IFA Flashcards
factors affecting gross profit margin
- selling products with a higher (or lower) ‘mark-up’;
- increased competition that results in lower selling prices; and
- price increases from suppliers.
materiality
would omission influence (make a difference) to decision makers
Perpetual vs periodic inventory system
- 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
weighted average unit cost formula
cost of goods available for sale / total units available for sale
weakness of direct-write of method of accounting for bad debts
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.
units of production method
= depreciation cost per unit * yearly units of production
depreciation cost per unit = amount of depreciation / expected total usage
breakage revenue formula
gift card used value / gift card expected to be used value * total breakage revenue
cash cylce
inventory conversion period + receivables conversion period - payables conversion period
cost and not capitalised?
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.
liquid assets
cash, receivables, short term investments
earnings per share
(profit after income tax - preference shares) / Average no. ordinary shares
general reserve
money taken from retained earnings thats not distributed as dividends.
du pont - level 1
ROA, ROE
du pont - level 2
profit margin, asset turnover, leverage ratio
du pont - level 3
receivables turnover, inventory turnover, selling expenses to sales ratio.
materiality
its material if its omission would affect an investors decision-making.
what determines what depreciation method is to be used
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
effect of share dividends on the company?
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.
interest coverage/times interest earned
EBIT / finance costs
the ability of the entity to generate earnings to cover financing costs.
Land tax payable or outstanding at the time of acquiring land?
capitalised
land tax payable in future years?
expensed
ROE
net profit / average total equity
use net profit bc amount that can be distributed to shareholders
dividend payout
cash dividends declared on ordinary shares / profit
5 step revenue recognition framework
- Identify the contract with a customer
- Identify the performance obligation
- Determine the transaction price
- Allocate the transaction price to the performance obligation
- Recognise revenue when the entity satisfies the performance obligation (the G&S have been exchanged) and high profitability of payment
