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Unit 2: Securities > 8.1 Accounting Analysis > Flashcards

8.1 Accounting Analysis Flashcards

1
Q

What is an independent auditor’s report?

A

Are the statements true and fair?

  • auditors can qualify the accounts
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2
Q

What does it mean if auditors qualify accounts?

A

That company is not giving fair and true representation of performance

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3
Q

What are the notes to the accounts?

A

Directors making notes to accounts

  • explanations
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4
Q

What is shareholder information

A
  • information shareholders may be interested in

eg. new share issues; has share cap increased?

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5
Q

What are 4 reports to analyse corp. performance?

A
  • strategic report
  • stakeholder review
  • financial review
  • directors remuneration
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6
Q

What does statement of financial position show?

A
  • assets
    ^ what company owns
  • capital
  • reserves
  • liabilities
    ^where money came from
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7
Q

What are accounting standards?

A
  • prescribes form and content of financial statements
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8
Q

What is GAAP?

A

Generally accepted accounting principles?

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9
Q

Is GAAP standardised globally?

A

No - in process of standardisation but can still be country specific

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10
Q

Why may it be difficult to compare international companies?

A

Due to the range of accounting standards across the world, it can be difficult to compare companies internationally

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11
Q

What is IASB?

A

international accounting standards board

  • purpose: to achieve transparent and comparable financial statements to global accounting standards
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12
Q

What are 2 set of standards under IASB?

A
  • IFRS (international financial reporting standards)
  • IAS (international accounting standards)
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13
Q

What is an additional listing rule for companies listed on exchanges (eg. LSE)?

A

Must provide an interim report

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14
Q

What is the other equation instead of assets = liabilities + equity

A

Non-current assets + Current assets = Capital + Reserves + Liabilities

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15
Q

What is another term for equity?

A

Capital and reserves

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16
Q

What are non-current assets?

A

intangible (goodwill etc)

tangible (PPE)

Investments helf for LT

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17
Q

What are current assets?

A

Cash and cash equiv
inventories
trade receivables
Other current assets (eg. prepayments)

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18
Q

What are capital and reserves?

A
  • share capital
  • share premium
  • revaluation reserve (some assets appreciate over time, opposite of depreciation)
  • retained earnings
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19
Q

What are current liabilities?

A

Short term borrowings (<1yr)

  • trade and other payables (trade payables, accruables)
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20
Q

What are non-current liabilities?

A

long term borrowings/provisions (>1yr)

long term bank loans
bonds issued by company

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21
Q

What is another name for non-current assets?

A

Fixed assets

22
Q

What are intangible non-current assets

A

Assets that are expected to generate future revenue but have no physical substance

  • goodwill
  • trademarks
  • patents
23
Q

What are tangible non-current assets

A

Assets that are expected to generate future revenue and have physical substance

  • PPE
    must be valued at net book value
24
Q

What is NBV?

A

Recognises depreciation of assets

25
Q

What are non-current asset investments?

A

generally shares in other companies that intend to be held for >1yr

includes investment in associate companies

26
Q

What is an associate company?

A

An associate company is created when share ownership lies from 20% to 50%

27
Q

What is a subsidiary company?

A

subsidiary company is created when share ownership lies above 50%, where the subsidiary’s balance sheet is consolidated with that of the
parent

28
Q

What are investments held for trading?

A

current assets - count as part of inventory, intend to be converted to cash

29
Q

What comes under inventory?

A
  • raw materials
  • work in progress
  • finished stock
  • valued at lower of cost (how much cost to make) or net realisable value (how much we can sell it off for) (conservative value)
30
Q

what are trade receivables

A
  • trade debtors
  • pre payments

essentially ppl who owe us money

31
Q

What are reserves?

A

amount belonging to shareholders that is retained by company

  • revaluation reserve (revaluate assets from cost to market value)
  • retained earnings (profit loss reserve)
32
Q

What can share premium be used for?

A
  • fund a bonus issue
  • write off cost of listing and issue
33
Q

What kind of asset appreciates over long term?

A

freehold land

34
Q

what kind of account is retained earnings?

A

A revenue reserves account

35
Q

What are share premium and revaluation ?

A

Capital reserve accounts

36
Q

What type of account is share capital?

A

A capital account

37
Q

what is an accrual?

A

Expenses not yet invoiced eg. bill (ST liability)

38
Q

what is a provision?

A

where we think the receivable is not coming in within next year

eg. doubtful debt

39
Q

How do we calculate NBV?

A

Cost - accumulated depreciation

40
Q

How do we calculate depreciation w the straight line method?

A

annual depreciation = (original cost - expected residual value)/expected useful life

41
Q

what is residual value of an asset?

A

eg. resale value, scrap value

42
Q

What is the first line on IS?

A

revenues

43
Q

Second line of IS?

A

COGS (cost of sales)

44
Q

What does IAS 33 require?

A

earnings per share ratio and the diluted earnings per
share to be shown at the foot of the income statement

45
Q

What are the main profit lines on an IS?

A

Gross profit (after COGS)

Operating Profit (after SG&A, distribution)

PBT (after financing costs and exceptional items)

Net income (after tax) = retained earnings

46
Q

When are revenues recognised?

A

always at point of sale (even if money hasnt come in yet)

  • recognition can be apportioned over several accounting periods for LT contracts
47
Q

Another name for operating profit?

A

PBIT

48
Q

What is the diff. between capex and revenue expenditure?

A

Capex :

  • money spent to buy non-curent assets
  • reflected on BS (eg. purchase of PPE)

Revex:
- immediately impacts income statement (eg. wages, rent, professional fees)

49
Q

what are the 3 headings on the CFS?

A
  • operating activities
  • investing activities
  • financing activities
50
Q
A

Unit 2: Securities (13 decks)

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