PIPFA Financial Reporting Flashcards

24 sample cards from the Financial Reporting deck

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

1. How is a contingent asset treated under IAS 37?

   A contingent asset is not recognised; it is disclosed only where an inflow of economic benefits is probable. When realisation becomes virtually certain, it is recognised as an asset.

2. What are events after the reporting period under IAS 10?

   Events, both favourable and unfavourable, occurring between the end of the reporting period and the date the financial statements are authorised for issue.

3. Distinguish adjusting and non-adjusting events under IAS 10.

   Adjusting events provide evidence of conditions that existed at the reporting date — the financial statements are adjusted. Non-adjusting events are indicative of conditions arising after the reporting date — no adjustment is made, but material ones are disclosed.

4. How does IAS 10 treat dividends declared after the reporting period?

   Dividends declared after the reporting period are not recognised as a liability at the reporting date (non-adjusting event); they are disclosed in the notes.

5. What is a temporary difference under IAS 12?

   A difference between the carrying amount of an asset or liability in the statement of financial position and its tax base. It may be taxable (giving deferred tax liabilities) or deductible (giving deferred tax assets).

6. What is the tax base of an asset under IAS 12?

   The amount that will be deductible for tax purposes against any taxable economic benefits that will flow to the entity when it recovers the carrying amount of the asset.

7. What is a deferred tax liability and what gives rise to it?

   The amount of income tax payable in future periods in respect of taxable temporary differences (e.g., when an asset's carrying amount exceeds its tax base, often due to accelerated tax depreciation).

8. What is a deferred tax asset and when is it recognised?

   The income tax recoverable in future periods from deductible temporary differences, unused tax losses and unused tax credits. It is recognised only to the extent that future taxable profit will probably be available to utilise it.

9. At what tax rate are deferred tax balances measured under IAS 12?

   At the tax rates expected to apply when the asset is realised or the liability settled, based on rates (and laws) enacted or substantively enacted by the end of the reporting period. Deferred tax is not discounted.

10. How are intangible assets defined under IAS 38?

    An identifiable non-monetary asset without physical substance. 'Identifiable' means it is separable (capable of being separated/sold) or arises from contractual or other legal rights.

11. What are the recognition criteria for an intangible asset under IAS 38?

    It must be identifiable, the entity must control the resource, and it must give rise to future economic benefits; additionally it is probable that future economic benefits will flow and the cost can be measured reliably.

12. How are research and development costs treated under IAS 38?

    Research costs are expensed as incurred. Development costs are capitalised only when all six PIRATE criteria are met (probable future benefits, intention to complete, resources available, ability to use/sell, technical feasibility, expenditure reliably measurable).

13. How are intangible assets with indefinite useful lives treated under IAS 38?

    They are not amortised but are tested for impairment annually (and whenever there is an indication of impairment), and the indefinite-life assessment is reviewed each period.

14. What is the objective of IAS 36 Impairment of Assets?

    To ensure that assets are carried at no more than their recoverable amount; an asset is impaired when its carrying amount exceeds its recoverable amount, and the difference is recognised as an impairment loss.

15. How is the recoverable amount of an asset defined under IAS 36?

    The higher of an asset's fair value less costs of disposal and its value in use (the present value of the future cash flows expected from the asset).

16. What is a cash-generating unit (CGU) under IAS 36?

    The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

17. In what order is an impairment loss allocated to assets within a CGU under IAS 36?

    First to any goodwill allocated to the CGU, then to the other assets of the unit pro rata based on their carrying amounts (no asset is reduced below the highest of its fair value less costs of disposal, value in use, or zero).

18. Can an impairment loss on goodwill be reversed under IAS 36?

    No. Impairment losses on goodwill are never reversed. Impairment losses on other assets may be reversed if the recoverable amount increases, but not above the carrying amount that would have existed had no impairment been recognised.

19. What is the formula for the current ratio and what does it measure?

    Current ratio = Current assets ÷ Current liabilities. It measures short-term liquidity — the ability to meet current obligations from current assets.

20. What is the quick (acid-test) ratio formula?

    Quick ratio = (Current assets − Inventory) ÷ Current liabilities. It measures liquidity excluding inventory, the least liquid current asset.

21. What is the gross profit margin formula and what does it indicate?

    Gross profit margin = (Gross profit ÷ Revenue) × 100. It indicates profitability after direct costs of sales and pricing/cost control efficiency.

22. What is the formula for Return on Capital Employed (ROCE)?

    ROCE = (Profit before interest and tax ÷ Capital employed) × 100, where capital employed = total assets − current liabilities (or equity + non-current liabilities). It measures how efficiently capital generates operating profit.

23. What is the gearing ratio and what does it assess?

    Gearing (debt-to-equity) = (Debt ÷ Equity) × 100, or Debt ÷ (Debt + Equity). It assesses financial risk by measuring the proportion of financing from debt relative to equity.

24. What is the inventory turnover (days) formula and what does it show?

    Inventory days = (Average inventory ÷ Cost of sales) × 365. It shows the average number of days inventory is held before being sold; lower days generally indicate more efficient inventory management.

What this deck covers

Financial Reporting flashcards FAQ