NCEA Level 3 Accounting cheat sheet

NZ GAAP for for-profit entities is NZ IFRS, issued by the External Reporting Board (XRB); entities with public accountability must apply full Tier 1 NZ IFRS.

Conceptual Framework definitions: asset = a present economic resource controlled as a result of past events; liability = a present obligation to transfer an economic resource; equity = the residual interest in assets after deducting liabilities.

Fundamental qualitative characteristics are relevance (materiality is entity-specific) and faithful representation (complete, neutral, free from material error); enhancing characteristics are comparability, verifiability, timeliness and understandability.

The 2018 Conceptual Framework sets no probability recognition threshold: an item is recognised when it meets a definition and recognition provides relevant and faithfully representative information.

Measurement bases are historical cost and current value - fair value, value in use (assets), fulfilment value (liabilities) and current cost.

NZ IAS 1 requires the going concern and accrual basis assumptions; prudence is the exercise of caution under uncertainty, not deliberate understatement of assets or overstatement of liabilities.

NZ IAS 21: foreign currency transactions are translated at the spot rate on initial recognition; monetary items are retranslated at the closing rate with exchange gains or losses in profit or loss; exchange differences on a foreign operation are recognised in OCI.

The New Zealand company income tax rate is 28%; dividends carry imputation credits for resident shareholders, and dividends paid to non-residents attract non-resident withholding tax of up to 30%, reduced under double tax agreements.

Cross-border transactions between related parties must follow the arm's length principle under transfer pricing rules; GST at 15% is excluded from revenue and expenses of a GST-registered entity and recorded as GST payable or receivable.

A complete set under NZ IAS 1 comprises the statement of financial position, statement of profit or loss and other comprehensive income, statement of changes in equity, statement of cash flows and notes, all with comparative information.

Statement of changes in equity: opening equity + total comprehensive income + shares issued − dividends declared ± transfers to and from reserves = closing equity.

New Zealand ordinary shares have no par value under the Companies Act 1993; issue proceeds are credited to share capital and issue costs are deducted from equity.

A dividend becomes a liability when declared; the Companies Act 1993 section 52 solvency test, not a profits test, governs whether it may be paid.

Tax expense = current tax + the movement in deferred tax; deferred tax is recognised on temporary differences at 28%, producing deferred tax liabilities (taxable differences) or deferred tax assets (deductible differences).

NZ IAS 7 classifies cash flows as operating, investing and financing; cash equivalents are short-term, highly liquid investments with maturities of roughly three months or less.

Other comprehensive income includes revaluation surpluses on property, plant and equipment (NZ IAS 16), foreign operation translation differences, cash flow hedge movements and remeasurement of defined benefit plans; these are closed to reserves, not profit or loss.

Revenue under NZ IFRS 15 follows five steps: identify the contract, identify the performance obligations, determine the transaction price, allocate it to the obligations, and recognise revenue as each obligation is satisfied.

NZ IAS 10: adjusting events provide evidence of conditions existing at balance date and change the amounts recognised; non-adjusting events are disclosed if material. NZ IFRS 16 recognises a right-of-use asset and a lease liability for lessees.

Annual report contents typically include the financial statements and notes, the directors' report required by section 211 of the Companies Act 1993, the auditor's report, a corporate governance statement and, for listed issuers, remuneration and NZX-mandated disclosures.

Profitability ratios: gross margin = gross profit ÷ revenue; net margin = profit ÷ revenue; return on equity = profit ÷ equity; return on total assets = profit ÷ total assets.

Liquidity ratios: current ratio = current assets ÷ current liabilities; quick ratio = (current assets − inventory − prepayments) ÷ current liabilities.

Solvency ratios: equity ratio = equity ÷ total assets; debt to equity = liabilities ÷ equity; interest cover = EBIT ÷ interest expense.

Efficiency ratios: inventory turnover = cost of sales ÷ average inventory; inventory days = 365 ÷ turnover; debtors' days = receivables ÷ revenue × 365; creditors' days = payables ÷ purchases × 365.

Market ratios: EPS = profit attributable to ordinary shareholders ÷ weighted average ordinary shares; P/E = market price ÷ EPS; dividend yield = DPS ÷ market price; payout ratio = DPS ÷ EPS.

Audit opinions may be unmodified, qualified, adverse or a disclaimer of opinion; auditor's reports of listed entities also communicate key audit matters (NZ ISA 701).

Reporting tiers: Tier 1 applies full NZ IFRS to publicly accountable entities; Tier 2 applies NZ IFRS Reduced Disclosure Regime to eligible entities without public accountability.

Interpretation limits: historical cost figures, differing accounting policies and estimates, inflation, one-off items and seasonality, and the absence of non-financial and forward-looking information.

Job costing suits customised, separately identifiable output; costs are accumulated on a job cost record from material requisitions, job time sheets and applied overhead.

Predetermined overhead rate = budgeted overhead ÷ budgeted allocation base (direct labour hours, machine hours or direct labour cost), with the base chosen on a cause-and-effect basis.

Applied overhead = predetermined rate × actual base used; over- or under-applied overhead = actual overhead − applied overhead, and an immaterial balance is written off to cost of goods sold.

Prime cost = direct materials + direct labour; conversion cost = direct labour + manufacturing overhead; product cost = direct materials + direct labour + manufacturing overhead.

Cost of goods manufactured = opening work in progress + direct materials used + direct labour + applied overhead − closing work in progress; cost of goods sold = opening finished goods + cost of goods manufactured − closing finished goods.

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

Target profit units = (fixed costs + target profit) ÷ contribution margin per unit; margin of safety = (expected sales − break-even sales) ÷ expected sales.

Relevant costs are future, incremental and avoidable; exclude sunk costs, allocated common fixed costs and non-cash items, and include the opportunity cost of the alternative forgone.

High-low method: variable cost per unit = (highest total cost − lowest total cost) ÷ (highest activity − lowest activity); fixed cost = total cost − variable cost per unit × activity level.