Key Terms

Question 1

Going Concern?

Answer 1

Assumes the business will continue trading for the foreseeable future ( usually 12+months)

Question 2

Accruals?

Answer 2

Income and expenses recorded in the same accounting period they relate to.

Question 3

Material Misstatement?

Answer 3

Financial statements contain information that is accidentally or intentionally untrue.

Question 4

Accounting Equation?

Answer 4

Assets = Liabilities + Capital

Liabilities = Assets - Capital

Capital = Assets - Liabilities

Question 5

Fundamental Characteristics of Financial Information?

Answer 5

Relevance : Useful and Influence decisions

Faithful Representation : complete, neutral and free from error

Question 6

Supporting Characteristics of Financial Information?

Answer 6

Comparability : can compare previous years or similar business

Understandability : Clear and concise

Verifiability : Assured information is faithfully represented

Timeliness : Provided in time to be useful

Question 7

Integrity ?

Answer 7

Straightforward and honest

Question 8

Objectivity?

Answer 8

Act without bias or undue influence

Question 9

Professional Behaviour?

Answer 9

Do not bring the profession into disrepute

Question 10

Professional competence and due care?

Answer 10

Maintain professional knowledge and skills

Question 11

Confidentiality?

Answer 11

No disclosure to third parties without necessary permission unless required by law

Question 12

International Accounting Standard IAS 1 ?

Answer 12

Presentation of Financial Statements;

Must comply with accounting principles of going concern and accruals.

Must meet the requirements of fair representation and compliance with IFRS

Question 13

International Accounting Standard IAS 2 ?

Answer 13

Inventories : Valued at the lower of cost and net realisable value

Question 14

International Accounting Standard IAS 16 ?

Answer 14

Property, Plant and Equipment ; What should be capitalised and how to display carrying amounts and accumulated depreciation.

Question 15

Key Differences in Sole Trader and Limited Company Final Accounts

Answer 15

1. Companies are financed by EQUITY not CAPITAL
2. Company distributions are paid by DIVIDENDS not DRAWINGS, and are not seen on the face of the financial statements.
3. Dividends are included in the retained earnings calculation and are shown in the statement of change in equity, unlike drawings which are seen in the financed by section.

4Tax Liability is shown on the Financial Statements of a company as it is a separate entity and is responsible for paying any tax owning.

Question 16

Key differences in partnerships and sole trader final accounts?

Answer 16

1. Partnerships need an appropriation account to allocate profits/losses.
2. Each partner has a capital account and a current account, sole trader only has a capital account.
3. The presentation of the financing section in the SFP

Question 17

Partnership agreements should include?

Answer 17

1. Capital introduced by each partner.
2. Profit sharing ratio (Not stated, assume equal)
3. Drawings, Any restrictions or interest?
4. Salaries/commissions, Are they payable? How much?
5. Interest on capital, Is it payable? What rate?
6. Retirement of a partner, What procedure should be followed?

Question 18

What is Goodwill?

Answer 18

The difference between the value of the business as a whole and the value of its net assets.