AAT Level 4 AMAC cheat sheet

Statement of financial position: Assets − Liabilities = Equity, where equity comprises share capital, share premium, retained earnings and revaluation surplus.

Consolidation rule: parent owns >50% of subsidiary votes gives control; include subsidiary results in full and show non-controlling interest separately.

Goodwill on consolidation = consideration transferred + NCI − fair value of identifiable net assets acquired.

Group retained earnings = parent retained earnings + parent's share of subsidiary post-acquisition retained earnings − goodwill impairment to date.

IAS 10: dividends declared after the reporting date are non-adjusting events; dividends declared before year-end are recognised as a liability.

IAS 37: recognise a provision only where a present obligation exists, outflow is probable and the amount can be reliably estimated.

IAS 16: depreciation begins when an asset is available for use; revaluation gains go to OCI (revaluation surplus) unless reversing a prior expense.

EPS = (profit after tax − preference dividends) ÷ weighted average number of ordinary shares in issue during the period.

Production budget (units) = sales units + closing inventory units − opening inventory units.

Material purchases (units) = production usage + closing material inventory − opening material inventory.

Flexed budget compares actual output with the standard cost for that actual output, isolating volume effects from price and efficiency variances.

Cash budget receipts use the collection pattern: for example 60% in month of sale, 30% next month, 10% two months later; bad debts are excluded.

Zero-based budgeting builds each cost centre from a nil base and requires justification of every cost, unlike incremental budgeting.

Rolling budgets are continually updated by adding a new period as the earliest period expires; the horizon stays constant.

Labour budget hours = budgeted production units × standard hours per unit, adjusted for idle time and expected efficiency.

Contribution per unit = selling price − variable cost per unit; contribution per unit of limiting factor ranks products when a resource is scarce.

Break-even units = fixed costs ÷ contribution per unit; margin of safety = (budgeted sales − break-even sales) ÷ budgeted sales.

Relevant costs are future, incremental cash flows; sunk costs and apportioned fixed overheads are excluded from decisions.

Make-or-buy: buy only if the external purchase price is below the avoidable internal cost plus any lost contribution from freed capacity.

Material price variance = (standard price − actual price) × actual quantity purchased; material usage variance = (standard quantity for actual output − actual quantity) × standard price.

Labour rate variance = (standard rate − actual rate) × actual hours paid; labour efficiency variance = (standard hours for actual output − actual hours worked) × standard rate.

Fixed overhead capacity variance = (budgeted hours − actual hours worked) × standard fixed overhead absorption rate.

Transfer pricing at variable cost plus opportunity cost gives goal-congruent decisions where a perfect intermediate market exists.

Segregation of duties: the person authorising a transaction, the person recording it and the person holding the asset must be different people.

Bank reconciliation: adjusted bank statement balance = statement balance + deposits not yet credited − unpresented cheques ± bank errors.

Sales ledger control account balance should equal the sum of the individual customer ledger balances; differences indicate errors or fraud.

Suspense account: opened when a trial balance does not balance; cleared once the correcting entries are posted.

Error of principle: entry is made to the wrong class of account (for example revenue expenditure debited to a non-current asset).

Computer controls: access passwords, input validation checks, batch totals, exception reports and back-up/restore procedures.

Purchase order, goods received note and supplier invoice must be matched (three-way match) before payment is authorised.

Perpetual inventory records are updated continuously; periodic counts verify the record rather than replace it.

Corporation tax is charged on taxable total profits: trading profits + property income + non-trading loan relationship income + chargeable gains, less qualifying donations.

Capital allowances: annual investment allowance (AIA) is available on most plant and machinery, with full expensing available for new main-pool plant; cars are excluded from AIA.

Trading losses can be carried forward against future total profits of the same company (subject to the £5m deductions allowance), or carried back 12 months against total profits.

Trading profit adjustment: add back disallowable items such as depreciation and entertaining; deduct capital allowances.

Chargeable gain = disposal proceeds − allowable cost − incidental selling costs, with indexation not available for companies (use capital allowances instead).

VAT: output tax on sales less input tax on purchases; standard-rated supplies at 20%, zero-rated supplies are taxable at 0% and still allow input tax recovery.

Corporation tax payment: large companies pay quarterly by instalments; small companies pay nine months and one day after the accounting period end.

Transfer pricing and close company rules affect the deductibility of payments to connected parties.

Income tax is charged on total income after allowable deductions, using the personal allowance (reduced by £1 for every £2 of income above £100,000).

Tax bands apply in order: basic rate, higher rate and additional rate; the personal allowance is lost entirely at £125,140 of income.

Savings income and dividend income are taxed after non-savings income, using the savings and dividend nil-rate bands where available.

Capital gains tax: annual exempt amount deducted before applying the rate; residential property and carried interest have separate rates.

Gift relief and business asset disposal relief reduce CGT on qualifying business assets, subject to holding-period and trading conditions.

Inheritance tax: nil-rate band £325,000 plus residence nil-rate band where a main residence passes to direct descendants; charge at 40% above the threshold.

Pensions: tax relief at the marginal rate on contributions, subject to the annual allowance and tapered annual allowance for high earners.

Self-assessment: payments on account are based on the previous year's tax, with a balancing payment due by 31 January following the tax year.

Audit risk = inherent risk × control risk × detection risk; the auditor controls detection risk through the nature, timing and extent of procedures.

Materiality is set by the auditor's judgement; performance materiality is set lower to reduce the probability that uncorrected misstatements exceed overall materiality.

Sufficient appropriate audit evidence: sufficiency is quantity, appropriateness is relevance and reliability; external evidence is more reliable than internal.

Assertions tested include occurrence, completeness, accuracy, cut-off, classification and rights and obligations.

Positive confirmations request a reply in all cases; negative confirmations request a reply only if the recipient disagrees and are used where risk is low.

The audit report is modified for a material misstatement or for an inability to obtain sufficient evidence; a key audit matter section is required for listed entities.

Going concern: the auditor evaluates management's assessment and considers whether a material uncertainty exists that requires disclosure.

Independence: the auditor must not have a financial interest in the client or provide services that create a self-review threat.

Credit assessment tools: trade references, bank references, credit agency reports, published accounts and credit scoring models.

Days sales outstanding (DSO) = (trade receivables ÷ credit sales) × 365; a rising DSO indicates slower collection.

Early settlement discount: compare the cost of the discount with the cost of the finance saved; annualised cost of discount = discount % ÷ (100 − discount %) × (365 ÷ days saved).

Aged receivables analysis buckets balances by overdue period to target collection effort at the highest-risk debt.

Credit limits should be reviewed when a customer's order pattern, payment history or financial position changes.

Invoice discounting raises finance against receivables while the business retains the sales ledger; factoring transfers collection to the factor.

Bad debt write-off is charged to the statement of profit or loss; a specific allowance covers debts known to be doubtful.

Credit insurance protects against non-payment but does not replace credit assessment and monitoring.