FSLC

Question 1

Primary users of financial statements

Answer 1

Government, investors, lenders, other creditors (suppliers), employees, customers, public

Question 2

Fundamental characteristics of financial statements

Answer 2

Relevance- capable of influencing decision making

Faithful representation- complete, neutral and free from error

Question 3

Enhancing qualitative characteristics of financial statements

Answer 3

Comparability- between entities, and one entity between time periods
Verifiability- provides assurance regarding reliability of information
Timeliness- information available within appropriate timescale for decision making
Understandability- information understandable to those who use it

Question 4

Underlying assumption

Answer 4

The entity is a going concern, ie. will continue in operational existence for the foreseeable future (12 months)

If not a going concern need to be prepared on a break up basis, ie. no non current assets or liabilities, assets measured at realisable value

Question 5

Five elements of financial statements

Answer 5

Assets
Liabilities 
Equity
Income
Expense

Question 6

Define asset

Answer 6

A resource controlled by the entity as a result of past transaction or events, from which future economic benefits are expected to flow

Question 7

Define liability

Answer 7

A present obligation as a result of past transactions or events, the settlement of which is expected to result in an outflow of economic benefits from the entity

Question 8

Define equity

Answer 8

The residual interest of the business when it cases to trade (and all the assets are sold and liabilities paid)

Question 9

Define income

Answer 9

The increase in economic benefits during an accounting period

Question 10

Define expense

Answer 10

The decrease in economic benefits during an accounting period

Question 11

What three points must be met for an element to be recognised in the financial statements

Answer 11

It meets the definition of the element (asset, liability, income, etc)
It is probable the last the benefits associated with the item will flow to or from the entity
The item can be reliably measured

Question 12

Four possible ways of measuring the elements

Answer 12

Historical cost- assets at price paid to acquire them
Current cost- current purchase price for assets
Realisable value- assets carried at amount that would be obtained from their sale
Present value- assets Carrie day discounted value of future cash inflows the item will generate

Question 13

Five fundamental principles of AAT Code of Professional Ethics

Answer 13

Integrity- straightforward and honest
Objectivity- should not allow bias
Professional competence and due care- ensure professional skill and knowledge is at level required
Confidentiality- only disclose clients information with clients permission or where there is a legal duty to do so
Professional behaviour- comply with relevant laws and regulations, act in a professional manner

Question 14

Threats to objectivity

Answer 14

Self- interest
Advocacy (must remain independent) 
Familiarity 
Self- review 
Intimidation

Question 15

What is a statement of financial position

Answer 15

Summary of all assets and liabilities of the limited company at the accounting end period

Question 16

What is a statement of profit or loss

Answer 16

Summary of income and expenses for a period, usually one year to calculate profit or loss made

Question 17

Two types of limited company

Answer 17

Plc- public limited company
Raise their capital through shares, shares bought and sold through stock exchange

Ltd- private limited company
Shares sold to close family and friends

Question 18

Difference between preparing accounts for a sole trader and a limited company

Answer 18

No legs requirement for a sole trader or partnerships to prepare accounts

Sole traders and partners in a partnership pay income tax on their share on the taxable profits, companies pay corporation tax as they are separate legal entities

Sole traders and partners are free to borrow from the business bank account (drawings), owners are personally liable for these debts

Question 19

Define tangible asset

Answer 19

Assets which have tangible physical form, such as land, buildings and cars

Question 20

Define intangible assets

Answer 20

Assets for that have no physical form, eg patents and licenses

Question 21

Define revenue expenditure

Answer 21

All other expenditure with a business that is not of capital nature. This may include expenditure which maintains but does not improve non current assets

Question 22

Define depreciation

Answer 22

Consumption or usage of a non current asset in the accounting period which is spread over the estimated useful life to the business

Question 23

Formula for straight line depreciation

Answer 23

(Cost- residual value)/ useful life

Question 24

Formula for finishing balance depreciation

Answer 24

Carrying value x %

Question 25

What is IAS 16

Answer 25

Permits the revolution of PPE (not compulsory)

Must revalue all assets within class or category
Revalued assets deprecated over remaining useful economic life
Revalue at regular intervals (3 to 5 years)

Question 26

What’s is IAS 38

Answer 26

Defines intangible assets as an identifiable non-current monetary asset without physical substance

Question 27

When are intangible assets recognised

Answer 27

Meet definition of asset
Are identifiable (capable of being separate from other assets) 
Are controlled (able to use) 
Reliable measure of cost (internally generated assets not normally recognised)
Future economic benefits

Question 28

Development costs for compulsory captilisation

Answer 28

SECTOR

sufficient resource to complete
Entity will complete development (commercially viable)
Complete project (intention) 
Technically feasible
Overall profitable
Reliably measured

Question 29

IAS 36

Answer 29

Impairment of assets

Question 30

Define impairment

Answer 30

A reduction in the recoverable amount of an asset below it’s carrying amount

Question 31

Define recoverable amount

Answer 31

The higher of either fair value less costs to sell or value in use

Question 32

What does IAS 2 require

Answer 32

Inventories to be stated at the lower of cost and net realisable value

Question 33

IAS 12

Answer 33

Prescribed accounting treatment for taxation

Any difference between original estimate and the actual amount paid at a later date will be adjusted in the following year

Question 34

What is a lease

What is a lessor

Answer 34

A contract that conveys the right to use an underlying asset fir a period of time in exchange for consideration

A lessor is the entity that provides the right to use an underlying asset in exchange for consideration

Question 35

A right of use asset is depreciated in accordance with…

Answer 35

If ownership transfers to the lesser at the end of the lease, over the remaining useful economic life of the asset

If ownership does not transfer, over the shorter of the lease term and the useful economic life of the asset