What is IRFS and GAAP, how it differs in the UK and the main differences
GAAP is mainly used in US
IFRS is mainly ised internationally
In the UK, GAAP (FRS 102) is used by SMEs and medium sized comapnies, whilst those which are international companies, they use IRFS for comparables, the UK versions are
Both are accounting rules and standards which allow for the preperation, presentation and reporting of fianical accounts to ensure accuracy and transparency
Key Differences
GAAP is rule based IRFS is principle based
GAAP allows LIFO but IRFS prohibits
GAAP does not allow re-evaluation of assets but IRFS does
GAAP recongises R&D costs as expense but IFRS does not
What are the different accounting ratios and what do they mean?
Profitability Ratio
Shows profit following all expense i.e profit / expense, the higher the better
Liquidity Ratio
Ability to pay of short term debts, i.e current assests / current liabilies, higher the better, lower may show sign of insolvency
Gearing Ratio
Shows debt vs equity in buisness, debt / equity, higher = worse
What is required under the Comapnies House Act 2006?
The act sets out the legal requirements for all buisness entities and people associated with them
It covers how to incoperate a comapany
Directors responsbilites
Obligations for filing (even if not trading still required)
Rights of shareholders
What is the difference between managment and finaincal accounts and why are they important?
Managment = for internal use, allows for buisness planning, fnanical forcasting, descsion making
I.e financial report
Finanical = required by law for external review and audit and for calculation of TAX by HMRC
Both allow planning, performance reveiw, legal compliance and investing
What are the key finanical accounts and what are they used for?
Balance Sheet
Asset and liabilites for a given period
it shows finanical health
Cash Flow
All ingoing and outgoing of cash for a given period
It shows liquidity, allows performance review
Profit and Loss
All expenditiure and resultant profit for a given period
Shows finaical health
How do you check companies finanical strengh and how do you proceed if weak?
D&B, Liquidity Ratios (lower = worse), review finaical accounts
Can proceed with performance bond or retention
What is a D&B rating?
The D&B Rating is an indicator that assesses the creditworthiness of a company based on the financial strength of the business, payment behaviour, age of the company, company size and other important factors
What are the two components comprising the D&B rating?
Financial Strength (e.g. 5A) rating is based on the tangible net worth as computed by D&B from financial statements supplied by the company. The rating indicates the credit capacity
Risk Indicator highlights the chance of business failure, ranging from 1 – 4 with one reflecting low/minimum risk and four reflecting high risk
What is your understanding of term tax depreciation?
It is where the declining value of an asset is offset against a companies taxable profit.
The depreciation in value can be recorded as an expense in order to reduce the amount of taxable income.
This can be applied on things such as plant, tools, vehicles computers, furniture and buildings.
What is the difference between a current and fixed asset?
Current assets are short-term assets that are typically used up in less than one year. Current assets are used in the day-to-day operations of a business to keep it running. Fixed assets are long-term, physical assets, such as property, plant, and equipment (PP&E)
What is meant by the terms Gross and Net?
in salary terms, Gross is the total salary and net is salary minus tax and all other deductions.
What are disbursements?
Disbursements are a third party cost (e.g. cherry pickers) that are allocated to projects. These are paid by Hollis and usually recovered from clients through billing.
What are the different types of buisness which operate in the UK?
Sole Trader
1 person operation, all control, risk and responsbility, income tax on profit
Partnership
2 or more people, same as sole but shared
Ltd
Shareholders, managed by directors, cooperation tax, income tax paid on dividends, company is its own person
PLC
Shareholders owned, managed by directors, limited liability, income tax paid on dividends
LLP
Partner owned, shared control, limited liability, income tax paid on share,
What are the different types of liabilites a company may have?
Monies owned = lesase, wages, utlities, debts i.e loans
What are the typical finanical assests of a surveying firm?
intangible / tangible assets Surveying / office equipment, property, cars, cash
Explain the difference between registration, insolvency, liquidation / adminstration and dissolvement
