Revision Pack

Question 1

What are accruals? (2)
What are prepayments? (3)

Answer 1

What are accruals (accrued expenses)?

• Expenses charged against profit for a specific period
• Payment has not yet been made during that period

What are prepayments (prepaid expenses)?

• Expenses paid in one reporting period
• Not charged against profit until a later period
• Relate to a future period’s operations or obligations

Question 2

What types of accounts are recorded as debits? (3/7,4,1)
What types of accounts are recorded as credits? (3/6,5,4))

Answer 2

What types of accounts are recorded as debits?

• Expense: Purchases, wages, utilities, cost of sales, admin, depreciation, discount allowed
• Asset: Property, plant and equipment (PPE), prepayments, receivables, cash
• Drawings: Owner removing goods or cash from the business

What types of accounts are recorded as credits?

• Liabilities: Loans, payables, overdraft, accruals, deferred income, provisions
• Income: Revenue, sales, bank interest, discount received, investment income
• Capital: Retained earnings, share capital, share premium, revaluation reserve

Question 3

THE IASB CONCEPTUAL FRAMEWORK

What is the objective of general purpose financial reporting? (3)
What are the qualitative characteristics of useful financial information (6)
What are the elements of financial statements? (5)

Answer 3

What is the objective of general purpose financial reporting?

• To provide information about the reporting entity
• Useful for existing and potential investors, lenders, and other creditors
• Supports decisions about providing resources to the entity

What are the qualitative characteristics of useful financial information

• Fundamental characteristics
  
  • Relevance
    
    • Information must influence decisions by helping users evaluate past, present, or future events.
    • Includes materiality — information is relevant if leaving it out would change decisions.
  • Faithful representation
    
    • Information must reflect the economic reality, not just the legal form.
    • Requires completeness, neutrality, and freedom from error.
• Enhancing characteristics
  
  • Verifiability
    
    • Different knowledgeable observers should be able to reach the same conclusion.
    • Achieved through evidence, documentation, and auditability.
  • Comparability
    
    • Users must be able to compare information across time and between different companies.
    • Consistent accounting policies help achieve this.
  • Understandability
    
    • Information should be presented clearly so users with reasonable knowledge can interpret it.
    • Avoids unnecessary complexity.
  • Timeliness
    
    • Information must be provided quickly enough to influence decisions.
    • Out‑of‑date information loses value.

What are the elements of financial statements?

• Equity: Residual interest in assets after deducting liabilities
• Assets: Present economic resource controlled by the entity due to past events
• Liabilities: Present obligation to transfer an economic resource due to past events
• Income: Increases in assets or decreases in liabilities that increase equity (excluding equity contributions)
• Expenses: Decreases in assets or increases in liabilities that decrease equity (excluding equity distributions)

Question 4

When is recognition of an item in financial statements allowed? (2)
When does derecognition occur? (1)
What are the main measurement bases in financial reporting? (5)

Answer 4

When is recognition of an item in financial statements allowed?

• The item meets the element definition
• It provides useful information to users (i.e. relevance and faithful representation)

When does derecognition occur?

• When the item no longer meets the definition of an asset or liability

What are the main measurement bases in financial reporting?

• Historical cost: based on original transaction or event price
• Current value: uses recent information and includes:
  
  • Fair value
  • Value in use
  • Current cost

Question 5

PRESENTATION OF FINANCIAL STATEMENTS (IAS 1) - SoPL

Answer 5

NB – IAS 1 Presentation of Financial Statements allows presentation in one statement (as
above) or 2 separate statements.

Question 6

PRESENTATION OF FINANCIAL STATEMENTS (IAS 1) - SoFP

Answer 6

Question 7

PRESENTATION OF FINANCIAL STATEMENTS (IAS 1) - SoCIE

Answer 7

Question 8

PROPERTY, PLANT AND EQUIPMENT (IAS 16)

What costs should be included in the initial measurement of property, plant, and equipment under IAS 16? (4)
What costs should be excluded from initial measurement under IAS 16? (4)
What costs are included for assets under construction? (3)

Answer 8

What costs should be included in the initial measurement of property, plant, and equipment under IAS 16?

• Purchase price
• Improvement costs
• Commissioning and testing (less proceeds from by-products)
• Dismantling costs at present value

What costs should be excluded from initial measurement under IAS 16?

• Non-incremental costs (fixed costs)
• Costs incurred after asset is ready for use but not yet being used
• Repair and maintenance costs
• Abnormal costs

What costs are included for assets under construction?

• Labour costs
• Materials
• Directly attributable borrowing costs under IAS 23 Borrowing Costs

Question 9

Depreciation

When does depreciation start and stop? (2)
What should be reviewed annually in relation to depreciation? (3)
How is depreciation calculated when useful life changes? (1)
How is depreciation calculated when the method changes? (1)

Answer 9

When does depreciation start and stop?

• Start when the asset is available for use
• Stop when the asset is sold or held for sale

What should be reviewed annually in relation to depreciation?

• Useful life (UL)
• Residual value (RV)
• Depreciation method

How is depreciation calculated when useful life changes?

• New depreciation charge = (Carrying amount at change – Residual value) ÷ Remaining useful life

How is depreciation calculated when the method changes?

• New depreciation charge = Carrying amount at date of change, then apply new method

Question 10

Revaluations

How do you revalue an asset upwards? (4)
How is depreciation calculated after revaluation? (1)

Answer 10

How do you revalue an asset upwards?

• Dr Cost (increase to fair value)
• Dr Accumulated depreciation (remove all accumulated depreciation to date)
• Cr Revaluation surplus (difference between carrying amount and fair value)
• Show gain in statement of total comprehensive income

How is depreciation calculated after revaluation?

• New depreciation charge = (Revalued amount – Residual value) ÷ Remaining useful life

How is the reserves transfer recorded for increased depreciation due to revaluation?

• Dr Revaluation surplus
• Cr Retained earnings
• Shown in the Statement of Changes in Equity (SOCE)

Question 11

Disposals

How is profit or loss on disposal of an asset calculated? (4)
What happens when an asset held under the revaluation model is disposed of? (3)

Answer 11

How is profit or loss on disposal of an asset calculated?

• Proceeds
• Less: Carrying amount
• Result: Profit or loss
• Recognised in the Statement of Profit or Loss (SPL)

What happens when an asset held under the revaluation model is disposed of?

• Transfer revaluation surplus to retained earnings
  
  • Dr Revaluation surplus
  • Cr Retained earnings

Question 12

Disclosure: PPE

Answer 12

Question 13

INTANGIBLE ASSETS (IAS 38) - Criteria

When can an intangible asset be capitalised under IAS 38? (3)
How is an intangible asset initially measured? (5)
How are internally generated intangible assets treated? (3)

Answer 13

When can an intangible asset be capitalised under IAS 38?

• It must be identifiable:
  
  • Separable; or
  • Legal/contractual right
• Controlled by the entity due to past events
• Expected to provide future economic benefits (e.g. revenue or cost savings)

How is an intangible asset initially measured?

• Separate acquisition
• Internally generated
• Business combination
• Capitalised at cost plus directly attributable cost
• Capitalised at fair value

How are internally generated intangible assets treated?

• Research: written off to the Statement of Profit or Loss (SPL) as incurred
• Development:
  
  • Capitalised if criteria are met
  • Capitalise direct costs incurred

Question 14

INTANGIBLE ASSETS (IAS 38) - Amortisations and Revaluations

When is amortisation applied to intangible assets? (3)
When can intangible assets be revalued? (4)

Answer 14

When is amortisation applied to intangible assets?

• Indefinite useful life: no amortisation, annual impairment and review
• Finite useful life: annual amortisation, impairment if indicated
• Residual value is assumed to be nil

When can intangible assets be revalued?

• Only if an active market exists
  
  • Items are homogenous
  • Buyers and sellers are available anytime
  • Prices are publicly accessible

Revaluation treatment follows IAS 16.

Question 15

INTANGIBLE ASSETS (IAS 38) - Disclosure

Picture

Answer 15

Question 16

IMPAIRMENTS (IAS 36)

When is an impairment review required under IAS 36? (2)
What are indications of impairment? (6)

Answer 16

When is an impairment review required under IAS 36?

• Annually for intangibles with an indefinite useful life and goodwill
• When there is an indication of impairment

What are indications of impairment?

• Operating losses
• Net cash outflows
• Decline in market value
• Obsolescence or physical damage (out dated)
• Significant changes to the business or market
• Management commitment to significant reorganisation

Question 17

Impairment review

How is impairment assessed for non-current assets? (3)
How is impairment expense calculated? (1)
What is the accounting treatment under the cost model? (2)
What is the accounting treatment under the revaluation model? (3)

Answer 17

How is impairment assessed for non-current assets?

• Compare carrying amount to recoverable amount
• Recoverable amount = higher of:
  
  • Value in use (present value of future cash flows)
  • Fair value less costs to sell

How is impairment expense calculated?

• Impairment expense = Carrying amount – Recoverable amount

What is the accounting treatment under the cost model?

• Dr Statement of Profit or Loss (SPL)
• Cr Non-current asset

What is the accounting treatment under the revaluation model?

• Dr Revaluation surplus
• Dr SPL (for any excess loss)
• Cr Non-current asset

Question 18

NON-CURRENT ASSETS HELD FOR SALE (IFRS 5)

When can a non-current asset be classified as held for sale under IFRS 5? (3)
What are the steps for handling a non-current asset held for sale? (3)
Can abandoned assets be classified as held for sale? (1)

Answer 18

When can a non-current asset be classified as held for sale under IFRS 5?

• Asset must be available for sale in its present condition
• Sale must be highly probable (within 12 months)
• Actively marketed at a reasonable price

What are the steps for handling a non-current asset held for sale?

• Step 1: Revalue PPE to fair value (Revaluation model only)
• Step 2: Compare carrying amount to fair value less costs to sell (FV–CTS), impair if necessary
  
  • Impairment goes through the Statement of Profit or Loss (SPL), even if a revaluation surplus exists
• Step 3: Remove PPE from non-current assets, stop depreciating, and recognise as current asset

Can abandoned assets be classified as held for sale?

• No, because their carrying amount is not recovered principally through sale

Question 19

NON-CURRENT ASSETS – EXTRACTS (2)

Answer 19

Question 20

REVENUE (IFRS 15)

What are the five steps for revenue recognition under IFRS 15? (5/4,1,2,1,4)

Answer 20

What are the five steps for revenue recognition under IFRS 15?

1. Identify the contract
   • Approved by parties
   • Rights and payment terms identifiable
   • Commercial substance
   • Probable consideration receipt
2. Identify separate performance obligations
   • Distinct goods/services can be sold separately and have distinct function
3. Determine the transaction price
   • Variable consideration recognised only if highly probable
   • Discount proceeds if payment terms exceed one year
4. Allocate the transaction price
   • Based on proportion to stand-alone selling prices
5. Recognise revenue as or when performance obligation is satisfied
   • Over time if:
     ▪ Customer receives and consumes benefit simultaneously
     ▪ Asset created is controlled by customer
     ▪ Asset has no alternative use and seller can demand payment for performance to date

• Otherwise, at point control transfers to customer

Question 21

REVENUE (IFRS 15) - Specific scenarios

When is revenue recognised for consignment sales? (2)
How is revenue treated when servicing fees are included in the product price? (2)
How is revenue recognised in agency agreements? (1)
What is the treatment for sales with a right of return? (1)
How are sale and repurchase agreements assessed? (1)
When is a transaction treated as a loan rather than a sale? (4)
What is the accounting treatment for sale and repurchase agreements treated as loans? (5)

Answer 21

When is revenue recognised for consignment sales?

• Only when the buyer sells the goods to a third party
• Risks and rewards transfer at that point

How is revenue treated when servicing fees are included in the product price?

• Separate the service from the goods
• Defer and recognise revenue over the servicing period

How is revenue recognised in agency agreements?

• Only commission is recognised as revenue

What is the treatment for sales with a right of return?

• Recognise a refund liability for estimated returns

How are sale and repurchase agreements assessed?

• Consider economic substance to determine if a sale occurred

When is a transaction treated as a loan rather than a sale?

• Sale value ≠ market value
• Buyer charges interest on repurchase
• Seller likely to regain asset
• Seller continues to use and depreciate asset

What is the accounting treatment for sale and repurchase agreements treated as loans?

• PPE remains on Statement of Financial Position
• Continue depreciation
• No profit/loss on disposal
• Recognise a loan for sale amount
• Accrue interest until repurchase date

Question 22

Revenue – Extracts

Answer 22

Question 23

PROVISIONS AND CONTINGENCIES (IAS 37)

When is a provision recognised under IAS 37? (3)
When is a contingent liability disclosed? (1)
When is a contingent asset disclosed? (1)
When is an asset recognised? (1)
How is a provision measured? (1)
What are the specific applications of provisions? (3)
How are counter claims treated? (3)

Answer 23

When is a provision recognised under IAS 37?

• Present obligation from a past event
• Probable outflow of economic benefits
• Reliable estimate of the obligation

When is a contingent liability disclosed?

• When a possible obligation exists but is not probable or measurable

When is a contingent asset disclosed?

• When an inflow of economic benefits is probable

When is an asset recognised?

• When inflow of economic benefits is virtually certain

How is a provision measured?

• Best estimate of the present value of future obligation

What are the specific applications of provisions?

• Future operating losses: no provision
• Onerous contracts: provision required if cost exceeds benefit
• Reorganisations: provision only if detailed plan announced before year-end

How are counter claims treated?

• Disclose contingent asset if virtually certain
• Asset can offset provision; show net in SPL
• Show asset and provision separately in SFP

Question 24

PROVISIONS AND CONTINGENCIES (IAS 37) - Disclosure

Answer 24

Narrative Disclosures – Key Elements

• Nature of the item
  Describe what the provision or contingency relates to (e.g. restructuring, warranty, litigation).
• Estimate of financial effect
  Provide a quantified estimate of the expected cost or benefit.
• Timing of outflows/inflows
  Indicate when the economic impact is expected to occur.
• Reimbursement details
  If reimbursement is expected (e.g. insurance recovery), disclose the amount and source.

Question 25

**Provisions – extracts**

Answer 25

Question 26

**EVENTS AFTER THE REPORTING PERIOD (IAS 10)** What is an event after the reporting period under IAS 10? (1) What is an adjusting event? (2) What is a non-adjusting event? (3) When must a non-adjusting event be treated as adjusting? (1) What disclosures are required for material events after the reporting period? (2)

Answer 26

_What is an event after the reporting period under IAS 10?_ - An event occurring after the financial year-end but before the financial statements are approved --- _What is an adjusting event?_ - Provides evidence of conditions that existed at the reporting date - Requires relevant accounting adjustments --- _What is a non-adjusting event?_ - Relates to conditions that did not exist at the reporting date - Requires disclosure of: * Nature of the event * Estimate of financial effect --- _When must a non-adjusting event be treated as adjusting?_ - If it impacts the going concern assumption --- _What disclosures are required for material events after the reporting period?_ - Nature of the event - Estimate of its financial effect

Question 27

**INVENTORIES (IAS 2)** How should inventories be valued under IAS 2? (1) What costs are included in inventory valuation? (1) How is NRV calculated? (1) What cost formulas are acceptable under IAS 2? (2) How are overheads treated in inventory costing? (2)

Answer 27

_How should inventories be valued under IAS 2?_ - At the lower of cost and net realisable value (NRV) --- _What costs are included in inventory valuation?_ - All costs incurred to bring inventories to their present location and condition --- _How is NRV calculated?_ - Selling price minus costs to complete and sell --- _What cost formulas are acceptable under IAS 2?_ - FIFO (First-In, First-Out) - Weighted average cost (AVCO) --- _How are overheads treated in inventory costing?_ - Fixed overheads: absorbed based on normal (budgeted) activity levels - Variable costs: based on actual activity levels

Question 28

**ACCOUNTING POLICIES (IAS 8)** What happens when there is a change in accounting policy or a material error under IAS 8? (3) --- How is a change in accounting estimate treated under IAS 8? (2)

Answer 28

_What happens when there is a change in accounting policy or a material error under IAS 8?_ - Restate comparative figures - Restate opening balances (disclose in the Statement of Changes in Equity) - Apply the new accounting policy to the current year’s financial statements --- _How is a change in accounting estimate treated under IAS 8?_ - Record the revision in the current year’s financial statements - Adjust only going forward (prospectively)

Question 29

**INCOME TAXES (IAS 12)** How is current tax defined under IAS 12? (1) --- When is current tax recognised as a liability? (1) --- How are distributable profits of private companies calculated? (2)

Answer 29

_How is current tax defined under IAS 12?_ - Income tax payable in respect of taxable profit --- _When is current tax recognised as a liability?_ - When unpaid tax relates to current or prior periods --- _How are distributable profits of private companies calculated?_ - Accumulated realised profits minus accumulated realised losses - Generally equivalent to retained earnings ---

Question 29

**BORROWING COSTS (IAS 23) ** How should borrowing costs be treated under IAS 23? (2) --- When does the capitalisation of borrowing costs start? (2) --- When should capitalisation of borrowing costs be suspended? (1) --- When should capitalisation of borrowing costs cease? (1) --- How are borrowing costs from specific borrowings treated? (1) --- How are borrowing costs from general borrowings treated? (2) --- How are capitalised borrowing costs treated after initial recognition? (3)

Answer 29

_How should borrowing costs be treated under IAS 23?_ - Capitalise borrowing costs if they relate to the construction or acquisition of a qualifying asset - Expense borrowing costs if they fall outside the capitalisation period --- _When does the capitalisation of borrowing costs start?_ - When activities to prepare the asset for use or sale have begun - When expenditure and borrowing costs are being incurred --- _When should capitalisation of borrowing costs be suspended?_ - During extended periods when active development of the asset is paused --- _When should capitalisation of borrowing costs cease?_ - When substantially all activities necessary to prepare the asset for use or sale are completed --- _How are borrowing costs from specific borrowings treated?_ - Capitalise the amount net of any investment income earned from temporarily investing the loan --- _How are borrowing costs from general borrowings treated?_ - Capitalise using the weighted average cost of borrowings - No need to deduct investment income --- _How are capitalised borrowing costs treated after initial recognition?_ - Included in the cost of the asset - Depreciated over the asset’s useful life - Depreciation begins when the asset is ready for use

Question 30

**GROUP ACCOUNTS: CONSOLIDATED STATEMENT OF FINANCIAL POSITION**

Answer 30

Question 31

**Group Accounting: Consolidation Workings Overview (7 workings)**

Answer 31

**(W1) Group structure** - **P**: Parent company - **S**: Subsidiary (>50% owned by P) - **A/JV**: Associate or joint venture (20–50% owned by P) --- **(W2) Net assets of subsidiary** - **Reporting date**: Latest balance sheet date - **Acquisition date**: Date P acquired S - **Movement since acquisition**: Post-acquisition changes in net assets - **Share capital**: Issued equity of S - **Share premium**: Excess over nominal share value - **Revaluation reserve**: Gains from asset revaluations - **Retained earnings**: Accumulated profits/losses --- **(W3) Goodwill calculation** - **FV of consideration**: Price paid for S - **NCI at acquisition**: Non-controlling interest share - **FV of net assets at acquisition**: Fair value of S’s net assets - **Goodwill at acquisition**: Excess of purchase price over net assets - **Impairment**: Reduction in goodwill value --- **(W4) Non-controlling interest – proportionate method** - NCI % × S’s net assets at reporting date --- **(W5) Group retained earnings** - P’s retained earnings - S’s post-acquisition retained earnings - Minus P’s share of goodwill impairment, FV depreciation, and PURP --- **(W6) Group adjustments** - P’s share of FV depreciation and PURP - Adjustments for associate’s FV depreciation and PURP --- **(W7) Investment in associate** - Share of associate’s net assets and earnings - Adjusted for FV depreciation and PURP (both directions)

Question 32

**Consolidation Adjustments: Intra-group, PURP & Associate Treatments** How are intra-group balances between parent (P) and subsidiary (S) adjusted? (2) --- How is unrealised intra-group profit in inventory (PURP) adjusted between P and S? (2) --- Are intra-company balances created between parent (P) and associate (A)? (1) --- How are fair value adjustments handled for associates? (2) --- How is inventory PURP adjusted between P and associate (A)? (3)

Answer 32

_How are intra-group balances between parent (P) and subsidiary (S) adjusted?_ - Remove intra-group payables and receivables - Recognise any cash or inventory in transit --- _How is unrealised intra-group profit in inventory (PURP) adjusted between P and S?_ - Dr Retained earnings of seller (W2 if S is seller, W5 if P is seller) - Cr Inventory (CSFP) --- _Are intra-company balances created between parent (P) and associate (A)?_ - No intra-group balances are created --- _How are fair value adjustments handled for associates?_ - Reduce investment in associate (W7) by P% of FV depreciation - Reduce group retained earnings (W5) by P% of FV depreciation --- _How is inventory PURP adjusted between P and associate (A)?_ - Dr Retained earnings (W5) - Cr Inventory (if A is seller) - Cr Investment in associate (W7) (if P is seller) ---

Question 33

**GROUP ACCOUNTS: CONSOLIDATED STATEMENT OF PROFIT OR LOSS**

Answer 33

**Revenue** Income from sales and services. **Cost of sales** Direct costs of producing goods/services. - **PURP (seller’s column)** Unrealised profit from intra-group inventory sales. **Gross profit** Revenue minus cost of sales. **Other operating income** Non-core income (e.g. grants, rental). **Operating expenses** Costs to run the business. - **Per question** Given in exam or scenario. - **Impairment of S’s goodwill** Reduction in value of goodwill from subsidiary. - **PURP (PPE)** Unrealised profit on intra-group PPE sales. - **FV extra depreciation** Depreciation from fair value uplift. **Operating profit** Profit before finance and tax. **Finance costs** Interest and borrowing expenses. **Investment income** Returns from investments. - **Per question** Given dividend or interest info. - **% of dividend paid by S/A** Share of dividends received from subsidiary/associate. **Profit before tax** Operating profit minus finance costs plus investment income. **Tax expense** Income tax charge for the year. **Profit for the year** Net profit after tax. - **Attributable to parent** Shareholders of the parent company. - **Attributable to NCI** Minority shareholders in subsidiaries.

Question 34

**GROUP ACCOUNTS: CONSOLIDATED STATEMENT OF PROFIT OR LOSS Workings (3)**

Answer 34

**(W1) Group structure – as for CSFP (W1)** Refers to the ownership setup: - P = Parent - S = Subsidiary - A = Associate or Joint Venture Used to determine consolidation method. --- **(W2) Non-controlling interest (NCI)** - NCI % × Subsidiary’s profit for the year (PFY) Represents the share of profit belonging to minority shareholders. --- **(W3) Share of profit of associate** - **P% A’s PFY**: Parent’s share of associate’s profit - **Impairment in A**: Reduction in value of investment in associate - **P% A’s FV Depreciation**: Parent’s share of depreciation from fair value uplift - **P% Associate PURP (A seller)**: Parent’s share of unrealised profit from associate’s inventory sales

Question 35

**Consolidation Adjustments: Intra-group Trading, PURPs & Dividends** How are intra-group trading adjustments handled between parent (P) and subsidiary (S)? (2) How is inventory PURP adjusted between parent (P) and associate (A)? (2) How are dividends from associate (A) treated in consolidation? (1)

Answer 35

_How are intra-group trading adjustments handled between parent (P) and subsidiary (S)?_ - Cancel all intra-group sales, interest charges, and management fees - Increase cost of sales of the selling company by the amount of PURP --- _How is inventory PURP adjusted between parent (P) and associate (A)?_ - If P is the seller, increase P’s cost of sales - If A is the seller, reduce P’s share of profit from associate in W3 --- _How are dividends from associate (A) treated in consolidation?_ - Remove P% of dividend paid by A from investment income ---

Question 36

_What types of share capital may appear in the statement of financial position?_ (2) _What rights do ordinary shareholders have?_ (2) _How are interim ordinary dividends treated at year end?_ (3) _How are final ordinary dividends treated at year end?_ (2) _How are paid ordinary dividends accounted for?_ (2) _What rights do preference shareholders have?_ (2) _How are dividends on redeemable or cumulative irredeemable preference shares accounted for?_ (2) _How are dividends on non-cumulative irredeemable preference shares accounted for?_ (2) _When is preference share capital classified as a liability?_ (1)

Answer 36

_What types of share capital may appear in the statement of financial position?_ - Ordinary share capital - Preference share capital --- _What rights do ordinary shareholders have?_ - Ownership of a percentage of share capital and reserves - Voting rights --- _How are interim ordinary dividends treated at year end?_ - No liability if not declared - Once declared, a liability is recognised - Often declared and paid during the year --- _How are final ordinary dividends treated at year end?_ - No liability until approved at general meeting - Usually approved after year end --- _How are paid ordinary dividends accounted for?_ - Dr Retained earnings - Cr Cash --- _What rights do preference shareholders have?_ - Ownership of preference share capital - No voting rights --- _How are dividends on redeemable or cumulative irredeemable preference shares accounted for?_ - On accruals basis - Dr Finance cost (SPL) - Cr Dividend payable or Cash --- _How are dividends on non-cumulative irredeemable preference shares accounted for?_ - On cash basis - Dr Retained earnings - Cr Cash --- _When is preference share capital classified as a liability?_ - When sufficient detail indicates mandatory or cumulative dividend terms

Question 37

_When is income tax recognised as an expense?_ (1) _How is unpaid tax treated at year end?_ (1) _What is the double entry for estimated tax at year end?_ (2) _How is a prior year under-provision adjusted?_ (2) _How is a prior year over-provision adjusted?_ (2) _What are the components of the income tax expense in the SPL?_ (3)

Answer 37

_When is income tax recognised as an expense?_ - When a liability for tax arises during the period --- _How is unpaid tax treated at year end?_ - Recognised as a liability in the statement of financial position --- _What is the double entry for estimated tax at year end?_ - Dr Income tax expense (SPL) - Cr Income tax liability (SFP) --- _How is a prior year under-provision adjusted?_ - Dr Income tax expense (SPL) - Cr Income tax liability (SFP) --- _How is a prior year over-provision adjusted?_ - Dr Income tax liability (SFP) - Cr Income tax expense (SPL) --- _What are the components of the income tax expense in the SPL?_ - Current tax expense - Under/(over) provision for prior period - Total income tax expense

Question 38

_What is the first step when answering a financial statement exam question?_ (1) _What should you set up before inserting numbers?_ (2) _What should you do with numbers from the trial balance?_ (2) _How should you handle adjustments?_ (3) _What should you do after completing adjustments?_ (2) _What is the recommended time management strategy?_ (2)

Answer 38

_What is the first step when answering a financial statement exam question?_ - Read the requirement carefully --- _What should you set up before inserting numbers?_ - Pro forma financial statements - Cost matrix (W1) --- _What should you do with numbers from the trial balance?_ - Insert them into proformas and workings - Open brackets for numbers expected to change --- _How should you handle adjustments?_ - Address one at a time - Skip and return later if stuck - Insert every adjustment with double entry --- _What should you do after completing adjustments?_ - Finalise proformas - Add SPL result to retained earnings --- _What is the recommended time management strategy?_ - 1.8 minutes per mark - Prioritise clarity and labelled workings over perfection