IAS 1 Section C Common Aspects

Question 1

Potential details of a non-current asset?

Answer 1

A revaluation
Major asset purchase
Disposal

Question 2

Major asset disposal effect on profitability?

Answer 2

Cash will be received and this is also a one-off adjustment (must be compared with other periods)

Question 3

Which ratios does disposal improve?

Answer 3

Asset turnover (as now there’s smaller asset base) => therefore improves ROCE

Also an effect in operating profit margin

Question 4

What should be calculated again?

Answer 4

ROCE/Operating profit margin without one-off disposal information. For comparability

Question 5

Major asset disposal effect on liquidity?

Answer 5

Cash received increases cash flow during the year

What would have happened if company did not receive the cash

Question 6

What if revaluation during year has taken place?

Answer 6

Capital employed base increases. This reduces asset turnover and ROCE without real change in profitability

Question 7

Major asset purchase effect? (Ratios)

Answer 7

Causes both asset turnover and ROCE to decrease

Question 8

Potential result of a major asset purchase?

Answer 8

Company may become less efficient at generating revenue

Question 9

What if major asset purchase took place during latter half of the year?

Answer 9

May be in future periods business sees a better result of this investment. As net asset may not have contributed to a full year’s profit

Question 10

What if a company gives rebates to custoemrs for orders above a set quantity elvel?

Answer 10

This improves revenue at sacrifice of gross profit margin