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CIMA > F2 Flash Cards > Flashcards

F2 Flash Cards

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1
Q

Cost of Equity formula (no growth)

A

Ke = dividend / Ex. div share market price

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2
Q

Primary & secondary functions of capital markets

A

primary: to enable companies to raise new finance through issuing shares / marketable debt

Secondary: to enable trade of shares

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3
Q

Cost of Equity formula (with growth)

A

Ke =
(current Divi (1+ g) / ex. div share market price) + g

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4
Q

Calculating growth if not given

A

if given divi now and divi x years ago

(nth root of D0/Dn) -1

If based on retention of profits
G = % return required X proportion of funds retained

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5
Q

Cost of Debt formula (bank borrowings)

A

Kd = annual % int rate (1 - corporate tax rate)

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6
Q

Cost of Debt formula (Irrdeemable, undated, long dated or redeemable traded at par)

A

Kd = coupon rate (1-tax rate)
———————————–
after int. paid market price of debt

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7
Q

IRR formula (redeemable debt)

A

R1 + (R2- R1) x NPV1 / (NPV1 - NPV2)

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8
Q

Yield to maturity (irredeemable debt)

A

Annual int. received / market value

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9
Q

Yield to maturity (redeemable debt)

A

IRR

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10
Q

Financial Liabilities - Initial recognition

A

Fair value LESS transaction costs

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11
Q

Financial Liabilities - Subsequent Treatment

A

FVPL , reval to fair value, gain/loss to P&L

OR

Amortised cost
(net proceeds + int. - repayment = closing bal)

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12
Q

Convertible Loan (split liability & equity parts)

A
  1. cash from loan
  2. PV of cash flows = liability
  3. difference = equity
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13
Q

Financial Assets - Initial Recognition

A

Fair value PLUS transaction costs

OR

FVPL - transaction costs go to P&L

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14
Q

Financial Assets - Subsequent Treatment IF EQUITY

A

if shares held for trading: FVPL, reval to fair value, gain/loss to P&L

If shares NOT held for trading: FVOCI, reval to fair value, gain/loss to OCI

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15
Q

Financial Assets - Subsequent Treatment IF DEBT

A

If intend to hold to maturity:
Amortised cost

If intend to hold & then sell
FVOCI

If intend to sell
FVPL

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16
Q

Liability provisions 3 criteria:

A
  1. present obligation from past event
  2. outflow of resources probable
  3. reliable estimate can be made

(DO NOT provide for: training, future losses)
(provide for: lower of cost of fulfilling contract or cost of breaching contract, future costs of restoration capitalized with asset, redundancies)

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17
Q

Contingent liabilities & assets (disclosed in dates to the accounts if…)

A

contingent liability - disclose of possible
contingent asset - disclose of probable

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18
Q

Intangible asset definition…

A

identifiable, non monetary asset without physical substance

(must be seperable, or arise from legal/contractual rights)

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19
Q

Research & development costs

A

Research costs - write off to P&L
Development costs - capitalise & amortise IF meet PIRATE criteria

Probable future economic benefit
Intention to complete
Resources to complete
Ability to use/sell product
Technically feasible
Expenditure measured reliably

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20
Q

Internally generation ITAs

A

Internally generated e.g. brand names -> not recognised

ITA purchased separately e.g. aquire a licence -> capitalised at cost

ITA purchased with business acquisition -> capitalise at fair value if ITA can be measured

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21
Q

Earnings per share (EPS)

A

Earnings (PAT - NCI share of profits - irredeemable pref share divis)
______________________________________________________
WAV shares

FOR WAV SCALE UP SHARE ISSUES BEFORE BONUS/RIGHTS ISSUES
Bonus issue - bonus fraction =
shares after / shares before

Rights issue - bonus fraction =
Cum rights price / TERP

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22
Q

DEPS

A

Convertible loans:
earnings - save interest, pay more tax
WAV - no. shares increase by max. conversion

Share options:
earnings - no impact
WAV - no. shares increase by bonus element…..

bonus element = diff between no. options in existence and no. full price shares can be purchased with cash from options

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23
Q

Indicators of a finance lease

A
  • legal title transferred
  • option to purchase
  • lease term majority of economic life
  • PV of lease payments = FV of asset
  • highly specialised asset
  • lessee bears losses from cancelling lease
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24
Q

Finance leases, lessor initial recognition:

A
  1. derecognise asset
  2. record a receivable (PV of unreceived payments)
  3. difference is gain/loss on disposal
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25
Finance leases, lessor subsequent treatment:
In arrears: Opening bal, +int., - lease receipt, closing bal In adavnce: Opening bal, - lease receipt, sub total, +int., closing bal
26
Operating leases, lessor accounting:
lease income recognised in P&L over the lease term Dr cash CR P&L Cr/Dr deferred income/accrued income
27
Construction contracts recognising revenue....IF LOSS MAKING
revenue X Cost of sales (X) (B) _________________________ Gross loss ( X )
28
Construction contracts recognising revenue if progress unknown
Revenue = recoverable costs if progress unknown, no profit can be recognised
29
Related parties
key management & close family entities in same group (parent, subsidiaries, joint ventures) ( not related: common director, joint venturers, finance providers, customers/suppliers)
30
Integrated reporting primary purpose
Explain to providers of financial capital how an entity created value over time in a way that's beneficial to all stakeholders
31
Integrated reporting objectives (4)
1. improve quality of info 2. cohesive & efficient approach to corporate reporting 3. enhance accountability & stewardship for the capitals 4. support integrated thinking & creation of value
32
The 6 capitals
Financial Manufactured Intellectual Human Social/relationship Natural
33
4 pros & 3 cons of integrated reporting
Pros + forward looking info + more info disclosed + increased transparency = improved reputation + improved efficiencies Cons - reports not audited - bias - disclosure of info could = loss of competitive adv - too much info for users to digest
34
Foreign currency transactions: initial & subsequent measurement
initial measurement = record at historic rate Subsequent measurement = If settled - translate at settlement date If not settled - translate at closing rate UNLESS non -monetary asset (e.g. machinery), then keep at historic rate
35
3 steps to account for deferred tax
1. calc the temporary difference CA > TB = DT liability CA < TB = DT asset 2. calc DT balances at year end Temp difference x tax rate = year end DT liab/asset 3. Post the MOVEMENT in the DT balance NOTE: DT assets can only recorded up to the amount you expect to be able to use NOTE2: DT entry should match treatment of transactions that caused it e.g. cap allowances to P/L, revaluations to OCI
36
W3 Goodwill calc
Cost of investment NCI @ acquisition LESS S NAs @ acquisition
37
W4 NCI calc
NCI @ acqusition NCI% S post acq NA movement LESS impairment (only NCI % if fair value used for NCI @ acq)
38
W5 Retained earnings calc
100% P P% S post acq movement LESS impairment (full impairment if proportionate method used and only P% if fair value method used for NCI @ acq)
39
PUP adjustments
Cr inventory, Dr retained earnings (increase COS) If P sold to S -> all P adj in W5 RE If S sold to P -> split P% in W5 RE calc and NCI% in W4 NCI calc
40
intra-group outstanding balances: if balances AGREE
cancel out immediately Dr payables Cr receivables
41
intra-group outstanding balances: if balances DO NOT AGREE
due to cash in transit: Treat cash as received at YE Dr cash, Cr receivables cancel out intra group balances Dr payables, Cr receivables due to inventory in transit: treat inventory as received at YE Dr inventory Cr receivables cancel out intra group balances Dr payables, Cr receivables
42
consideration for cost of investment. Fair values for: cash deferred cash shares deferred shares contingent consideration
cash = cash paid deferred cash = PV shares = market value @ acq deferred shares = market value @ acq contingent consideration = fair value
43
Indications of significant influence (2)
1. appoint board members 2. lots of trading between parent & associate
44
Investment in Associate =
Cost of investment P% A post acq movement Less: impairment Less: PUP
45
Share of associates profit =
P% of A total profit after tac Less: Impairment Less: PUP
46
Consolidated Reserves at Reporting Date =
100% P P% S post acq p% A post acq LESS: Goodwill impairment LESS: impairment of A investment LESS: PUP adj
47
Joint ventures are
2 companies create new company rights to net assets (use equity accounting the same as for associates)
48
Joint operations are
Jointly controlled projects (no separate entity exists) rights to assets & obligations
49
Associate accounting rules
parent has significant influence, not control (<50% shares/voting rights) No control = no addition of assets & liab or income & expenses DO NOT eliminate trading between assoc & group companies DO remove dividends received from associate
50
Dividends paid to NCI =
NCI bal b/f NCI share of profit/OCI Dividend paid BALANCING FIGURE ____________________________________ NCI bal c/f
51
Dividends received from associates =
Inv in assoc b/f Assoc share profit/OCI Dividend received BALANCING FIGURE _________________________________________ Inv in assoc bal c/f
52
Calculating FX difference on translation of goodwill
Goodwill @ Acq @ HR LESS Impairment @ AR Exch difference BALANCING FIGURE ---> if FV split P&NCI, if prop all P ____________________________________ Goodwill @ reporting date @ CR
53
Exchange difference on Subs net assets
Closing NAs @ CR LESS opening NAs @ OR LESS comp income @ AR ___________________________________ FX diff on S net assets ------> split P & NCI
54
Gross profit margin = Movements caused by....
Gross profit (rev - cos) ____________________________ revenue movements caused by: sales & cost price changes sales mix changes inv valuation policy changes
55
Operating profit margin = Movement caused by....
Operating profit (PBIT) __________________________ Revenue Movements caused by: same as GP% if inline changes to admin & distribution exps exceptional PPE write off
56
ROCE= Movements caused by.....
Operating profit (PBIT) _________________________ capital employed Movements caused by: OP% or asset turnover (ROCE = OP% x asset turnover) Revaluations PPE inv at YE with no time to generate profit changes in leases
57
Current ratio & Quick Ratio/Acid Test
Current = current assets / current liabilities Quick = current assets - inventory / current liabilities
58
Inventory days
Inventory / COS X365
59
Receivable dats
Receivables / Revenue X365
60
Payable days
Payables / COS X365
61
Gearing =
Ratio= Debt / equity % = debt / debt +equity
62
Interest cover =
Operating profit (PBIT) / finance cost
63
Dividend cover =
EPS / Dividend per share OR profit for year / dividend paid

CIMA (14 decks)

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