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117 Cards in this Set
- Front
- Back
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Name the ratios for measuring profitability. |
Gross profit percentage Expense/revenue percentage Operating profit percentage Return on capital employed Return on shareholders fund |
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Name the ratios uses for measuring liquidity. |
Current ratio Acid test ratio Inventory holding period Inventory turnover Trade receivables collection period Trade payables payment period Working capital cycle Asset turnover ratio Net asset turnover ratio |
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Name the ratios for calculating the financial position of a company. |
Interest cover Gearing ratio |
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How do you calculate Gross Profit Percentage |
Gross Profit / Revenue * 100% |
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How do you calculate Expense/Revenue Percentage |
Specific Expense / Revenue * 100% |
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How do you calculate Operating Profit Percentage |
Profit from Operations / Revenue * 100% |
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How do you calculate return on captial employed |
Profit from operations / Total equity + Non current Liabilities * 100% |
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How do you calculate Return on Shareholders funds |
Profit after tax / total equity * 100% |
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How do you calculate the current ratio |
Current assets / current liabilities |
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How do you calculate the acid test ratio |
Current assets - inventory / current liabilities |
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How do you calculate the inventory holding period |
Inventoyr / cost of sales * 365 |
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How do you calculate inventory turnover |
Cost of sales / inventory |
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How do you calculate the trade recievables collection period |
Trade recievables / Revenue * 365 |
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How do you calculate the trade payable payment period |
Trade payables / cost of sale * 365 |
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How do you calculate Working Capital Period |
Inventory days + Receivables days - payables day |
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How do you calculate Asset Turnover ratio |
Revenue / Non current asset |
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How do you calculate asset turnover - net asset ratio |
Revenue / (Total assets - current liabilities) |
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How do you calculate interest cover |
Profit from Operations / Finance Costs |
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How do you calculate Gearing |
Non current liabilities / (non current liabilities + Total equity ) * 100% |
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What are the 6 steps involved in consolidating Financial Statements |
1) Establish the group structure 2) Calculate the net assets of the subsidiary 3) Calculate the goodwill on consolidation 4) Calculate the non controlling interest 5) Group retained earnings 6) If necessary, adjust for fair value adjustments |
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What standard covers "Business Combinations"? |
IFRS 3 - Business Combinations |
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Under IFRS 3 Business Combinations what is the definition of fair value? |
Fair value - The price that would be received to sell an asset or paid to transfer liability in an orderly transaction between market participants at the measurement date. |
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Under IFRS 3 Business Combinations what is the definition of Goodwill? |
An asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified. Goodwill is tested annually for impairment under IAS 36. |
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What standard covers "Consolidated Financial Statements"? |
IFRS 10 - Consolidated Financial Statements |
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Under IFRS 10 Consolidated Financial statements what is the definition of control? |
Control - when an investors is exposed, or has rights, to variable returns from it's involvement with the investee and has the ability to affect those returns through its power over the investee. |
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What standard covers "Revenue from contracts with customers"? |
IFRS 15 - Revenue form contracts with customers |
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How should an entity recognise revenue under IFRS 15 (Revenue from contracts with customers)? |
Revenue should be recogniased to depict the transfer of promised goods or services to customers in an amount that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services. |
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Under IFRS 15 (Revenue from contracts with customers) what is the definition of income? |
Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases if liabilities that result in the increase in equity other than those relating to contributions from equity partners. |
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Under IFRS 15 (Revenue from contracts with customers) what is the 5 step process for identifying revenue? |
1) Identify the contract 2) Identity the performance obligation in the contract
3) Determine the transaction price 4) Allocate the transaction price to the performance obligation in the contract 5) Recognise the revenue when a performance obligation is satisfied |
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What standard covers "Leases"? |
IFRS 16 - Leases |
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What standard covers "Presentation of financial statements" |
IAS 1- Presentation of financial statements |
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Under IAS 1 (Presentation of financial statements) what is the objective of financial statments |
The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. |
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Under IAS 1 (Presentation of financial statements) What is included in a full set of financial statements |
Statement of Financial Position Statement of Profit/Loss & Other comprehensive income Statement in changes in Equity Statement of Cash flows Accounting policies and explanatory notes Comparative information for the preceding period |
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What standard is concerned with "inventories" |
IAS 2 Inventories |
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Under IAS 2 (Inventories) what is the definition of inventories |
Inventories are assets held for sale in the ordinary course of the business |
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Under IAS 2 (Inventories) what are the two values that inventories should be valued at the lower of? |
Cost and net releasable value |
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Under IAS 2 (Inventories) what are the two acceptable inventory valuation methods? |
First in First Out (FIFO) & Average cost (AVCO) |
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What standard is concerned with "Statement of cashflows"? |
IAS 7 Statement of cashflows |
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Under IAS 7 (statement of cash flows) what does the statement of cash flows show? |
The statement of cash flows shows the link between profit with changes in assets and liabilities and the effect on the cash of the company. |
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Under IAS 7 (Statement of cash flows) there are three sections. What are they? |
Operating activities investing activities Financing activities |
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What is the standard concerned with "Events after the reporting period"? |
IAS 10 Events after the reporting period |
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Under IAS 10 (Events after the reporting period) what is a adjusting event? |
An adjusting event are events that evidence can be provided for and they are material and should be adjusted in the financial statements |
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Under IAS 10 (Events after the reporting period) What is a non-adjusting event? |
Indicative of the conditions that arouse after the end of the reporting period however no adjustment is made to the financial statements. If material they are disclosed in the notes. |
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What standard is concerned with Property, Plant and Equipment? |
IAS 16 Property plant and equipment |
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Under IAS 16 (Property, Plant and Equipment) what is the definition of PPE? |
Tangible assets held for use in the production or supply of goods and services, which are expected to be used for more than one period. |
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Under IAS 16 (Property, Plant and Equipment) what is the definition of depreciation? |
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. |
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Under IAS 16 (Property, Plant and Equipment) what is the definition of depreciable amount? |
Depreciableamount is the cost or valuation of the asset less any residual value. |
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Under IAS 16 (Property, Plant and Equipment) what is the definition of the useful life? |
The useful life is the length of time that the asset is expected to be used for. This may also be measured in units of output instead of time. |
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Under IAS 16 (Property, Plant and Equipment) what is the definition of fair value? |
Fair value is the price that would be received to sell an asset or the price paid to transfer the liability in an orderly transaction between market participants at the measurement date. |
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Under IAS 16 (Property, Plant and Equipment) what is the definition of impairment loss? |
Impairment loss is the amount by which the carrying amount of and asset exceeds the recoverable amount which is written off or impaired. |
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Under IAS 16 (Property, Plant and Equipment) what is the definition of recoverable amount? |
The higher of the assets fair value less cost to sell and the assets value in use. |
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Under IAS 16 (Property, Plant and Equipment) what is the definition of carrying amount? |
Carrying amount is the amount at which the asset is recognized at in the financial statements after deducting accumulated depreciation and impairment loss. |
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Under IAS 16 (Property, Plant and Equipment) what is the definition of recognition? |
Recognition has two two criteria; it is probable that future economic benefits will flow to the entity The cost can be measured reliably |
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Under IAS 16 (Property, Plant and Equipment) What is the definition of derecognition? |
Derecognition occurs when an item of PPE is disposed of, or when it has no future economic benefits expected to flow from its use or disposal. |
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Under IAS 16 (Property, Plant and Equipment) What are the two valuation models? |
Cost model Revaluation model |
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Under IAS 16 (Property, Plant and Equipment) how does the cost model work? |
Cost model takes the cost of the asset less depreciation and impairment cost |
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Under IAS 16 (Property, Plant and Equipment) how does the revaluation model work? |
Asset is carried at its revalued amount, being it fair value. |
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What standard is concerned with "Impairment of assets" |
IAS 36 - Impairment of assets |
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Under IAS 36 (Impairment of assets) what is the review of impairment? |
1) What is the assets carrying amount? 2) What is the assets recoverable amount? Higher of fair value less cost of disposal and value in use. 3) If the carrying amount is greater than the recoverable amount, then the asset should be impaired and recognised in the P&L and Balance sheet. |
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What standard is concerned with "Provision, contingent liabilities and contingent assets"? |
IAS 37 - Provisions, contingent liabilities and contingent assets |
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Under IAS 37 (Provisions, contingents liabilities and contingent assets) what is the definition of provisions? |
A provision is a liability of uncertain timing or amount |
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Under IAS 37 (Provisions, contingent liabilities and contingent assets) what is a contingent liability? |
A contingent liability is either; A possible obligation arising from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future event not wholly within the entity control or A present obligation that arises form past events but is not recognise because; it is not probable that an outflow of economic benefits will be required to settle the obligation. or the present obligation cannot be measured with sufficient reliably. |
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Under IAS 37 (Provisions, contingent liabilities and Continent assets) what is a contingent asset? |
a contingent asset is a possible asset arising from past event but whose existence will be confirmed only by the occurrence or non occurrence of one or more uncertain events not wholly within the entities control. A business should not recognise a contingent asset in it's financial statements. |
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What is the standard concerned with "Intangible assets"? |
IAS 38 Intangible assets |
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Under IAS 38 Intangible assets what is the definition of an intangible asset? |
An intangible asset is an identifiable non monetary asset without physical substance. |
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Under IAS 38 (Intangible assets) what is the definition of identifiable? |
Identifiable is defined as being separable form the entity or is capable of being old or transferred or if arises from contractual or other legal rights. |
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Under IAS 38 (Intangible assets) what is the definition of control? |
The entity has the power to obtain future economic benefits from the asset. |
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Under IAS 38 (Intangible assets) what is the definition of research? |
Research is defined as the original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding. |
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Under IAS 38 (Intangible assets) what is the definition of development? |
Development is defined as the application of research findings or other knowledge to the planning and production of new or substantially improved materials, devices or products etc. before the start of commercial use. |
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Under IAS 38 (Intangible assets) what is the treatment of research? |
Under IAS 38 (Intangible assets) research should be expenses through the P&L. |
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Under IAS 38 what is the treatment of development? |
Development can be capitalized if it meets the relevant criteria. |
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Under IAS 38 (Intangible assets) what are the criteria to capitalized development? |
The development must meet 6 criteria. 1) Technical feasibility 2) Intention to complete 3) Ability to sell the intangible asset 4) Way in which future economic benefits are expect to arise 5) Availability of resources to complete 6) Availability to measure development expenditure reliable |
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When reconciling the statement of cash flows to the profit and loss what are the three headings adjustments can come under? |
Operating activities Investing activities Financing activities |
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Under the statement of cash flows what are the adjustments required to get cash generated from operating activities? |
1) Working Capital (Inventories, Payables & Receivables) 2) Depreciation 3) Finance Costs 4) Profit/Loss of Disposals |
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When reconciling the cash generated from operating activities what number do you start with? |
Profit before tax |
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Under the statement of cash flows what are the adjustments required to get net cash generated from operating activities? |
1) Interest paid 2) Tax Paid |
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When reconciling the net cash generated from operating activities what number do you start with? |
Cash generated by operations |
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What are the adjustment required for investing activities? |
1) PPE 2) Dividends/ Interest received |
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What are the adjustments required for financing activities? |
1) Bank Loans 2) Dividend paid 3) Share issues |
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How do you calculate the adjustment for PPE purchased in the year? |
Value at the start of the year - Carrying amount of PPE sold - Depreciation +/- Revaluation/ Impairment - PPE at end of the year = PPE purchased in the year |
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How do you calculate the adjustment for PPE proceeds? |
Carrying amount + Profit/ (Loss) on the disposal |
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What are examples of external source of information for credit referencing? |
Bank References Trade References Credit circles Credit rating agencies |
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What are examples of internal sources of information for credit referencing? |
Records of meetings Conversations and site visits |
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What is the definition of overtrading? |
Overtrading is the situation where a business expands its levels of sales rapidly and then finds it has a shortage of working capital and not enough cash available to support the increased level of sales. |
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How do you calculate the cost of EPD? (Simple Method) |
(discount/ (100-discount)) * (365/(New terms - Old terms)) * 100% |
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How do you calculate the cost of EPD? (Compound Method) |
(1 + ( discount/(100-discount))) ^ ((365/(New terms - old term))-1) |
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What regulation is concerned with charging interest to overdue debt and how much interest may be charged? |
Late Payment of Commercial Debt Regulation 2013. The regulation allows interest to be charged at 8% above BoE base rate. |
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How is interest charged on overdue debt calculated? |
Amount inc VAT * (BoE BR + 8%) * (number of days overdue /365) |
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What does the Retention of Title clause state? |
The Retention of Title clause states that ownership of the goods sold do not transfer to the customer until full payment has been received. This is to make it easier to reclaim the goods if the customer refuses to pay for them. |
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What are the four main types of credit insurance? |
1) Whole Turnover - Generally covers 75-90% of the receivables 2) Key account insurance - Smaller amount of customers by 100% cover 3) Single account - 100% cover 4) Catastrophe - Cover from natural disaster |
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What are the three element of a contract? |
1) Agreement - An offer and acceptance 2) Bargain - Some value passes 3) Intention to create legal relations - The agreement is commercial |
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What are express terms in a contract? |
Explicitly stated terms which are binding to both parties to the contract. |
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What are conditions in a contract? |
Fundamental terms of the contract which if broken will enable the injured party to reject the contract and sue for damages. |
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What are warranties in a contract? |
Warranties are minor terms which if broken can cause ground for damages bu the contract remains in place. |
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What are implied terms in a contract? |
Terms not stated but are implied by trade customs and law |
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What are the key points of the Trade Descriptions Act? |
The Trade Descriptions Act makes it a criminal offence to make false statement about goods offered for sale or to make misleading statements about services. |
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What are the main points under the Consumer Rights Act 2015? |
The Consumer Rights Act 2015 states that consumers are entitled to a full or part refund if goods are not: If satisfactory quality Fit for purpose As described |
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What are the main points of the Consumer Credit Act? |
The Consumer Credit Act aims to prevent customers being ripped off or forced into unsuitable credit arrangements by offering a range of cooling off rights. |
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What are the main points of the Unfair Contract Term Act? |
A supplier can't contract out in the small print. Unfair terms would enable the customer to seek compensation. |
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What are the main points of the Data Protection Act 2018? |
Applies to personal data about identifiable individuals but not companies All organisations that handle personal data must register with the ICO Principles include: 1) Lawfulness, Fairness & Transparency 2) Purpose Limitation 3) Data Minimization 4) Accuracy 5) Storage Limitation 6) Integrity & Confidentiality 7) Accountability |
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What are the accounting ethics? |
Professional Behavior Integrity Professional competence and due care Confidentiality Objectivity |
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How do you calculate the average period of credit? |
(Receivables / credit sales ) * 365 |
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What is the definition of a doubtful debt? |
A doubtful debt is a debt that is unlikely to be paid but there is still a chance/ |
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What is the definition of an irrecoverable debt? |
Are doubtful debts that have lossed the element of doubt. They need to be written off. |
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What are the two ways a debtor may be taken to court? |
1) To enforce repayment 2) To bring about bankruptcy |
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What are the three main court tracks that may be used to settle a debt? |
1) Small claims track - Less than £10,000 2) Fast track - £10,000 - £25,000, One day in court 3) Multi Track - More complex cases, more than one day in court or over £25,000. |
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What are the five enforcement of judgement? |
1) Garnishee Order 2) Warrant of Execution 3) Warrant of Delivery 4) Attachment of Earnings 5) Charging order |
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What is the definition of a Garinshee order? |
A court order is sent to the debtor bank to settle money directly to a supplier. |
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What is the definition of Warrant of Execution? |
Court bailiffs will seize assets of the debtor to sell to pay off the debts. However, the cannot break down doors or seize tools of the trade. |
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What is the definition of Warrant of Delivery? |
Court bailiffs seize goods that are under a retention of title clause. |
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What is the definition of Attachment of Earnings? |
If the debtor is employed a court order is sent to their employee to pay over a portion of their pay until the debt is cleared. |
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What is the definition of a charging order? |
If a customer owes property an interest can be attached to it stating that when the eventual sales occurs that the supplier has an interest in the money received. |
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What are the criteria for a VAT write off of irrecoverable debt? |
1) VAT must have already been accounted for and paid to HMRC 2) The debt must be written off in the accounts 3) The debt must have remain unpaid for 6 months 4) The claim must be maid within 4 years and 6 months |
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What are the criteria under the retention off good clause to enable bailiffs to reclaim goods? |
1) Goods must be clearly identifiable 2) Good must not have been processed. |
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What is the definition of insolvency? |
Insolvency is being unable to pay for debts as the fall due |
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What are the stages of insolvency? |
1) Ensure the debt is above £5,000 2) Make a statutory demand to the debtor on an official form 3) If payment is not received within 3 weeks send a creditors petition to the court. The court may call a creditors meeting. 4) The court makes a bankruptcy order against the customer and appoints an official who arranges the sale of assets and distributes the proceeds |
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What is the priority of repayment in insolvency? |
1) Cost of bankruptcy proceedings 2) Preferential debts (E.g wages) 3) Floating Charges 4) Unsecured payables |
