HKICPA QP Module 1 Accounting cheat sheet

Conceptual framework: an asset is a present economic resource controlled by the entity as a result of past events; a liability is a present obligation to transfer an economic resource as a result of past events. Recognition requires relevance and faithful representation; derecognition occurs when the resource or obligation is extinguished or transferred.

HKFRS 15 five-step model: (1) identify the contract with a customer; (2) identify distinct performance obligations; (3) determine the transaction price; (4) allocate the price to performance obligations on relative stand-alone selling prices; (5) recognise revenue when (or as) each obligation is satisfied. Variable consideration is estimated using the expected-value or most-likely-amount method, constrained to amounts highly probable not to reverse.

Over time vs point in time: revenue is recognised over time if the customer simultaneously receives and consumes benefits, the entity's performance creates or enhances an asset the customer controls, or the performance creates an asset with no alternative use and the entity has an enforceable right to payment for performance to date. Otherwise recognition is at the point control transfers.

HKFRS 16 lessee accounting: recognise a right-of-use asset and a lease liability at the present value of lease payments, discounted at the interest rate implicit in the lease or, if not readily determinable, the lessee's incremental borrowing rate. The ROU asset equals the liability plus initial direct costs, prepayments and estimated restoration costs, less lease incentives.

HKFRS 9 expected credit loss: loss allowance equals the 12-month ECL unless credit risk has increased significantly since initial recognition, in which case lifetime ECL applies. For trade receivables without a significant financing component, a simplified approach permits a lifetime ECL provision matrix.

HKAS 36 impairment: an asset is impaired when carrying amount exceeds recoverable amount. Recoverable amount is the higher of fair value less costs of disposal and value in use. Value in use is the present value of future cash flows from the asset (or cash-generating unit), discounted at a pre-tax rate reflecting current market assessments of time value and risk.

HKAS 37 provisions: recognise when a present obligation (legal or constructive) exists from a past event, an outflow is probable, and the amount can be reliably estimated. Measure at the best estimate of the expenditure required to settle the obligation, discounted where the effect of time value is material. A reimbursement is recognised as a separate asset only when virtually certain.

HKAS 12 deferred tax: compute using the temporary-difference approach at the tax rates expected to apply when the difference reverses. Recognise deferred tax liabilities for taxable temporary differences and deferred tax assets for deductible temporary differences and unused tax losses only to the extent that future taxable profit is probable.

HKAS 7 statement of cash flows: classify cash flows as operating, investing or financing. Interest paid and dividends paid may be classified as operating or financing (consistently); interest and dividends received as operating or investing. Non-cash transactions are excluded from the statement and disclosed separately.

Consolidation (HKFRS 10): control exists where the investor has power over the investee, exposure or rights to variable returns, and the ability to use its power to affect those returns. Intragroup balances, transactions, income and expenses are eliminated in full; non-controlling interest is presented within equity, separately from owners' equity.

Goodwill on acquisition: measured as consideration transferred plus NCI plus fair value of previously held interests, less the net fair value of identifiable assets acquired and liabilities assumed. Goodwill is not amortised; it is tested annually for impairment and allocated to cash-generating units or groups of CGUs.

Fair value (HKFRS 13): the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Use the principal market or, absent one, the most advantageous market; use quoted prices in active markets (Level 1) before observable inputs (Level 2) and unobservable inputs (Level 3).

Financial instruments (HKFRS 9): classify debt instruments by the business model and contractual cash flow characteristics (solely payments of principal and interest). Amortised cost if held to collect and the SPPI test is met; fair value through OCI if held to collect and sell and SPPI is met; otherwise FVTPL. Equity instruments are normally FVTPL unless an irrevocable OCI election is made.

Leases - lessor accounting: a lessor classifies a lease as a finance lease if it transfers substantially all risks and rewards incidental to ownership (e.g. lease term is the major part of the asset's economic life, or the present value of lease payments is substantially all of fair value). Otherwise it is an operating lease and lease income is recognised on a straight-line basis.

Ratio analysis: return on equity = net profit attributable to ordinary shareholders ÷ average ordinary shareholders' equity. Gross margin = gross profit ÷ revenue. Current ratio = current assets ÷ current liabilities. Quick ratio = (current assets − inventories) ÷ current liabilities. Asset turnover = revenue ÷ average total assets.

Earnings per share (HKAS 33): basic EPS = profit attributable to ordinary shareholders ÷ weighted average number of ordinary shares outstanding. Diluted EPS adjusts both numerator and denominator for dilutive potential ordinary shares (e.g. convertible bonds, share options) and is never anti-dilutive.

Revenue and contract costs: incremental costs of obtaining a contract are capitalised if the entity expects to recover them (e.g. sales commission), and costs to fulfil a contract are capitalised if they relate directly to the contract, generate resources used to satisfy performance obligations, and are expected to be recovered. Capitalised costs are amortised on a systematic basis consistent with the transfer of goods or services.

Ethics and professional standards: the HKICPA Code of Ethics requires compliance with the fundamental principles of integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. Threats (self-interest, self-review, advocacy, familiarity, intimidation) must be identified and addressed through safeguards or, if no safeguard is available, by declining or ending the engagement.