Association of Chartered Certified Accountants (ACCA) Financial Accounting (FA) Flashcards

24 sample cards from the Financial Accounting (FA) deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. What does the statement of profit or loss and other comprehensive income show?

   It reports income and expenses for the period. Profit or loss section shows revenue less expenses giving profit for the year; OCI shows items not recognised in profit or loss (e.g. revaluation surpluses on PPE under IAS 16), giving total comprehensive income.

2. How is gross profit calculated in the statement of profit or loss?

   $$\text{Gross profit} = \text{Revenue} - \text{Cost of sales}$$ where $\text{Cost of sales} = \text{Opening inventory} + \text{Purchases} - \text{Closing inventory}$.

3. Give an example of an item presented in Other Comprehensive Income (OCI).

   A revaluation surplus (gain) on property, plant and equipment under IAS 16. (Other examples include certain remeasurements; these may or may not be reclassified to profit or loss later.)

4. What does the statement of financial position present, and what is its basic structure?

   It shows the entity's financial position at a point in time: assets (non-current and current), liabilities (current and non-current) and equity, with $\text{Assets} = \text{Equity} + \text{Liabilities}$.

5. Distinguish current assets from non-current assets.

   Current assets are expected to be realised, sold or consumed within the normal operating cycle or 12 months (e.g. inventory, receivables, cash). Non-current assets are held for use over more than one period (e.g. PPE, intangibles, long-term investments).

6. What are the three sections of the statement of cash flows under IAS 7?

   Cash flows from operating activities, investing activities, and financing activities.

7. Under the indirect method, how does the operating activities section begin?

   It starts with profit before tax and adjusts for non-cash items (e.g. add back depreciation, amortisation, loss on disposal) and for changes in working capital (inventory, receivables, payables), then deducts interest and tax paid.

8. In the statement of cash flows, an increase in inventory or receivables has what effect on operating cash flow?

   An increase in inventory or receivables is a use of cash, so it is deducted. An increase in payables is a source of cash, so it is added (and vice versa for decreases).

9. What are 'incomplete records' and a common technique used to deal with them?

   Accounting situations where full double-entry records are not kept. Techniques include using the accounting equation, control accounts to derive missing figures (e.g. credit sales or purchases), and margin/mark-up calculations to find missing sales, purchases or inventory.

10. Distinguish between mark-up and gross profit margin.

    Mark-up is gross profit expressed as a percentage of cost: $\frac{\text{Gross profit}}{\text{Cost of sales}}$. Margin is gross profit as a percentage of sales: $\frac{\text{Gross profit}}{\text{Revenue}}$.

11. In incomplete records, how is the capital (net assets) approach used to find profit?

    $$\text{Profit} = \text{Closing capital} - \text{Opening capital} + \text{Drawings} - \text{Capital introduced}$$ using the change in net assets over the period.

12. What defines a parent–subsidiary relationship requiring consolidation under IFRS 10?

    Control: the parent has power over the investee, exposure to variable returns, and the ability to use its power to affect those returns. Control is usually presumed when the parent holds more than 50% of the voting rights.

13. How is goodwill on acquisition calculated in a consolidation?

    $$\text{Goodwill} = (\text{Consideration transferred} + \text{NCI at acquisition}) - \text{Fair value of net assets acquired at acquisition}$$

14. What is the non-controlling interest (NCI) in group accounts?

    The equity in a subsidiary not attributable, directly or indirectly, to the parent. It represents the share of the subsidiary's net assets and profit owned by outside shareholders, shown within equity in the consolidated statement of financial position.

15. How is revenue treated for intra-group sales in the consolidated statement of profit or loss?

    Intra-group sales and purchases are eliminated in full from group revenue and cost of sales, so only transactions with parties outside the group are shown.

16. What is an associate and which method is used to account for it?

    An entity over which the investor has significant influence (but not control), normally a 20%–50% holding of voting rights. It is accounted for using the equity method.

17. Under the equity method, how is the investment in an associate measured in the consolidated statement of financial position?

    $$\text{Carrying amount} = \text{Cost of investment} + \text{Group share of post-acquisition profits/reserves} - \text{impairment}$$ (less any dividends received from the associate).

18. How is an associate's result shown in the consolidated statement of profit or loss?

    As a single line: the group's share of the associate's profit (or loss) for the period. The associate's individual income and expenses are not added line by line.

19. What does significant influence mean, and how does it differ from control?

    Significant influence is the power to participate in financial and operating policy decisions but not to control them (associate, equity method). Control is the power to direct the relevant activities to affect returns (subsidiary, full consolidation).

20. State the current ratio and quick (acid-test) ratio formulas.

    $$\text{Current ratio} = \frac{\text{Current assets}}{\text{Current liabilities}}$$ $$\text{Quick ratio} = \frac{\text{Current assets} - \text{Inventory}}{\text{Current liabilities}}$$

21. What is the gearing ratio and what does it measure?

    It measures financial risk from borrowing. A common form is $$\text{Gearing} = \frac{\text{Debt}}{\text{Debt} + \text{Equity}} \quad\text{or}\quad \frac{\text{Debt}}{\text{Equity}}$$ Higher gearing means greater reliance on debt financing and higher financial risk.

22. State the formula for Return on Capital Employed (ROCE).

    $$\text{ROCE} = \frac{\text{Profit before interest and tax (operating profit)}}{\text{Capital employed}} \times 100\%$$ where capital employed = total equity + non-current liabilities (or total assets − current liabilities).

23. State the inventory holding period and the receivables collection period formulas.

    $$\text{Inventory days} = \frac{\text{Inventory}}{\text{Cost of sales}} \times 365$$ $$\text{Receivables days} = \frac{\text{Trade receivables}}{\text{Credit sales}} \times 365$$

24. State the gross profit margin and net (operating) profit margin formulas.

    $$\text{Gross margin} = \frac{\text{Gross profit}}{\text{Revenue}} \times 100\%$$ $$\text{Operating margin} = \frac{\text{Operating profit}}{\text{Revenue}} \times 100\%$$

What this deck covers

Financial Accounting (FA) flashcards FAQ