F2 Flashcards
(20 cards)
What are the 2 sources of Finance?
-Equity
-Debt
What is a Rights Issue?
Rights issue is when company issues shares to existing shareholders below the market price
What are 2 rules to follow for setting market prices for a Rights Issue?
1) Low enough to attract shareholders
2)High enough to avoid excessive dilution of EPS
What is a Bond?
Bond is a formal contract to repay borrowed money with interest at fixed intervals.
Bonds provide borrower with external funds to satisfy long term requirements
What is the WACC (weighted Average Capital Cost)?
WACC represents average cost of an entity’s pool of funds.
- Weightings of each source of finance based on market values of debt/equity
When can WACC be used as a discount rate?
-WACC can only be used when using NPV or IRR calculations (only applies if conditions are met)
1)Capital structure is constant
2)new investment doesnt carry business risk to existing operations
What is Goodwill?
The difference between the Fair value of purchase consideration and the fair value of net assets acquired
What does IFRS 3 state regarding FV of parent’s consideration upon acquisition?
IFRS 3 business combinations, states each element of purchase consideration should be measured at FV:
-Immediate cash payment
-Deferred Cash Payment
-Contingent Consideration
What 3 adjustments must financial statements make regarding FV of net assets acquired?
1)FV adjustments to recognised assets (e.g PPE &inventory at their carrying amounts)
2)internally generated assets (e.g brand names, client lists)
3)Contingent Liabilities - must be recognised at FV of date of acquisition as it affects price parent company wants to pay
What is ROCE (Return Capital Employed)?
ROCE is measurement to show overall performance of entity, expressed as percentage return on total investment. (Ability to make profit from whats available)
What is Gearing?
Measure of risk and guide to long term solvency of entity
What is Recievables Days?
No of days takes on average to recieve payment from customers (higher the days- more disrupted thr cash flow)
What is Payables days?
Length of time company takes to pay its suppliers for goods (must pay on time to avoid stock outs/ account stops)
What is the purpose of Integrated Reporting?
To help businesses take more sustainable decisions and enable investors & stakeholders to understand how business is performing.
What are the 3 main concepts of Integrated Reporting?
1) how value is created internally and externally
2)the value creation Process
3)Capitals (HFMSIN)
What are the capitals?
Human (people’s capabilites and experience, with loyalities and motivation to improve processes)
Financial(pool of funds available to organisation for goods and services)
Manufactured (physical products available to business for use e.g equipment, buildings)
Social (stakeholder relationships and trust within organisation)
Intellectual (knowledge based intangibles e.g softwares, licenses)
Natural (environmental resources/processes that support prosperity of organisation)
What is IAS 38?
Intangible Assets (e.g licences, brand names,)
-Internally generated assets should NEVER be recognised, not capable of reliable measurement (goodwill, brands, customer lists)
What is IFRS 15?
Revenue that is recognised from contracts with customers
What is the 5 step model framework for IFRS 15?
1)Identify the contract
2)Identify performance obligations in contract
3)Determine transaction price
4)Allocate transaction price to performance obligations in contract
5)Recognise revenue (as/when) entity satisfies performance
What is IFRS 16?
Leases
1)right of use asset
2)Lease liability (obligation to pay future lease payments)
