Podcast
Questions and Answers
Which ownership percentage typically does not result in significant influence when using the cost method of accounting?
Which ownership percentage typically does not result in significant influence when using the cost method of accounting?
- Less than 10%
- Equal to 20%
- Between 10% and 20%
- Less than 20% (correct)
What must be adjusted in profit calculations due to the non-cash nature of share of profit of associates?
What must be adjusted in profit calculations due to the non-cash nature of share of profit of associates?
- Gross profit margin
- Net cash flow from operations
- Company profit (correct)
- Shareholders' equity
In the case of an associate experiencing a loss, how is this reflected in the company's financial statements?
In the case of an associate experiencing a loss, how is this reflected in the company's financial statements?
- As a liability in the balance sheet
- As a deduction from cash flows
- As share of loss of associates in comprehensive income (correct)
- As an increase in retained earnings
How is share of loss of associates treated when calculating a company's profit ratios?
How is share of loss of associates treated when calculating a company's profit ratios?
What components are included in the income tax expense for a company?
What components are included in the income tax expense for a company?
What follows after the calculation of profit or loss on the statement of comprehensive income?
What follows after the calculation of profit or loss on the statement of comprehensive income?
Which financial statement provides additional information on income tax expenses?
Which financial statement provides additional information on income tax expenses?
What is the nature of share of profit of associates in terms of cash flow?
What is the nature of share of profit of associates in terms of cash flow?
What is the primary purpose of the statement of financial position in a corporation's financial statements?
What is the primary purpose of the statement of financial position in a corporation's financial statements?
Which financial statement directly identifies the revenue earned from product sales and expenses incurred?
Which financial statement directly identifies the revenue earned from product sales and expenses incurred?
What unique feature distinguishes a corporation’s financial liability from that of a sole proprietorship?
What unique feature distinguishes a corporation’s financial liability from that of a sole proprietorship?
How does a corporation typically raise funds based on its financial structure?
How does a corporation typically raise funds based on its financial structure?
What does the statement of cash flows primarily illustrate regarding a corporation?
What does the statement of cash flows primarily illustrate regarding a corporation?
What is the primary responsibility of an auditor regarding financial statements?
What is the primary responsibility of an auditor regarding financial statements?
In which scenario may privately held corporations avoid an audit requirement?
In which scenario may privately held corporations avoid an audit requirement?
What does continuous disclosure for public companies generally include?
What does continuous disclosure for public companies generally include?
What requirement must sellers meet when distributing securities to the public?
What requirement must sellers meet when distributing securities to the public?
What is a key characteristic of a reporting issuer?
What is a key characteristic of a reporting issuer?
What constitutes a control position in a corporation?
What constitutes a control position in a corporation?
Which provinces deem a 20% holding as control of a corporation?
Which provinces deem a 20% holding as control of a corporation?
Which of the following is NOT typically part of a public company's disclosure requirements?
Which of the following is NOT typically part of a public company's disclosure requirements?
What must accompany the purchase of securities that have not been previously distributed to the public?
What must accompany the purchase of securities that have not been previously distributed to the public?
Which document must a reporting issuer issue if a material change occurs?
Which document must a reporting issuer issue if a material change occurs?
What does the total comprehensive income consist of?
What does the total comprehensive income consist of?
Which item would not appear in the statement of changes in equity?
Which item would not appear in the statement of changes in equity?
How are retained earnings adjusted each year?
How are retained earnings adjusted each year?
What does the statement of changes in equity help to link?
What does the statement of changes in equity help to link?
What represents the final retained earnings figure?
What represents the final retained earnings figure?
What does the statement of changes in equity reveal about non-controlling interests?
What does the statement of changes in equity reveal about non-controlling interests?
In the context of total comprehensive income, how is it computed for the owners of the company?
In the context of total comprehensive income, how is it computed for the owners of the company?
What factors are included in retained earnings?
What factors are included in retained earnings?
What impact do dividends declared have on retained earnings?
What impact do dividends declared have on retained earnings?
Which item is specifically excluded from forming part of total comprehensive income?
Which item is specifically excluded from forming part of total comprehensive income?
Which of the following entities could be considered an insider under the disclosure requirements?
Which of the following entities could be considered an insider under the disclosure requirements?
What is required from insiders when they engage in transactions involving securities of their company?
What is required from insiders when they engage in transactions involving securities of their company?
Which situation can lead to a person being deemed an insider of a second corporation?
Which situation can lead to a person being deemed an insider of a second corporation?
What must be included in the reports that insiders file with the relevant securities commissions?
What must be included in the reports that insiders file with the relevant securities commissions?
What consequence does an insider face for failing to file a required insider report?
What consequence does an insider face for failing to file a required insider report?
Which of the following actions is exempt from the requirement to file an insider report?
Which of the following actions is exempt from the requirement to file an insider report?
What kind of information is typically available through the public inspection of filed insider reports?
What kind of information is typically available through the public inspection of filed insider reports?
A director of a company is considered an insider if they own what percentage of the voting shares?
A director of a company is considered an insider if they own what percentage of the voting shares?
Which of the following statements about the role of securities firms and insiders is incorrect?
Which of the following statements about the role of securities firms and insiders is incorrect?
Which of the following does NOT typically constitute insider status?
Which of the following does NOT typically constitute insider status?
Study Notes
Cost Method of Accounting
- Utilized for ownership holdings with less than 20% stake, indicating no significant influence.
- Investments in other companies reported as financial statement investments.
- Share of profit from associates is reported but not received in cash, classified as a non-cash source of funds.
- Corporate profit must be adjusted for the share of profit of associates to accurately reflect cash profit.
- If an associate company experiences a loss, the share of the loss reduces the company's comprehensive income, also a non-cash item.
Income Tax Expense
- Comprises both current tax and deferred tax for the specified period.
- Additional insights provided in financial statement notes.
Profit Calculation
- Profit from operations available for shareholder distribution shown in the statement of comprehensive income.
- Other comprehensive income may include actuarial gains/losses or currency translation adjustments.
- Total comprehensive income combines profit and other comprehensive income, recorded in the statement of changes in equity.
Statement of Changes in Equity
- Documents changes to each equity component, including share capital and retained earnings.
- Records non-controlling interest changes as reported in the statement of financial position.
- Retained earnings reflect undistributed profits reinvested in the business.
Total Comprehensive Income
- Displayed in the statement of changes in equity as retained earnings.
- Attributable amounts broken down to owners of the company and non-controlling interests.
- Auditors must provide written opinions on the fairness of financial statements.
Public Company Disclosures and Investor Rights
- Continuous disclosure of prescribed information mandated by provincial securities legislation.
- Includes periodic financial statements, insider trading reports, and material change information.
- Sellers of unregistered securities must file a prospectus detailing all material facts.
Insider Trading
- Insiders include directors, senior officers, and significant shareholders (over 10% voting shares).
- Insiders must report their transactions and ownership changes to securities commissions.
- Failure to disclose or providing misleading information is punishable by fines.
Financial Statements Overview
- Corporations’ owners are shielded from personal liability for business debts.
- Financial statements reveal a corporation's assets, liabilities, equity, profitability, and cash flow.
- Key financial statements include:
- Statement of Financial Position: Snapshot of assets, liabilities, and equity.
- Statement of Comprehensive Income: Details on revenue, expenses, and profit/loss.
- Statement of Changes in Equity: Links profit retention and changes in equity.
- Statement of Cash Flows: Reports cash generation and expenditure over the period.
- The annual report summarizes the corporation's financial condition and activities.
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Description
This quiz explores the cost method of accounting, primarily used for investments where significant influence is not exercised. It focuses on how to report investments and the adjustments needed for share of profit from associates. Test your understanding of these accounting principles and their financial implications.
