CIMA BA1 flashcards
CIMA BA1 · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Price elasticity of demand
- The percentage change in quantity demanded divided by the percentage change in price. Demand is elastic when the value exceeds one, inelastic when below one.
- Income elasticity of demand
- The percentage change in quantity demanded divided by the percentage change in income. Positive for normal goods, negative for inferior goods.
- Cross elasticity of demand
- The percentage change in quantity demanded of one good divided by the percentage change in price of another. Positive for substitutes, negative for complements.
- Diminishing marginal returns
- In the short run, adding successive units of a variable factor to a fixed factor eventually reduces the marginal product of that variable factor.
- Economies of scale
- Reductions in long-run average cost as output increases, arising from specialisation, bulk purchasing, technical efficiency and improved access to finance.
- Monopoly profit maximisation
- A monopolist maximises profit where marginal revenue equals marginal cost, setting a price above marginal revenue from the downward-sloping demand curve.
- GDP expenditure formula
- Gross domestic product measured by expenditure equals consumption plus investment plus government spending plus exports minus imports.
- Prime cost
- The total of direct materials, direct labour and direct expenses incurred in production, excluding production overheads.
- High-low method
- A technique separating fixed and variable cost. Variable cost per unit equals the change in total cost divided by the change in activity.
- Contribution
- Selling price per unit minus variable cost per unit. Total contribution covers fixed costs and then generates profit.
- Break-even point
- The activity level at which total contribution equals fixed costs, giving neither profit nor loss. Units equal fixed costs divided by contribution per unit.
- Margin of safety
- The excess of budgeted or actual sales over break-even sales, expressed as a percentage of budgeted sales or in units.
- Absorption costing
- A costing method that includes an appropriate share of fixed production overheads in the value of inventory, alongside direct costs and variable overheads.
- Overhead absorption rate
- Budgeted production overheads divided by budgeted activity, such as labour hours or machine hours, used to charge overheads to products.
- Relevant cost
- A future, incremental cash flow that differs between alternatives. Past sunk costs and committed costs are not relevant to a decision.
- Accounting equation
- Assets equal capital plus liabilities. Every transaction affects at least two elements and keeps the equation in balance.
- Accruals concept
- Income and expenses are recognised in the period in which they are earned or incurred, regardless of when cash is received or paid.
- Going concern
- The assumption that the entity will continue trading for the foreseeable future, so financial statements are prepared on a non-break-up basis.
- Straight-line depreciation
- An equal annual charge calculated as cost minus residual value, divided by the asset's useful economic life.
- Reducing balance depreciation
- An annual charge equal to a fixed percentage of the asset's carrying amount, giving higher charges in earlier years and lower charges later.
- Lower of cost and NRV
- Inventory is measured at the lower of cost and net realisable value, where NRV is expected selling price less costs to complete and sell.
- Quick ratio
- Current assets excluding inventory, divided by current liabilities. It tests short-term liquidity without relying on inventory being sold.
- Trial balance limitations
- A trial balance proves debits equal credits but cannot detect errors of principle, omission, commission, original entry or compensating errors.
- Agency problem
- A conflict where directors, acting as agents for shareholders, may pursue their own interests rather than maximising shareholder wealth.
- Chairman and CEO separation
- Governance safeguard in which different individuals hold the roles of board chairman, who leads the board, and chief executive, who runs the business.
- Audit committee role
- A committee of independent non-executive directors that oversees financial reporting, internal controls and the relationship with external auditors.
- Threats to auditor independence
- Risks including self-interest, self-review, advocacy, familiarity and intimidation that may compromise an auditor's objectivity.
- Contract formation elements
- A valid contract requires an offer, acceptance, consideration and an intention to create legal relations between the parties.
- Offer termination methods
- An offer ends by revocation before acceptance, rejection, lapse of time, death of a party, or failure of a condition precedent.
- Separate legal personality
- A company is a legal person distinct from its members, so it owns property, contracts in its own name and shareholders have limited liability.
- Directors' duties
- Obligations including acting within powers, promoting company success, exercising independent judgement, avoiding conflicts and not accepting benefits from third parties.
- Bribery prevention controls
- Measures such as risk assessment, top-level commitment, due diligence on partners, clear procedures, communication and monitoring to counter bribery.