active recall lecture 2 test Flashcards
(14 cards)
Define current and non-current assets. Provide examples.
Current assets: Assets expected to be sold, used, or converted into cash within 12 months or during the normal operating cycle, whichever is longer.
Examples: Inventory, trade receivables, cash.
Non-current assets: Assets held for use over more than 12 months and not intended for sale in the short term.
Examples: Property, plant and equipment (PPE), intangible assets, long-term investments.
Define current and non-current liabilities. Provide examples.
Current liabilities: Obligations expected to be settled within 12 months or the operating cycle.
Examples: Trade payables, short-term loans, current tax liabilities.
Non-current liabilities: Obligations due after more than 12 months.
Examples: Long-term loans, bonds payable, deferred tax liabilities.
What are the criteria for classifying an asset as current under IAS 1?
Is expected to be realized in the normal operating cycle;
Is held primarily for trading;
Is expected to be realized within 12 months after the reporting period;
or
Is cash or a cash equivalent (unless restricted for more than 12 months).
What is the significance of the operating cycle in classification?
The operating cycle determines whether assets and liabilities are classified as current, especially in industries where the cycle is longer than 12 months (e.g., construction projects).
If realization or settlement is expected within the operating cycle, the item is current, even if that cycle exceeds one year.
How is a SOFP structured? What goes under assets, liabilities, and equity?
Assets: Listed in order of liquidity: current assets (e.g., cash, receivables) first, then non-current assets (e.g., PPE).
Liabilities: Current liabilities (due soon) first, then non-current liabilities (due later).
Equity: Share capital, reserves, and retained earnings.
. How is a SOCI structured? What comes before and after tax?
Revenue and expenses are listed to calculate profit before tax.
Then, tax expense is deducted to find profit after tax.
After that, items of Other Comprehensive Income (OCI) are shown, either individually or grouped.
What are examples of items that go in OCI vs. profit or loss?
OCI:
Revaluation surplus on PPE.
Gains/losses on financial assets at fair value through OCI.
Exchange differences on foreign operations.
Remeasurements of defined benefit pension plans.
Profit or Loss:
Revenue, cost of sales, salaries, depreciation, finance costs.
How are dividends treated in the SOCIE and in notes?
In SOCIE: Dividends declared are deducted from retained earnings.
In Notes: Final dividends declared after the reporting period are disclosed separately but not recorded as a liability.
In what cases are gains recorded in SOCI but not in profit or loss?
When they are classified as Other Comprehensive Income by IFRS, such as:
Revaluation gains.
Gains on certain financial instruments measured at FVOCI.
Foreign currency translation differences.
What is the purpose of the notes to the financial statements?
To explain and provide additional details about items in the financial statements.
To disclose the basis of preparation and accounting policies.
What sort of information must be included in the notes?
Accounting policies.
Breakdown of material balances (e.g., inventory, PPE).
Information required by IFRSs (e.g., fair value measurements).
Details of contingencies, commitments, and subsequent events.
What’s an example of a breakdown note for inventories or liabilities?
inventory breakdown:
Raw materials: £11m
Work in progress: £1m
Finished goods: £13m
Liabilities breakdown:
Trade payables: £50m
Accrued expenses: £20m
Loans payable: £30m
How should a final dividend be treated if declared after the reporting period?
It must not be recognized as a liability.
It should be disclosed in the notes to the financial statements.
What is the rule for disclosing sensitive or exceptional items?
Sensitive or exceptional items (e.g., major restructuring costs) must be disclosed separately either in the face of the financial statements or in the notes, to give users a clearer understanding of their impact.
