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1
Q

What is the definition of an associate?

A

An entity that’s not a subsidiary, but the investor has significant influence.

Usually where the investor holds 20-50% of shares.

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2
Q

In consolidations, under which circumstances will a provision for unrealized profit adjustment be necessary?

A

When a company sells to another company within a group, and the other company still has some of those goods in inventory at the end of the year.

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3
Q

In a consolidated Statement of Financial Position, how is the share capital calculated?

A

It is the share capital of the parent company.

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4
Q

How is goodwill arising on consolidation calculated?

A

It’s the difference between the fair value of the subsidiary and the fair value of the net assets of the subsidiary.

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5
Q

What is the definition of a subsidiary?

A

An entity that is controlled by another entity (usually with a shareholding of at least 50%).

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6
Q

Does a rights issue of shares appear on a Statement of Cash Flows?

A

Yes.

It appears under the heading Cash Flows from Financing Activities.

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7
Q

Does a surplus on revaluation appear on a Statement of Cash Flows?

A

No.

It does not appear as no cash is received.

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8
Q

Does a bonus issue of shares appear on a Statement of Cash Flows?

A

No.

Bonus shares are issued for free, so no cash is received.

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9
Q

What is the difference between the Direct and Indirect method of arriving at the ‘cash generated from operations’ on a Statement of Cash Flows?

A

Direct method - Shows the actual amount of cash received and paid in respect of operations.

Indirect method - Starts with the profit before tax, then adjusts it to result in the cash generated.

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10
Q

What items appear on the Statement of Cash Flows under the heading ‘Financing Activities’?

A

Proceeds from the issue of shares.

Long term borrowings made or repaid.

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11
Q

What three main headings appear on the Statement of Cash Flows?

A

Cash flows from operating activities.

Cash flows from investing activities.

Cash flows from financing activities.

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12
Q

What items appear on a Statement of Cash Flows under the heading ‘Investing Activities’?

A

Cash spent acquiring non-current assets.

Cash received from the sale of non-current assets.

Income from investments.

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13
Q

According to the IAS 38 - Intangible assets, how should research be treated in the financial statements.

A

Research costs should be expensed in the Income Statement.

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14
Q

How is a contingent asset treated in the Financial Statements if the likelihood of the asset being confirmed is regarded as probable?

A

It is not recognized in the Financial Statements.

It should be disclosed by way of note.

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15
Q

How is a contingent asset treated in the Financial Statements if the likelihood of the asset being confirmed is regarded as possible?

A

It is not recognized in the Financial Statements, nor is it disclosed in any other way.

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16
Q

How is a contingent liability treated in the Financial Statements if the likelihood of the liability being confirmed is regarded as remote?

A

It is not recognized in the Financial Statements, nor is it disclosed in any other way.

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17
Q

How is a contingent liability treated in the Financial Statements if the likelihood of the liability being confirmed is regarded as possible?

A

It is not provided for in the Financial Statements.

It should be disclosed by way of note.

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18
Q

How is a contingent liability treated in the Financial Statements if the likelihood of the liability being confirmed is regarded as probable?

A

It should be provided for in the Financial Statements.

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19
Q

What is a contingent asset?

A

A potential asset that may appear due to past events.

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20
Q

What’s is a contingent liability?

A

A potential liability that may arise due to past events.

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21
Q

What does the term provision mean?

A

A liability of uncertain timing or amount.

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22
Q

In the context of IAS 10 - Events after the reporting period - what is the treatment of a non-adjusting event?

A

The financial statements are not amended to reflect the event, but it is disclosed by way of note if material.

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23
Q

In the context of IAS 10 - Events after the reporting period - what is the treatment of an adjusting event?

A

The financial statements are amended to reflect the event.

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24
Q

What are revenue reserves?

A

Profits that have been earned and retained by the company - retained earnings and general reserve.

They represent amounts owing to shareholders that can be paid out as dividend.

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25
What are **capital reserves**?
The **share premium** amount and the **revaluation reserve**. They represent amounts **owing** to **shareholders**, but this amount **cannot** be paid out as **dividend**.
26
What does the **share premium account** record?
The **excess** from the amount of **cash received** from the **issue of shares** over the nominal (par) value of the shares.
27
What is a **bonus issue** of shares?
An issue of new shares to **existing shareholders** in proportion to their existing shareholdings, **free of charge**.
28
What is a **rights issue** of shares?
An offer of new shares to **existing shareholders** in proportion to their existing shareholdings.
29
What are the differences between **ordinary** and **preference** shares?
**Ordinary shares** - Have voting rights - Dividend on ordinary shares is recommended by the directors **Preference shares** - Usually no voting rights - Carry a fixed dividend **Ordinary dividend is paid out of profits left after the preference dividend has been paid.**
30
What does the **Statement of Changes in Equity** show?
It shows the reasons for the changes in **share capital** and **reserves** during the accounting period.
31
What is meant by a **gross margin**?
The **gross profit** expressed as a percentage of the **sales**.
32
What is meant by **mark-up**?
The **gross profit** expressed as a percentage of the **cost of sales**.
33
What is the difference between the **Statement of Comprehensive Income** and the **Statement of Profit or Loss**?
The **SoCI** is the same as the **SoPL** but with the addition of any **surplus on revaluation**.
34
What is meant by an **error of original entry**?
When the correct **double entry** has been made, but the **amount is wrong**.
35
What are **compensating errors**?
Two or more errors where the **net effect is zero**.
36
What is an **error of principle**?
An entry that should've been recorded in an **asset account**, has been in an **expense account** (or vice versa).
37
What is an **error of commission**?
When an entry has been posted to the **wrong account**.
38
What is an **error of omission**.
A transaction that has **not been recorded** in the books of the company.
39
What is an **overdraft**?
A **negative balance** at the bank.
40
A companies **bank statement** shows a **debit** balance. Do they have money at the bank, or are they **overdrawn**?
Overdrawn.
41
What is an **uncleared lodgement**?
A **receipt** that has been entered on the **cash book**, but has not yet appeared on the **bank statement**.
42
What is an **outstanding** (unpresented) cheque?
It's a cheque that has been entered in the **cash book**, but has not yet appeared on the **bank statement**.
43
What is the purpose of **bank reconciliation**?
To check the **accuracy** of the entries in the **cash book** and the **bank statement**.
44
What is the purpose of reconciling the **receivables ledger control account** with the **receivables ledger**?
To check the **balance** of the **control account** is the same as the **total** of all balances on the individual accounts of the **receivables ledger**. If this isn't the case then there must be an **error**.
45
What is the **payables ledger control account**?
An account in the **general (nominal) ledger** recording the total amount **owing to suppliers**.
46
What is the **receivables ledger control account**?
An account in the **general (nominal) ledger** recording the total amount **owing from customers**.
47
What is the **general (nominal) ledger**?
A **ledger** containing all the accounts necessary to produce **financial statements**. The **double entry** is made between these accounts.
48
What is recorded in the **accounts payable ledger**?
The amounts **owing to each individual supplier**.
49
What is recorded on the **accounts receivables ledger**?
The amounts **owing by each individual customer**.
50
What is recorded in the **sales day book (sales journal)**?
All sales **made on credit**.
51
What is recorded in the **purchase day book (purchases journal)**?
All purchases **made on credit**.
52
What is meant by **refund**?
A **repayment** of cash previously paid.
53
What is a **credit note**?
A **'negative invoice'** prepared by the supplier to **cancel a previous invoice**.
54
What is a **statement**?
A **summary** of the **amount owing** by a **customer**.
55
What is the difference between a **purchase invoice** and a **sales invoice**?
Both are **prepared by a supplier**, but it is called a **sales invoice** by the **supplier**, and a **purchase invoice** by the **customer**.
56
What is a **goods received note**?
A note **prepared by the receiving company**, to list the **quantity and description** of the goods being received.
57
What is a **goods delivery note**?
A note **provided by the supplier**, listing the **quantity and description** of the goods being supplied.
58
What is meant by a **part-exchange agreement** when a **non-current asset** is **disposed** of?
Where an **old asset** can is provided as a **part payment for a new asset**.
59
In the **straight-line** method of **depreciation**, what is meant by **residual value**?
The **estimated disposal value** at the end of its **useful life**.
60
What is the **reducing balance** method of **depreciation**?
Where a **reducing amount of depreciation** is charged each year.
61
What is the purpose of **depreciation**?
To reflect the **cost of using a non-current asset**.
62
What is the **straight-line method** of depreciation?
Where the charge is **the same each year**. The cost is **spread** over the **expected useful life**.
63
Do we depreciate the **Land** and **Buildings** categories?
**Buildings** will be depreciated as they have a **limited useful life**. **Land** isn't normally depreciated as it has an **unlimited life**.
64
What is the **non-current asset register**?
A **record** of the **non-current assets** held by the business. It is for **internal control** purposes and is **not part of double entry bookkeeping**.
65
What's the difference between **tangible** and **intangible non-current assets**?
**Tangible assets** have physical substance. **Intangible assets** cannot be touched e.g. goodwill or development expenditure.
66
What is meant by **revenue expenditure**?
**Costs of running the business**. Appears on the Income Statement.
67
What is meant by **capital expenditure**?
The purchase of **non-current assets** and expenses that enhances the asset. Appears of the **Statement of Financial Position**.
68
What is meant by **credit limit**?
The **maximum amount of credit** the business is prepared to allow a customer.
69
What is the purpose of an **aged receivables analysis**?
To keep track of **outstanding debts** and follow up on any that are overdue.
70
What is an **aged receivables analysis**?
A **list** showing how much **each customer owes** and **how old** their debts are.
71
What is the purpose of the **allowance for receivables**?
To recognize the possibility that some receivables **may not be received**.
72
What is meant by an **irrecoverable debt**?
An amount **owing to the business** that will **not be recovered**.
73
What is meant by **prepaid income**?
Income for the **next year** that has been received in the **current year**.
74
What is meant by **accrued income**?
Income for **this year** that has **not been received** by the year end.
75
What is meant by a **prepaid expense**?
When some of **next years expense** has been **paid in the current year**.
76
Does the **net selling price** include or exclude **sales tax**?
**Excluding** sales tax.
77
Does the **gross selling price** include or exclude **sales tax**?
**Including** sales tax.
78
Is **output sales tax** charged on **purchases** or **sales**?
**Sales**.
79
Is the **input sales tax** charged on **purchases** or **sales**?
**Purchases**.
80
Is **sales tax** a form of **direct or indirect** taxation?
**Indirect**.
81
What **methods of calculating the cost of inventory** are allowed by the accounting standard?
-**FIFO** First in first out. -**AVCO** Average cost. -**Unit Cost** Actual cost.
82
In **inventory valuation**, what is meant by **net realizable value**?
The **expected selling price** minus any **expected costs before sale**.
83
**Inventory** is valued at the **lower** of ___ and ___?
**Cost** and **net realizable value**.
84
What is the main purpose of a **trial balance**?
To check that **for every debit entry** made, **there is an equal credit entry**.
85
What is meant by an **early settlement discount**?
A **discount** given for **early payment**.
86
What is the **double entry** for the sale of **goods on credit**.
-Debit **receivables**. -Credit **sales**.
87
What is the **double entry** for the **purchase of goods for resale** on credit?
-Debit **purchases**. -Credit **payables**.
88
Is an **increase in capital** a debit or credit for the **ledger account for capital**?
A **credit** entry.
89
Will an **increase in income** be a debit or credit entry in the **ledger control account for income**?
A **credit** entry.
90
Is an **increase in a liability** a debit or credit in the **ledger account for liability**?
A **credit** entry.
91
Is **drawings** a debit or credit entry in the **drawings account**?
A **debit** entry.
92
Is an **increase in an asset** a debit or credit in the **ledger account for the asset**?
A **debit** entry.
93
Is an **increase in expense** a debit or credit in the **ledger account for the expense**?
A **debit** entry.
94
What is meant by **net assets**?
Net assets = **total assets - total liabilities**.
95
What is the **accounting equation**?
Increase in net assets = capital introduced + profit - drawings.
96
What are **non-current assets**?
Assets acquired on a **long-term basis**. **Not held for resale** in the normal course of trading.
97
What are **current assets**?
Assets that are **expected to be realized** in the normal course of trading.
98
What are **current liabilities**?
Liabilities **payable within 12 months** of the reporting date.
99
What are **non-current liabilities**?
Liabilities**payable more than 12 months** after the reporting date.
100
What is the definition of **drawings**?
**Anything** taken from the business by a **sole trader**.

Financial Accounting (29 decks)

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