Miscellaneous

Question 1

When an asset is classified as “held for sale”, what value should it be recorded at in current assets?

Answer 1

The lower of the carrying value and fair value less costs to sell.

Question 2

What constitutes a lease according to IFRS 16 Leases?

Answer 2

An agreement that relates to the hire of one or more specific assets that are controlled by the lessee.

Question 3

What qualifies an event as requiring an adjustment in the financial statements?

Answer 3

An event that provides evidence of conditions that existed at the reporting date. E.g. not a fire that damaged inventories that took place AFTER the reporting date.

Question 4

Direct method of calculating cash received from customers

Answer 4

Opening receivables + Sales revenue - Closing receivables

Question 5

Calculating cashflow when given opening and closing PPE balance, disposal and depr during the year.

Answer 5

Draw T account for PPE, Bal b/f on Debit, Disposal, Depr and Bal c/f on Credit, cash on disposal will be the balancing figure on the Debit side

Question 6

Annual rate of interest formula - when offered a discount on early payment of invoice

Answer 6

= ((100/percentage amount left to pay)^365/(normal credit period less discount available period)) - 1

Question 7

Calculate net saving if an early payment discount is accepted.

Answer 7

The amount paid early (price less discount) will need to be financed by overdraft, so calculate interest paid for duration overdraft would be needed. If usually paid after two months and discount received if paid within one month, this means the extra month will need to be funded by overdraft, so multiply the discounted amount by the interest rate then divide by 12 to give interest cost of one month. Compare this to the net saving from taking the discount.

Question 8

What is the final draft of a reporting standard before publication called?

Answer 8

Exposure draft

Question 9

What is the CIMA code of ethics?

Answer 9

Integrity, Objectivity, Confidentiality, Professional Competence and Due Care, Professional behavious

Question 10

What are the fundamental qualitative characteristic in the Conceptual Framework?

Answer 10

Relevance and faithful representation

Question 11

What costs are included in initial recognition of an asset?

Answer 11

Purchase price incl. irrecoverable taxes and trade discounts. Preparation costs (delivery, site preparation). Initial estimates at present value of dismantling and removing the asset (if present legal obligation exists e.g. oil rig)

Question 12

What costs are included in subsequent recognition of an asset?

Answer 12

Only costs that improve the asset and extend its life or standard of performance

Question 13

Describe the two methods of depreciating an asset

Answer 13

Straight line - useful life is estimated, value of asset is divided by number of years of useful life and depreciated by that amount each year to arrive at residual value (value of disposing asset at end of useful life) by end of estimated useful life | Reducing balance - reducing the carrying amount of the asset by a given percentage each year

Question 14

How is an asset revalued using the cost model?

Answer 14

Carried at cost less accumulated depreciation and impairment losses

Question 15

How is an asset revalued using the revaluation model?

Answer 15

Carried at fair value less accumulated depreciation and impairment losses

Question 16

Give examples of external sources that could indicate as asset should be impaired?

Answer 16

Decline in market value, adverse change in technological, economic or legal environment

Question 17

Give examples of internal sources that could indicate as asset should be impaired?

Answer 17

Obsolescence/physical damage, significant changes in use of asset (e.g. becoming idle, restructuring dept where used), evidence assets econ perormance will be worse than expected, operating losses or net cash outflows from the asset, loss of key employee

Question 18

What conditions could indicate impairment of an asset?

Answer 18

Changes in technological environment, physical damage, plans to dispose of an asset. NOT decreases in market interest rates.

Question 19

What affect would decreasing market interest rates have on the value in use of an asset?

Answer 19

Decreasing interest rates would increase the value in use as this is calculated using discounted cash flows and the the discount factor would increase as the interest rate decreases.

Question 20

What is the recoverable amount of an asset?

Answer 20

The HIGHER of the fair value less costs to sell and the value in use.

Question 21

How do you calculate the value in use of an asset?

Answer 21

Discount future cash flows to their present value. The annual cash flows produced are multiplied by the sum of the discount factors for each year of the remaining life.

Question 22

Define a fiduciary relationship?

Answer 22

Directors have stewardship of an enitity for the shareholders that own it, this stewardship is known as a fiduciary relationship, the directors must act in the interests of the shareholders, not in their own interests

Question 23

What steps should you take, and in what order, when faced with a threat to the CIMA Ethical Code?

Answer 23

Hierarchy of reporting a potential breach of CIMA Ethical Code: gather the facts and be sure there is an issue, line manager (if reasonable) or trusted colleague, higher management, board or non-exec?, externally (auditors, trady regulatory authority, CIMA), try to change team or dept or even resign

Question 24

Define an “organisation”? (Buchanan and Huczynski)

Answer 24

Organisations are social arrangements for the controlled purpose of collective goals

Question 25

Possible ways of releiving capital losses

Answer 25

Carry forwards or backwards against capital gains, offset against trading income in current period.

Question 26

Depreciation definition

Answer 26

Depreciation is an application of the accruals principle and matches the cost of the asset to the period that benefits are obtained

Question 27

4 examples of ources of short-term funding

Answer 27

Trade payables, factoring or invoice discounting, bank overdraft, financing exports

Question 28

Annualised cost of a discount (as percentage)

Answer 28

[(100/{100-discount percentage})^(365/reduction in days to pay)]-1

Question 29

Calculate amount paid to suppliers when given COS, Inventory change, Trade payable change

Answer 29

COS less inventory used = purchases, purchases less trade payable increase = payments made

Question 30

EOQ formula

Answer 30

“2 cod over chips” Ensure demand and cost of holding inventory are in same units (month/year) when putting values into the square root of 2 CoD over Ch-ips formula, remember Ch-ips is only the C(ost) of h(olding) inventory

Question 31

EOQ definition

Answer 31

The EOQ is the optimum order quantity where holding costs equal ordering costs.

Question 32

In the first year of a lease what will be the amount recognised on the SOFP?

Answer 32

The present value of the future lease payments + payments already recorded + direct costs - 1 yr of depreciation (present value lease payments/duration in yrs of lease)

Question 33

What must be shown separately within SOFP?

Answer 33

PPE, Share Capital, Held for sale assets, but NOT accruals, they can be but can included within trade and other payables if preferred

Question 34

Treatment of dividends when calculating taxable profit

Answer 34

Dividends don’t go through income statement so don’t including when adjusting acc profit to tax profit, question may put in amount of dividends (disallowable) to mislead you

Question 35

How can tax be claimed back regarding standard rates, zero rated and exempt supplies and sales?

Answer 35

Sales tax is charged on Standard rated sales but not on zero rated or exempt. For purchases, sales tax can be claimed back for all purchases relating to standard rated and zero rated sales, but not relating to exempt sales

Question 36

Define faithful representation (3 characteristics)

Answer 36

Faithful representation = free from error, neutral, complete

Question 37

Treatment of non-trading income when calculating taxable trading profits

Answer 37

Remember to deduct non-trading income from Profit Before Tax when calculation taxable trading profits

Question 38

Allowable deductions when calculating a taxable gain? Examples

Answer 38

Allowable deductions when calculating a taxable gain: incidental costs, enhancement costs, repairs to make the asset useable upon purchase. Disallowable: general repairs once asset is in use