Financial Reporting ACCA
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Questions and Answers

What are possible methods of investing in a company?

  • Ordinary shares (correct)
  • Preference shares (correct)
  • Other shares
  • Loan notes/ debentures (correct)
  • Ordinary shares belong to:

    Owners of the company

    With ordinary shares, what happens if company is wound up?

    They are last in line and final profits belong to them

    Owners of ordinary shares are entitled to:

    <p>Receive annual reports and voting rights</p> Signup and view all the answers

    Loan notes/ debentures can be sold where?

    <p>On the stock market</p> Signup and view all the answers

    What is a debenture?

    <p>An IOU from company to lender</p> Signup and view all the answers

    Debentures normally have a fixed interest rate

    <p>True (A)</p> Signup and view all the answers

    Preference shares have voting rights

    <p>False (B)</p> Signup and view all the answers

    Preference shares have priority over ordinary shares if company is wound up

    <p>True (A)</p> Signup and view all the answers

    How are earnings made on preference shares?

    <p>Owners usually receive a fixed dividend</p> Signup and view all the answers

    Preference shares can be issued to owners

    <p>False (B)</p> Signup and view all the answers

    Groups of companies are required to prepare:

    <p>Consolidated accounts</p> Signup and view all the answers

    Why do groups of companies have to prepare consolidated accounts?

    <p>Greater transparency</p> Signup and view all the answers

    Consolidated accounts include results of all group companies, but exclude inter-company trading

    <p>True (A)</p> Signup and view all the answers

    What is the goal of IFRS?

    <p>To harmonise accounting standards across the world</p> Signup and view all the answers

    What does prudence mean?

    <p>Exercising caution when making judgements, when uncertain</p> Signup and view all the answers

    What does prudence ensure?

    <p>Assets are not overstated and liabilities are not understated</p> Signup and view all the answers

    Define asymmetric prudence

    <p>A need for systematic asymmetry so that losses are recognised earlier than gains</p> Signup and view all the answers

    What are the fundamental qualitative characteristics?

    <p>Relevance and faithful representation</p> Signup and view all the answers

    What is meant by faithful representation?

    <p>Financial information must be complete, neutral and error free</p> Signup and view all the answers

    What is relevant financial information?

    <p>Information capable of influencing users decisions</p> Signup and view all the answers

    Who enforces the rules on the stock exchange?

    <p>Financial services authority</p> Signup and view all the answers

    The companies act enforces:

    <p>compliance with standards that accounts must show true and fair view</p> Signup and view all the answers

    What do profitability ratios measure?

    <p>How much profit a company generates</p> Signup and view all the answers

    What do efficiency ratios measure?

    <p>How well a company manages its working capital components</p> Signup and view all the answers

    What do liquidity ratios measure?

    <p>The company’s ability to meet its debts</p> Signup and view all the answers

    What do gearing ratios measure?

    <p>A company’s leverage</p> Signup and view all the answers

    What do investment ratios measure?

    <p>The performance of the business overall</p> Signup and view all the answers

    How much data do you use to review trends in exams?

    <p>2 years</p> Signup and view all the answers

    What is a potential limitation of ratio analysis?

    <p>Financial statements are affected as the numbers are recorded at historic cost</p> Signup and view all the answers

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