CA Sri Lanka Business Level Exam flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Accrual basis

Accounting basis under which transactions are recognised when they occur, not when cash is received or paid. Income and expenses are matched to the period to which they relate.

Going concern assumption

Financial statements are prepared assuming the entity will continue in operation for the foreseeable future. If not, a different basis is used and this is disclosed.

Depreciation

Systematic allocation of the depreciable amount of a tangible non-current asset over its useful life. Depreciable amount equals cost less residual value.

Net realisable value

Estimated selling price in the ordinary course of business less estimated costs of completion and estimated costs necessary to make the sale. Used to test inventory carrying amounts.

Deferred tax liability

Amount of income tax payable in future periods in respect of taxable temporary differences. Arises where the carrying amount of an asset exceeds its tax base.

Provision

A liability of uncertain timing or amount. Recognised when a present obligation exists, an outflow of resources is probable and a reliable estimate can be made.

Contribution per unit

Selling price per unit minus variable cost per unit. Fixed costs are divided by this figure to calculate break-even volume in units.

Break-even point

Level of sales at which total contribution equals total fixed costs, so profit is zero. Calculated as fixed costs divided by contribution per unit or contribution-to-sales ratio.

Margin of safety

Excess of budgeted or actual sales over break-even sales, expressed as a percentage of budgeted or actual sales. Indicates the sales decline tolerable before losses arise.

Weighted average cost of capital

Blended required return on a firm's debt and equity, weighted by market values. Used as the discount rate for evaluating projects of average risk.

Capital asset pricing model

Model where the cost of equity equals the risk-free rate plus beta multiplied by the market risk premium. It prices only systematic risk.

Net present value

Sum of discounted future after-tax cash flows less the initial investment, using the cost of capital. A positive NPV indicates the project adds value.

Material price variance

Difference between standard price and actual price multiplied by actual quantity purchased. A positive figure indicates an adverse variance where actual exceeds standard.

Relevant cost

Future, incremental cash flow that differs between alternatives. Sunk costs and apportioned common fixed costs are excluded from decision making.

Overhead absorption rate

Rate used to charge fixed production overhead to units, often per labour hour or machine hour. Total budgeted overhead is divided by budgeted activity.

Assessable income

Income of a year of assessment that falls within the charging provisions after excluding exempt income. Allowable deductions are subtracted to compute taxable income.

Capital allowance

Tax deduction for qualifying capital expenditure on assets such as plant and machinery, replacing accounting depreciation. Rates and conditions are set by statute.

Withholding tax

Tax deducted at source by a payer on specified payments such as interest, royalties or service fees, then remitted to the tax authority within the statutory deadline.

Input tax

VAT charged on purchases and expenses incurred by a registered trader. It is deducted from output tax to arrive at the net VAT payable.

General anti-avoidance rule

Statutory provision allowing the tax authority to disregard or recharacterise an arrangement whose sole or dominant purpose is obtaining a tax benefit.

Separate legal personality

Principle that a company is a legal person distinct from its shareholders and directors, with perpetual succession, capacity to own property and sue or be sued.

Audit risk

Risk that the auditor expresses an inappropriate opinion on financial statements that are materially misstated. It comprises inherent, control and detection risk.

Detection risk

Risk that procedures performed by the auditor fail to detect a material misstatement. It is controlled by the auditor through the nature, timing and extent of procedures.

Performance materiality

Amount set below overall materiality to reduce to an appropriately low level the probability that uncorrected and undetected misstatements exceed overall materiality.

Modified audit opinion

Opinion that is qualified, adverse or a disclaimer, issued when the financial statements are materially misstated or sufficient appropriate evidence cannot be obtained.

Key audit matter

Matter of most significance in the audit of the current period, selected from matters communicated with those charged with governance and described in the auditor's report.

Self-review threat

Threat to independence arising when the auditor evaluates work it previously performed, such as preparing records later subject to audit. Safeguards or refusal are required.

Going concern assessment

Evaluation of whether the entity can continue operating for at least twelve months from the reporting date. Material uncertainty is disclosed and highlighted in the audit report.

PESTLE analysis

Framework assessing political, economic, social, technological, legal and environmental factors in the external environment to inform strategy formulation and risk management.

Porter's five forces

Model of industry attractiveness based on threat of new entrants, bargaining power of buyers and suppliers, threat of substitutes and competitive rivalry.

SWOT analysis

Tool matching internal strengths and weaknesses with external opportunities and threats. It supports strategy formulation by aligning capabilities with environmental conditions.

Corporate governance

System of rules and practices by which a company is directed and controlled, covering board composition, accountability, transparency and protection of stakeholder interests.

Business process re-engineering

Radical redesign of core business processes to achieve dramatic improvements in cost, quality, service and speed, rather than incremental continuous improvement.