KASNEB CA24 cheat sheet

Accounting equation: Assets = Liabilities + Capital; every transaction preserves this equality.

Double entry rule: every transaction has equal debits and credits; total debits must equal total credits in the trial balance.

Accrual basis: revenue is recognised when earned and expenses when incurred, not when cash moves.

Straight-line depreciation = (Cost − Residual value) ÷ Useful life; reducing-balance applies a fixed rate to the carrying amount each year.

Gross profit = Revenue − Cost of sales; net profit = Gross profit + Other income − Operating expenses.

Inventory cost under IAS 2 is the lower of cost and net realisable value; FIFO and weighted average are permitted cost formulas.

Current ratio = Current assets ÷ Current liabilities; quick ratio excludes inventory from current assets.

Bank reconciliation: adjusted cash book balance plus unpresented cheques less uncredited deposits equals the bank statement balance.

Time value of money: FV = PV × (1 + r)^n; PV = FV ÷ (1 + r)^n for a single sum.

Net present value discounts all cash flows at the cost of capital; accept a project when NPV > 0.

Internal rate of return is the discount rate at which NPV = 0; accept when IRR exceeds the cost of capital.

Profitability index = PV of cash inflows ÷ Initial investment; a value above 1 signals acceptance.

Weighted average cost of capital = (E/V × Ke) + (D/V × Kd × (1 − t)), where V = E + D.

Capital asset pricing model: Ke = Rf + β(Rm − Rf); beta measures systematic risk.

Dividend valuation: Ke = (D1 ÷ P0) + g, where g is the expected dividend growth rate.

Payback period ignores cash flows after the cut-off and the time value of money, unlike NPV and IRR.

The 5 Cs of credit: Character, Capacity, Capital, Collateral and Conditions.

Credit scorecards weight applicant characteristics; a cut-off score separates accept from reject decisions.

Accounts receivable days = (Trade receivables ÷ Credit sales) × 365; a rising figure signals slower collection.

Credit terms 2/10 net 30 mean a 2% discount if paid within 10 days, otherwise full payment due in 30 days.

Cost of foregoing a cash discount = (Discount ÷ (1 − Discount)) × (365 ÷ (Net period − Discount period)).

Expected credit losses under IFRS 9 are recognised on a forward-looking basis, not only when default occurs.

Aging analysis buckets receivables by days overdue; older buckets attract higher expected loss rates.

Credit risk mitigation includes guarantees, collateral, credit insurance and exposure limits per counterparty.

Agency problem: managers may pursue self-interest over shareholder interest; monitoring and incentives mitigate it.

Separation of duties requires that no single person authorises, records and custodies the same transaction.

Cadbury-style codes recommend an independent board, split of chair and CEO roles, and independent audit committees.

COSO internal control components: control environment, risk assessment, control activities, information and communication, monitoring.

Span of control is the number of subordinates reporting to one manager; wider spans flatten the hierarchy.

Maslow's hierarchy orders needs from physiological to self-actualisation; lower needs are satisfied first.

Stakeholder theory holds that the firm is accountable to employees, customers, suppliers and society, not owners alone.

Budget variance = Actual − Budget; a favourable variance increases profit, an adverse variance reduces it.