activities 2. Cash flow from investing activities 3. Cash flow from financing activities

Answer 79

1. Cash flow from operating activities 3. Cash flow from financing activities

Question 80

True or False Free cash flow is defined as the cash flow generated by a company's underlying activities, after tax, including any financing deductions or income

Answer 80

False FCF is defined as the cash flow generated by a company's underlying activities, after tax, but EXCLUDING any financing deductions or income

Question 81

True or False There are two alternative measures of cash flow: enterprise cash flow and equity cash flow. Enterprise cash flow is discounted at the cost of equity, whereas equity cash flow is discounted at the weighted average cost of capital

Answer 81

False Enterprise value is discounted at the weighted average cost of capital, whereas Equity cash flow is discounted at the cost of equity to give an equity value

Question 82

FCF of the company before considering payments made to any of the providers of finance to the firm 1. Enterprise cash flow 2. Equity cash flow

Answer 82

1. Enterprise cash flow

Question 83

FCF available for the shareholders alone 1. Enterprise cash flow 2. Equity cash flow

Answer 83

2. Equity cash flow

Question 84

True or False Changes in working capital: positive cash flows arise from increases in trade payables and decrease in inventory and receivables. negative cash flow arise from decrease in trade payables and increase in inventory and receivables

Answer 84

True

Question 85

Build an enterprise cash flow EBITDA/USA method

Answer 85

1. Operating Profit/EBIT 2. Add back-noncash items (D&A) 3. EBITDA 4. Deduct tax 5. Deduct capital expenditure 6. Capital allowance for capital expenditure 7. Adjust for changes in working capital 8. Enterprise Value

Question 86

Build an enterprise cash flow NOPAT/UK method

Answer 86

1. Operating Profit/EBIT 2. Deduct Tax 3. NOPAT 4. Add back-noncash items (D&A) 5. Deduct Capital Expenditure 7. Adjust for changes in working capital 8. Enterprise Value

Question 87

True or False Cash flow available for debt servicing (CFADS) is useful to banks in particular, to establish a potential borrower's debt capacity, and an ongoing basis to measure whether that borrower's ability to service its debt is improving or deteriorating

Answer 87

True

Question 88

Build a CFADS

Answer 88

1. Operating Profit/EBIT 2. Add back non-cash items EBITDA 4. Cash taxes payable 5. Capital expenditure 6. - of which maintenance capex 7. Changes in working capital Cash Flow Avaliable for Debt Servicing 8. Interest payable for the year 9. Debt repayment for the year Total Debt Service Obligation CFADS/TDSO which is a multiple

Question 89

Build an Equity Cash Flow EBITDA Method

Answer 89

1. Operating Profit/EBIT 2. Add back non-cash items EBITDA 3. Deduct interest payable Pre-tax cash flow/EBT 4. Deduct tax 5. Deduct capital expenditure 6. Adjust for changes in working capital Debt repayments Debt raised Equity free cash flow

Question 90

Profits made by the company before payments made to any of the capital providers, i.e., before interest payments and dividends. it takes into account the tax on these pre-interest profits, rather than the actual tax paid by the company

Answer 90

NOPAT

Question 91

What are the three main groups of analysts of financial statements?

Answer 91

1. Supplies/lenders 2. Investors 3. Management