Financial Accounting (FA) Financial Statements Flashcards

Under IAS 1 Presentation of Financial Statements, which of the following is NOT a component of a complete set of financial statements?

Answer: Tax computation

IAS 1 requires five components: statement of financial position; statement of profit or loss and other comprehensive income; statement of changes in equity; statement of cash flows; and notes. A tax computation is not a required financial statement under IAS 1.

Under IAS 16 Property, Plant and Equipment, which of the following costs should be included in the initial measurement of a purchased machine?

Answer: Import duties and non-refundable purchase taxes

IAS 16 requires that the cost of an item of PPE includes its purchase price plus import duties and non-refundable taxes, plus any directly attributable costs of bringing the asset to working condition. Training, relocation after use, and advertising are not directly attributable.

A company has revenue of £800,000, cost of sales of £480,000, distribution costs of £60,000, administrative expenses of £80,000, and finance costs of £20,000. What is the profit before tax?

Answer: £160,000

Gross profit = £800,000 − £480,000 = £320,000. Operating profit = £320,000 − £60,000 − £80,000 = £180,000. Profit before tax = £180,000 − £20,000 = £160,000.

Under IAS 2 Inventories, which of the following should be included in the cost of inventory?

Answer: Costs of conversion including production overheads based on normal capacity

IAS 2 states that inventory cost includes costs of purchase, costs of conversion, and other costs incurred in bringing inventories to their present location and condition. Conversion costs include production overheads allocated based on normal capacity. Selling costs, post-production storage, and abnormal waste are excluded.

What is the correct treatment of a government grant related to an asset under IAS 20?

Answer: Either deduct the grant from the asset's carrying amount or recognise it as deferred income

IAS 20 permits two methods for asset-related grants: (1) deduct the grant from the carrying amount of the asset, reducing depreciation; or (2) treat it as deferred income, releasing it to profit or loss systematically over the asset's useful life.

A non-current asset cost £50,000, has a useful life of 10 years, and a residual value of £5,000. Using the straight-line method, what is the annual depreciation charge?

Answer: £4,500

Straight-line depreciation = (Cost − Residual value) ÷ Useful life = (£50,000 − £5,000) ÷ 10 = £4,500 per year.