Published Accounts Flashcards
2 reasons accounts are produced
Stewardship purposes - to show the shareholders how their money is being used. This is evident at the Annual General Meeting when the directors present the financial statements to the shareholders.
Management purposes - managers use the accounts to make decisions such as what products to stop selling and what branches to close.
Main elements of published reports
Income statement
Statement of financial position
Statement of changes in equity
Statement of cash flow
Notes
Directors report
Auditors report
Why do companies publish accounts?
Legal requirement
Publicity
Potential investors
Shareholders
Internal users of accounts
Management
Employees
Owners/shareholders
External users of accounts
Trade payables
Investors
Customers
Debenture holders
Limitations of published accounts
Window dressing
Historic accounts
Quantitive
Not fully detailed
Role of directors
Elected by shareholders
Senior managers of the business
Prepare financial statements within a certain framework to show a true and fair view of the business
Role of auditors
Independent accountants
Check the financial statements
Report to shareholders to assure them the accounts and true and fair
What’s a schedule of non current assets?
A table that sets out how the value of the asset changes from the start to the end of the year
What changes affect cost?
Additions
Disposals
Revaluation
Impairment
What is impairment?
When the value of an asset is less than its Net book value (the opposite of revaluation)
What changes affect depreciation?
Charge for the year
Eliminated on disposal
Eliminated on revaluation
Eliminated on impairment
After a revaluation what way may the depreciation now be calculated?
The depreciation may be split equally over the remaining useful life of the asset
Why do limited companies publish accounts?
Law
Publicity
Investors (potential and existing)
What is meant by the stewardship function?
Board of directors show shareholders how investment is being used
What items are required in published accounts?
Income statement
Statement of financial position
Cash flow statement
Statement of changes in equity
Notes
Directors report
Auditors report
How do (I) managers (II) employees (III) owners use the accounts?
(I) analyse performance and position
(II) assess performance and position in relation to job security
(III) analyse viability and profitability of investment
How do (I) trade payables (II) investors (III) customers (IV) lenders use the accounts?
(I) to check credit worthiness of business to ensure they’ll be repaid
(II) to try determine the return they will earn on their investment
(III) to ensure there will continue to be a stable supply of goods
(IV) to ensure sufficient liquidity so that they will be repaid
What are limitations of published accounts?
Window dressing
Historic data
Quantitative data
Lack of detail
What is an auditor?
Independent accountant appointed by shareholders to check accounts present true and fair view
Who are directors?
Senior managers appointed by shareholders to run the business of their behalf
What are the duties of directors?
Prepare financial statements
Promote success of the company
Avoid conflicts
Don’t accept benefits
What is the purpose of a Schedule of NCA?
Shows how values have changed over the year
Helps with drawing up statement of financial position
What goes into the cost section of a schedule of NCA?
Additions
Disposals
Revaluation
Impairment
Asset cost £35,000 with a NBV of £10,000 was sold for £12,000. What values go into the SoNCA?
Cost section £35,000 Depreciation section £25,000
What goes into the depreciation section of a schedule of NCA?
Charge for the year
Eliminated on disposal
Eliminated on revaluation
Eliminated on impairment
How is revaluation different in the SoNCA and the SoFP?
In the SoNCA it’s the difference between cost and new value but in the SoFP it’s the difference between NBV and new value
What are the 3 elements when calculating the depreciation charge for the year?
Assets held for full year
Additions
Disposals
How much depreciation is eliminated on disposal?
All deprecation to date
How do we deal with depreciation in a revaluation/impairment?
Remove existing depreciation
Depreciate from the new amount
