Miscellaneous Flashcards
When an asset is classified as “held for sale”, what value should it be recorded at in current assets?
The lower of the carrying value and fair value less costs to sell.
What constitutes a lease according to IFRS 16 Leases?
An agreement that relates to the hire of one or more specific assets that are controlled by the lessee.
What qualifies an event as requiring an adjustment in the financial statements?
An event that provides evidence of conditions that existed at the reporting date. E.g. not a fire that damaged inventories that took place AFTER the reporting date.
Direct method of calculating cash received from customers
Opening receivables + Sales revenue - Closing receivables
Calculating cashflow when given opening and closing PPE balance, disposal and depr during the year.
Draw T account for PPE, Bal b/f on Debit, Disposal, Depr and Bal c/f on Credit, cash on disposal will be the balancing figure on the Debit side
Annual rate of interest formula - when offered a discount on early payment of invoice
= ((100/percentage amount left to pay)^365/(normal credit period less discount available period)) - 1
Calculate net saving if an early payment discount is accepted.
The amount paid early (price less discount) will need to be financed by overdraft, so calculate interest paid for duration overdraft would be needed. If usually paid after two months and discount received if paid within one month, this means the extra month will need to be funded by overdraft, so multiply the discounted amount by the interest rate then divide by 12 to give interest cost of one month. Compare this to the net saving from taking the discount.
What is the final draft of a reporting standard before publication called?
Exposure draft
What is the CIMA code of ethics?
Integrity, Objectivity, Confidentiality, Professional Competence and Due Care, Professional behavious
What are the fundamental qualitative characteristic in the Conceptual Framework?
Relevance and faithful representation
What costs are included in initial recognition of an asset?
Purchase price incl. irrecoverable taxes and trade discounts. Preparation costs (delivery, site preparation). Initial estimates at present value of dismantling and removing the asset (if present legal obligation exists e.g. oil rig)
What costs are included in subsequent recognition of an asset?
Only costs that improve the asset and extend its life or standard of performance
Describe the two methods of depreciating an asset
Straight line - useful life is estimated, value of asset is divided by number of years of useful life and depreciated by that amount each year to arrive at residual value (value of disposing asset at end of useful life) by end of estimated useful life | Reducing balance - reducing the carrying amount of the asset by a given percentage each year
How is an asset revalued using the cost model?
Carried at cost less accumulated depreciation and impairment losses
How is an asset revalued using the revaluation model?
Carried at fair value less accumulated depreciation and impairment losses
Give examples of external sources that could indicate as asset should be impaired?
Decline in market value, adverse change in technological, economic or legal environment
Give examples of internal sources that could indicate as asset should be impaired?
Obsolescence/physical damage, significant changes in use of asset (e.g. becoming idle, restructuring dept where used), evidence assets econ perormance will be worse than expected, operating losses or net cash outflows from the asset, loss of key employee
What conditions could indicate impairment of an asset?
Changes in technological environment, physical damage, plans to dispose of an asset. NOT decreases in market interest rates.
What affect would decreasing market interest rates have on the value in use of an asset?
Decreasing interest rates would increase the value in use as this is calculated using discounted cash flows and the the discount factor would increase as the interest rate decreases.
What is the recoverable amount of an asset?
The HIGHER of the fair value less costs to sell and the value in use.
How do you calculate the value in use of an asset?
Discount future cash flows to their present value. The annual cash flows produced are multiplied by the sum of the discount factors for each year of the remaining life.
Define a fiduciary relationship?
Directors have stewardship of an enitity for the shareholders that own it, this stewardship is known as a fiduciary relationship, the directors must act in the interests of the shareholders, not in their own interests
What steps should you take, and in what order, when faced with a threat to the CIMA Ethical Code?
Hierarchy of reporting a potential breach of CIMA Ethical Code: gather the facts and be sure there is an issue, line manager (if reasonable) or trusted colleague, higher management, board or non-exec?, externally (auditors, trady regulatory authority, CIMA), try to change team or dept or even resign
Define an “organisation”? (Buchanan and Huczynski)
Organisations are social arrangements for the controlled purpose of collective goals
