Framework And Ethics

Question 1

The main benefit of accounting standards

Answer 1

Credibility, comparability and discipline

Question 2

Credibility?

Answer 2

Financial statements would lose credibility if companies carrying out similar transactions disclosed markedly different results simply because they could select accounting policies.
Therefore, accounting standards are necessary to ensure financial reports give a true and fair view of the company.

Question 3

Comparability?

Answer 3

By having financial statements prepared on a consistent basis, inter-company comparisons can be made.

Question 4

Companies act 2006 states that what items must be filed with the registrar of companies.(also referred to as published accounts)

Answer 4

Statement of profit and loss 
Statement of financial position 
A directors report 
An auditors report 
Group accounts (If the company has subsidiaries)

Question 5

Why would investors be interested in the financial statements

Answer 5

Investors need to make decisions that involve buying, holding or selling shares or debt investments(loan stocks debentures), also they need information about the returns the might expect

Question 6

Why would a lender/other creditor be interested in the financial statements

Answer 6

The would need information to make decisions about providing or settling loans and other forms of credit. They need information about the returns they can expect from lending (interest payments and the eventual repayment of the principal amount of the loan)

Question 7

What do lenders and creditors need information about

Answer 7

Assets
Liabilities
Stewardship

Question 8

Who are the secondary users who will also be interested in a companies financial statements.

Answer 8

Management
Regulators
Employees
Individuals

Question 9

What are the fundamental qualitative characteristics

Answer 9

Relevance
Faithful representation
Materiality

Question 10

What are the enhancing qualitative characteristics

Answer 10

Comparability
Varifiability
Timeliness
Understandability

Question 11

Assets turnover total assets

Answer 11

Total assets

Revenue ÷ total assets

Question 12

Assets turnover net assets

Answer 12

Revenue ÷ total assets- current liabilities

Question 13

Capital employed

Answer 13

Capital and reserves (equity)+ non current liabilities

Question 14

Current ratio

Answer 14

Current assets ÷ current liabilities

Question 15

Expense/revenue percentage

Answer 15

Operating expenses/ cost of sale÷ revenue

X100

Question 16

Gearing

Answer 16

Non current liabilities ÷total equity +non current liabilities
X100

Question 17

Gross profit percentage

Answer 17

Gross profit ÷revenue

X100

Question 18

What is highly geared

Answer 18

A company having a high proportion of debt compared with equity

Question 19

Interested cover

Answer 19

Profit from operations/ operating profit ÷ finance costs

Question 20

Inventory holding period

Answer 20

Investors ÷ cost of sales

X365

Question 21

Inventory turnover

Answer 21

Cost of sales ÷inventory

Question 22

What is liquidity

Answer 22

The ability to pay its debts as they fall due

Question 23

Operating profit percentage

Answer 23

Profit from operations ÷revenue

X100

Question 24

Quick ratio

Answer 24

Current assets- inventory ÷ current liabilities

Question 25

Return on capital employed

Answer 25

Operating profit ÷total equity + non current liabilities | X100

Question 26

Return on equity

Answer 26

Profit after tax ÷ total equity x100

Question 27

Trade payables payment period

Answer 27

Trade payables ÷ cost of sales | X365

Question 28

Trade receivables collection period

Answer 28

Trade receivables ÷ revenue | X365

Question 29

Working capital cycle

Answer 29

Inventory days + receivable days - payable days Or specified expense ÷revenue X100

Question 30

What is a subsidiary

Answer 30

An entity that is controlled by another entity ( the parent company)

Question 31

What is non controlling interest

Answer 31

The remaining amount not owed but the parent company

Question 32

What would is an adjusting event

Answer 32

Events after the reporting period which provide evidence of conditions existing at the end of the reporting period

Question 33

What is a Constructive obligation

Answer 33

An obligation which occurs where an entity indicates that it will accept certain responsibilities and, as a result, the entity has created a valid expectation that it will discharge those responsibilities.

Question 34

Contingent assets

Answer 34

A possible assets that arises from past events and whose existence will be confirmed only by the occurrence of one or more uncertain future events not wholly within the entitys control

Question 35

Amortisation

Answer 35

The systematic allocation of the depreciable amount of an intangible asset over its useful life.

Question 36

Carrying amount

Answer 36

The amount at which an asset is recognised after deducting any accumulated depreciation (Amortisation) and accumulated impairment losses.