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IAS & IFRS Standards Overview > Interpretation Last Minute Revision > Flashcards

Interpretation Last Minute Revision Flashcards

1
Q

Problem with FV?

A

Tries to mask performance

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2
Q

Low liquidity ratios?

A

Liquidity problems

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3
Q

Too high liqudiity ratios?

A

Poor use of funds

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4
Q

Deterioration in current ratio but not quick ratio?

A

Inventory obsolescence

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5
Q

Effect of leasing assets on ROCE?

A

Increases capital employed, therefore reduces ROCE

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6
Q

Reducing amount of assets in ROCE?

A

Increases ROCE

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7
Q

Revaluation of assets in ROCE?

A

Decreases ROCE

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8
Q

Invest in new asset close to year end ROCE?

A

Decreases ROCE as not all profits are determined

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9
Q

ROCE broken into parts

A

Profit margin * asset turnover

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10
Q

Asset turnover?

A

Revenue / capital employed

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11
Q

Higher payables?

A

Improved liqudiity as more cash is available

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12
Q

What is working capital cycle?

A

How long it takes a transaction to generate cash

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13
Q

Levels of inventory and discounts on purchase?

A

Discounts on purchasing inventory increases it

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14
Q

Settlement discounts in receivables and revenue?

A

Reduces revenue and receivables collection

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15
Q

Generous payment terms and receivables?

A

Increases collection periods

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16
Q

If entity is receiving settlement discounts from suppliers (payables)

A

Reduces payables

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17
Q

What do settlement discounts do?

A

Speed up the conversion process

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18
Q

Increase in gearing (debt and equity)

A

Increased debt and a reduction in equity

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19
Q

Decrease in gearing (debt and equity)

A

Repayment of borrowings
Rights issue of shares

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20
Q

Revaluation of assets and gearing?

A

Decreases gearing as equity increases. Operating profit also decreases

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21
Q

Reasons for increase in interest cover?

A

Lower profits
Higher finance costs

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22
Q

Settlement discounts?

A

Reduce receivables and payables

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23
Q

High payables?

A

Extended credit terms
More purchasing

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24
Q

Low payables?

A

Fast payments
Less purchases

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25
Q

Calculate working capital?

A

Inventory + receivables - payables

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26
Q

What is the working capital cycle?

A

Difference between current assets and liabilities

27
Q

Increasing in working capital and liquidity?

A

Decreases liquidity

28
Q

What does bonus issue always cause?

A

A dilution. As shares are the same but earnings decrease

29
Q

The possible results of a rights issue?

A

Can be dilutive depending on how proceeds are used

30
Q

When is AVCO better than FIFO (industry)

A

Industries where inventory costs fluctuate significantly

31
Q

FIFO when prices are rising?

A

There is more profitability than AVCO

32
Q

Where does AVCO improve on FIFO?

A

Ignores one-off events that affect profit

33
Q

FIFO when prices are falling?

A

There is less profitability than AVCO

34
Q

Asset turnover?

A

Revenue / (total assets - current liabilities)

35
Q

Does disposal improve liquditiy?

A

Yes as there’s more cash to meet obligations

36
Q

Discounted selling prices affect the inventory holding period?

A

Reduce the inventory holding period

37
Q

Advantages of cash flow?

A

Usability
Shows daily operations
Avoids misleading

38
Q

Comparability affects?

A

Accounting policies

39
Q

What does understandability and timeliness relate to?

A

Users of financial statements

40
Q

What does relevance relate to?

A

Materiality

41
Q

What does faithful representation relate to?

A

Reflects economic substance rather than legal form

42
Q

When a subsidiary doesn’t contribute a lot to sales?

A

It is a bad subsidiary

43
Q

Exiting from a lease?

A

Decreases finance costs

44
Q

Sharp decrease in cash?

A

Decreases liquidity

45
Q

What is another term for credit sales in receivables working?

A

Revenue

46
Q

Difference in industries?

A

Analysis might be irrelevant

47
Q

Issue with PE ratio?

A

Can be manipulated for better results

48
Q

How should influences be discovered?

A

Through business factors and accounting policies

49
Q

What may a retailer have over a manufacturing business?

A

Higher turnover but lower margins

50
Q

Another term for cash consdieration payable?

A

Deferred consideration

51
Q

Deferred tax provision always provided?

A

Yes

52
Q

Paying back a loan just before year end does what?

A

Reduces gearing

53
Q

When can a company take out of borrowings?

A

When gearing decreases

54
Q

How does acquiring another company affect revenue and profit?

A

No effect on revenue, but increases profit

55
Q

Value for money objectives?

A

Economy
Effectiveness
Efficiency

56
Q

Risk for business diversifying for ROCE?

A

Resource structure will likely change, more apparent if made at end of year

57
Q

IFRS 5 discontinued operation criteria?

A

Separate major line
Acquried exclusively for resale
Single co-ordianted plan

58
Q

Issue with disposing a subsidiary? (comparability)

A

Assets and liabilities are not comparable

59
Q

Are preference shares involved in gearing?

A

Yes

60
Q

Increase in gearing?

A

Issuing a loan note or obtaining a bank loan

Leases

If retained earnings were to fall due to dividend payments

61
Q

Decrease in gearing?

A

Repayment of borrowings

A rights issue of shares, not a bonus issue

62
Q

Revaluation of assets affect on gearing?

A

Increases equity, therefore DECREASES gearing

63
Q

When are carrying amonuts of assets greater (depreciation method)

A

depreciated on a reducing balance basis rather than a straight-line basis (over the same useful life)

64
Q

Large increase in capital employed reason?

A

Issuing of shares

IAS & IFRS Standards Overview (73 decks)

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