Week 1

Question 1

What is GAAP ?

Answer 1

Generally accepted accounting principles, they are the complete set of accounting regulations that apply in a certain jurisdiction.

Question 2

What does GAAP comprise ?

Answer 2

The rules of accounting, accounting standards, company law, conceptual framework.

Question 3

What are the standards used for sole traders and partnerships? Ltd’s? The US? The UK? International?

Answer 3

Sole trader and partnerships adopt accounting standards although they don’t have to.

Ltd’s follow UK/ IAS

US follow GAAP

UK follow IFRS and FRS’s

International accounting standards follow IAS’s and IFRS

Question 4

How is the IASB split ?
(International accounting standards board)

Answer 4

The IASB is split from the IASC (committee).

So, the IASC is split into the standards advisory council and the IASB which then goes onto the IFRIC (international financial reporting interpretations committee)

Question 5

What is the IAS ? Who follows it ?

Answer 5

International accounting standards

All quoted companies on stock exchange in the EU are required to follow IAS.

Other companies in the UK can choose UK standards or IAS.

Question 6

What is the objective of financial statements?

Answer 6

To provide info about financial position, performance, and changes in finances position of an entity that is useful to a wide range of users making economic decisions.

Question 7

What are the underlying assumptions of the FNST ( financial statements)?

Answer 7

Accruals - revenue and costs are recognised in the FNST when they occur not when cash is paid or received.

Going concern - the entity will continue to operate for the foreseeable future.

Question 8

What are the 5 elements of FNST?

Answer 8

Assets
Liabilities
Equity
Income
Expenses

Question 9

What is the accounting equation ?

Answer 9

Assets - liabilities = equity

Or

Equity + liabilities = assets

Question 10

What is the IAS 1 ?

Answer 10

The international accounting standards 1, covers the form and content of financial statements. It was revised in June 2011 ( name change for SOCI - statement of comprehensive income )

Question 11

What does the IAS 1 set out ?

Answer 11

The general features of financial statements

Guidelines with regard to their structure

Minimum requirements for their content

Question 12

What are the components of IAS 1 ?

Answer 12

Statement of financial position
Statement of profit and loss and other comprehensive income
Statement of changes in equity
Statement of cash flows (IAS7)
Notes

Question 13

How does IAS 1 identify financial statements ?

Answer 13

Name of the reporting entity

Whether it is a single entity or a group

Date at the end of the reporting period or the period covered

Presentation currency used

Level of rounding

Question 14

How does IAS 1 document the frequency of reporting ?

Answer 14

Financial statements should be presented at least annually.

If not it should be disclosed the reason for the period being longer or shorter than a year and the fact that comparisons can’t be made.

Question 15

How does IAS 1 define current and non current assets?

Answer 15

An asset is a current asset if it satisfies any of the following:

It is expected to be released within the entity’s normal operating cycle

It is held for the purpose of being traded

It is expected to be realised within 12 months after the reporting period

It is cash or cash equivalent

All other assets are non current assets.

Question 16

What are examples of current and non current assets ?

Answer 16

Non current
Property, plant and equipment

Current
Inventory
Receivables
Cash at bank and in hand
Prepayments

Question 17

How does IAS 1 define current and non current liabilities?

Answer 17

A liability is a current liability if it satisfies any of the following:

It is expected to be settled within the entity’s normal operating cycle

It is held for the purpose of being traded

It is due to be settled within 12 months after the reporting period

The entity does not have the right to defer settlement for at least 12 months after the reporting period

All other liabilities are non current liabilities.

Question 18

How does IAS 1 recognise the statement of profit and loss and other comprehensive income ?

Answer 18

All items of income and expense must be presented in either

A single statement of profit and loss and other comprehensive income

Or

2 separate statements comprising an income statement showing components of profit and loss and a statement or comprehensive income beginning with the profit or loss for the period and showing components or other comprehensive income.

Question 19

What are examples of what goes into the SOPAL according to the IAS1?

Answer 19

Revenue
Finance costs
Tax expense
Profit or loss from discontinued operations
Profit or loss for the period
Each component of other comprehensive income
Total comprehensive income for the period

Question 20

How does IAS 1 classify operating expenses and other income by function ?

Answer 20

It classifies operating expenses into one of four categories:

Cost of sales

Distribution and selling costs

Administrative expenses

Other operating income or expense

Question 21

What does cost of sales include?

Answer 21

Direct materials
Direct labour
Other external charges that comprise production costs from external sources
Overheads
Depreciation and amortisation
Adjustments

Question 22

What does distribution costs include ?

Answer 22

Costs incurred after the production of the finished article and up to and including the transfer of the goods to the customer

Warehousing costs

Promotion costs

Selling costs

Transport costs

Question 23

What does administrative expenses include ?

Answer 23

Costs of running the business that have not been classified as either costs of sales or distribution costs

Administration

Property costs

Bad debts

Professional fees

Question 24

What are other operating income or expense ?

Answer 24

They are derived from ordinary activities of the business that have not been included elsewhere

Income for intangible assets

Income from employees to use intangible assets

Question 25

How is the SOPAL formatted ?

Answer 25

Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit
Finance costs
Profit on ordinary activities before tax
Taxation
Profit for the year
Other comprehensive income
Gains on property revaluation
Comprehensive income

Question 26

What is included in the notes of financial statements?

Answer 26

Accounting policies

Details of certain items that have been charged in arriving at operating profit

Further information required by international standards

Additional info relevant to understanding of the financial statements

Question 27

What is the statement of changes in equity and what is shown in it ?

Answer 27

It is how each component of equity has changed during an accounting period

It shows
Total comprehensive income for period
Effects of any changes in accounting policies
Share issues
Dividends paid

May also include
Prior period adjustments
Share issues
Transfers from revaluation reserve

Question 28

What is the IAS 34 interim financial reporting ?

Answer 28

It is a financial report containing either a complete set of financial statements or a set of condensed financial statements for a interim period (less than a full financial year)

Standards don’t require this but stock exchanges or the gov may request them