AAT Level 4 DAIF cheat sheet

Absorption rate = total budgeted overhead / total budgeted absorption base (labour hours, machine hours or units).

Overhead absorbed = actual activity level x predetermined absorption rate; under-absorption occurs when absorbed overhead is less than actual overhead incurred.

High-low method: variable cost per unit = (cost at high activity - cost at low activity) / (high activity - low activity); fixed cost = total cost - (variable rate x activity).

Contribution per unit = selling price - variable cost per unit; break-even units = fixed costs / contribution per unit.

Margin of safety in units = budgeted sales units - break-even units; in % terms divide by budgeted sales units.

Target profit volume = (fixed costs + target profit) / contribution per unit.

Relevant cost of a scarce resource decision uses contribution per unit of limiting factor, not contribution per unit of product.

Sunk costs are excluded from relevant costing; opportunity costs of alternative use of resources are included.

Operating gearing is high when fixed costs form a large share of total cost, making profit more sensitive to volume changes.

Statement of financial position: non-current assets + current assets = equity + non-current liabilities + current liabilities.

Gross profit = revenue - cost of sales; operating profit = gross profit - operating expenses (plus other income).

Return on capital employed = operating profit / (total assets - current liabilities), expressed as a percentage.

Current ratio = current assets / current liabilities; quick (acid test) ratio = (current assets - inventory) / current liabilities.

Inventory turnover period in days = (average inventory / cost of sales) x 365.

Receivables collection period = (trade receivables / credit sales) x 365; payables payment period uses purchases or cost of sales.

Gearing = debt / (debt + equity) or debt / equity; higher gearing increases financial risk and interest sensitivity.

Under IAS 7, interest and dividends paid may be classified as operating or financing cash flows but must be applied consistently.

Consolidation: parent plus subsidiary line-by-line, eliminating intra-group balances and recognising non-controlling interest.

Segregation of duties separates authorisation, custody of assets, recording and reconciliation between different people.

Five control activities: authorisation, segregation of duties, physical controls, reconciliations, and information processing controls.

Bank reconciliation: adjusted cash book balance is compared with the bank statement adjusted for unpresented cheques and uncredited deposits.

A purchase ledger control account reconciles individual supplier balances to the nominal ledger total.

Errors of principle breach accounting concepts; errors of commission use the correct double entry but wrong account or amount.

A suspense account holds a difference until the error is located; it must not appear in the final financial statements.

Internal audit evaluates control design and effectiveness and reports to those charged with governance, not to management alone.

Fraud risk rises with weak segregation, cash handling, and override of controls; the fraud triangle is opportunity, incentive and rationalisation.

An effective control system requires cost-benefit judgement: control cost should not exceed the expected loss it prevents.

UK income tax is progressive: personal allowance, then basic, higher and additional rate bands applied to taxable income.

Taxable income = total income - allowable reliefs - personal allowance (withdrawn above the income limit at £1 for every £2 of excess).

Capital gains tax applies to chargeable gains after the annual exempt amount; residential property and carried interest use separate rates.

Trading profit for tax adjusts accounting profit for disallowable expenses (e.g. depreciation) and capital allowances.

Capital allowances replace depreciation: annual investment allowance, writing-down allowance and, for cars, special rate pools.

Corporation tax is charged on taxable total profits: trading profits plus non-trading income plus chargeable gains, less reliefs.

VAT output tax less input tax equals VAT payable; registration is compulsory once taxable turnover exceeds the rolling threshold.

Capital gains: consideration less allowable cost (acquisition plus incidental costs plus enhancement) equals the chargeable gain.

Loss relief choices differ for trading losses: carry back one year, carry forward, or offset against total income, subject to conditions.