KASNEB CS25 cheat sheet

Accounting equation: Assets = Liabilities + Capital; every transaction preserves the balance.

Double entry: each transaction has equal debits and credits; debits increase assets and expenses, credits increase liabilities, income and capital.

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

Depreciation (straight line) = (Cost − Residual value) ÷ Useful life; reducing balance applies a fixed rate to the carrying amount.

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

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

Trial balance proves arithmetic equality of debits and credits, not the absence of errors of principle or omission.

Bank reconciliation: adjusted cash book balance is reconciled to the bank statement by timing differences and bank errors.

IFRS conceptual framework qualitative characteristics: relevance and faithful representation are fundamental; comparability, verifiability, timeliness and understandability are enhancing.

Time value: FV = PV(1 + r)^n; PV = FV ÷ (1 + r)^n, where r is the periodic rate and n the number of periods.

NPV = Σ [CFt ÷ (1 + r)^t] − Initial outlay; accept a project when NPV > 0.

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

WACC = (E/V) × Ke + (D/V) × Kd × (1 − tax rate), with V = E + D.

CAPM: Ke = Rf + β(Rm − Rf), where Rf is the risk-free rate and (Rm − Rf) the market risk premium.

Dividend growth model: Ke = (D1 ÷ P0) + g, where D1 is next year's dividend and g the growth rate.

Payback period ignores cash flows after the cut-off and the time value of money; discounted payback corrects the latter.

Profitability index = PV of future cash flows ÷ Initial investment; accept when PI > 1.

The 5 Cs of credit: Character, Capacity, Capital, Collateral and Conditions; capacity and character carry the greatest weight.

Credit scorecards weight quantitative factors (income, gearing, repayment history) and qualitative factors (management integrity, industry outlook).

Expected credit loss = Probability of default × Loss given default × Exposure at default.

Aging analysis classifies receivables by days overdue; rising balances in older buckets signal deteriorating collectability.

Credit terms 2/10, net 30: a 2% discount for payment within 10 days, otherwise full amount due in 30 days.

Cost of foregoing a cash discount = [d ÷ (1 − d)] × [365 ÷ (N − D)], where d is the discount rate, N the net period and D the discount period.

Loan covenants include affirmative (maintain insurance, submit accounts) and negative (limit further borrowing, restrict dividends) undertakings.

Collateral security reduces loss given default but does not by itself improve the borrower's capacity to repay.

Agency problem: separation of ownership from control creates scope for managers to pursue self-interest at shareholders' expense.

Board committees typically include audit, risk, nomination and remuneration; the audit committee should comprise independent non-executive directors.

King IV governance principles rest on ethical leadership, the corporate governance outcomes of ethical culture, good performance, effective control and legitimacy.

Segregation of duties: no single person should authorise, record and custody the same asset.

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

Management functions: planning, organising, directing and controlling; controlling compares actual performance with standards and corrects variances.

Span of control: a narrow span gives closer supervision but taller hierarchy; a wide span reduces cost but increases supervisory load.

Stakeholder theory holds that the firm is accountable to employees, customers, suppliers and communities, not only shareholders.

CIA triad: confidentiality, integrity and availability are the core information security objectives.

Access control principles: least privilege, need-to-know and separation of duties.

Encryption at rest protects stored data; TLS protects data in transit; hashing (e.g. SHA-256) provides integrity but is not reversible.

Backup rule 3-2-1: at least three copies, on two different media, with one copy off-site.

A general controls review covers access management, change management, backup and business continuity; application controls cover input, processing and output.

Cloud service models: IaaS (infrastructure), PaaS (platform), SaaS (application); responsibility for controls shifts toward the provider as you move to SaaS.

CAATs such as data analytics, test data and parallel simulation allow auditors to test complete populations rather than samples.

A disaster recovery plan targets recovery time objective (RTO) and recovery point objective (RPO); RPO defines tolerable data loss.

Contract essentials: offer, acceptance, consideration, intention to create legal relations and capacity.

Law of agency: the principal is bound by acts of an agent acting within actual or apparent authority.

Break-even point (units) = Fixed costs ÷ Contribution per unit; contribution = Selling price − Variable cost per unit.

Margin of safety = (Actual sales − Break-even sales) ÷ Actual sales, expressed as a percentage.

Elasticity of demand = % change in quantity demanded ÷ % change in price; demand is elastic when the absolute value exceeds 1.

Business structures: a sole trader has unlimited liability; a limited company confers limited liability but is subject to greater disclosure.

Data protection principles commonly require lawfulness, purpose limitation, data minimisation, accuracy, storage limitation and security.

Economics: opportunity cost is the value of the next best alternative forgone when a choice is made.

Straight-line depreciation rate = 1 ÷ useful life; the same charge is made each full year.

Closing inventory is valued at the lower of cost and net realisable value under IAS 2.

Suspense account is opened to balance a trial balance when a one-sided error is found, then cleared when corrected.

Capital expenditure is added to non-current assets; revenue expenditure is charged to profit or loss.

Bond price moves inversely to market interest rates; the longer the maturity, the greater the price sensitivity.

Gordon growth model requires g < r for a finite present value of the dividend stream.

Operating gearing = contribution ÷ operating profit; financial gearing = debt ÷ equity.

Weighted average cost of capital is the appropriate discount rate only for projects of average business risk.

Days sales outstanding = (Trade receivables ÷ Credit sales) × 365; a rising figure indicates slower collection.

Credit limit should reflect the borrower's debt-service capacity, not merely the value of security offered.

Concentration risk arises when a large share of the credit portfolio is exposed to one borrower, sector or geography.

A credit memorandum records the assessment, approval limit and conditions attached to a facility.

Independence of directors is impaired by material business relationships, long tenure and family ties.

Internal audit reports functionally to the audit committee to preserve independence from management.

Risk response options: avoid, reduce, transfer (e.g. insurance) and accept.

Delegation transfers authority but not ultimate accountability.

Two-factor authentication combines two of: something you know, something you have, something you are.

A firewall filters traffic by rule; an IDS detects and alerts; an IPS detects and blocks.

Change management requires authorisation, testing, segregation of duties between developer and deployer, and rollback plans.

Phishing exploits human behaviour, so technical controls must be paired with awareness training.

Negligence requires a duty of care, breach of that duty, causation and resulting loss.

Termination of an offer occurs by revocation, rejection, lapse of time or death of the offeror.

Contribution margin ratio = Contribution ÷ Sales; it measures the proportion of each sales unit available to cover fixed costs.

Price elasticity is used to predict revenue effect: a price rise raises revenue only when demand is inelastic.