5012 exam revison
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Questions and Answers

What is the correct formula for calculating the Current Ratio?

  • Current Assets / Total Revenue
  • Current Assets / Current Liabilities (correct)
  • Net Income / Total Revenue
  • Total Assets / Total Liabilities

    • What is represented by the Cost of Sales formula?

  • Total Assets - Total Liabilities
  • Revenue - Expenses
  • Net Income + Inventory
  • Opening inventory + Purchases - Closing inventory (correct)

    • If the Current Ratio is 13.35:1, what does it suggest about the company's liquidity?

  • Low profitability
  • Adequate cash flow
  • Strong liquidity position (correct)
  • High risk of insolvency

    • What is the purpose of calculating the Payable Days ratio?

    <p>To determine the speed of payment to suppliers</p> Signup and view all the answers

    What is indicated by a low Acid Test Ratio?

    <p>Strong reliance on inventory</p> Signup and view all the answers

    Which regulations must a public limited company adhere to?

    <p>IAS, IFRS, and Companies Act</p> Signup and view all the answers

    What does the going concern concept imply?

    <p>A company is expected to continue its operations indefinitely</p> Signup and view all the answers

    Which approach does USA GAAP follow?

    <p>A rules-based approach</p> Signup and view all the answers

    What type of audit report is generally preferred by organizations?

    <p>An unqualified audit report</p> Signup and view all the answers

    How should inventories be valued under IAS 2?

    <p>On a lower of cost or net realizable value basis</p> Signup and view all the answers

    What does operating expenditure (opex) refer to?

    <p>Expenses incurred in running the business</p> Signup and view all the answers

    When should FRS 102 be applied?

    <p>When not applying IFRS, FRS 101, or FRS 105</p> Signup and view all the answers

    Who is FRS 102 specifically designed for?

    <p>Entities not structured as companies and not profit-oriented</p> Signup and view all the answers

    What best describes corporate governance?

    <p>The system by which companies are directed, managed, and controlled in order to safeguard the owners.</p> Signup and view all the answers

    Which of the following is NOT a characteristic of effective corporate governance?

    <p>Complete autonomy for management without oversight.</p> Signup and view all the answers

    What is the best description of a subsidiary?

    <p>A subsidiary company is one that is owned and controlled by another company.</p> Signup and view all the answers

    What ownership stake must a parent company typically hold to classify another company as a subsidiary?

    <p>More than 50%</p> Signup and view all the answers

    Which of the following statements about subsidiaries is true?

    <p>A subsidiary can wholly own another company.</p> Signup and view all the answers

    Which characteristic is NOT typical of a subsidiary?

    <p>Complete operational independence from the parent.</p> Signup and view all the answers

    What defines a group company in the UK?

    <p>A group company has one or more subsidiaries owned by another company.</p> Signup and view all the answers

    Which description is inaccurate regarding a group company in the UK?

    <p>A group company is limited to one form of business operation.</p> Signup and view all the answers

    How should organizations report changes in accounting estimates according to IAS 8?

    <p>On a prospective basis.</p> Signup and view all the answers

    When can an entity change its accounting policy?

    <p>If required by a new accounting standard or interpretation.</p> Signup and view all the answers

    What is the correct order of current assets?

    <p>Inventories, receivables, prepayments, and cash.</p> Signup and view all the answers

    In the running order of current assets, where is cash positioned?

    <p>Last</p> Signup and view all the answers

    Which of the following represents an incorrect arrangement of current assets?

    <p>Cash, prepayments, inventories, receivables.</p> Signup and view all the answers

    Which item comes first in the running order of current assets after inventories?

    <p>Receivables</p> Signup and view all the answers

    Which of the following represents the correct information needs of users from a set of financial statements?

    <p>Relevance, materiality, faithful representation, prudence, comparability, verifiability, timeliness, and understandability.</p> Signup and view all the answers

    Which concept ensures that financial information is presented in a way that makes it understandable to users?

    <p>Understandability.</p> Signup and view all the answers

    What is a primary responsibility of an Internal Auditor?

    <p>Review the internal processes and report to the Audit Committee.</p> Signup and view all the answers

    Which statement best describes the Internal Auditor's report focus?

    <p>The report evaluates operational efficiency and risk management.</p> Signup and view all the answers

    Who receives the Internal Auditor's findings?

    <p>The Audit Committee and the board of directors.</p> Signup and view all the answers

    What type of reviews does an Internal Auditor conduct?

    <p>Reviews of internal processes, including risk assessments.</p> Signup and view all the answers

    Which of the following is NOT part of the Internal Auditor's role?

    <p>Issue opinions on the company's investment strategies.</p> Signup and view all the answers

    What is the main role of an External Auditor?

    <p>To review the financial statements and give an opinion on their truth and fairness</p> Signup and view all the answers

    To whom does the External Auditor report their findings?

    <p>The Audit Committee</p> Signup and view all the answers

    What aspect of financial statements does an External Auditor focus on during their review?

    <p>Providing an opinion on their truth and fairness</p> Signup and view all the answers

    Which of the following responsibilities is NOT typically performed by an External Auditor?

    <p>Managing day-to-day accounting operations</p> Signup and view all the answers

    Which statement best defines the findings of an External Auditor?

    <p>An independent opinion on the financial statements' truth and fairness</p> Signup and view all the answers

    What does a qualified audit opinion suggest?

    <p>There is an issue with the financial statements.</p> Signup and view all the answers

    Which statement is true regarding a qualified audit opinion?

    <p>It indicates the presence of issues needing attention.</p> Signup and view all the answers

    What implication does a qualified audit opinion have for stakeholders?

    <p>Stakeholders should exercise caution regarding the accuracy of the statements.</p> Signup and view all the answers

    Why might an organization receive a qualified audit opinion?

    <p>Because of non-compliance with regulations.</p> Signup and view all the answers

    Which of the following is NOT an enhancing qualitative characteristic of financial information?

    <p>Consistency</p> Signup and view all the answers

    Which characteristic improves the relevance of financial information by providing it quickly?

    <p>Timeliness</p> Signup and view all the answers

    Which enhancing characteristic helps to ensure that financial information can be trusted and is reliable?

    <p>Verifiability</p> Signup and view all the answers

    Which of the following characteristics makes financial information more accessible to users?

    <p>Understandability</p> Signup and view all the answers

    Which enhancing characteristic allows users to compare financial information across different periods?

    <p>Consistency</p> Signup and view all the answers

    Which of the following is NOT one of the main formats specified by IAS 1 for financial statements?

    <p>Director's report</p> Signup and view all the answers

    How many main financial statements are specified by IAS 1?

    <p>Five</p> Signup and view all the answers

    Which financial statement is included in the main formats required by IAS 1?

    <p>Statement of Comprehensive Income</p> Signup and view all the answers

    What does the IAS 1 specify regarding the statement that summarizes changes in equity?

    <p>It is known as the Statement of Changes in Equity.</p> Signup and view all the answers

    Which purpose of the IASB Conceptual Framework involves assisting preparers in developing consistent accounting policies?

    <p>To assist preparers to develop consistent accounting policies when no standard applies to a particular event.</p> Signup and view all the answers

    Which of the following is a purpose of the IASB Conceptual Framework regarding items not addressed by existing IFRS?

    <p>To assist in determining the treatment of items not covered by an existing IFRS.</p> Signup and view all the answers

    Which statement about the IASB Conceptual Framework is NOT a purpose of the framework?

    <p>To help ensure compliance with international taxation laws.</p> Signup and view all the answers

    Which option describes an authoritative function of the IASB Conceptual Framework?

    <p>To be authoritative where a specific IFRS conflicts with the Conceptual Framework.</p> Signup and view all the answers

    What is the main role of the IASB Conceptual Framework in the context of financial reporting?

    <p>To assist in determining the treatment of items not covered by an existing IFRS.</p> Signup and view all the answers

    Which statement accurately describes a principle-based accounting system?

    <p>It allows for more flexibility and judgment in application.</p> Signup and view all the answers

    What is a characteristic of a rules-based accounting system?

    <p>It generally has a larger number of detailed regulations.</p> Signup and view all the answers

    What is NOT a goal of a principles-based accounting system?

    <p>To provide detailed regulations for every scenario.</p> Signup and view all the answers

    Which statement about a principles-based accounting system is true?

    <p>It focuses on fundamental principles over detailed regulations.</p> Signup and view all the answers

    Which regulations should an unincorporated organization follow?

    <p>FRS and GAAP.</p> Signup and view all the answers

    What does GAAP primarily refer to?

    <p>General Accepted Accounting Principles.</p> Signup and view all the answers

    Which option accurately combines both international and national regulations?

    <p>IAS, FRS, and GAAP.</p> Signup and view all the answers

    Which of the following is NOT typically applicable to an unincorporated organization?

    <p>IFRS.</p> Signup and view all the answers

    Which set of regulations must a public limited company adhere to?

    <p>IAS, IFRS, and Companies Act.</p> Signup and view all the answers

    What are the implications of non-compliance with the Companies Act for a public limited company?

    <p>It may face fines or legal action.</p> Signup and view all the answers

    Which of these regulations is not required for a public limited company?

    <p>GAAP.</p> Signup and view all the answers

    What does the going concern concept imply about an entity's operations?

    <p>The entity is expected to continue to operate in the foreseeable future.</p> Signup and view all the answers

    What duration is commonly associated with the going concern concept?

    <p>The entity is expected to continue for more than 12 months.</p> Signup and view all the answers

    Which of the following does NOT accurately represent the implications of the going concern concept?

    <p>It suggests immediate liquidation of all assets.</p> Signup and view all the answers

    What is one of the key duties of directors as outlined in the Companies Act?

    <p>To act in good faith to promote the company's success for the benefit of its members as a whole.</p> Signup and view all the answers

    Which statement correctly describes the duty of directors regarding stakeholder interests?

    <p>Directors must consider the interests of connected stakeholders alongside company members.</p> Signup and view all the answers

    In the context of the Companies Act, what is NOT part of a director's duty?

    <p>To engage in fraudulent transactions for personal gain.</p> Signup and view all the answers

    What is the primary focus of a director's duty as outlined in the legislation?

    <p>To promote the success of the company for the benefit of its members.</p> Signup and view all the answers

    What type of approach does USA GAAP utilize?

    <p>It uses a rules-based approach.</p> Signup and view all the answers

    Which statement accurately reflects the nature of USA GAAP?

    <p>It mandates a strict rules-based compliance.</p> Signup and view all the answers

    What is a key characteristic of the USA GAAP framework?

    <p>It provides specific and detailed rules for accounting.</p> Signup and view all the answers

    What is the primary intent of creative accounting?

    <p>To present financial figures in a misleading light.</p> Signup and view all the answers

    Which technique is commonly associated with creative accounting?

    <p>Overstating revenue through fictitious sales.</p> Signup and view all the answers

    How does creative accounting affect stakeholders' perception?

    <p>It creates confusion and mistrust regarding financial results.</p> Signup and view all the answers

    Which of the following is a characteristic of creative accounting?

    <p>Incorporating non-existent transactions in reports.</p> Signup and view all the answers

    Which of the following best describes creative accounting?

    <p>Exploitation of financial regulations in order to gain an advantage and present figures in a misleading light.</p> Signup and view all the answers

    What is a common technique used in creative accounting?

    <p>Delaying expense recognition to inflate profits.</p> Signup and view all the answers

    Which of the following actions would NOT be considered creative accounting?

    <p>Properly adhering to accounting standards and principles.</p> Signup and view all the answers

    What does a qualified audit report signify about an organization's financial statements?

    <p>There are specific issues that the auditor has identified</p> Signup and view all the answers

    Why might an organization prefer a qualified audit report over an unqualified report?

    <p>It highlights some areas of concern for improvement</p> Signup and view all the answers

    Which of the following reports would indicate that there are significant issues with an organization's financial statements?

    <p>An adverse audit report</p> Signup and view all the answers

    What best describes retained earnings when reported on a statement of financial position?

    <p>Historical profits from prior years after dividends.</p> Signup and view all the answers

    Which option represents an inaccuracy regarding retained earnings?

    <p>They are the cash available to shareholders.</p> Signup and view all the answers

    What would constitute the main factor determining the increase in retained earnings?

    <p>Net income after dividend payments.</p> Signup and view all the answers

    Which statement is incorrect about retained earnings?

    <p>They indicate the cash reserves of a company.</p> Signup and view all the answers

    Which of the following does not contribute to retained earnings?

    <p>Issuance of new shares.</p> Signup and view all the answers

    How long after the due payment date can a creditor instigate a 'winding up petition' if the debt remains unpaid?

    <p>Three weeks</p> Signup and view all the answers

    What is the minimum duration a creditor must wait before taking action for unpaid debt through a winding up petition?

    <p>Three weeks</p> Signup and view all the answers

    Which of the following durations is NOT correct regarding the time frame for instigating a winding up petition?

    <p>Five weeks</p> Signup and view all the answers

    If a debt is unpaid, which of the following reflects the correct wait time before a creditor can file a winding up petition?

    <p>Three weeks</p> Signup and view all the answers

    What time frame after a missed payment is critical for a creditor intending to start a winding up petition?

    <p>Three weeks</p> Signup and view all the answers

    What basis should organizations use to report changes in accounting policies as per IAS 8?

    <p>On a retrospective basis.</p> Signup and view all the answers

    Which of the following statements is true regarding the reporting of errors as per IAS 8?

    <p>Errors should be reported on a retrospective basis.</p> Signup and view all the answers

    When accounting policy changes are reported, what is the preferred method according to IAS 8?

    <p>On a retrospective basis.</p> Signup and view all the answers

    What is the significance of reporting on a retrospective basis as required by IAS 8?

    <p>It ensures financial statements are comparable over time.</p> Signup and view all the answers

    How should investing and financing activities be presented according to IAS 7 cash flows?

    <p>On a gross basis.</p> Signup and view all the answers

    Which basis of presentation is NOT applicable for investing and financing activities under IAS 7?

    <p>Net basis</p> Signup and view all the answers

    What does IAS 7 require for cash flow presentation of investing and financing activities?

    <p>All inflows and outflows</p> Signup and view all the answers

    Which of the following statements is true regarding the presentation of cash flows under IAS 7?

    <p>Presentation requires separate reporting of cash flows.</p> Signup and view all the answers

    Which accounting standard specifies the presentation of cash flows from investing and financing activities?

    <p>IAS 7</p> Signup and view all the answers

    Which scenario requires disclosure under IAS 24 regarding related party transactions?

    <p>Transactions involving family members who have control or significant influence.</p> Signup and view all the answers

    What is a requirement for disclosure of related party transactions with family members?

    <p>Disclosure is necessary when family members have significant influence.</p> Signup and view all the answers

    Under IAS 24, which statement about family member transactions is accurate?

    <p>All transactions with family members must be disclosed regardless of influence.</p> Signup and view all the answers

    Which of the following best describes the rationale behind disclosures required by IAS 24?

    <p>To ensure transparency regarding potential conflicts of interest.</p> Signup and view all the answers

    When are family member transactions exempt from disclosure under IAS 24?

    <p>If they have no significant influence over the entity.</p> Signup and view all the answers

    How should inventory be measured according to IAS 2?

    <p>On a lower of cost or net realisable value basis</p> Signup and view all the answers

    Which of the following methods is NOT typically used for measuring inventory?

    <p>Full replacement cost</p> Signup and view all the answers

    What is a primary alternative to the measurement of inventory in IAS 2?

    <p>At their replacement cost</p> Signup and view all the answers

    What measurement basis for inventory is preferred under IAS 2?

    <p>Cost or net realizable value, whichever is lower</p> Signup and view all the answers

    What are the five minimum inclusions required under FRS 104 interim financial reporting?

    <p>Full or abridged statements to include financial position, single comprehensive income, equity changes, cash flow and explanatory notes.</p> Signup and view all the answers

    Which statement accurately reflects what is excluded from the minimum requirements under FRS 104 interim financial reporting?

    <p>Directors report.</p> Signup and view all the answers

    Which of the following is NOT a stipulated requirement for interim financial reporting under FRS 104?

    <p>Detailed segment reporting.</p> Signup and view all the answers

    What is the least required level of financial reporting detail according to FRS 104?

    <p>Condensed financial statements encapsulating major components.</p> Signup and view all the answers

    What is the primary reason for choosing FRS 102 over IFRS?

    <p>To prepare reports for private companies without public accountability.</p> Signup and view all the answers

    Which of the following entities is least likely to apply FRS 102?

    <p>A public limited company listed on a stock exchange.</p> Signup and view all the answers

    What is NOT a factor in determining the applicability of FRS 102?

    <p>The geographical location of the entity.</p> Signup and view all the answers

    Which reporting standard must be avoided to use FRS 102?

    <p>IFRS.</p> Signup and view all the answers

    Which group does FRS 102 cater to specifically?

    <p>Entities not constituted as companies and not profit-oriented.</p> Signup and view all the answers

    What type of organization is specifically included in the scope of FRS 102?

    <p>Charities and other non-profit organisations.</p> Signup and view all the answers

    Which of the following is NOT stated as a user of FRS 102?

    <p>Public sector entities.</p> Signup and view all the answers

    Which characteristic is common among entities that FRS 102 is designed for?

    <p>Limited financial reporting requirements.</p> Signup and view all the answers

    Which of the following does FRS 102 not primarily target?

    <p>Large multinational corporations.</p> Signup and view all the answers

    What does Opex stand for?

    <p>Operational expenditure</p> Signup and view all the answers

    Which of the following best defines Opex?

    <p>Recurring expenses necessary for running a business</p> Signup and view all the answers

    Which statement is NOT true regarding Opex?

    <p>Opex can be capitalized on the balance sheet.</p> Signup and view all the answers

    Which of the following expenses is generally classified as Opex?

    <p>Marketing expenses</p> Signup and view all the answers

    Which of the following would typically be excluded from Opex?

    <p>Equipment purchase</p> Signup and view all the answers

    Study Notes

    In-Class Test Information

    • The in-class test has 25 questions.
    • Most questions are worth 2 marks unless otherwise stated.
    • Students must answer all questions.
    • Answers must be submitted on the Canvas answer area.

    Revision Opportunities

    • Students can ask questions during the week 10 special revision lecture and seminar workshops.
    • Missing workshops means missing out on provided answers.
    • No answers are posted on Canvas.

    Examination Regulations

    • During the examination, no web browsers or other Canvas modules are allowed, except for the assignment portal.

    Corporate Governance

    • Corporate governance is the system by which companies are directed, managed, and controlled to protect owners' interests.
    • It does not include size requirements or government intervention.

    Subsidiary Definition

    • A subsidiary is a company, controlled by another company, owning more than 50% of the subsidiary's shares.
    • Subsidiaries do not trade alongside other organizations, nor do they necessarily share resources or profits.

    Group Company Definition

    • A UK group company is a company that is owned and controlled by another company in the UK.
    • To be considered a group company in the UK; the company must do business in the UK and have one or more subsidiaries satisfying conditions in the Income Taxes Act of 1988 (Section 240) or the Companies Act 2006 (Section 101).

    Financial Statement Consolidation Criteria

    • A subsidiary is consolidated if the parent company has control over its activities, meaning the parent has the power to direct the subsidiary's operations.
    • The parent company must have the ability to appoint or remove personnel, direct activities, and influence variable returns.

    Accounting Policy Changes

    • IAS 8 specifies that organizations must report accounting policy changes prospectively, not retrospectively. This means reporting changes looking forward into the next period, as opposed to retroactively adjusting prior periods.

    Current Asset Order

    • The correct order of current assets is Cash, Inventories, Receivables, and Prepayments.

    Financial Statement Characteristics

    • Key characteristics of financial statements include relevance, faithful representation, prudence, comparability, verifiability, timeliness, and understandability.
    • Consistency is NOT an enhancing qualitative characteristic.

    Internal Auditor Responsibilities

    • Internal auditors review internal processes, procedures, and risk assessments, reporting to the Audit Committee and Directors.
    • They also review and report on financial statements to the boards of directors.
    • Reviews include internal processes, procedures, risk assessments, reviewing documentation, ensuring an accurate and fair view is reflected, and other activities as appropriate.

    External Auditor Responsibilities

    • External auditors review financial statements for accuracy, giving an opinion on their truth and fairness.
    • They report their findings to the Audit Committee and are tasked with stating if the financial statements present a true and fair view.

    Qualified Audit Opinion

    • A qualified audit opinion suggests a potential issue within the financial statements, necessitating further review.

    Enhancing Qualitative Characteristics

    • The enhancing qualitative characteristics of financial statements are timeliness, verifiability, and understandability.
    • Consistency is not an enhancing qualitative characteristic.

    Financial Statement Formats

    • The required formats for financial statements per IAS 1 are Statement of Financial Position, Income Statement, Statement of Changes in Equity, Statement of Cash Flows, and related notes.

    Accounting Regulation Systems

    • Principle-based systems involve more judgment than rules-based systems.
    • Rules-based systems lead to a larger number of accounting standards.

    Unincorporated Organisation Regulations

    • Unincorporated organizations follow FRS and GAAP regulations.

    Public Limited Company Regulations

    • Public limited companies (in the UK) follow IAS, IFRS, the Companies Act, and GAAP, along with FRS regulations.

    Going Concern Concept

    • The going concern concept presumes an entity will continue operating indefinitely in the foreseeable future, unless there's evidence otherwise implicitly assuming a period into the future and not be disposed of within the next 6-9 months.

    Creative Accounting

    • Creative accounting uses accounting regulations to give misleading financial statements or mask the true profit/loss/situation.

    Audit Report Formats

    • A preferred audit report is an unqualified audit report.

    Retained Earnings

    • When reported within a financial statement, retained earnings represent accumulated profits, after dividends, from prior periods.

    Creditors and Winding Up Petitions

    • Creditors can initiate a winding-up petition 4 weeks after the due date of payment if the entity fails to meet its financial obligations

    Accounting Policy Changes and Errors reporting

    • Accounting policy changes and corrections of errors are reported prospectively under IAS 8.

    Investing Financing Activities

    • Investing and financing activities on a cash flow statement are reported on a net basis. Further guidance may be required regarding specific adjustments or circumstances.
    • Transactions between family members, individuals with management control, significant influence, or key management, or junior staff should be disclosed under IAS 24.

    Inventory Measurement

    • Inventories should be measured at the lower of cost and net realizable value, as per IAS 2.

    IFRS/FRS Minimum Interim Report Content

    • Required disclosures for an interim report are financial position, summary income statement, statement of comprehensive income, statement of changes in equity, a cash flow statement, and explanatory notes. Specific criteria or categories may vary depending on the framework or standard.

    Reduced Disclosure Framework Applicability

    • The reduced disclosure framework applies to subsidiaries, intermediate parent companies, and their individual financial statements. The exemption does not apply to all organization types or structures.

    FRS 102 Applicability

    • FRS 102 is the financial reporting standard used in the UK, when IAS, IFRS, or other related FRS standards are not applicable or relevant for specific UK entities.

    FRS 102 User Definition

    • FRS 102 applies to sole traders, small private limited companies, non-profit-oriented entities (like charities), and other entities not classified as companies in the UK.

    Operational Expenditure Definition

    • Operational expenditure comprises expenses incurred in running the business's daily operations.

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