NCEA Level 3 Accounting flashcards
NCEA Level 3 Accounting · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Public accountability
- Entities with equity or debt listed on a public market, or holding assets in a fiduciary capacity, must apply full NZ IFRS (Tier 1) rather than reduced disclosure.
- Asset
- A present economic resource controlled by the entity as a result of past events; a right that has the potential to produce economic benefits.
- Faithful representation
- Depicting economic phenomena completely, neutrally and free from material error, so users can rely on the information as reflecting what it claims to represent.
- Prudence
- Exercise of caution under uncertainty so that assets and income are not overstated and liabilities and expenses are not understated; it supports, rather than conflicts with, neutrality.
- Functional currency
- The currency of the primary economic environment in which the entity operates; foreign currency balances and transactions are translated into it under NZ IAS 21.
- Imputation credit
- A credit attached to a New Zealand dividend representing company tax already paid, which resident shareholders use to reduce their own income tax liability.
- Non-resident withholding tax
- Tax withheld on dividends and interest paid to non-residents; the domestic rate is up to 30% on dividends, reduced under New Zealand's double tax agreements.
- Arm's length principle
- Transfer pricing rule requiring cross-border transactions between related parties to be priced as if independent parties dealt with each other, preventing profit shifting between tax jurisdictions.
- Statement of changes in equity
- A primary statement reconciling opening and closing equity through total comprehensive income, share issues, dividends and transfers between reserves during the period.
- Solvency test
- Companies Act 1993 section 52 requirement that a dividend may be paid only if the company can pay its debts as they fall due and assets exceed liabilities.
- Current tax
- Income tax payable on the period's taxable profit, calculated by adjusting accounting profit for permanent differences and temporary differences under NZ IAS 12.
- Deferred tax liability
- Tax payable in future periods on taxable temporary differences where an asset's carrying amount exceeds its tax base, measured at the 28% company rate.
- Operating activities
- Cash flows from the entity's principal revenue-producing activities; under NZ IAS 7 interest paid and income tax paid default to this category.
- Other comprehensive income
- Income and expenses recognised outside profit or loss, such as revaluation surpluses, foreign currency translation differences and cash flow hedge gains and losses.
- Adjusting event
- An event after the reporting date that provides evidence of conditions existing at balance date, so the amounts in the financial statements must be adjusted under NZ IAS 10.
- Five-step revenue model
- NZ IFRS 15 process: identify the contract and performance obligations, determine the transaction price, allocate it to obligations, and recognise revenue as each obligation is satisfied.
- Directors' report
- Companies Act 1993 section 211 report disclosing the company's state of affairs, dividends paid, directors' remuneration, donations and other prescribed matters.
- Key audit matters
- Those matters the auditor judged most significant in the audit, communicated in the auditor's report to give users insight into areas of higher risk.
- Current ratio
- Current assets divided by current liabilities; indicates the ability to meet short-term obligations, with an acceptable level depending on the industry.
- Equity ratio
- Total equity divided by total assets; shows the proportion of assets funded by owners rather than creditors, indicating long-term financial stability.
- Interest cover
- Earnings before interest and tax divided by interest expense; shows how many times operating profit covers the entity's finance costs for the period.
- Dividend payout ratio
- Dividends per share divided by earnings per share; the share of profit distributed to shareholders rather than retained in the business.
- Price-earnings ratio
- Market price per share divided by earnings per share; reflects how many years of current earnings investors are willing to pay for.
- Reduced Disclosure Regime
- NZ IFRS RDR allows Tier 2 for-profit entities to apply the full recognition and measurement requirements of NZ IFRS while providing reduced note disclosures.
- Job costing
- A costing system that accumulates direct materials, direct labour and applied overhead separately for each identifiable job, suited to customised production and service work.
- Predetermined overhead rate
- Budgeted manufacturing overhead divided by the budgeted allocation base, such as direct labour hours, used to apply overhead to jobs as they are produced.
- Over-applied overhead
- Occurs when overhead applied to jobs exceeds the actual overhead incurred; if the amount is immaterial it is credited to cost of goods sold.
- Prime cost
- Direct materials plus direct labour; conversion cost is direct labour plus manufacturing overhead, and product cost combines materials, labour and overhead.
- Cost of goods manufactured
- Opening work in progress plus direct materials used, direct labour and applied overhead, less closing work in progress for the period.
- High-low method
- Variable cost per unit equals the difference in total cost divided by the difference in activity between the highest and lowest activity levels observed.
- Break-even point
- The level of sales at which total contribution equals fixed costs; in units it is fixed costs divided by contribution margin per unit.
- Sunk cost
- A cost already incurred that cannot be changed by a decision; it is excluded from relevant costing along with allocated common fixed costs.