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IAS & IFRS Standards Overview > Interpretation Rote > Flashcards

Interpretation Rote Flashcards

1
Q

What if a company hasn’t owned another company for very long?

A

Returns from acquisition won’t be instant

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2
Q

Trade payables increase?

A

Having trouble paying suppliers

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3
Q

What is unwise to do when working capital is needed?

A

To pay a dividend

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4
Q

If acquisition was funded by a share issue instead of loan notes?

A

Returns would have been diluted

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5
Q

Period prior to disposal calculation?

A

Current year - prior year

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6
Q

What should be considered if there is high gearing?

A

Which industry

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7
Q

Reason for a higher ROCE?

A

Better asset turnover

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8
Q

When using a ratio (answering)?

A

Compare result, explain the cause and effect in the analysis

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9
Q

if there is insufficient evidence to make a conclusion?

A

Note this in the analysis

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10
Q

Going from consolidated profit to single entity profit?

A

Add back depreciation and unwinding of discount
Deduct post-acq profit and savings

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11
Q

Decline in interest cover?

A

Decrease in profit from operations
An increase in finance costs

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12
Q

Profit from disposal?

A

Improves profit on operations

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13
Q

What can a disposal do?

A

Improve liquidity (e.g. disposal)

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14
Q

Net current liability meaning?

A

Less than 1

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15
Q

Cause of poor liquidity?

A

Overdraft balance
High payables

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16
Q

If subsidiary sold on last day of the year?

A

It will be included in financial statements of the first year

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17
Q

Not possible to compare signle entity to group (transactions)

A

Intra-group transaction are eliminated. However, single entity includes

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18
Q

Not possible to compare signle entity to group (change in equity)

A

Group equity increased by NCI and RE of sub

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19
Q

Risk with an increase in revenue?

A

Management must review the individual revenue streams

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20
Q

Sharp decrease in membership and sundries reasons?

A

Quality of services
Lack of demand

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21
Q

Increase in share capital and increase in gearing throguh taking out a loan?

A

Helped liquduity but reduced profitability as there’s interest charges

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22
Q

What is a negative action to increase the cash flow when a business is struggling

A

Issuing share capital and increasing loans

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23
Q

Provision affect on profitability?

A

Reduces it as costs need to be paid

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24
Q

Calculate increase/decrease in cash? (For liquduity)

A

Operating activities + investing activities + financing activities

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25
Q

Reasons behind an accounts receivable increase?

A

New revenue streams for the business

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26
Q

Purchasing inventory at high-volume close to year-end?

A

Can’t be used to pay suppliers

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27
Q

Short-term finance example?

A

Bank overdraft

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28
Q

Long-term finance example?

A

Loans

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29
Q

Operating profit far larger than operating cash flow?

A

Company can’t seem to cover day-to-day operations

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30
Q

Potential problem with issuing shares?

A

Shareholders earnings can become diluted

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31
Q

If shareholders aren’t receiving dividends?

A

They will share their holdings

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32
Q

Issue with not receiving settlement discounts?

A

Have to pay more to suppliers, thereby impacting profitability

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33
Q

Negative operating cash?

A

Always bad

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34
Q

Positive investing cash?

A

Can be good, depends on operating

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35
Q

Positive financing cash?

A

Can be good, depends on operating

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36
Q

Issue with only positive financing and investing but negative operating?

A

Businesses may only have that because of proceeds

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37
Q

Reason for losing out on settlement discounts?

A

Not paying suppliers early

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38
Q

How do leases affect PBIT?

A

Increase it as they are now depreciation and interest expense

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39
Q

Trade payables increase?

A

Could mean company is having difficulty paying suppliers on time

40
Q

Issue with ROCE if acquisition was near beginning of the year?

A

There will be less return as less months profits are used

41
Q

If acquisition was funded through a share issue (shareholders)?

A

Shareholders returns are diluted

42
Q

If acquisition was funded through loan notes (shareholders)?

A

Servicing debt may take priority, therefore shareholders receive less

43
Q

What will an acquisition do in terms of profitability?

A

If it was done later in the year, more profitabiltiy will be recorded

44
Q

Removal of a lease liability decreases?

A

Non-current liabilities

45
Q

Disposal affects?

A

Operating profit positive

46
Q

Intragroup (consolidation and single)

A

Consolidation: Removed
Single: Remain

47
Q

What must be done to comepnsate increased borrowings?

A

Increase working capital efficiency
Reduce costs

48
Q

When looking at the profit figure?

A

Always compare it with previous years and note the movement

49
Q

Is a new discount from sub related to itnragroup?

A

Yes

50
Q

Poor performance from subsidiary?

A

Impacts parent during consolidation

51
Q

What does an impairment loss decrease?

A

Equity through revaluation and the assets

52
Q

Settlement discount affect on current ratio?

A

Makes cash received lower than receivables. This decreases the current ratio

53
Q

Bonus issue of ordinary shares and cash?

A

Generates no cash at all

54
Q

Rights issue of ordinary shares and cash?

A

Increases cash and share capital

55
Q

What does working capital efficiency represent?

A

How well a company manages its short-term assets and liabilities to support its day-to-day operations

56
Q

What does a higher payable period mean?

A

Allows company to hold onto cash much longer, improving liquidity

57
Q

Excessive inventory affect on working capital?

A

Excess inventory ties up cash which can be used elsewhere in the business

58
Q

What does a shorter receivables collection period allow?

A

Faster cash inflows, which improves liquidity and working capital efficiency

59
Q

Increase in working capital (receivables collection)

A

Change in credit policy

Inefficiencies in AR

Seasonal variation in sales

60
Q

Decrease in working capital (receivables collection)

A

Effective AR management

Negotiated payment terms with suppleirs and discounts for early payments

Improved inventory management

61
Q

Increase in working capital (payables payment)

A

Increase in purchases due to higher purchasing activity from company (seasonal fluctuations)
Inventory build up
Extended payment terms

62
Q

Decrease in working capital (payables payment)

A

Timely payment of payables
Reduced purchases from the company
Negotiated discounts offered by suppliers for early payment

63
Q

Increase in working capital (inventory holding)

A

Slow-moving inventory
Excess inventory
Obsoleste inventory

64
Q

Decrease in working capital (inventory holding)

A

Improved inventory management
Improved logistics and transportation efficiency
Better supplier relationships

65
Q

Decrease in gross profit margin?

A

Offering discounts can stimulate sales but also leads to lower selling price
Write-offs of inventory
Higher sale of low margin items compared to high margin items

66
Q

Increase in gross profit margin?

A

Inventory management
Favourable term1s with suppliers (volume discounts)
Differentiation through unique products

67
Q

What factors affect EPS?

A

Profit
Shares

68
Q

What can mitigate a fall in ROCE?

A

An increase in net assets turnover

69
Q

Do assets held at historical cost affect ROCE?

A

Yes, it overstates it

70
Q

Additional goodwill in consolidation?

A

Investment cost more than the net assets

71
Q

Why is measuring benefit of an investment difficult in consolidation?

A

Intragroup has been eliminated

72
Q

Reasons for a decrease in profitability but an increase in revenue?

A

Failing gross profit and operating profit

73
Q

Potential reason for sharp decrease/increase in operating profit?

A

One-off cost or disposal

74
Q

When there is a discount adjustment?

A

Relates to cost of sales

75
Q

Cost of sales: £72000
Archway buys 50% of its purchases for resale from Cardol Co one of its rivals and receives a bulk buying discount of 10% off normal prices

A

Debit £4000 COS

CALC
72000 * 50% = 36000
36000/90% - 36000 = $4000

76
Q

Sales revenue would be 5% lower than currently?

A

Sales revenue * 95%

77
Q

Revaluation gain restated if revaluation at start of period single entity?

A

Deducted from NCA for next period

78
Q

Depreciation restated?

A

Added to NCA

79
Q

Charge to cost of sales restated single entity?

A

Added to cost of sales

80
Q

Do accounting policies distort differences?

A

Yes

81
Q

Should comparative size of company be considered in an analysis?

A

Yes, one might be new and expanding. Anotehr might be old and stagnating

82
Q

If reporting date coincides with end of reporting period?

A

inventory levels are lower than average
Trade receivables higher than average

83
Q

FIFO and WAC COS?

A

FIFO gives a lower cost of sales than WAC, therefore higher profitability ratios

84
Q

Cost vs revaluation model?

A

Cost gives lower depreciation and therefore higher profits

85
Q

Expenditure charge to SPL calculation?

A

Opening balance - closing balance

86
Q

Netting off approach government grant?

A

Cost - grant. Then depreciated

87
Q

Overstatement in opening inventory

A

Debit COS
Thereyb reduces gross profit

88
Q

Impairment effect on ROCE and gearing?

A

Increases the ratios

89
Q

Revaluation effect on ROCE and gearing?

A

Decreases the ratios

90
Q

Closing inventory understated?

A

Decreases current assets, therefore understates current ratio

91
Q

How is control established?

A

Through reference to voting shares

92
Q

Why are settlement discounts beneficial for AR?

A

Allows customers to pay faster

93
Q

Acquisition funded through loan notes? (Priority)

A

Servicing of debt will take priority, therefore shareholders will receive less

94
Q

Foreign currency risk?

A

Affects operating expenses

95
Q

What does removing a lease liabiltiy do for non-current liabilities?

A

Decrease them

IAS & IFRS Standards Overview (73 decks)

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