AAT L4 Financial Statements (Companies) 1 — Questions and Answers
Question 1: Under FRS 102, which of the following is included in the primary financial statements of a limited company?
- A statement of cash flows is optional for small companies
- A statement of cash flows, statement of financial position, income statement, and statement of changes in equity (Correct answer)
- Only the income statement and balance sheet
- The directors' remuneration report
Correct answer: A statement of cash flows, statement of financial position, income statement, and statement of changes in equity
A complete set of financial statements under FRS 102 comprises a statement of financial position, statement of comprehensive income (or income statement + OCI), statement of changes in equity, statement of cash flows, and notes.
Question 2: Under Companies Act 2006, the filing deadline for private company accounts at Companies House is:
- 6 months after the accounting reference date
- 9 months after the accounting reference date (Correct answer)
- 12 months after the accounting reference date
- 3 months after the accounting reference date
Correct answer: 9 months after the accounting reference date
Private limited companies must file accounts at Companies House within 9 months of their accounting reference date. Public companies have 6 months.
Question 3: Goodwill arising on the acquisition of a subsidiary must be:
- Expensed immediately under FRS 102
- Capitalised and amortised over its useful economic life under FRS 102 (Correct answer)
- Capitalised and amortised over a maximum of 5 years
- Written off against retained earnings
Correct answer: Capitalised and amortised over its useful economic life under FRS 102
Under FRS 102, goodwill on consolidation is capitalised as an intangible asset and amortised over its useful economic life. If useful life cannot be estimated reliably, it is amortised over a maximum of 10 years.
Question 4: The statement of changes in equity reconciles:
- Opening and closing cash balances
- Opening and closing equity balances by showing all movements including profit, dividends, and share issues (Correct answer)
- Revenue and expense items for the period
- Total assets and total liabilities
Correct answer: Opening and closing equity balances by showing all movements including profit, dividends, and share issues
The statement of changes in equity shows how shareholders' equity changed during the period: opening balance + profit for the year + other comprehensive income − dividends + share issues ± other movements = closing balance.
Question 5: Under FRS 102, internally generated goodwill:
- May be capitalised if the value can be reliably measured
- Must be capitalised and amortised over its useful life
- Cannot be recognised as an intangible asset (Correct answer)
- Must be disclosed in the notes to the accounts
Correct answer: Cannot be recognised as an intangible asset
FRS 102 (consistent with IFRS) prohibits recognition of internally generated goodwill — only goodwill arising on business combinations can be recognised.
Question 6: In a set of consolidated accounts, intragroup dividends paid by a subsidiary to the parent are:
- Included in the consolidated income statement as income
- Eliminated on consolidation — they do not appear in the consolidated income statement (Correct answer)
- Shown as an exceptional item
- Classified as financial income
Correct answer: Eliminated on consolidation — they do not appear in the consolidated income statement
Intragroup dividends are eliminated on consolidation; they represent a transfer within the group, not income from outside, and would otherwise double-count within the consolidated statements.
AAT L4 Financial Statements (Companies) 1
Under FRS 102, which of the following is included in the primary financial statements of a limited company?