IFA

Question 1

factors affecting gross profit margin

Answer 1

• selling products with a higher (or lower) ‘mark-up’;
• increased competition that results in lower selling prices; and
• price increases from suppliers.

Question 2

materiality

Answer 2

would omission influence (make a difference) to decision makers

Question 3

Perpetual vs periodic inventory system

Answer 3

• Perpetual inventory system keeps a continual record of COS and inventory balances,
  whereas periodic system does not.
• COS is recorded at the point of sale under perpetual system, whereas it is recorded at
  the end of the reporting period under periodic system after a physical stocktake
• The journal entries for perpetual system uses Inventory account to record purchases,
  whereas it uses Purchases under periodic system

Question 4

weighted average unit cost formula

Answer 4

cost of goods available for sale / total units available for sale

Question 5

weakness of direct-write of method of accounting for bad debts

Answer 5

Under the direct write-off method, accounts receivables are overstated because
future estimated write-offs are not anticipated—write-offs are journalised as they occur.

Question 6

units of production method

Answer 6

= depreciation cost per unit * yearly units of production

depreciation cost per unit = amount of depreciation / expected total usage

Question 7

breakage revenue formula

Answer 7

gift card used value / gift card expected to be used value * total breakage revenue

Question 8

cash cylce

Answer 8

inventory conversion period + receivables conversion period - payables conversion period

Question 9

cost and not capitalised?

Answer 9

a cost is classified as an expense if it maintains the operating efficiency and expected productive life of the asset and primarily benefits the current accounting period.

Question 10

liquid assets

Answer 10

cash, receivables, short term investments

Question 11

earnings per share

Answer 11

(profit after income tax - preference shares) / Average no. ordinary shares

Question 12

general reserve

Answer 12

money taken from retained earnings thats not distributed as dividends.

Question 13

du pont - level 1

Answer 13

ROA, ROE

Question 14

du pont - level 2

Answer 14

profit margin, asset turnover, leverage ratio

Question 15

du pont - level 3

Answer 15

receivables turnover, inventory turnover, selling expenses to sales ratio.

Question 16

materiality

Answer 16

its material if its omission would affect an investors decision-making.

Question 17

what determines what depreciation method is to be used

Answer 17

an asset is to be depreciated using the most appropriate method that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the entity

Question 18

effect of share dividends on the company?

Answer 18

the share dividend assists in retaining cash in the business.
shareholders may react badly bc no dividend is payable.
future dividends may be less as profit is spread over more shareholders.

Question 19

interest coverage/times interest earned

Answer 19

EBIT / finance costs

the ability of the entity to generate earnings to cover financing costs.

Question 20

Land tax payable or outstanding at the time of acquiring land?

Answer 20

capitalised

Question 21

land tax payable in future years?

Answer 21

expensed

Question 22

ROE

Answer 22

net profit / average total equity

use net profit bc amount that can be distributed to shareholders

Question 23

dividend payout

Answer 23

cash dividends declared on ordinary shares / profit

Question 24

5 step revenue recognition framework

Answer 24

1. Identify the contract with a customer
2. Identify the performance obligation
3. Determine the transaction price
4. Allocate the transaction price to the performance obligation
5. Recognise revenue when the entity satisfies the performance obligation (the G&S have been exchanged) and high profitability of payment