Revision

Question 1

Accounting Equation

Answer 1

A = L + OE

Question 2

Current Assets

Answer 2

Inventory, AR, Cash

Question 3

Non-Current Assets

Answer 3

PPE, Intangibles, Goodwill, Longeterm Investments

Question 4

Current Liabilities

Answer 4

“Obligations that we expect to settle within 12 months”

• Accounts Payables
• Unearned Revenue
• Short-term debt

Question 5

Non-Current Liabilities

Answer 5

• Long-term debt

- Portion of Unearned Revenue

Question 6

Cashflow Statements divided into 3 sections

Answer 6

Operating, Investing, Financing (payments to shareholders, debtholders, received loans).

Question 7

Shareholder Equity Statement

Answer 7

Explains the changes of “wealth” over an accounting period.

Question 8

Dividends process

Answer 8

Dividends declared is recorded on the Shareholder Equity Statement, and balanced on the Balance Sheet under a Dividends Payable line item.

The mechanics of a Shareholder Equity Statement do effect the Balance Sheet.

Question 9

Debit and Credit

Answer 9

Debit means “left” in Latin, Credit means “right”.

This can be applied to T-accounts. Increase a Liability, it is a credited. The opposite applies for an Asset; it is debited.

Question 10

Revenue Recognition

Answer 10

Revenue is recognised when a company transfers all the ownership and benefits (rights and responsibilities) of a product to its purchaser.

Question 11

Return on Equity

Answer 11

Net Income / Shareholder Equity

Question 12

ROE equation

Answer 12

ROA x Interest Efficiency x Leverage

Question 13

ROA

Answer 13

NOPAT/Average Assets

Question 14

Point of NOPAT

Answer 14

(return)

Question 15

Interest Efficiency

Answer 15

Net Income / NOPAT
- Shows the amount remaining for the company after it has met its interest (from debt) obligations. It is a portion of every dollar of operating profit.

Question 16

Net Income =

Answer 16

NOPAT - Interest Expense

Question 17

NOPAT =

Answer 17

Net Income + Interest Expense??

Question 18

Leverage

Answer 18

Average Assets / Average Shareholder Equity

Question 19

How is performance of Return on Equity examined?

Answer 19

Against an entity’s Cost of Capital

Question 20

Operating Efficiency

Answer 20

NOPAT/ Sales

Question 21

Asset Turnover

Answer 21

Sales / Average Assets

Question 22

Normal Use Allocation Trigger

Answer 22

Allocation of an assets value over the expected period of normal use.

Question 23

Definitions of Cost Allocation for: PPE, Intangibles, and Resources?

Answer 23

Depreciation, Amortisation, and Depletion (respectively).

Question 24

Straight Line Depreciation

Answer 24

(Net Book value - Residual Value) / Useful Life

Question 25

Impairment Allocation Trigger (REVISE THIS SLIDE)

Answer 25

Impairment tests are typically completed annually. This includes items such as Goodwill and Intangibles are completed

Question 26

Net Realisable Value (REVISE THIS SLIDE)

Answer 26

Expected Disposal value less any costs required to sell, or fair value.

Question 27

Disposal Allocation Triggers

Answer 27

Is compared to the expected disposal (or residual value) of an asset at disposal. If a gain occurs, it is recorded on the Income Statement as “Gain”, or vice versa for a “Loss”.

Question 28

What are the 3 different cost flow assumptions?

Answer 28

FIFO, LIFO, and Weighted-Average Cost.

Question 29

What effects does FIFO have on a Balance Sheet?

Answer 29

COGS is lower, therefore Net Income is higher.

Also - the Inventory value is greater.

(This all holds assuming a fiscal environment is inflating - prices are rising)

Question 30

Holding Period

Answer 30

Holdings Periods indicate how many days a company takes to convert a item.

Question 31

Cash Conversation Cycle

Answer 31

(Receivable collection period + Inventory holding period) – Payable payment period