DAIF

Question 1

What are the four principal financial statements + purposes

Answer 1

1. Statement of financial position: provides info on the financial position at a point in time
2. Statement of profit or loss: provides info on performance over a period of time
3. Statement of changes in equity: provides information on how the equity of the business has changed over a period of time
4. Statement of cash flows: provides info on the movement of cash in and out of the business over a period of time

Question 2

What does the legal framework for a UK company consist of?

Answer 2

• The Companies Act 2006 which applies to all UK companies
• Additional laws may apply

Question 3

What does IFRS stand for?

Answer 3

International Financial Reporting Standards

Question 4

What are the three bodies that sit under the IFRS foundation?

Answer 4

1. International Accounting Standards (IAS) Board (known as the Board)
2. IFRS Interpretations Committee (IFRS IC)
3. IFRS Advisory Council (IFRS AC)

Question 5

What does the IFRS Foundation do?

Answer 5

• Oversees the IFRS system
• Appoint members
• Set budgets and strategic direction

Question 6

What does the IAS Board do?

Answer 6

Develops and issues IFRS Standards

Question 7

What does the IFRS IC do?

Answer 7

Interpret IFRS and promotes consistent application

Question 8

What does the IFRS AC do?

Answer 8

Advise the Board and Trustees and provides stakeholder input

Question 9

What are the two fundamental qualitative characteristics of financial information?

Answer 9

1. Relevance
2. Faithful representation

Question 10

What are the four fundamental qualitative characteristics of financial information?

Answer 10

1. Comparability
2. Understandability
3. Timeliness
4. Verifiability

Question 11

Name and define the four measurement bases.

Answer 11

1. Historical cost - what we’ve paid
2. Current cost - what we would pay now
3. Fair value - what you could sell it for
4. Value in use - the benefit (e.g total cash flows from using the product)

Question 12

What are the two criteria that an item should meet to be recognised in the financial statements?

Answer 12

1. It meets one of the definitions of an element (e.g asset, liability)
2. Recognition provides relevant information and a faithful representation

Question 13

What a

Question 14

What is the pneumonic for the development expenditure capitalisation criteria?

Answer 14

SECTOR
S eparate project
E xpenditure identifiable and reliably measured
C ommercially viable
T echnically feasible
O verall profit
R esources and intention to complete

Question 15

If a product cannot be amortised due to indefinite useful life what needs to be done instead?

Answer 15

Impairment review

Question 16

What is a provision?

Answer 16

When a business recognises future cost or liability

Question 17

What is the difference between debt and equity?

Answer 17

Debt is a liability in SFP - borrowing money

Equity is classified separately - selling shares to a shareholder

Question 18

What are the differences between ordinary and preference shares?

Answer 18

Ordinary shares - carry a vote, may not receive dividends, paid last

Preference shares - can’t vote, fixed dividends, paid before ordinary shareholders

Question 19

What are the differences between redeemable and irredeemable preference shares?

Answer 19

Redeemable - initial investment paid back at a later date, treated as debt

Irredeemable - initial investment not paid back, treated as equity

Question 20

Return on capital employed formula

Answer 20

(Operating profit / capital employed) x 100

Capital employed = equity + non-current liabilities

Question 21

Return on shareholders funds formula

Answer 21

(Profit after tax / total equity) x 100

Question 22

Gross profit percentage formula

Answer 22

(Gross profit / revenue) x 100

Question 23

Expense/revenue percentage formula

Answer 23

(Specific expense / revenue) x 100

Question 24

Operating profit percentage formula

Answer 24

(Operating profit / revenue) x 100

Question 25

Current ratio calculation

Answer 25

Current assets/current liabilities : 1

Question 26

Quick ratio or ‘acid test’ ratio calculation

Answer 26

(Current assets - inventories) / current liabilities : 1

Question 27

Inventory turnover formula (times)

Answer 27

Cost of sales / inventories Measures the number of times inventory is sold in a period

Question 28

Inventory holding period formula (days)

Answer 28

(Inventories / cost of sales) x 365

Question 29

Why might an inventory ratio change?

Answer 29

- improved or worsened inventory control - obsolete inventory (no longer needed or damaged) - increased levels of inventory

Question 30

Receivables collection period formula

Answer 30

(Trade receivables / revenue) x 365

Question 31

Payables collection period formula

Answer 31

(Trade payables / cost of sales) x 365

Question 32

Working capital cycle formula (days)

Answer 32

Inventory days + receivables days - payables days

Question 33

Asset turnover

Question 34

Asset turnover (times) + meaning

Answer 34

Sales revenue/net assets* *Net assets could be total assets less current liabilities How many £ of sales are generated per £ of assets

Question 35

Interest cover formula (times) + meaning

Answer 35

Operating profit / finance costs How many times the business can pay its interest using its operating profit

Question 36

Gearing formula + meaning

Answer 36

Non-current liabilities / (total debt + total equity) x100 Measures how reliant the business is on borrowing as a source of finance

Question 37

Steps to answer a question on interpreting ratios.

Answer 37

1. State the figure before and after, whether this is good to bad 2. Look at the financial statements and what the reasoning is 3. Comment what the impact of this is

Question 38

Define goodwill

Answer 38

Goodwill is when a parent company pays more for the susbsidiady than the value of the subsidiary’s net assets

Question 39

How do you calculate goodwill at acquisition?

Answer 39

Consideration + NCI - net assets of subsidiary at acquisition

Question 40

Fill in the blanks. IFRS says that ______ is recognised when the ____ satisfies a _______ _________ by transferring a promised good or _____ to a _______.

Answer 40

IFRS says that **revenue** is recognised when the **entity** satisfies a **performance obligation** by transferring a promised good or **service** to a **customer**.

Question 41

Fill in the blanks. When a company owns ____ than ____% of the ____ share capital, it is usually considered to have ____ over another company. Control means having ____ (voting rights), exposure to ____ such as ____ , and being able to use that power to ____ those returns.

Answer 41

When a company owns *more* than *50%* of the *share capital*, it is usually considered to have *control* over another company. Control means having *power* (voting rights), exposure to *returns* such as *dividends*, and being able to use that power to *affect* those returns.

Question 42

What are the two things that can equal capital employed?

Answer 42

1. Equity + non-current liabilities 2. Total assets - current liabilities

Question 43

Return on shareholders funds formula

Answer 43

Profit after tax / total equity