Review for FAR

Question 1

SOFP definition

Answer 1

A list of all the assets controlled and all the liabilities owed by a business at a particular date; a snapshot of the financial position of the business at a particular moment

Question 2

Equity definition

Answer 2

The amount invested in a business by the owners

Question 3

P+L definition

Answer 3

A record of income recognised and expenditure incurred over a given period; record of financial performance

Question 4

What is the accounting equation?

Answer 4

assets = capital + liabilities

Question 5

DEAD CLIC

Answer 5

Debits increase Expenses, Assets, Drawings

Credits increase Liabilities, Income, Capital

Question 6

How to balance off accounts?

Answer 6

1. Add the debit and credit sides separately
2. Fill in the higher of the two totals on both sides
3. Fill in balance c/d as the number we need to balance it on the right side
4. Put balance b/d on the other side

Question 7

How to value inventories per IAS 2

Answer 7

Measured at lower of cost and net realisable value

Question 8

What does the cost of an inventory item include?

Answer 8

Cost of purchase, costs of conversion, and other costs incurred in bringing the inventories to their present location and condition

Question 9

Margin =

Answer 9

margin = profit/sales

Question 10

Mark-up =

Answer 10

mark-up = profit/cost

Question 11

Journal entry for inventory drawings

Answer 11

Db Drawings

Cr Cost of sales

Question 12

Cost of sales calculation for P+L

Answer 12

Opening inventory + purchases - closing inventory

Question 13

Accruals definition

Answer 13

Expenses which are charged against the profit for a particular period, even though they have not yet been paid for

Question 14

Steps for accruals/ prepayments questions

Answer 14

1. Reverse opening accrual/prepayment
2. Post cash paid during the year
3. Post closing accrual/prepayment
4. Balance off the accounts

Question 15

Revenue expenditure definition

Answer 15

Expenditure which is incurred either for trade purposes or to maintain the existing earning capacity of long-term assets

Question 16

Entry to record depreciation

Answer 16

Db Depreciation expense

Cr Accumulated depreciation

Question 17

Entries for disposal of asset

Answer 17

1. Remove cost of asset: Db Disposal account, Cr Non-current asset
2. Remove acc. dep. charged so far: Db Acc Dep, Cr Disposal account
3. Account for sales proceeds: Db Cash, Cr Disposal ccount
4. Balance off disposal account to find profit/loss on disposal