CH14 IMC

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What must large companies provide annually to shareholders?
income statement, directors report, auditors report, cash flow statement, statement of changes in equity.

Delivered to registrar of companies
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What must listed companies on LSE provide?
Directors reasons for departure, particulars that hold 20% of shares, statement on if closed company, particulars for the company to purchase own shares, interim accounts
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Exemptions to reporting requirements
sole traders, partnerships
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Auditors Report
Has to be properly prepared and give a true and fair view. If conditions met, then auditor issues a clean audit report. If not, then the auditor will 'qualify' the audit report.
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Categories of qualified report
Limitation in scope, disagreement
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Four types of qualification
fundamental uncertainty, material uncertainty, fundamental disagreement and material disagreement
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Whats on a balance sheet?
Assets (current and non current), Equity and liabilities
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Non-current assets
Long term assets (typically over 1 year). Can be intangible, tangible and investments. Money spent on NCA's is referred as capital expenditure.
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Impairment test
for intangible NCA, applied to all good will, intangible assets with an indefinite life and whenever there is an indication of impairment
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Provisions
Recognise an uncertain fall in amount of asset. Charged as expense on income statement. Types: Provision for doubtful debt, provision for depreciation, provisions for unrealised profit on stock.
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Bad debt
Certain that a customer is not going to pay, deemed 'bad debt'. Written off as an expense.
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When is the share premium account used?
part of a scrip issue, write off preliminary expenses, write off costs associated with issue of new shares, write off premium or discount on issue of debentures
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Revaluation reserve
Represents the cumulative amount by which asset values have increased as a result of revaluations.
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Retained earnings / profit and loss reserve
Profit left in a company to fund growth. Can use to fund payment of dividends, distributable. Negative balance is possible and indicates poor trading.
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Bonus / scrip issue
'free shares', no new capital raised, taken from the share premium reserve
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Standard pref share, redeemable pref share
standard considered equity, redeemable considered liability
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Derecognition
Occurs when either the contractual rights to the cash flows of the asset have expired, or the financial asset has been transferred (sold)
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Straight line method of depreciation
original cost- expected residual value / expected useful life
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Reducing balance method of depreciation
1- ^n sqroot Exp residual value / cost
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Disposals of non-current assets
Profit or loss on disposal is calculated as proceeds-balance sheet value at date of disposal. This will appear in the income statement.
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FIFO
Old inventory sold first, new items left in year end
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LIFO
New inventory purchases are sold first leaving old items in year end inventory
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Post-balance sheet events
Two types. Adjusting events relate to events arising from conditions existing at the BS date. e.g. insolvency of debtor.
Non-adjusting events stem from new conditions that did not exist on the BS date. e.G. acquiring large NCA. Not included in BS.
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Revenue expenditure v capital expenditure
rev is the day to day running costs of the business (wages etc). Cap is goodwill, purchase of business premises and NCAs.
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Statement of comprehensive Income
only required if the company has two or more items considered 'other comprehensive income'. Two sections 'net income' and 'other comprehensive income'.

e.g. pension plan g/l, foreign currency translation
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Main headings of cash flowstatement
operating, investing, financing
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free cash flow
surplus cash that a company has available. The cash remaining once a company has covered all compulsory payments.
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FCFF
net income + non cash charges (dep) - investment in fixed capital - investment in working capital + net interest payment
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Equity cash flow (free cash flow to equity FCFE)
FCFF - net interest + net borrowing
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Group accounts
A company is a parent of another company (subsidiary) if holds majority of voting rights. over 50%.
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Associate company
Company where another company owns between 20-50% of voting shares (significant).
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Controlling a company through over ways other than voting rights
govern financial and operating policies, appoint and remove board of directors, cast majority of votes at meeting of board of directors.
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Net cash flow from operating activities formula

LEARN THIS IS RIGHT
Operating profit + depreciation + fall in inventory + decrease in receivables - decrease in payables
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what may a share premium account be used for
scrip issues, expenses of forming the company, issue costs
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Other cards in this set

Card 2

Front

Directors reasons for departure, particulars that hold 20% of shares, statement on if closed company, particulars for the company to purchase own shares, interim accounts

Back

What must listed companies on LSE provide?

Card 3

Front

sole traders, partnerships

Back

Preview of the back of card 3

Card 4

Front

Has to be properly prepared and give a true and fair view. If conditions met, then auditor issues a clean audit report. If not, then the auditor will 'qualify' the audit report.

Back

Preview of the back of card 4

Card 5

Front

Limitation in scope, disagreement

Back

Preview of the back of card 5
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