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SBR > Revision > Flashcards

Revision Flashcards

1
Q

How to know if something is equity or financial liability

A

If obligated to pay cash then it is a liability if option to pay cash then usually equity

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2
Q

What is the definition for financial assets

A

Equity investments in another company or contractual rights to receive cash

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3
Q

What is the definition for financial liability as in financial instruments

A

Contractual obligation to deliver cash

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4
Q

What is the definition for equity as in financial instruments

A

Residual interest in assets after deducting the liabilities

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5
Q

What does it mean when question say issue

A

It means that they are issuing either liability e.g. debt or equity e.g. shares for something in return usually cash

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6
Q

Steps for impairments

A

Must be an impairment indicator or annually if goodwill or intangible has infinite life

Impair the cash generating unit which is an independent stream of income

Compare carrying amounts versus recoverable amount

Loss goes into profit and loss

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7
Q

Types of rights when considering control

A

Protective rights
New control e.g. managing articles of association

Substantive rights
Right to the have power over investees

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8
Q

How is FRS 102 difference to IFRS

A

PPE
Rather than annual reviews for impairments it’s only when indicators for change are present

Borrowing costs
Can be expense rather than capitalised

Subsidiaries
Can be excluded from consolidation when either long-term restrictions hinder parents over subsidiaries assets or the subsidiary was acquired solely for resale and hasn’t been used in the consolidated accounts

Intangibles
Can choose not to capitalise and Does not have indefinite life. Must be less than 10 years

Goodwill
Use proportionate share method and amortised over life not exceeding 10 years

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9
Q

What is a cash generating units

A

It is the smallest identifiable group of assets which is an independent stream of income

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10
Q

How to account for subsidised loan on adjusted present value

A

Firstly calculate the tax shield and then calculate the subsidiary benefits

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11
Q

Points to consider with debt versus equity

A

Debt is cheaper due to tax shield since interest is paid before a company pays its corporation tax

More debt equals more risk so cost of capital is higher

The cost of capital is higher weighted average cost of capital is lower

Static trade of theory looks to find a balance

Pecking order theory. First retained earnings second debt third equity

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12
Q

What are the two types of applications within provisions

A

Legal and constructive (past practice aka if paid for similar issues in past they should continue to do so)

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13
Q

What are the conditions for something to be capitalise as development

A

Sell or use
Expense e.g. measure costs reliably
Commercially viable
Technically feasible
Overall future economic benefits
Resources to complete

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14
Q

What is the concentration test

A

If the fair value of gross assets is concentrated within one assets that it is not a business

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15
Q

How should a contingent liability be valued at

A

The percentage amounts multiplied by the contingent liability amount and then discounted to present value

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16
Q

What are operating segments

A

It is disclosing segments of the business which is material so users of accounts can see which areas are influential

To qualify
More than 10% of total revenue. If not then
More than 10% of total profits. If not then
10% of total assets
Overriding rule is 75% of revenue must be separated out if not then more segments need to be disclosed

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17
Q

What is a provision

A

Present obligation as a result of past events

Probable transfer

Measure outcome reliably

Credit provisions debit profit and loss

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18
Q

How to recognise a lease

A

Initially
Debit right to use assess at amount Of lease liability plus costs
Credit lease liability which is the present value of lease payments over term

Subsequently
Right to use assets at cost less accumulated depreciation
Lease liability at financial liability at amortised cost

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19
Q

How to identify a lease

A

The right to control the use of an identified asset For a period of time in exchange for consideration.

Control is defined as the right to direct use of asset and to obtain substantially all of the economic benefits.

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20
Q

How to record lease through P&L rather than statement of financial position

A

Either less than 12 months lease

Or low value leases e.g. under £5000

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21
Q

How to account for equity based options

A

We take the star value at the grants dates and don’t change as movements in share price of benefits for the employee. We spread it out over the vesting period. For example if we had 10,000 share options for five of its directors and they have to stay in the position for three years(three-year vesting period) and after one year to directors will leave and after two years one director will leave and the grant date price is $30 then

Year one
SFP 300,000 (10,000 x 30 x 5-2 x 1/3)
P&L 300,000

Year 2
SFP 800,000 (10,000 x 30 x 5-1 x 2/3)
P&L 500,000 (b)

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22
Q

How to account for cash base share based options

A

The same as equity base options however we credit liability and not equity and the fair value is calculated at each reporting date rather than just the grant date

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23
Q

What are the dates to remember with ShareBase payment

A

Grant date - today

Vesting date - number of years from grant date and when employees are entitled to share option/cash

Vesting period - difference between grant and vesting date

Exercise date - when employees receive payment

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24
Q

What we impairment indicators

A

External
Decline in market value
Advancement in technology

Internal
Physical damage
Use of item (idle)
Operating losses from item
Loss of key personal

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25
Q

How to record investment property

A

Valued at cost then revaluation. Gain and losses go through P&L as like rental income and don’t depreciate.

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26
Q

How to recognise government grants

A

Recognise when received or comply with conditions

Recognised as deferred income E.g. bought PPE for £10 million over 10 years and given a government grant of £2 million. Each year 1/10 of 10, million and 2 million goes into profit and loss

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27
Q

Disposing of a foreign subsidiary

A

Gains and losses are stripped out of OCI and go through PL

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28
Q

How to record foreign transactions (group)

A

Before consolidating record both monetary and nonmonetary transactions at closing rate gains and losses are not recorded in PL But OCI instead

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29
Q

How to record foreign transactions (individual accounts)

A

Record transaction at rate when transaction occurred

At reporting date
If monetary re-translate at closing rate with difference going through PL
Non-monetary don’t re-translate

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30
Q

What is the retained earnings pro forma

A

100% of parents

Parents share of subsidiary post acquisition retained earnings

Parents share of associates post acquisition retained earnings

Less impairments

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31
Q

What must be stripped out of consolidated accounts

A

Unrealised profits

Intracompany group sales and cost of sales

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32
Q

How to account for bond with anticipated credit loss

A

As it’s a financial asset initially at fair value plus cost. Let’s say a $10,000 credit loss is expected but it is low risk we credit allowance for impairments accounts to offset as it’s the amount for one year. For next year recognise bond as normal at amortised cost and if risk increases increase allowance account further.

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33
Q

How to accounts for impairments of financial assets

A

It would credit allowance for impairments (bad debt provision) and debit PL. The amounts depends on the risk factor.

Stage one
Initial recognition when no subsequent significant deterioration in credit quality. Present value of expected credit losses 12 months after reporting date.

Stage two
Significant deterioration in credit quality (30 days arrears). Impairment recognise at present value of expected credit shortfalls (lifetime expected credit losses)

Stage three
Objective evidence of an impairments. Again lifetime expected credit losses

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34
Q

Went to classifies something as discontinued operation

A

When it is disposed of

Or if house for sale and:

Separate major line of business or geographical area
Single coordinated plan
Subsidiary acquired exclusively with plan to resell

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35
Q

What is meant by the discontinued operation

A

Within the numbers of revenue cost of sales profit et cetera will be discontinued operation and to ensure use a spotted this we had a line in PL

36
Q

How to account for non-current asset held for sale

A

Must be available for immediate sale and sell highly probable (less than one year)

It is valued at lower of carrying value and fair value less cost of sale

Once classified as non-current asset health for sale if there is no longer depreciated

Sale goes through PL

37
Q

How to account for a foreign currency assets owned by a subsidiary

A

Imagine subsidiary deals in euros when we first acquire subsidiary with value assets at fair value and also convert to pounds on date of acquisition. We then depreciates/amortised over life of assets then we we calculate exchange rate reporting date using the closing rate and foreign exchange differences go through OCI.

Income and expenses are translated as exchange rate at date of transaction

38
Q

What is the definition of functional currency

A

Currency of the primary economic environment in which the entity operates. Factors to consider –

Currency that dominates determination of sale price

Currency that most influences operating costs

39
Q

What is an intangible assets

A

An identifiable non-monetary assets without physical substance. Identifiable means it is either separable or has legal/contractual rights

40
Q

How is control defined within a subsidiary

A

Power over the investee

Exposure to all rights to variable returns from its involvement with investee

Ability to use its power over investment to affect amount of investors return

41
Q

What is the definition of fair value

A

The price that would be received to sell an asset or paid to transfer liability in an orderly transaction between market participants at the measurement date

42
Q

How to identify performance obligations

A

If the goods and services are distinct (could be sold separately) if not must be bundled

This means they are separately identifiable

Also customers can gain benefits from the performance application. E.g. if you buy a license and the license comes with updates then it would be considered as a bundle because without the updates the customer would not receive the correct level of benefit

43
Q

What is pro forma for no control into control

A

Do you recognise currents 40% back to Nil

Recognise 40% at fair value and difference goes through PL

Usual pro forma from there

44
Q

What is the pro forma for equity accounting

A

Cost + percentage of post acquisition reserves - dividends received

45
Q

What is the pro forma from going from control to control

A

All that changes is NCI either increases or decreases so debit/credit bank and debit/credit NCI movements and difference goes through SOCIE

46
Q

How are subsidiaries included in the statement of financial position

A

Net assets plus Goodwill

47
Q

When can deferred tax assets be utilised

A

Deferred tax asset is when the tax base is higher than the carrying value I can only be recognised when profits are realistically expected in the future

48
Q

How to work out deferred tax

A

What is the difference between carrying value and tax base

Multiplied by tax rate

Is it asset or liability (if carrying value is greater than tax base it’s a liability and vice versa)

Movements goes through PL (income tax expense and deferred tax provisions)

49
Q

How to deal with convertible loans

A

Let’s say we issue $1 million loan with a nominal value of $100 Similar debt is 6% effective rate is 6.34%. Firstly debits cash $99 million and split out of credit to equity (balancing figure) and liability. To get liability work out the net present value so let’s say three years at 6% plus $100 nominal With discount factor of 6% is $94.7 million we take the 99,000,000×94.7% to give liability and difference to equity. No equity doesn’t change but we do usual table to get carrying forward position of $100 million after three years and the end of period either credit cash or equity as well as debit liability

50
Q

How to account for financial liabilities

A

Initial measurement is fair value less transaction costs

Subsequently via amortise costs (use table)

51
Q

How to accounts for a debt instruments within financial assets

A

Use the amortisation table

52
Q

How to account for financial assets within financial instruments

A

Initially recognised at fair value plus transaction costs.

Then subsequently Each year we value of fair value and the gain or loss expense movement PL unless IRREVOCABLE elect to put through OCIas less volatile.

This is for equity instruments like shares and amortised cost if debt instrument like lending money

53
Q

What is the pro forma from control to no control

A

Add sale proceeds and fair value of remaining shares

Less net assets plus goodwill less noncontrolling interest

54
Q

What is the recoverable amount

A

Higher of fair value less cost to sell and value in use

55
Q

What are examples of revenue recognition at a single point in time

A

Present right to payments for the assets
Transfer legal title of the assets
Transferred physical possession of the assets
Transferred the risks and rewards of ownership to the customer
Customer has accepted the asset

56
Q

Requirements for identifying a contract

A

The contract is approved by all parties

The Rights and payment terms can be identified

The contract has commercial substance

It is probable that revenue will be collected

57
Q

How to workout revenue when there is free interest (usual interest 5%)

A

Let’s see a car then we discount the value of the car by the number of years of free interest and the usual interest rate. This amount and then goes into revenue and then each year we unwind the amount and put it in finance income

58
Q

How to accounts for revenue that has a bundle price

A

Set up two columns. First column call individual and second column called bundle. In the rose put the difference items within the performance application and sports in the individual prices with a total at the bottom. The total of the bundle amounts put in what the bundle amount is and then divide the individual amounts by the total individual amount multiplied by the bundle total. You will notice that if you add all the bundles up they should come to the total bundle amount

59
Q

How to define over A period of time within revenue recognition

A

If the customer simultaneously consumes the benefit of the performance

60
Q

What are the areas of sustainability

A

Environmental conduct

Social conduct

61
Q

What are the asset recognition rules

A

If virtually certain recognise the asset

If probable disclose

If possible ignore

62
Q

What are the liability recognition rules

A

If probable create a provision

If possible disclose in the notes

63
Q

What are the levels within fair value

A

Level one input
Quoted prices in active markets for identical assets and liabilities

Level two input
Inputs of the quoted market prices:
Quoted prices for similar assets or liabilities in active markets
Quoted prices for identical assets in markets that are not active
Inputs other than quoted prices that are observable e.g. interest rates

Level three input
Unobservable imports where there is little if any active market

64
Q

What are the liquidity ratios

A

Current ratio

Quick ratio

65
Q

What are the efficiency ratios

A

Receivables collection

Inventory holding

Payable days

66
Q

What are the gearing ratios

A

Debt to equity

Debt to debt and equity

Operational gearing

67
Q

What are the investor ratios

A

Dividend cover

David and yield

Interest cover

Interest yield

Earnings per share

Price earnings ratio

68
Q

What are the profitability ratios

A

Return on capital employed

Operating profit margin

Gross profit margin

Asset turnover

69
Q

What is return on capital employed

A

PBIT / capital employed

70
Q

What is asset turnover

A

Revenue / capital employed

71
Q

What is debt to equity ratio

A

Non current liabilities / ordinary shareholder funds

72
Q

What is operational gearing

A

Contribution / PBIT

73
Q

What is the dividend cover

A

Profit after tax / total dividend

74
Q

What is dividend yield

A

Dividend per share / share price

75
Q

What is interest cover

A

PBIT / interest

76
Q

What is interest yield

A

Coupon rate / share price

77
Q

What is earnings per share

A

Profit after tax - preference shares / number of shares

78
Q

What is price earnings ratio

A

Share price / EPS

79
Q

What are the two types of leases for the lessor

A

 Finance lease
If risks and rewards of ownership transfer to Lessee

Operating lease
Any other lease other than finance lease. Risks and rewards have not been transferred. Continue to recognise asset and depreciate etc and money receive is just rental income which is expensed

80
Q

What are the two types of leases for the lessor

A

Finance lease
Risks and rewards of ownership transfer to Lessee. As no longer control asset, derecognise asset and recognise a receivable

Operating lease

81
Q

Examples of finance lease

A

Ownership passes at the end of lease term

Option to purchase assets below fair value at end of lease

Lease term represents the major part of the assets economic life

Present value of minimum lease payments represent substantially all of the assets fair value

Lease assets is specialised in nature

82
Q

Difference between principal and agent

A

An agent is like an intermediary so we should only book the commission as revenue. For example if a third-party buys goods and we are invoiced for those goods however we then also invoice the third-party with a management fee on top for those goods sent as agents which the only recognise the management fee in the PL

83
Q

What is an onerous contract

A

Where costs exceed revenues

Provision would be the lower of costs of performing contact and costs of cancelling contact

84
Q

What information do investors expect from financial statements (framework) (characteristics of financial information)

A

Fred ran under the Chelsea viaduct

Faithful representation, relevance, understandability, timeliness, comparability, verifiability

85
Q

What are the types of hedge accounting

A

Fair value hedge
Relevant to a business who is concerned about fair value of recognised asset. Gains or losses go to pl

Cash flow hedge
Concerned about cash flows from highly probably future transactions. Gains or losses on derivative go to OCI

SBR (1 decks)

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