CIMA F1 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Faithful representation

Information is complete, neutral and free from material error, depicting the economic substance of transactions rather than merely their legal form.

Going concern assumption

Financial statements are prepared on the basis that the entity will continue in operation for at least twelve months after the reporting date, without intention to liquidate.

Accrual basis

Transactions and events are recognised when they occur, not when cash is received or paid, so income and expenses are matched to the period they relate to.

Adjusting event

An event after the reporting date that provides evidence of conditions existing at that date, such as the settlement of a court case, requiring the figures to be adjusted.

Non-adjusting event

An event after the reporting date that concerns conditions arising later, such as a fire or a share issue, disclosed only if material and not adjusting the figures.

Provision recognition criteria

A present obligation from a past event, where an outflow of resources is probable and can be reliably estimated, is recognised as a liability of uncertain timing or amount.

Revenue performance obligation

A promise to transfer a distinct good or service to a customer; revenue is recognised when each obligation is satisfied, either over time or at a point in time.

Materiality

Information is material if omitting or misstating it could influence decisions that users make on the basis of the financial statements; it is entity-specific.

IFRS Interpretations Committee

A body appointed by the IFRS Foundation trustees that reviews accounting issues arising in practice and issues interpretations to ensure consistent application of IFRS.

Comply or explain

A governance approach where a listed company either applies a code provision or explains in its annual report why it has not, allowing flexibility.

Audit committee independence

The audit committee should comprise at least three independent non-executive directors, including one with recent and relevant financial experience, overseeing audit and internal control.

Reasonable assurance

The level of assurance an external auditor provides, meaning a high but not absolute level that the financial statements are free from material misstatement.

Inside information

Unpublished information of a precise nature that, if made public, would significantly affect the price of a financial instrument, restricting trading by insiders.

Directors' duty of care

Directors must exercise independent judgement and the care, skill and diligence reasonably expected of a person with their knowledge and experience in that role.

Conceptual framework hierarchy

When no standard applies, management first considers IFRS on similar matters, then the framework's definitions and recognition criteria, disclosing the judgement made.

Straight-line depreciation

An annual charge equal to cost less residual value, divided by useful life, applied where benefits are consumed evenly over the asset's life.

Reducing balance depreciation

A charge calculated as a fixed percentage of the asset's carrying amount each year, giving higher charges early and lower charges later.

Revaluation surplus

The credit arising when an asset's fair value exceeds its carrying amount, recognised in other comprehensive income and accumulated in equity, not profit or loss.

Residual value

The estimated amount an entity would currently obtain from disposing of an asset, after deducting expected disposal costs, assuming the asset were already of the age and condition expected at the end of its useful life.

Development capitalisation

Development expenditure is capitalised only when technical feasibility, intention and ability to complete, probable benefits, adequate resources and reliable measurement are all demonstrated.

Net realisable value

The estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

FIFO inventory formula

A cost formula assuming the earliest items purchased are sold first, so closing inventory is valued at the most recent purchase costs.

Borrowing cost capitalisation

Interest on borrowings directly attributable to acquiring or constructing a qualifying asset is added to the asset's cost, beginning when expenditure and activities start.

Cost of sales formula

Opening inventory plus purchases and carriage inwards, less closing inventory; this figure is deducted from revenue to arrive at gross profit.

Accrued expense

An expense incurred in the period but not yet invoiced or paid, recorded as a liability and charged to profit or loss in the current period.

Prepayment

An amount paid in advance for goods or services relating to a future period, recorded as a current asset and released to profit or loss when consumed.

Error of principle

A transaction recorded in the wrong class of account, such as capital expenditure treated as revenue expenditure, which does not disturb the trial balance.

Suspense account

A temporary account holding the difference on a trial balance until the underlying error is located and corrected; it must be cleared before final statements are prepared.

Operating cash flow indirect method

Profit before tax adjusted for non-cash items such as depreciation, then for working capital movements, interest paid and tax paid.

Goodwill on consolidation

Consideration transferred plus non-controlling interest plus previously held interest, less the fair value of net identifiable assets acquired at the acquisition date.

Return on capital employed

Operating profit divided by capital employed, where capital employed equals total equity plus non-current liabilities, measuring profit generated per unit of long-term funds.

Gearing ratio

Debt divided by debt plus equity, showing the proportion of capital financed by borrowings and indicating financial risk to ordinary shareholders.