What are the main objectives of accounts?
Summarise results of transactions to help management run the company, to report to interested parties the state of affairs of the co (to enable analysis).
Large companies must provide the following docs annually? (6)
Income statement, balance sheet, cashflow statement (financial) and Directors report, auditors report, statement of changes in equity.
What must listed companies do in addition?
Provide interim/half yearly reporting
Small and medium companies are exempted from delivering full accounts, and file abbreviated versions.
What makes a small company?
What makes a medium company?
Small: turnover <£6.5m, Balance sheet <£3.26m <50 employees
Medium: turnover <£25.9m, Balance sheet <£12.9m, <250 employees
What are the UK only Accounting Standards?
Financial reporting standards FRS, created by the FRC.
What are the international accounting standards?
International Financial Reporting Standards issued by the International accounting standards (IASB)
When are UK accounts prepared under IFRS?
Applies to consolidated accounts of listed companies
What is UK GAAP - (Generally Acceptable Accounting Principles) in terms of how is it made up and who must follow
UK Cos not preparing accounts under IFRS continue to comply with UK Standards issued by the FRC.
FRS102 and the reporting requirements of Companies Act 2006 make up UK GAAP.
FRS 102 took affect after 1st Jan 2015
A single standard covering the various different items previously covered under separate standards.
What is the role of the Auditor?
Report to shareholders on whether accounts are
1 Properly prepared
2 True and fair view
What are the types/audit report responses?
Unqualified - Clean / Clear
Qualified - Disagreement
What is on the top half of a balance sheet?
what the company owns in terms of assets
Give examples of current and non current assets
Non current (>1 yr): Held +1 year, property, plant, equipment. Intangible assets: patents, goodwill, development expenditure, trademarks e.t.c.
Give examples of current assets
Inventories, trade receivables, cash
Cash expenditure is recorded in 2 ways?
CapEx - Creates or improves an asset
RevEx - Revenue Expenses - reduces profit
How are non current assets managed in the balance sheet
Carried in balance sheet at cost (or valuation), less accumulated depreciation.
What is goodwill and how is it calculated? and what is its accounting treatment?
Goodwill arises on purchase of a property above its book value.
Goodwill = Purchase consideration - net assets acquired
Accounting treatment: Capitalise in the balance sheet, only amortise if can’t be maintained indefinitely, annual impairment reviews (if not amortised).
Methods of depreciation - what is straight line method
Straight line method - depreciation = original cost - expected residual value / expected useful life
Methods of depreciation - what is reducing balance method
Annual depreciation = constant % x last periods book value
E.g., constant % means, say plant has 5 years useful life - reduce by 20% after year 0.
What are examples of inventories?
Raw materials, Work in Progress, Finished Goods.
Explain accounting treatment of inventories - FIFO & LIFO & Weighted Average
Value at lower of cost and net realisable value
FIFO - Inventories (as costs) First in First Out therefore newer and higher value items (due to cost inflation left in stock).
LIFO - Inventories (as costs) Last in First Out: Older, Lower value items left in stock.
Then simple weighted average of inventories bought throughout year and appropriate percentage of inventories/cogs is appropriated.
What is share capital in the category of liabilities
Nominal value of issued shares
What comprises reserves?
Share premium - the amount by which shares have been issued in excess of nominal value
What is share premium used for?
Funding scrip issues and writing off start-up costs
What are revaluation reserves?
Cumulative surplus in in the revaluation of assets
