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IAS & IFRS Standards Overview > Gross profit and working capital Interpretation > Flashcards

Gross profit and working capital Interpretation Flashcards

1
Q

Increase in profit (seling price)

A

Increase in selling price per item (e.g. new customer, decrease in items)

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2
Q

Increase in profit (cost of sales)

A

Reduction in average cost per item (bulk buy discount)

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3
Q

Increase in profit (product)

A

Change in the product mix

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4
Q

Decrease in profit (selling)

A

Decrease in selling price per item (e.g. new competition)

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5
Q

Decrease in profit (cost of sales)

A

Increase in average cost per item (e.g. new supplier, better quality materials)

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6
Q

Decrease in profit (product)

A

Change in the product mix

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7
Q

What is meant by product mix?

A

Represents the contribution of each product

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8
Q

What doesn’t explain a change in sales volume?

A

A change in sales volume (unless it affects price and cost)

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9
Q

Higher revenue but lower cost of sales?

A

Price decrease was used to increase the revenue

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10
Q

Future for gross profit?

A

New market, customers, increased competition

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11
Q

Reason for working capital change (policy)

A

Change in inventory holding policy

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12
Q

Reason for working capital change (Timing)

A

Timing issue. Demand has fallen / increased competition

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13
Q

Increase in working capital days (Demand)

A

Demand has fallen, increased competition

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14
Q

Increase in working capital days (Goods)

A

Goods faulty/obsolete

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15
Q

Increase in working capital days (bulk)

A

Company has bulk bought goods to achieve cheaper price

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16
Q

Increase in working capital days (order)

A

Big order coming up

17
Q

Decrease in working capital days (supply)

A

Improved supply

18
Q

Decrease in working capital days (JIT)

A

Move to just-in-time inventory management

19
Q

Decrease in working capital days (Management)

A

More efficient management of inventory

20
Q

Link to future working capital (storage)

A

Insurance/storage costs for inventory (increases inventory)

21
Q

Link to future working capital (delivery)

A

Increase in cost of delivering inventory can increase inventory days

22
Q

What represents receivables days?

A

How long on average does it take to receive payment from a credit customer

23
Q

What represents inventory days?

A

How long on average is inventory held from purchase to sale

24
Q

What represents payable days?

A

How long on average does it take to pay a supplier

25
Q

Settlement discounts?

A

Decrease payables. Acts as incentive for other two

26
Q

Bulk buy discount for inventory?

A

Increases inventory days as there’s more inventory

27
Q

Opening inventory overstatement effect on inventory holding period?

A

Indirectly increases inventory holding period. Decrease in current assets

28
Q

Closing inventory understatement effect on inventory?

A

Indirectly increases inventory holding period. Decrease in current assets

29
Q

Increase in COS effect on liquidity?

A

Decreases liquidity

30
Q

Obsolete inventory
Fall in demand

A

Increases inventory days

31
Q

Discounted selling prices?

A

Decrease inventory days as it decreases COS

32
Q

Selling a loss making division?

A

Reduces revenue but increases profit

33
Q

Purchases?

A

Debit inventory

34
Q

In a period of falling prices, is WAC better for profitability?

A

Yes

35
Q

COS inventory calculation?

A

Opening inventory + purchases/production costs - closing inventory

36
Q

Where are staff redundancy costs included?

A

Debit operating expenses

37
Q

What does service industry have?

A

Very little inventory

38
Q

When can a ratio have artifical inflation?

A

When operating profit is far lower than gross profit

39
Q

Improved interest cover reason?

A

Maybe debt has been repaid

IAS & IFRS Standards Overview (73 decks)

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