Business Level BL-25-1 Fundamentals of Financial Reporting Review

Practice flashcards based on the BL-25-1 Fundamentals of Financial Reporting Pilot Paper transcript covering financial accounting theory, standards (LKAS/SLFRS), and digitalization.

According to the transcript, what is the primary purpose of financial reporting?

To provide information useful for decision-making by external users.

Which stakeholder group is primarily concerned with assessing a company’s solvency, gearing, and ability to meet long-term debt obligations?

Long-term lenders assessing credit risk and repayment capacity.

Which qualitative characteristic of financial information requires it to be free from error and bias?

Faithful representation.

Under the Companies Act No. 07 of 2007 (Sri Lanka), what official act must directors perform regarding financial statements?

Directors are required to formally acknowledge responsibility for the accuracy and legal compliance of the financial statements by signing an official declaration.

True or False: An entity shall prepare its complete set of financial statements using the cash basis of accounting.

False (An entity shall prepare its complete set of financial statements using the accrual basis of accounting).

In a bank reconciliation, if a cheque of $Rs.\,1,750$ was made in July and is still unrealised, what is the unrealised cheque amount in the July reconciliation?

$$Rs.\,1,750$$

If a fixed asset costing $Rs.\,50,000$ is incorrectly included in the purchase account, how does this affect gross profit?

It understates gross profit.

What is the consequence of a "Trial balance will not balance" according to the transcript?

A Transposition Error (where numbers are swapped) or other mathematical errors.

Which accounting concept is illustrated when an owner withdraws cash for personal use and it is recorded as drawings?

The business entity concept.

What is the primary purpose of a Statement of Cash Flows?

Tracks cash movements across different activities.

True or False: According to LKAS 07, cash equivalents are subject to a significant risk of changes in value.

False (They are subject to an insignificant risk of changes in value).

Where is the gain or loss arising from the first-time revaluation of land and buildings under LKAS 16 recognized?

Other Comprehensive Income.

According to LKAS 10, which event is considered an adjusting event: a fire in the warehouse after year-end or a major credit customer declared bankrupt after year-end?

A major credit customer declared bankrupt after year-end (reflects conditions existing at the reporting date).

What components make up the cost of inventories according to LKAS 2?

Costs of purchase, costs of conversion and other costs to bring the inventories to their present location and condition.

What fundamental assumption is straight-line depreciation based on?

The asset’s value decreases evenly over its useful life.

According to SLFRS 15, when can an entity recognize consideration as revenue if the contract does not meet the five-step model criteria?

When the entity has no remaining obligations to transfer goods/services and the consideration is non-refundable.

As per LKAS 16, how is depreciation defined?

The systematic allocation of the depreciable amount of an asset over its useful life.

According to LKAS 8, how should a change in the estimated useful life of a machine be accounted for?

Prospectively, by adjusting the depreciation expense in the current and future periods.

Which financial ratio measures a company’s ability to meet its short-term obligations as they fall due?

Current Ratio.

What is the formula for calculating the Price-to-Earnings (P/E) ratio for a company with $Rs.\,2,500,000$ profit, $500,000$ shares, and a market price of $Rs.\,25$?

Market price per share divided by Earnings Per Share ($EPS$). For XYZ Ltd: $EPS = 2,500,000 / 500,000 = 5$; $P/E = 25 / 5 = 5$.

What are the three dimensions of sustainability reporting mentioned in the matching exercise?

Environmental (e.g., carbon emissions), Social (e.g., employee training hours), and Governance (e.g., board diversity).

What is a primary use of AI-driven tools in digital accounting?

Identifying and preventing common errors.

Which dashboard design principle ensures that the most important metrics are prominently displayed?

Clarity.

Which digital tool is best associated with "Real-time remote access to records"?

Cloud Accounting.