KASNEB CPA Intermediate cheat sheet

Separate legal personality: a registered company is a legal person distinct from its members (Salomon v Salomon), so debts and liabilities attach to the company, not shareholders.

Ultra vires: acts outside the objects clause of the memorandum are void at common law; a member or the company may restrain such acts by injunction.

Majority rule and fraud on the minority: the proper plaintiff rule (Foss v Harbottle) yields to exceptions for fraud on the minority, ultra vires acts, and breaches of personal rights.

Directors' duties: act in good faith in the company's interest, exercise care and skill, avoid conflicts of interest, and not misuse company property or information.

Dividends are payable only out of distributable profits (accumulated realised profits less accumulated realised losses), not out of capital.

Share capital terms: issued capital is nominal value of shares allotted; called-up capital is the portion demanded; paid-up capital is amounts actually received.

A company may reduce share capital by special resolution supported by solvency statement, or by court confirmation, depending on the applicable regime.

Oppression remedy: a member may petition where company affairs are conducted in a manner oppressive or unfairly prejudicial to members, seeking a remedial order.

Winding up: inability to pay debts is tested by cash-flow (unable to pay as due) and balance-sheet (liabilities exceed assets) tests.

Time value: PV = FV / (1 + r)^n; FV = PV(1 + r)^n; annuity PV = C × [1 − (1 + r)^−n] / r.

WACC = (E/V) × Ke + (D/V) × Kd × (1 − t), where V = E + D and Kd is the pre-tax cost of debt.

CAPM: Ke = Rf + β(Rm − Rf); beta measures systematic risk; unsystematic risk is diversifiable and not priced.

Cost of equity via dividend growth: Ke = D1/P0 + g; D1 = D0(1 + g).

NPV rule: accept projects with NPV > 0; IRR is the discount rate giving NPV = 0, and accept if IRR > cost of capital.

Profitability index = PV of cash inflows / initial investment; accept if PI > 1 when capital is rationed.

Operating gearing = fixed costs / total costs; financial gearing = debt / (debt + equity) or debt / equity depending on convention.

Working capital cycle = inventory days + receivables days − payables days; a shorter cycle releases cash.

Dividend irrelevance (Modigliani–Miller) holds in perfect markets; relevance arises from taxes, signalling, and agency costs.

Conceptual framework: financial information must be relevant and faithfully represented; comparability, verifiability, timeliness, and understandability are enhancing characteristics.

Revenue recognition (IFRS 15): five steps - identify contract, identify performance obligations, determine transaction price, allocate price, recognise on satisfaction of obligations.

Leases (IFRS 16): lessee recognises a right-of-use asset and a lease liability at present value of lease payments; lessor classifies as finance or operating.

IFRS 9 expected credit loss model: loss allowance equals probability-weighted estimate of cash shortfalls over the asset's life.

Goodwill = consideration transferred + NCI + previously held interest − fair value of net identifiable assets acquired.

Ratio analysis: current ratio = current assets / current liabilities; quick ratio excludes inventory; interest cover = EBIT / finance cost.

DuPont decomposition: ROE = net profit margin × asset turnover × equity multiplier (leverage).

Impairment (IAS 36): recoverable amount is the higher of fair value less costs of disposal and value in use; impair if carrying amount exceeds it.

Earnings per share (IAS 33): basic EPS = profit attributable to ordinary shareholders / weighted average number of ordinary shares.

Audit risk = inherent risk × control risk × detection risk; detection risk is the residual risk the auditor's procedures fail to detect material misstatement.

Materiality: misstatements are material if they could influence economic decisions of users; performance materiality is set below overall materiality.

Audit evidence is sufficient (quantity) and appropriate (relevance and reliability); external evidence is generally more reliable than internal.

Assertions tested: occurrence, completeness, accuracy, cut-off, classification (transactions); existence, rights and obligations, valuation, presentation (balances).

Independence: auditor must be free of interests that a reasonable third party would see as compromising objectivity; prohibits financial interests and certain non-audit services.

Going concern: auditor evaluates management's assessment for at least 12 months; if doubts remain, consider a material uncertainty paragraph or modified opinion.

Opinion types: unmodified, qualified (except for or adverse), and disclaimer; modification depends on pervasiveness and nature of the matter.

Subsequent events: auditor performs procedures up to the date of the auditor's report and responds to facts becoming known before that date.

Sampling risk is the risk conclusions based on a sample differ from conclusions from the whole population; non-sampling risk arises from human error or inappropriate procedures.

Contribution = sales − variable costs; profit = contribution − fixed costs; break-even units = fixed costs / contribution per unit.

Break-even revenue = fixed costs / contribution-to-sales (C/S) ratio; C/S ratio = contribution / sales.

Margin of safety = (budgeted sales − break-even sales) / budgeted sales, expressed as a percentage.

Target profit volume = (fixed costs + target profit) / contribution per unit.

High–low method: variable cost per unit = (cost at high activity − cost at low activity) / (high activity − low activity).

Absorption costing: overhead absorption rate = budgeted overhead / budgeted activity base; over/under absorption = absorbed − actual overhead.

Standard costing variances: material price = (standard price − actual price) × actual quantity; material usage = (standard quantity − actual quantity) × standard price.

Relevant costs are future, incremental cash flows; sunk costs and apportioned fixed costs are irrelevant to decisions.

Throughput accounting: throughput contribution = sales − material cost; measure against bottleneck resource to maximise throughput per limiting factor.

Public finance functions: allocation, distribution, and stabilisation; government intervenes to correct market failure and provide public goods.

Public goods are non-rival and non-excludable; merit goods generate positive externalities and may be under-consumed without state provision.

Tax principles (Adam Smith): equality, certainty, convenience of payment, and economy in collection.

Tax incidence falls on the party bearing the economic burden; elasticity determines whether it shifts to consumers or producers.

Fiscal policy uses government spending and taxation to influence aggregate demand; monetary policy uses interest rates and money supply.

Budget deficit = government expenditure − government revenue in a period; public debt is the accumulated stock of deficits.

Progressive tax: average tax rate rises with income; regressive: average rate falls; proportional: average rate constant.

Tax avoidance is legal arrangement within the law; tax evasion is illegal non-disclosure or misrepresentation and attracts penalties.

Value added tax is a multi-stage tax collected at each stage on value added, with input tax credited against output tax.

Separate legal personality: a registered company is a legal person distinct from its members, so debts and liabilities attach to the company, not shareholders.

Ultra vires: acts outside the objects clause of the memorandum are void at common law; a member may restrain such acts by injunction.

Majority rule (Foss v Harbottle): the proper plaintiff is the company, subject to exceptions for fraud on the minority and ultra vires acts.

Directors' duties: act in good faith in the company's interest, exercise care and skill, avoid conflicts of interest, and not misuse company property.

Dividends are payable only out of distributable profits (accumulated realised profits less accumulated realised losses), not out of capital.

Share capital terms: issued capital is nominal value of shares allotted; called-up capital is the portion demanded; paid-up capital is amounts actually received.

Oppression remedy: a member may petition where company affairs are conducted in a manner oppressive or unfairly prejudicial to members.

Winding up: inability to pay debts is tested by cash-flow and balance-sheet tests.

Time value: PV = FV / (1 + r)^n; FV = PV(1 + r)^n; annuity PV = C × [1 − (1 + r)^−n] / r.

WACC = (E/V) × Ke + (D/V) × Kd × (1 − t), where V = E + D and Kd is the pre-tax cost of debt.

CAPM: Ke = Rf + β(Rm − Rf); beta measures systematic risk; unsystematic risk is diversifiable and not priced.

Cost of equity via dividend growth: Ke = D1/P0 + g, where D1 = D0(1 + g).

NPV rule: accept projects with NPV > 0; IRR is the discount rate giving NPV = 0, and accept if IRR > cost of capital.

Profitability index = PV of cash inflows / initial investment; accept if PI > 1 when capital is rationed.

Operating gearing = fixed costs / total costs; financial gearing = debt / (debt + equity) or debt / equity.

Working capital cycle = inventory days + receivables days − payables days; a shorter cycle releases cash.

Dividend irrelevance (Modigliani–Miller) holds in perfect markets; relevance arises from taxes, signalling, and agency costs.

Conceptual framework: information must be relevant and faithfully represented; comparability, verifiability, timeliness, and understandability are enhancing.

Revenue recognition (IFRS 15): identify contract, identify performance obligations, determine transaction price, allocate price, recognise on satisfaction.

Leases (IFRS 16): lessee recognises a right-of-use asset and a lease liability at present value of lease payments.

IFRS 9 expected credit loss model: loss allowance equals probability-weighted estimate of cash shortfalls over the asset's life.

Goodwill = consideration transferred + NCI + previously held interest − fair value of net identifiable assets acquired.

Ratios: current ratio = current assets / current liabilities; quick ratio excludes inventory; interest cover = EBIT / finance cost.

DuPont decomposition: ROE = net profit margin × asset turnover × equity multiplier.

Impairment (IAS 36): recoverable amount is the higher of fair value less costs of disposal and value in use.

Basic EPS (IAS 33) = profit attributable to ordinary shareholders / weighted average number of ordinary shares.

Audit risk = inherent risk × control risk × detection risk; detection risk is the residual risk procedures fail to detect material misstatement.

Materiality: misstatements are material if they could influence users' economic decisions; performance materiality is set below overall materiality.

Audit evidence is sufficient (quantity) and appropriate (relevance and reliability); external evidence is generally more reliable than internal.

Assertions: occurrence, completeness, accuracy, cut-off, classification for transactions; existence, rights, valuation, presentation for balances.

Independence: auditor must be free of interests a reasonable third party would see as compromising objectivity.

Going concern: auditor evaluates management's assessment for at least 12 months and considers a material uncertainty paragraph if doubts remain.

Opinion types: unmodified, qualified (except for or adverse), and disclaimer; modification depends on pervasiveness and nature of the matter.

Subsequent events: auditor performs procedures up to the date of the auditor's report.

Sampling risk: conclusions from a sample differ from conclusions from the whole population; non-sampling risk arises from human error.

Contribution = sales − variable costs; profit = contribution − fixed costs; break-even units = fixed costs / contribution per unit.

Break-even revenue = fixed costs / C/S ratio, where C/S ratio = contribution / sales.

Margin of safety = (budgeted sales − break-even sales) / budgeted sales, expressed as a percentage.

Target profit volume = (fixed costs + target profit) / contribution per unit.

High–low method: variable cost per unit = (cost at high activity − cost at low activity) / (high activity − low activity).

Absorption costing: overhead absorption rate = budgeted overhead / budgeted activity base; over/under absorption = absorbed − actual overhead.

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

Relevant costs are future, incremental cash flows; sunk costs and apportioned fixed costs are irrelevant to decisions.

Throughput accounting: throughput contribution = sales − material cost; maximise throughput per limiting factor at the bottleneck.

Public finance functions: allocation, distribution, and stabilisation; government intervenes to correct market failure and provide public goods.

Public goods are non-rival and non-excludable; merit goods generate positive externalities and may be under-consumed without state provision.

Tax principles (Adam Smith): equality, certainty, convenience of payment, and economy in collection.

Tax incidence falls on the party bearing the economic burden; elasticity determines whether it shifts to consumers or producers.

Fiscal policy uses government spending and taxation to influence aggregate demand; monetary policy uses interest rates and money supply.

Budget deficit = government expenditure − government revenue in a period; public debt is the accumulated stock of deficits.

Progressive tax: average tax rate rises with income; regressive: average rate falls; proportional: average rate constant.

Tax avoidance is legal arrangement within the law; tax evasion is illegal non-disclosure or misrepresentation and attracts penalties.

Value added tax is a multi-stage tax collected at each stage on value added, with input tax credited against output tax.