Financial Statements (Companies) Flashcards

Under FRS 102, borrowing costs relating to a qualifying asset:

Answer: May be capitalised or expensed as an accounting policy choice

FRS 102 Section 25 gives an accounting policy choice: entities may expense borrowing costs as incurred (the benchmark) or capitalise those directly attributable to qualifying assets (the allowed alternative).

When a subsidiary is acquired part-way through the year, its results are included in the consolidated income statement:

Answer: Only from the date of acquisition to the year end

IFRS 3 and FRS 102 require the subsidiary's results to be included in the consolidated income statement only from the date control was obtained — not for the full year if it was acquired part-way through.

Which of the following is the purpose of the notes to the financial statements?

Answer: To provide additional information and disclosures required by accounting standards and company law, explaining figures in the primary statements

Notes form a mandatory part of the financial statements; they explain accounting policies, provide breakdown of key figures, disclose related party transactions, contingent liabilities, and other information required by standards and law.

Under FRS 102, a business combination using the acquisition method requires the acquirer to:

Answer: Recognise identifiable assets acquired and liabilities assumed at their fair values at the acquisition date

The acquisition method requires the acquirer to: (1) identify the acquirer, (2) determine the acquisition date, (3) recognise identifiable assets and liabilities at fair value, and (4) recognise goodwill or a gain on bargain purchase.

The quick ratio (acid test) is calculated as:

Answer: (Current assets − Inventory) / Current liabilities

Quick ratio = (Current assets − Inventory) / Current liabilities. Inventory is excluded because it is less liquid than other current assets; the ratio tests whether liquid assets cover current liabilities.

Under FRS 102, a lease that conveys substantially all risks and rewards of ownership should be classified as a finance lease by the lessee and recognised as:

Answer: A right-of-use asset and a corresponding lease liability (under post-FRS 102 amendments)

Following the FRS 102 amendments aligned with IFRS 16, lessees recognise a right-of-use asset and a corresponding lease liability for substantially all leases, bringing them onto the balance sheet.