Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

AAT level 4 > Financial Statements > Flashcards

Financial Statements Flashcards

(90 cards)

Start Studying
1
Q

What is meant by the term entity?

A

An organisation such as a limited company whose activities and resources are kept separate from those of the owners

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What does a limited companies financial statements comprise of

A

1) Statement of FP
2) Statement of P/L
3) Statement of changes in Equity
4) Statement of cash flows

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the purposes of the conceptual framework?

A

1) Reduce alternative accounting treatments that are allowable
2) Assist in development of future standards and review current ones
3) Help interpret info in the financial statement
4) Deal with issues not yet covered in an accounting standard

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the objective of general purpose financial reporting?

A

To provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decision relating to providing resources to the entity.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Identify and explain the fundamental qualitative characteristics?

A

1) Relevance
- Makes a difference to decision made
- Helps predict future outcomes and confirm previous evaluations

2) Faithful Representation
- Complete, neutral and free from error

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the enhancing characteristics?

A

1) Comparability
2) Verifiable
3) Timeliness
4) Understandability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Define asset

A

A resource controlled by an entity as a result of past events from which future economic benefits are expected to flow

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Define Liability

A

A present obligation of the entity arising from past events from which settlement is expected to result in the outflow of resources

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Define equity

A

The residual interest in assets after deducting all of its liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Define expenses

A

Decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Define income

A

Increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

When should an item be recognised?

A

1) If it is probable that future economic benefits will flow to or from the entity
2) If it’s costs can be reliably measured

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Name 6 accounting concepts

A

1) Materiality
2) Going concern
3) Accruals
4) Business Entity
5) Consistency
6) No offsetting

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What comprises the regulatory framework?

A
  • accounting standards
  • company law
  • conceptual framework for financial reporting
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are the key features of a public limited company

A

It sells shares to public/investors via stock exchange.
It has to have:
- issued share capital over £50,000
- at least 2 directors and 2 shareholders
- a qualified company secretary

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the key features of a private limited company

A

Sells shares to friends/family/venture capitalists. It must have at least 1 director and 1 shareholder. There is no minimum requirement for share capital

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are the governing documents for a limited company?

A
  • Application form used to register a company
  • Memorandum of association
  • The articles of association
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are ordinary shares, and what are the risks/benefits and repayment terms?

A
  • They are regular shares and most common
  • Shareholders have voting rights
  • Due to limited liability you will only lose your investment.
  • Not guaranteed payment if a loss is made
  • Not guaranteed to have investment repaid if company closes down
  • Lose out if selling when share value is low
  • Rewarded via dividends - variable amounts. High reward if profit is good
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are preference shares, and what are the risks/benefits and repayment terms?

A
  • Preferential treatment
  • Paid a fixed amount
  • Paid to first from profit; before ordinary shares if low profits/company shuts down
  • Lose out if selling when share value is low
  • Miss out on higher rewards if profit is good
  • Paid via dividends
  • Shareholders do not have voting rights
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are debentures? What are the risks/benefits and repayment terms?

A
  • Lends money in return for interest payments
  • Payments are guaranteed regardless of profit
  • low risk, as investment is usually secured against assets
  • Never guaranteed the investment will be paid back
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Name 2 profit and loss items specific to limited companies

A
  • Debentures and Loans
  • Directors remuneration
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are the key differences between capital and revenue reserves?

A

Capital reserves are generated from non-trading activities e.g. revaluation surplus or share premium and are non-distributable.
Revenue reserves include retained earnings and are distributable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What’s the difference between statutory and annual accounts?

A

Statutory are the minimal reports that are required by law to be submitted to Companies House and HMRC. Annual reports are those available to shareholders and include:
- The 4 financial statements
- Disclosure notes to the financial statements
- Directors report
- Auditors report

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What are the requirements of The Companies Act?

A

1) Accounting records to give a true and fair view of the company’s financial position
2) Financial statements to be prepared using UK/International accounting standards
3) Directors to report on company performance to shareholders annually
4) Submitting accounts by 6 months after period end (PLC) or 9 months (LTD)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
What does IAS1 state a complete set of financial statements include?
1) S of FP 2) S of P/L and other comprehensive income 3) S of cash flows 4) Statement of changes in equity 5) Comparitive info for preceding period 6) Explanatory notes and accounting policies
26
Outline the process of proposal, approval and payment of dividends
1) Proposed by Board of Directors 2) Approved by shareholders after reading annual report 3) Can be paid as interim/final 4) Those declared by not paid at reporting date are disclosed in the notes to financial accounts
27
What disclosures are required about share capital by IAS1
1) Number of shares authorised 2) Number of shares issued and fully paid, and issued but not fully paid 3) The par value per share, or that shares have no par value
28
What is other comprehensive income?
Relates to revenue, expenses, gains or losses that have not yet been realised and therefore cannot be distributed as dividends to shareholders
29
Who requires an auditors report and what does it contain?
Only large companies need one, and it will have 3 sections: 1) Responsibilities of directors and auditors 2) Basis of opinion 3) Opinion - can be unqualified (no issues) or qualified (issues that need to be raised with users of financial statements
30
What is a bonus issue of shares?
When a company issues free shares to existing shareholders using reserves that have built up (capital is used first). No cash flow involved. Used to acknowledge that reserves belong to shareholders.
31
What is a rights issue of shares?
When additional shares are sold to current shareholders at a reduced price. Used to raise further finance.
32
Define depreciation
The systematic allocation of the cost less residual value of an asset over its useful life
33
Define residual value
The net amount expected to be obtained for an asset at the end of its useful life after deducting the expected costs of disposal
34
Define lease
A contract that conveys the right to use an underlying asset for a period of time in exchange for consideration
35
Define lessor
The entity that obtains the right-of-use asset, in exchange, transfers consideration
36
Define Lessee
The entity that provides the right to use an underlying asset in exchange for consideration
37
Define right-of-use asset
A lessee's right to use an underlying asset for the lease term
38
When can an asset be recognised?
1) it is probable that future economic benefits will flow to the entity 2) when the cost can be reliably measured
39
How is PPE measured?
At cost which includes: 1) Purchase price plus import duties/other tax 2) those directly attributable to bringing the asset to location in condition for intended use inc. testing 3) Estimated dismantling and removal costs at end of life
40
What is the difference between the cost and revaluation model?
Cost model - asset is carried at cost less depreciation and any impairment loss Revaluation - asset is carried at fair value. Revaluation takes place either yearly or every 3-5 years
41
What must be considered when determining the useful life of an asset?
1) Expected usage 2) Expected wear and tear 3) Expected technical changes/changes in demand 4) Legal/other limits on it's use
42
A revaluation surplus relating to PPE may be directly transferred to...
Retained Earnings
43
For each class of PPE the financial statements are to show:
1) Measurement basis 2) Depreciation method 3) useful lives/depreciation rates 4) Gross carrying amount and accumulated depreciation and impairment at beginning and end of period 5) Reconciliation of carrying amount 6) Any revaluation details
44
Define intangible asset
An identifiable non-monetary asset without physical substance
45
State and explain the 3 key elements of an intangible asset
1) Identifiable - Separate from the company or arising from contractual/other legal rights 2) Control - The entity has the power to obtain future economic benefits 3) Future economic benefits, includes revenue, cost savings etc
46
When can development costs be capitalised?
Meet all of the following: S- Saleable/usable item created E- Expenditure can be measure reliably C- Completion of asset for use/sale T- Technically feasible to complete O- Outcome, how future economic benefits will be generated R- Resources are available to compelte development
47
How are intangible assets to be measured?
1) Finite - Amortised over it's useful life 2) Indefinite - tested for impairment annually and useful life checked annually to make sure it's still indefinite
48
How do you calculate an asset's recoverable amount?
It's the higher of: 1) Fair value (price received in an orderly transaction between market participants at measurement date) less costs of disposal 2) Value in use - the present value of the future cash flows expected to be derived from the asset
49
How is a right-of-use asset recognised?
1) DR right-of-use asset in S of FP 2) CR Lease Liability
50
Define inventories
Assets held for sale in the ordinary course of business
51
Which costs can be included in the development of internally generated assets, and which can't?
Direct not admin overheads
52
Where will a previous year's under/over provision of tax show in the FS?
In the statement of P/L only
53
Define provision, and when can it be included in FS?
1) Provision is a liability of uncertain timing and amount 2) It can be included when there is actual liability, it is probable payment will be made and a reliable estimate can be made of the amount
54
Define obligating event
An event that creates a legal or constructive obligation resulting in an entity having no realistic alternative to settling the obligation
55
What is the difference between a legal and constructive obligation?
The legal derives from a contract, legistlation or other operation of law. The constructive derives from an entity's actions such as an established pattern of past practice
56
What should be diclosed in the notes regarding provision?
- Description of provision and expected timings of payments - Any uncertainties - Reconciliation of provision movements
57
What is a contingent liability?
- A possible obligation depending on an uncertain future event, or; - A present obligation but payment is not probable or the amount cannot be measured reliably
58
Are contingent liabilities included in the FS, the notes, or not at all? What about contingent assets?
They are not included in the FS, and only included in the notes if possible. If remote, they are not disclosed at all. Contingent assets are only disclosed if they are probable, and not at all if possible/remote.
59
In what instances can changes be made to the FS after the reporting period?
Only before the FS are authorised for issue, and they can only be made in the period after the end of the financial year
60
What are the steps to recognising revenue?
1) Identify the contract with a customer 2) Identify the performance obligations in the contract 3) Determine the transaction price 4) Allocate the transaction price to the performance obligations 5) Recognise revenue when a performance obligation is satisfied
61
What are the IFRS15 requirements for a contract?
1) Approved by parties 2) Each party's rights in relation to goods/services can be identified 3) Payment terms can be identified 4) Probable that consideration will be collected 5) It has commercial substance
62
When can revenue be recognised over time?
- If the customer simultaneously received and consumes the benefits from the entity's performance - If the entity is creating or enhancing an asset controlled by the customer - If the entity cannot use the asset 'for alternative use' and the entity can demand payment for its performance to date
63
What is the difference between an adjusting and non-adjusting event?
Adjusting - provides evidence that the condition existed at the reporting date Non-adjusting - indicates the condition arose after the reporting date
64
Define revenue
Income arising in the course of an entity's ordinary activities
65
What is the formula for calculating ROCE?
operating profit/(total equity + non-current liabilities) x 100
66
What is the formula for calculating return on shareholder funds?
Profit after tax/Total equity x 100
67
How is the current/working capital ratio calculated?
Current assets/current liabilities = x:1
68
What is the formula for asset turnover?
Revenue/non-current assets OR Total assets-current liabilities
69
What is the formula for interest cover?
Operating profit/finance costs = x times
70
What is the formula for gearing?
Non-current liabilities/total equity + non-current liabilities
71
Define Acquiree
The business that the acquirer obtains control of in a business combination
72
Define acquirer
The entity that obtains control of the acquiree
73
What is a business combination
A transaction or other event in which an acquirer obtains control of one or more businesses
74
What is goodwill?
An asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised
75
What is non-controlling interest
The equity in a subsidiary not attributable, directly or indirectly, to a parent
76
What accounting standard is Business Combinations?
IFRS 3
77
What accounting standard is Consolidated Financial Statements?
IFRS 10
78
What accounting standard is Revenue from Contracts with Customers
IFRS 15
79
What accounting standard is Leases
IFRS 16
80
What accounting standard is Presentation of Financial Statements
IAS 1
81
What accounting standard is Inventories
IAS 2
82
What accounting standard is Statement of Cash Flows
IAS 7
83
What accounting standard is Events after the Reporting Period
IAS 10
84
What accounting standard is Income Taxes
IAS 12
85
What accounting standard is PPE
IAS 16
86
What accounting standard is Impairment of Assets
IAS 36
86
What accounting standard is Provisions, Contingent Liabilities and Contingent Assets
IAS 37
87
What accounting standard is Intangible Assets
IAS 38
88
What is the formula for inventory turnover?
Cost of Sales / Inventory
89
What is the formula for inventory holding period?
Inv / Cost of Sales x 365

AAT level 4 (2 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions