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FLP Operational - F1 > Financial Statements > Flashcards

Financial Statements Flashcards

1
Q

What does IAS 10 cover?

A
  • Events after the reporting period - (favourable or unfavourable),
  • which happen between the end of the reporting period and the date that the financial reports get authorised for issue.
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2
Q

2 type of events according to IAS 10:

A
  • Adjusting events
  • Non-adjusting events
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3
Q

What is an adjusting event:

A
  • There is evidence of conditions that existed at the end of the reporting period.
  • the amounts reflecting the event are processed in the financial statements
  • so that the fin reports are relevant and up to date.
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4
Q

What is a non-adjusting event:

A

These are indicative of conditions that arose after the reporting period.
The amounts on the financial statements are not adjusted to reflect this event.
However disclosure may be required.

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5
Q

When should a non-adjusting event be disclosed in the financial statements:

A
  • if the event has happened between the end of the financial period, but before the financial reports were authorised for issue.
    AND:
  • is of a material size, which could influence the understanding that stakeholders will have of the business
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6
Q

What should be included in the disclosure of a non-adjusted event:

A
  • nature of the event
  • estimate of the impact
  • the financial statements need to show the end of the reporting period and the date of authorisation for issue. (Because financial reports do not include events that happened after the date of authorisation for issue.)
  • who gave the authorisation
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7
Q

How are dividends treated under IAS10, if declared after the end of the reporting period:

A
  • as a non-adjusting event
  • no liability exists at the end of the reporting period
  • must be declared in the notes
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8
Q
  • How to account for:
    IAS 10 - Adjusting event:
    Settlement court case after reporting period end
A

DR Profit and Loss
CR Liability

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9
Q

Users of Financial Statements:
10x Stakeholders:

A

1) Shareholders
2) Suppliers
3) Customers
4) Tax authorities/government
5) Lenders
6) Competitors
7) Inventors
8) Employees
9) The public
10) Management
11) Consultants
12) Auditors

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10
Q

What’s included under Noncurrent Assets:

A
  • Property, Plant and Equipment
  • Intangible Assets
  • Right of use Assets
  • Investments
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11
Q

What is included under Current Assets:

A
  • Inventories
  • Trade Receivables
  • Cash at Bank
  • Assets held for Sale
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12
Q

What included on Statement of Financial Position, under Equity:

A
  • Share Capital
  • Share Premium
  • Retained Earnings
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13
Q

What does a statement of Profit and Loss look like;

A

Revenue
-/- Cost of sales
= Gross Profit

+ Other Income
-/- Distribution Costs
-/- Admin expenses
= Profit from Operations

+ Investment income
-/- finance cost
= Profit before taxation

-/- Tax expense
= Profit for the year

+/- Total Comprehensive Income
= Total Comprehensive Income

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14
Q

Which IAS sets out what a Statements of Cashflow should look like:

A

IAS7: direct method is preferred (indirect method is allowed)

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15
Q

Summary of a Statement of Cashflow:

A

Cashflow from operating activities:
+ cash receipts from customers
-/- cash paid to suppliers
-/- cash paid to employees
-/- cash paid for other operating expenses
= Net cash from ops activities

Cashflow from investing act:
-/- Purchase of PPE
+ proceeds from sale PPE
-/- purchase of intangibles
-/- purchase of noncurrent asset investments
+ interest received
+ dividend received

Cashflow from financing act:
+ Proceeds from share issue
-/- payment of lease liabilities
-/- of long term debt
+ proceeds from issue of long term debt
-/- dividends paid
= Net cash used in financing act

-/+ Net increase or decrease in cash
+ cash at the beginning of the period
= cash at the end of the period

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16
Q

What accounting standard cover PPE

A

IAS16:

  • costs related to the purchase and installation need to be capitalised
  • costs for the day to day services are an expense

Costs to be capitalised add to the value of the asset.

17
Q

What does IAS16 cover:

A

PPE:

  • cost model OR
  • Revaluation model
18
Q

Cost model for PPE, under IAS16:

A
  • the same type of noncurrent assets need to be depreciated in the same way.
19
Q

2 types of depreciation:

A
  1. Straight-line depreciation:
    = Percentage x carrying value
  2. Reducing balance depreciation
    = (carrying value -/- residual value) / remaining useful economic life
20
Q

Fair value:

A

IAS16 PPE: allows assets in the same class to be revalued to their fair value

According to IFRS 13: fair value is the amount you would get for the asset if you were to sell it.

21
Q

Revaluation:

A

The revalued asset will be depreciated over its remaining useful life.

  • The asset will be showing on the SOFP at the revalued amount. (Debit difference between fair value and cost)
  • Accumulated depreciation to date is removed (its a change in accounting policy) (Debit Accumulated Depreciatiln
  • An increase in carrying value is recognised as a ‘revaluation surplus’ in other ‘comprehensive income’. (Credit Revaluation Surplus)
22
Q

How to record a disposal of a noncurrent asset:

A
  • Debit: Accumulated Depreciation
  • Debit: Cash (to recognise proceeds from the sale
  • Credit: Profit and Loss (to balance the loss or profit
  • Credit Machine Loss (to remove the cost of the machine)
23
Q

What accounting standard covers Impairment of Assets

A

IAS36
An asset is impaired when its carrying amount exceeds its recoverable amount.

This usually due to a reason why the asset can no longer be used:
- broken
- better technology available
- legal reason why you’re no longer allowed to use it etc.

24
Q

How to assess if an asset is impaired:

A
  • Compare Carrying Amount to its Recoverable Amount.
25
Q

What is the Recoverable Amount of an asset:

A

The greater of:
- Fair value less costs of disposal
OR
- Value in use

26
Q

How to account for Impairment, when an asset has lost value:

A
  • Debit Profit or Loss
  • Credit Machinery/Asset
27
Q

What accounting standard covers Accounting Policies, Changes in Accounting Estimates and Errors:

A

IAS 8
- Changes in depreciation method are mad prospectively, not retrospectively.
- Often a full year of depreciation is calculated in the year of purchase and none in the year of disposal.

28
Q

Keywords around depreciation:

A
  • straight line depreciation
  • reducing balance depreciation
  • Carrying value
  • Residual value (only to be deducted in straight line depreciation)

FLP Operational - F1 (4 decks)

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