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F2 - Advanced Financial Reporting > Topics I am struggling > Flashcards

Topics I am struggling Flashcards

1
Q

What are the two types of raising finance?

A

Equity Finance
Debt Finance

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2
Q

What is the cheapest way of raising finance and why is it difficult to use?

A

Retained earnings
May have spent on other things or distributed them out in dividends

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3
Q

What is retained earnings?

A

Firm’s cumulative net earnings or profit after accounting for dividends

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4
Q

What is primary function of a stock market?

A

Enable companies to raise new finance through issuing shares or marketable debt

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5
Q

What is secondary function of a stock market?

A

Enable subsequent trading of investments between investors

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6
Q

What does you usually require when issuing shares on capital market?

A

Initial Public Order (IPO)

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7
Q

What are the advantages of becoming listed on stock exchange?

A

More accurate valuation
Mechanism for trade of shares in future
Profile is raised
Easier access to future capital funding
Employee share schemes more accessible

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8
Q

What are the disadvantages of becoming listed on stock exchange?

A

Costly for a small entity
Can lead to loss of control for original owners
More onerous reporting requirements
Stringent rules for obtaining a quotation
Risk of failure

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9
Q

What are the advantages of a rights issue?

A

Easy to organise
Cheaper than IPO
No change to proportion of current shareholdings

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10
Q

What is the cum rights price?

A

Price right before the issue

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11
Q

What is TERP?

A

price of shares after the issue

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12
Q

What are the advantages of a rights issue?

A

Opportunity to increase their investment at a cheap cost
No change in control
Simple and cheap
Usually successful

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13
Q

What is Debentures/Loan stocks/bonds?

A

Debt finance obtained from other companies or organisation

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14
Q

What is nominal value?

A

100 per block

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15
Q

What is the coupon rate?

A

Interest on nominal value

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16
Q

What is market value?

A

Price of debt that its currently trading at on capital market

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17
Q

What is irredeemable debt?

A

Permanent source of finance
Won’t have to pay it back but pay interest on it

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18
Q

What is the WACC?

A

Discount rate when performing investment appraisals

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19
Q

How do you calculate the cost of debt of redeemable bonds?

A

IRR

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20
Q

What is the yield to maturity?

A

The effective average annual percentage return to the investor, relative to the current market value of the bond.

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21
Q

How do you calculate yield to maturity for an irredeemable debt?

A

Interest/bond price x 100

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22
Q

How do you calculate yield to maturity for redeemable debt?

A

IRR of the bond price, the annual interest received and the final redemption amount

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23
Q

What is the difference between cost of debt and yield to maturity?

A

Cost of debt is from companies point of view where as YTM is from investors point of view

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24
Q

How do you calculate post tax cost of debt of a bond?

A

(bond percentage x percentage after tax) / market price

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25
What do you use to translate the income and expenses in the P&L?
Average rate for the year
26
What do you use to translate assets and liabilities in the SFP?
Closing Rate
27
What do you use to translate goodwill of subsidiary in the SFP?
Closing rate
28
What do you use to translate opening net assets?
Opening rate
29
What do you use to translate total comprehensive income?
Average rate
30
What do you use to translate closing net assets?
Closing rate
31
What do you use to translate goodwill brought forward?
Opening rate
32
What do you use to translate impairment?
average rate?
33
What do you use to translate goodwill carried forward?
closing rate
34
What are the three concepts of the IR framework?
Value creations for organisations and others Value creation process The capitals
35
What is the indicators of a finance lease?
Ownership transferred at end of lease Lessee has the option to purchase the asset for a price substantially below the fair value of the asset and it is reasonably certain the option will be exercised Lease term is for major part of assets useful life PV of minimum lease payments amount to substantially all of the FV of the asset The leased assets are of such a specialised nature that only the lessee can use them without major modification The lessee bears losses arising from cancelling the lease The lessee has the ability to continue the lease for a secondary period at a rate below market value
36
How do you calculate NCI?
NCI at acq + NCI% S post acq reserves + NCI% impairment (FV method)
37
How do you calculate goodwill?
Cost of impairment + NCI at acq - FV of S net assets at acq - Impairment
38
How do you calculate consolidated reserves?
100% P reserves + P% of S-post acq reserves - impairment - PUP adjustment
39
How do you calculate investment in associate?
Cost of investment + P% of A's movement in NAs - Impairment - PUP (if A has inventory)H
40
How do you calculate share of associate's profit?
P % of A's total profit after tax - Impairment - PUP (if A is seller)
41
How do you calculate comparative EPS?
Last years EPS x (CRP/TERP)
42
How do you calculate free shares?
No of shares under option x (FV-EP/FV)
43
How do you calculate YTM?
annual interest received/current market value of debt x 100
44
What are the four stages of the gartner data analytics maturity model?
Descriptive Diagnostic Predictive Prescreptive
45
What are profitability/performance ratios?
GPM, OPM, NPM ROCE
46
What are liquidity ratios?
Current and quick ratio
47
What are efficiency/activity ratios?
Working capital ratios Asset turnover ratios
48
What are capital structure ratios?
Gearing Interest cover
49
How do you calculate effective tax rate?
Tax expense / profit before tax x 100
50
How do you calculate quick ratio?
Current assets-Inventory / Current liabilties
51
How do you calculate asset turnover?
Revenue/capital employed
52
How do you calculate gearing?
Debt/ Debt+Equity
53
How do you calculate interest cover?
Operating profit/finance costs
54
How do you calculate dividend cover?
Profit for the year/dividends
55
What are the limitations of financial reporting information and data?
Only provide historic data Only provide financial information Filed at least 3 months after reporting date reducing its relevance Limited information to be able to identify trends over time Lack of detailed information Historic cost accounting does not take into account inflation
56
What are the difficulties in drawing comparisons between different entities?
Comparisons affected by changes in the entity's business Different accounting policies between different entities Different accounting practices between different entities Different entities within the same industry may have different activities Non-coterminous accounting periods Different entities may not be comparable in terms of size Comparisons between entities operating in different countries will be influenced by different legal and regulatory systems
57
What is an integrated report?
Single document which is the organisations primary report
58
What is integrated thinking?
Active consideration by an organisation of the relationships between its various operating and functional units and the capitals that the organisation uses or affects
59
What was the aim of the IIRC?
Create a globally accepted framework for a process that results in communication by an organisations about its value creation over time
60
What is the IFRS foundation responsible for?
Work of the IASB and the ISSB which aims to develop uniform global requirements for sustainability disclosures
61
What is the objective of the IR framework?
To establish guiding principles and content elements that govern the overall content of an integrated report To explain the fundamental concepts that underpin integrated reports
62
What is the objectives of integrated reporting?
Improve the quality of information available to providers of financial capital to enable a more efficient and productive allocation of capital To provide a more cohesive and efficient approach to corporate reporting that draws on different reporting strands and communicates the full range of factors that materially affect the ability of an organisation to create value over time To enhance accountability and stewardship for the broad base of capitals (financial, manufactured, intellectual, human, social and relationship, and natural) and promote understanding of their interdependencies To support integrated thinking, decision-making and actions that focus on the creation of value over the short, medium and long term
63
What are the 6 capitals in the IR framework?
Financial Manufactured Intellectual Human Social and relationships Natural
64
What is financial capital?
Pool of funds
65
What is manufactured capital?
Manufactured physical objects. Buildings Equipment Infrastucture
66
What is intellectual capital?
Organisational, knowledge based intangibles. Patents, copyrights, software, tacit knowledge, systems
67
What is human capital?
Peoples competencies, capabilities and experience, and their motivation to innovate.
68
What is social and relationship capital?
institutions and relationships within and between communities, groups of stakeholders and other networks, and the ability to share information to enhance individual and collective well being.
69
What is natural capital?
All renewable and non-renewable environmental resources and processes. Air, water, land, minerals and forests Bio-diversity and eco-system healthW
70
What are the benefits of integrated reporting?
Increases in the level of forward-looking information provided enabling more informed user decisions Disclosure of previously undisclosed information increases the understanding of the users Improved stakeholder reputation due to increased transparency Integrated thinking may lead to improved efficiencies within organisations
71
What are the limitations of integrated reporting?
Potential for bias as reports are not required to be audited Reluctance to disclose information for fear of losing competitive advantages May provide too much information for users to digest
72
What are the limitations of IR framework?
Being principle based rather than rules based leads to increased subjectivity and potential bias Difficult to compare across different entities and sectors Requires experienced staff to apply concepts properly
73
What are the benefits of the IR framework?
Provides guidance for preparers as to the concepts and contents of the integrated report Being principles based enables the application of the framework by entities operating in any industry Increases user familiarity with the terminology and structure used within the
74
What is a joint arrangement?
An arrangement of which two or more parties have joint control
75
What is joint control?
The contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control
76
What is a joint venture?
Joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement
77
What is a joint operation?
Joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement

F2 - Advanced Financial Reporting (21 decks)

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