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Ch 2 - Format of FS Flashcards

(102 cards)

1
Q

What principles does FRS 102 require acc’s to follow when preparing FS?

A

Fair presentation

Going concern

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2
Q

What does FRS 102 Secition 3 require the fair presentation of?

A

Financial position
Financial performance
Cash flows

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3
Q

What does the CA2006 require FS’s to show?

A

True and fair view

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4
Q

When should a company’s FS be prepared on the GC basis?

A

When the company is expected to continue in operation for the foreseeable future

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5
Q

When assessing GC status, what does FRS 102 require?

A
  • Management should look into future for 12+ months from reporting date
  • Uncertainties regarding GC should be disclosed
  • If the GC assumption isn’t followed, must disclose
    - That the GC assumption isn’t followed
    - The basis of the acc used
    i. e. everything becomes at market value and all current assets as expect to liquidate in next 12 months
    - Reasons why GC assumptions aren’t followed
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6
Q

What kind of treatments are only used when GC basis is applied?

A
  • Recording fixed assets at cost and writing down over UEL

- Distinction between CA and NCA

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7
Q

if a company is not GC, how should FS be prepared?

A

On a breakup basis where

  • Assets would be recorded at recoverable amount
    i. e. value at which they can be sold
  • All assets/liabilities are classified as current
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8
Q

What is the accruals concept also known as and why?

A
  • Matching concept

- Because it matches action with time rather than cash movement

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9
Q

How does the accruals concept require transactions and events to be recorded?

A

When they occur, rather than when the cash is received/paid for them

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10
Q

What is the effect of the accruals concept on the FS?

A

expenses are recognised in the P&L account on the basis of direct association between the costs incurred and the earning of the related income

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11
Q

What is the alternative basis to accruals basis?

A

Cash basis - where you account for transactions when the money is received

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12
Q

How is consistent presentation ensured?

A

The general rule is that

  • Accounting policies (therefore presentation) are normally kept the same from year to year to allow comparability of FS
  • If they do change, must state why and the impact on the comparable figures
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13
Q

How are the FS indiv lines broken down?

A
  • Each material class of item must be shown separately in FS
    - Therefore, large specialised companies can end up with odd lines
  • Immaterial items can be aggregated with other items
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14
Q

Is off-setting allowed for A&L?

A

FRS 102 doesn’t allow offsetting against one another unless permitted by another FRS
E.g. of exception- doubtful debts are netted off against receivables and then a note is given

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15
Q

Is off-setting allowed for I&E?

A

Only allowed to be offset by FRS 102 if
Another FRS allows/permits it
Gains/losses/expenses on similar items are immaterial

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16
Q

What is the general rules for comparatives?

A

FRS 102 requires comparative info to be given on

  • All numerical information
  • For narrative info if necessary for understanding
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17
Q

What are the 2 formats for P&L given by FRS 102?

A

Classification by function (most common) tested as a whole in exam
Classification by nature - may be asked to complete extracts or for an explanation

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18
Q

What are the basic headings for P&L classification by function?

A
Turnover
CoS
Gross prof 
Distribution Costs
Admin costs 
(sub-total)
Other income 
Operating profit 
profit from operations
Interest payable 
Interest receivable 
Profit before tax 
Income tax expense 
Net profit for the period
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19
Q

What is the basic layout for P&L classification by nature?

A
Turnover
Other income
Changes in finished goods and WIP 
Raw materials and consumables used 
Employee benefits expense
Depreciation and amortisation expense 
Other expenses
Profit from operations
Interest payable 
Profit before tax 
Income tax expense 
Net profit for the period
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20
Q

What is total comprehensive income?

A

Realised P/L for period, plus other comprehensive income

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21
Q

What is other comprehensive income? And what will this be in the exam?

A

Income and exp not recognised in P&L

Will only ever be revaluation reserve of PPE

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22
Q

What is the basic layout for SOCI?

A
XYZ Ltd 
SOCI for year ended X
Profit for year (P&L)
Other comprehensive income
    Gain on property revaluation 
Total comprehensive income for the year
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23
Q

What choice does FR 102 Section 17 PPE allow for companies?

A

For them to hold PPE/ tangible fixed assets at either

  • Historic cost (cost model)
  • FV (revaluation model)
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24
Q

What are the steps to perform revaluation

A
  1. Increase cost to market value
    DR Cost [FV - original cost]
    Note: this doesn’t hit the P&L as there isn’t a realised gain
  2. Remove all accumulated depreciation recognised to date
    DR Accumulated depr
  3. Create revaluation reserve which sits in equity in the BS
    CR Reval reserve [Dif i.e. FV - carrying amount]
    Amount credited to reval reserve is the diff between NBV and FV
    As this is an unrealised gain, we will see this in ‘other comprehensive income’
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25
Why are revaluation gains only shown in the 'other comprehensive income' section?
As it is an unrealised gain, and P&L only shows realised gains
26
If Phillips plc has a building which cost £1m and has a carrying amount of £700k int eh BS. The building is then revalued to £1.5m. profit for the year is £600k. Show the double entries to record the transaction and show SOCI
``` DR Cost £500k DR Accumulated depr £300k CR Revaluation reserve £800k Statement of comprehensive income £000 Profit for the year 600 Gain on revaluation 800 Total comprehensive income 1,400 ```
27
What does the statement of changes in equity show?
It shows a summary of all movements in share capital and reserves during the year
28
Show the basic layout of a SOCIE
``` XYD Ltd SOCIE for the year ended X Along the top: - Share capital - Share premium - Revaluation surplus - P&L account - Total Down the side - Balance at X (start) - Total comprehensive income - Dividends - Issue of share capital - Balance at X end ```
29
What value is share capital?
Nominal value
30
What is the basic layout of the balance sheet?
``` Fixed assets - Tangible assets - Investments - Intangible assets Current assets - Stocks - Trade and other debtors - Cash and cash equivalents Creditors - amounts falling due within one year - Trades and other creditors - ST borrowings - Current tax creditor - Provisions Net current assets ``` ``` Total assets less current liabilitie Creditors falling due after more than one year - Redeemable preference share capital - LT borrowings Net assets ``` ``` Equity Capital and Reserves - Ordinary chare capital - Share premium account - Irredeemable preference share capital - P&L account reserve - Revaluation reserve Total equity ```
31
What is the difference for IFRS vs UK GAAP for balance sheets?
Called SFP in IFRS And IFRS shows as assets = equity - liabilities While UK GAAP shows it as assets- liabilities = equity
32
Give examples of intangible assets
- Licences - Goodwill - - Brands purchased - Patents
33
When should an asset be classified as current if it
Will be settled within 12 months of the reporting date | Is part of the entity's normal operating cycle
34
When do you define a liability as being current?
When it is expected to be settled in the normal course of the enterprises operating cycle It is held for primary trading purposes Due to be settled within 12 months of the reporting date
35
What do ordinary share holders own?
A % of the share capital plus reserves in the company
36
What are attached to ordinary shares?
Voting rights
37
What don't ordinary dividends create when they are proposed or declared?
A liability as the directors can revoke them before they are paid
38
When does a dividend become contractual obligation?
When it has been approved by the SH at the general meeting
39
When does a dividend become a contractual obligation generally?
At the year end
40
When are ordinary dividends accounted for? and what is the journal?
When they are paid DR P&L Reserve CR Cash
41
What do preference shareholders own?
A % of the preference share capital but NOT the rest of the reserves
42
Do preference SH have voting rights?
No
43
How are redeemable/irredeemable preference shares with mandatory cumulative dividends accounted for?
On an accruals basis as you'll have to pay them out eventually So they act like debt (as there is an obligation) They hit the P&L like interest expense
44
What is the double entry redeemable/irredeemable preference shares with mandatory cumulative dividends?
Recognised as interest in the P&L acc DR Interest expense (P&L) Cr Dividend payable/cash
45
How are redeemable/irredeemable preference shares withOUT mandatory cumulative dividends accounted for?
They are accounted for on a cash basis Recognised in the P&L reserve Treated like ordinary dividends
46
What is the double entry redeemable/irredeemable preference shares withOUT mandatory cumulative dividends?
DR P&L reserve | CR Cash
47
What are the benefits to the statement of cash flows
They - are factual - i.e. not influenced by acc policies - are easily understood by users who can see how cash is raised and spent - Provide extra info on business activities - Allow users of FS to assess the future prospects of a business i. e. heavy inv in fixed asset should result in - Show how adaptable a company is to its circumstances - Shows whether a company is in a position to pay amounts as they fall due - Facilitates the comparison between companies by requiring the use of standard headings
48
In the exam, what are you likely to be asked to do with regards to Cash flow?
Adjust a draft statement rather than prepare one from scratch But learn the layout just incase
49
What is the basic layout of a SCF?
``` XYZ Ltd SoCF for XYZ Ltd for period .. Cash flows from operating activities - Cash generated from operations - Interest paid - Income taxes paid Net cash from operating activities Cash flows from investing activities - Purchase of tangible fixed assets Proceeds of sale of tangible fixe assets - Interest received - Dividends received Net cash used in investing activities Cash flows from financing activities - Proceeds of issue of shares - Repayment of loans/issues of loans - Dividends paid Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period ```
50
Why is there some judgement in cash flows?
As FRS 102 Section 7 doesn't stipulate what cash flows should be included under each of the 3 headings
51
Give an example of judgement required in cash flows
Dividends paid may sensibly be shown as a cash flow from operating activities or cash flow from financing activities
52
How do you get to 'cash generated from operations' for SCF?
``` Profit before tax Add interest payable Remove investment income Add back depr charge Add loss on disposal of fixed asset Remove profit on disposal of fixed assets (incr)/decr in stocks (incr)/decr in trade debtors Incr/(decr) in trade creditors Cash generated from operations ```
53
What are cash flows from investing activities?
The cash flows associated with the purchase and sale of fixed assets and income from investments held
54
What makes up cash flows from financing activities?
Cash flow associated with the LT financing of the company | i.e. share capital and loan stock
55
What is cash and cash equivalents?
Cash - cash in hand and deposits available on demand Cash equivalents are ST highly liquid investments that are readily convertible to known amounts of cash that are subject to an insignia risk of changes in value Taken to mean investments with a maturity date of 3 months or less
56
What does the statement of cash flows reconcile?
Diff between the bf and cf bal sheet figures for cash and cash equivs
57
How are bank overdrafts classified?
As repayable on demand and treated as -ve cash balance in SCF
58
Define cash flows from operations
Cash income from the day-to-day trading activities of the company
59
What are the 2 methods to calculate cash flows from operating activities?
Direct method | Indirect method
60
How do you use the direct method to calc operating cash flows?
``` Cash sales Add cash received from credit customers Less Cash purchases Cash paid to credit suppliers Cash expenses To get cash generated from operations ```
61
How does the indirect method work for calculating cash from operating activities?
``` Reconciles profit before tax (as reporting in P&L) to cash generated from operations Profit before tax Add back interest payable Less investment income Add depr charge Add/deduct loss/prof on disposal Add back decrease in stocks Deducted increases in trade debtors Deduct decrease in trade creditors ```
62
Explain why you add back the following in a cash flow | Interest payable
added back to profit because it isn’t part of cash from operations Interest is dealt with later in SCF
63
Explain why you add back the following in a cash flow | Depreciation
added back because it is not a cash item
64
Explain why you add back the following in a cash flow | Loss/prof on disposal
added back/deducted because they are non-cash items
65
Explain why you deduct the following in a cash flow | Investment income
Deducted as it isn’t part of cash from operations
66
Explain why you add back the following in a cash flow | Decrease in stocks
dded back on because the decrease of stocks liberates extra cash
67
Explain why you deduct the following in a cash flow | Increase in stocks
And increase in stocks are deducted as purchases of stock represent cash expenditure
68
Explain why you add/deduct the following in a cash flow | Trade debtors
increase in debtors - Deducted because this is part of the profit not yet realised into cash but tied up in debtors And decrease in debtors are added back since these represent cash receipts from customers
69
In 'other cash from operating activities' what may cash outflows include?
Interest paid | Income taxes paid
70
What may be useful for calculating an interest creditor or tax creditor?
A T account DR side Cash paid (bal figure) Creditor C/f on CR side Creditor b.f P&L expense
71
Why is calculating interest/income taxes paid not straightforward?
As you have to account for The charge to profit for the item (Shown in the P&L) Any opening or closing creditor balance shown on the balance sheet
72
Give some examples of cash inflows from investing activities
Interest received Dividends received Proceeds of sale equipment
73
Give some examples of cash outflows from investing activities
Purchase of tangible fixed assets
74
When calculating interest and dividends received, what is needed?
the calc should take into acc of both the income debtor shown on P&L and any relevant debtors balance from opening and closing bal sheet So might want to use a T account
75
What is the T account for calculating interest debtor or dividend debtor?
On DR side Debtor b/f P&L income on CR side Cash received (bal fig) Debtor c/f
76
Which is the most complex tangible fixed asset to calc? So what is recommended to calc them?
Calc of purchase of tangible fixed assets and proceeds from sale of tangible fixed assets T accounts for Cost account Accumulated depr account Disposals account (where relevant)
77
What are some of the complications with calc of purchase of tangible fixed assets and proceeds from sale of tangible fixed assets
If there is evidence of a revaluation, remember to include the uplift value on the debit side of the cost-account In some cases, insufficient detail is provided to produce separate cost and accumulated depr accounts Instead, a NBV T-account should be used
78
What is the T account for fixed assets NBV?
On DR side NBV b/f Additions Revaluation (movement on reval surplus) On CR side Disposal at NBV Depreciation charge for year NBV c/f
79
What may cash inflows from financing activities include?
Proceeds from issue of shares | Proceeds from issue of loans/debentures
80
What may cash outflows from financing activities include?
Repayment of loans/debentures | Dividends paid
81
What are the T accounts for disposals of FA?
DR Side Cost Profit CR side Acc dean Cash received (bal figure) NBV cf
82
What is the calculation of proceeds from issue of shares?
- This cash inflow is generally derived by comparison of the sum bf and sum cf balances ont eh Share Capital and Share Premium amounts together - You may need to consider any non-cash share issues such as bonus issues taken from the P&L account reserve
83
What is the Calculation of proceeds from issue of loans/repayment of loans ?
Derived by comparison of the bf and cf balances
84
What is the calc of dividends paid?
The dividend paid is derived through the P&L account reserve T account In FAR, there are a number of complications you may see going through P&L reserve ``` DR side Bonus issue Irredeemable preference share Dividends creditor Dividends paid (bal figure) ``` CR side b/f Profit for year Transfer from reval reserve
85
What is the P&L reserve T account used to calc?
Dividends paid for cash flows from financing activities
86
What is the T account for P&L reserve like?
``` DR side Bonus issue Irredeemable preference share Dividends creditor Dividends paid (bal figure) ``` CR side b/f Profit for year Transfer from reval reserve
87
What is cash and cash equivalents made up of?
Cash in hand cash at bank Short term investments in money market instruments
88
What are the disclosures required for Cash and cash equivalents?
The following: Cash and cash equivalents include cash in hand and at bank together with ST investments in money market instruments. Cash and cash equivalents in the SCF include the following BS amounts cash in hand and at bank x ST investments x Cash and cash equivalents (total x) The accounting policy stating what balance cash and cash equips include Other relevant info such as any unused overdraft facility Significant non-cash transactions such as issue of bonus shares or inception of a finance lease
89
``` What are the terminology differences for IFRS for each of these BS Income statement/ prof and loss acc Turnover Debtors Creditors Fixed assets Tangible fixed assets Creditors falling due after more than one year Creditors falling due within one year Prof and loss account (reserve) ```
``` SFP Statement of prof or loss Revenue Receivables Payables NCA PPE NCL CL Retained earnings ```
90
What are the presentational differences for IFRS vs UK GAAP
The IFRS Standards SFP is usually prepared with total assets at the top and equity and liabilities at the bottom
91
What does the FRS 105 offer?
Offers simplified recognition nd measurement of requirements for the smallest of entities
92
What are the criteria to meet a micro entity
Must meet at least 2 of the following criteria set out in Companies Act (2006) - Turnover not in excess of £632,000 - Balance sheet total not in excess of £316,000 - No more than 10 employees
93
Are Public limited company is eligible to be classified as a micro-entity?
Public limited company is ineligible to be classified as a micro-entity
94
Are Companies producing consolidated financial statements are eligible to apply FRS 105?
Companies producing consolidated financial statements are ineligible to apply FRS 105
95
What might you be asked to do in an exam re micro entities?
May be asked to prepare an extract from the FS of a micro-entity or explain the acc treatment under FRS 105 of a particular issue
96
What is a complete set of FS for a micro-entity?
Statement of Financial position with notes at the foot of the statement An Income Statement (P&L Account)
97
What is not required to be included in FS for a micro entity?
Statement in changes in equity Statement of Cash Flows
98
What are the 2 formats of SFP available under FRS 105?
Format 1 - Net assets basis | Format 2 - Vertical presentation
99
Describe the Format 1 Net assets Basis for FRS 105
Fixed assets Current assets Creditors amounts falling due within 1 year Total assets less current liabilities Creditors- amounts falling due after more than 1 year Net current assets/(liabilities) Capital and reserves
100
Describe the Format 2 vertical presentation Basis for FRS 105
Assets - Fixed assets - Current assets Total ``` Capital, Reserves ad liabilities - Capital and reserves - Creditors Amounts falling due within 1 year Amounts falling due after more than 1 year ```
101
What is required of FRS 105 in terms of the income statement?
FRS 105 requires that the Income Statement classifies expenses by nature rather than function It is a simplified version of the FRS 102 format
102
What is required for the notes of FS under FRS 105?
Shown at the foot of the SFP Advances, credit and guarantees granted to the directors Financial commitments, guarantees granted to directors Off-balance sheet arrangements Average employee numbers