Mixed Deck — All ACA Topics Flashcards

Which costing system assigns costs to products based on the activities that drive those costs?

Answer: Activity-based costing (ABC)

ABC identifies cost drivers for each activity and assigns overhead costs to products based on their consumption of those activities, giving more accurate product costs than traditional volume-based absorption.

A UK company is resident for corporation tax purposes if it is:

Answer: Incorporated in the UK, or has its central management and control in the UK

UK corporation tax residency is based on incorporation in the UK (statutory test) or having central management and control exercised in the UK (common law test).

A company holds an investment property under FRS 102. How should it be measured at each reporting date?

Answer: At fair value, with changes in fair value recognised in profit or loss

Under FRS 102 Section 16, investment property whose fair value can be measured reliably without undue cost or effort must be measured at fair value at each reporting date, with changes recognised in profit or loss. If fair value cannot be determined reliably, the cost model under Section 17 is used instead.

Under FRS 102, which of the following is NOT a component of the statement of financial position?

Answer: Revenue

Revenue is reported in the statement of comprehensive income (profit or loss), not the statement of financial position. The statement of financial position comprises assets, liabilities, and equity as defined by FRS 102 Section 2.

Under the Insolvency Act 1986, what is the minimum unpaid debt required for a creditor to present a winding-up petition against a company?

Answer: £750

A creditor must be owed at least £750 (the statutory minimum) to present a winding-up petition under the Insolvency Act 1986.

The 'wholly and exclusively' rule for UK tax purposes applies to:

Answer: Deductibility of business expenses for income tax and corporation tax

Under ITTOIA 2005 and CTA 2009, expenses are only deductible if incurred wholly and exclusively for the purposes of the trade. Dual-purpose expenditure is generally disallowed.

Which budget is prepared first in the budget hierarchy?

Answer: Sales budget

The sales budget is prepared first as it establishes expected revenue and volumes; all other budgets (production, labour, materials, cash) are derived from the sales plan.

A company has earnings before interest and tax (EBIT) of £200,000 and interest charges of £50,000. What is the interest cover ratio?

Answer: 4 times

Interest cover = EBIT ÷ Interest charges = £200,000 ÷ £50,000 = 4 times. This ratio measures how many times over the company can cover its interest payments from operating profits. A higher ratio indicates lower financial risk.

Foreign exchange transaction risk arises from:

Answer: Changes in exchange rates on specific foreign currency transactions

Transaction risk is the risk that exchange rate movements between deal date and settlement date will affect the sterling value of a specific foreign currency transaction.

Under the UK Corporate Governance Code, which board committee is responsible for overseeing the integrity of the company's financial statements and the external audit process?

Answer: Audit committee

The audit committee, comprising independent non-executive directors, monitors the integrity of financial reporting and the effectiveness of the external and internal audit functions.

Which type of audit opinion is issued when financial statements present a true and fair view with no material misstatements?

Answer: Unmodified opinion

An unmodified (clean) opinion is issued when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable framework.

Which of the following is a use of funds (application of funds)?

Answer: Purchase of new machinery

A purchase of new machinery is an application (use) of funds — cash flows out. Sources of funds include new share issues, retained profit, loans; uses include asset purchases and debt repayment.

Which of the following hedging instruments locks in an exchange rate for a future transaction?

Answer: Forward exchange contract

A forward exchange contract obligates both parties to exchange currencies at a pre-agreed rate on a specified future date, eliminating uncertainty about the transaction rate.

The UK gift aid scheme allows a basic rate taxpayer to make a donation whereby:

Answer: The charity reclaims basic rate tax from HMRC, grossing up the donation

Under gift aid, the charity reclaims 20% basic rate tax from HMRC, effectively grossing up the net donation by 25%. Higher/additional rate taxpayers can also claim higher rate relief via self-assessment.

What is the double entry to record a cash sale of goods for £500?

Answer: Debit Cash £500, Credit Sales £500

Cash is received (asset increases = debit) and revenue is earned (income increases = credit). Therefore, debit Cash £500 and credit Sales £500 correctly records the transaction using double-entry bookkeeping.

The concept of 'true and fair view' in UK auditing means the financial statements:

Answer: Give a fair presentation of the financial position and performance

True and fair view means the financial statements faithfully represent the financial position and performance without material misstatements, giving users a reliable picture of the entity.

Which audit procedure tests the completeness assertion for trade payables?

Answer: Reviewing invoices received after the year end

Reviewing invoices and delivery notes received after the year end and checking whether they relate to pre-year-end transactions tests whether all liabilities have been recorded (completeness).

A rolling budget is one that:

Answer: Is updated and extended by one further period as each period passes

A rolling budget is continuously updated; as one period expires, an additional period is added to the end of the planning horizon, maintaining a constant forward-looking planning period.

Under ISA 600, a group auditor who places reliance on a component auditor must:

Answer: Be involved in the risk assessment and review sufficient appropriate evidence

ISA 600 requires the group engagement team to be involved in the component auditor's risk assessment and to evaluate whether sufficient appropriate audit evidence has been obtained.

Under IAS 33, diluted EPS includes the effect of:

Answer: All potential ordinary shares that are dilutive

Diluted EPS adjusts both the numerator (for after-tax interest on dilutive debt) and denominator (for all dilutive potential ordinary shares such as convertibles and options) to show the maximum dilution effect.