CA Sri Lanka Business Level Exam cheat sheet

LKAS 1 requires a complete set of financial statements: statement of financial position, statement of profit or loss and other comprehensive income, statement of changes in equity, statement of cash flows, and notes.

Under LKAS 16, depreciation begins when an asset is available for use; the residual value and useful life are reviewed at least annually and any change is a change in accounting estimate applied prospectively.

LKAS 2: inventory is measured at the lower of cost and net realisable value; cost includes purchase cost, conversion cost and other costs to bring inventory to its present location and condition.

Borrowing costs under LKAS 23 are capitalised to a qualifying asset when it takes a substantial period to get ready for use or sale; capitalisation ceases when the asset is substantially complete.

LKAS 36 impairment: carrying amount is compared with recoverable amount, which is the higher of fair value less costs of disposal and value in use; an impairment loss is recognised immediately in profit or loss unless the asset is revalued.

LKAS 37: a provision is recognised only when a present obligation from a past event exists, an outflow is probable, and the amount can be reliably estimated; a contingent liability is disclosed, not recognised.

LKAS 12 deferred tax is measured at the tax rates expected to apply when the asset is realised or liability settled, based on rates enacted or substantively enacted by the reporting date.

LKAS 18 revenue is recognised when risks and rewards of ownership transfer, the amount can be measured reliably, and economic benefits are probable; interest and dividends are recognised on a time-proportion or rights basis.

LKAS 7 cash and cash equivalents include short-term, highly liquid investments with original maturities of three months or less; bank overdrafts repayable on demand form part of cash equivalents where integral to cash management.

Contribution margin = sales revenue − variable costs; contribution per unit = selling price − variable cost per unit. Break-even units = fixed costs ÷ contribution per unit.

Margin of safety = (budgeted or actual sales − break-even sales) ÷ budgeted or actual sales, expressed as a percentage; it measures the fall in sales before a loss arises.

Weighted average cost of capital (WACC) = (E/V × Ke) + (D/V × Kd × (1 − t)), where V = E + D and the tax shield applies to debt.

Capital asset pricing model: Ke = Rf + β(Rm − Rf), where Rf is the risk-free rate, β the systematic risk and (Rm − Rf) the market risk premium.

Net present value discounts incremental after-tax cash flows at the WACC; accept a project when NPV > 0. IRR is the discount rate at which NPV = 0.

Payback period is the time to recover the initial investment from cash inflows; it ignores cash flows after payback and the time value of money unless discounted.

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

Absorption costing allocates fixed production overhead to units; under- or over-absorption = absorbed overhead − actual overhead.

Relevant costs for decisions are future, incremental and avoidable; sunk costs and allocated common fixed costs are excluded.

Income tax on companies is levied at the corporate rate on taxable income; taxable income = assessable income − allowable deductions, adjusted for exempt income and non-deductible items.

Capital allowances replace depreciation for tax purposes; qualifying expenditure on plant and machinery is claimed under the rules in force for the year of assessment.

Withholding tax (WHT) applies to specified payments such as interest, royalties and certain service fees; the payer deducts WHT and remits it to the tax authority within the statutory period.

Value Added Tax (VAT) is a multi-stage tax on the supply of goods and services; a registered trader charges output tax, deducts input tax, and remits the net amount.

The general anti-avoidance rule allows the tax authority to disregard arrangements whose sole or dominant purpose is to obtain a tax benefit.

A contract requires offer, acceptance, consideration and intention to create legal relations; capacity and legality are also required for enforceability.

Under a contract of employment, the employer controls the manner of work; an independent contractor controls the method and bears business risk.

Under the Companies Act, a company is a separate legal person with perpetual succession; directors owe fiduciary duties of good faith and skill and care to the company.

The limitation period for a breach of contract claim is generally six years from the date the cause of action accrues; tort claims follow the same principle.

Audit risk = inherent risk × control risk × detection risk; the auditor assesses inherent and control risk and designs procedures to reduce detection risk to an acceptably low level.

Materiality is set at the planning stage and revised if the auditor becomes aware of information that would have changed the initial determination; performance materiality is lower than overall materiality.

The audit opinion is modified where the auditor concludes the financial statements are materially misstated (qualified or adverse) or where sufficient appropriate evidence cannot be obtained (qualified or disclaimer).

A key audit matter is communicated in the auditor's report for listed entities: a matter of most significance in the audit, selected from matters communicated with those charged with governance.

The auditor must comply with independence requirements; providing certain non-audit services, such as bookkeeping or management functions, creates a self-review threat.

The audit report is addressed to the shareholders or those charged with governance and includes the auditor's opinion, basis for opinion and responsibilities of the auditor.

Internal control comprises the control environment, risk assessment, control activities, information and communication, and monitoring activities.

The going concern assessment covers at least twelve months from the reporting date; if material uncertainty exists, it is disclosed and the auditor's report includes an emphasis of matter paragraph.

Analytical procedures are used at planning to understand the entity, as substantive procedures where appropriate, and at the final review stage.

Strategic management follows the process of environmental analysis, strategy formulation, strategy implementation and evaluation and control.

PESTLE analysis examines political, economic, social, technological, legal and environmental factors affecting the organisation.

Porter's five forces: threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitutes and competitive rivalry.

A SWOT analysis matches internal strengths and weaknesses with external opportunities and threats to inform strategy.

Corporate governance codes require a balance of executive and non-executive directors, with independent non-executives comprising a significant proportion of the board.

Stakeholder theory holds that the firm is accountable to groups affected by its activities, not only shareholders.

Budgeting is a control tool: it sets targets, allocates resources and enables variance analysis against actual performance.

Business process re-engineering redesigns processes radically for dramatic improvement in cost, quality, service and speed, rather than incremental change.