Theoretical subjects for examination

Financial accounting
1. The accounting principles
2. The qualitative characteristics of accounting information
3. The financial statement
4. Cash flow statements - IAS
!. "wner# s $quit% & Class 1 Accounting of capitals
'. Su(si)%* provisions an) long term )e(t
. +i,e) assets & Class 2 -on & current assets
.. Stoc/s & Class 3 Inventories
0. Thir) part% accounts an) 1a%roll accounting & Class 4
1. The accounting principles
In or)er to reali2e the accounting purpose we nee) to respect the following principles3
a. The principle of prudence
Accor)ing to this principle is for(i))en to over evaluate the active items an) the incomes too. In
the same time is for(i))en to un)er evaluate the lia(ilities* owner equit% an) the e,penses. 4ore
over we have to /eep in to account all the ris/s an) possi(le )epreciation or losses (% (uil)ing the
provisions.
b. The principle of continuity
It is (ase) on the i)ea of wor/ing without (rea/)own* actuall% the i)ea of continuit% of the
activit%. Compan% will continue to function normall% without entering (an/rupt* compan% will
continue to function normall% without entering into a state of liqui)ation or significant re)uction of
activit%.
c. The principle of permanence of methods
5e have to /eep the same metho) for evaluating the (alance sheet items from one %ear to the
ne,t in or)er to compare the accounting information (etween )ifferent %ears.
d. The principle of independence
It states the necessit% to account the incomes an) e,penses of the financial %ear* no matter when
the% were catch or pai) 6accrual accounting7. The incomes an) the e,penses have to (e recor)e) at
the correspon)ing financial %ear. If the incomes an) e,penses are not referring to the current
financial %ear than the% have to (e recor)e) as3 accrue) e,penses 6417 or )eferre) income 6427.
e. The principle of non- compensation
This principle states that is for(i))en to compensate a )e(t with an asset or an revenue with an
e,pense.
f. The principle of intangibility
The (alance sheet of the (eginning of new financial %ear has to (e the same with the (alance
sheet of the last financial %ear.
g. The principle of independently evaluation
Accor)ing this principle the particular value of ever% asset or )e(t items must (e )etermine)
separatel% (separatel% )etermine the associate) value of each in)ivi)ual item of asset or )e(t7.
h. The principle of signification level
$ver% items of the (alance sheet which has a certain importance must (e consi)ere) separatel%
6which has a significant value must (e presente) separatel% in the financial statements7.
1
i. The principle of economical priority
All the economic transaction* economic operations must (e presente) in correspon)ence with
their economical realit% an) not with respect to 8uri)ical form. "nl% the financial leasing respects
this principle.
2. The qualitative characteristics of accounting information
1. Relevance
Information is relevant when it influences the economic )ecisions of users (% helping them
evaluate past* present an) future events or to confirm 9correct their past evaluation.
2. Reliability
Information shoul) (e free from material errors an) (ias 6information shoul) not contain
significant errors7.
3 Comparability
Information shoul) (e presente) in a consistent manner over time an) consistent (etween
entities to ena(le users to ma/e significant comparisons. 6Compara(ilit% implies the possi(ilit% of
anal%sis using information provi)e) (% financial statements* users must (e given time compara(ilit%
of financial statements so that the% can i)entif% tren)s in financial position an) (usiness
performance7.
4. Understandability
Information shoul) (e rea)il% un)erstan)a(le (% users who are e,pecte) to have a reasona(le
/nowle)ge of (usiness* economics an) accounting an) a willingness to stu)% the information with
reasona(le )iligence. (Information shoul) (e easil% un)erstoo) (% users who have sufficient
/nowle)ge on (usiness* economics an) accounting an) are willing to stu)% the information
presente) with )ue seriousness7.
3. The financial statement
+inancial statement provi)es information to )ecision ma/ers. The information is )istri(ute)
through financial statement. The o(8ective of financial statements is to provi)e )ecision &ma/ers
6with7 useful information a(out financial position* performance an) change in financial position of
an enterprise. The financial position of an enterprise is characteri2e) (% several aspects3 the
resources controlle) its financial structure* liqui)it% an) solvenc%. The relevant information of these
topics is primaril% foun) in the (alance sheet. Information on performance reflects the enterprises
a(ilit% to o(tain profit. Information a(out performance is containe) in the profit an) loss account.
Information regar)ing changes in financial position )iscloses the enterprises a(ilit% to generate cash
an) the use of this cash for operating* investment an) financing activities. The elements of financial
statements relate to financial position an) performance are3 asset* an asset is a resource controlle)
(% an enterprise: lia(ilit%* a lia(ilit% is a present o(ligation of an enterprise: equit% is the owners#
resi)ual claim to the assets or the resi)ual interest in the assets of an enterprise after )e)ucting all its
lia(ilities. $quit% is sometimes calle) net assets: incomes* represents increases in economic
(enefits: e,penses are )ecreases in economic (enefits that re)uce equit%
The financial statements are compose) (%3 The balance sheet is a list of all assets* lia(ilities
an) equit%: The profit and loss account shows all incomes an) revenues* shows the performance or
non &performance of (usiness in terms of profit: The statement of cash flow )iscloses the cash
flows of the (usiness 6inflows an) outflows7: The statement of change in equity shows the causes
an) effects of equit% mo)ifications within the current perio): Explanatory notes* )isclose
information a(out the (asis of preparation of the financial statement
2
4. Cash flow statements !"# $
All enterprise are require) to present a cash flow statement that reports cash flows )uring the
reporting perio)* classifie) as follows3 operating activities3 principal revenue & pro)ucing activities
an) other activities that )o not inclu)e investing or financing activities: investing activities3
acquisition an) )isposal of long term assets an) other investments not inclu)e) in cash equivalents:
financial activities3 activities that change the si2e an) composition of the equit% capital an)
lia(ilities. Cash flows are inflows an) outflows of (oth cash an) cash equivalents. The cash flow
can (e calculate) using two metho)s 6approaches73 a. the )irect metho)* accor)ing to these metho)s
the cash flow it is calculate) as a )ifference (etween gross cash receipts an) gross cash pa%ments:
(. the in)irect metho). Concerning the in)irect metho) there are some steps that have to (e covere)*
as follows3 start with gross profit an) a)) the non cash e,penses* su(tract incomes* etc.
- gross profit 6;7
- non cash e,penses 6;7
- non cash revenues 6-7
- e,penses from non operating activities 6;7
- revenues from non operating activities 6-7
- increase in current assets 6-7
- )ecrease in current assets 6;7
- increase in current lia(ilities 6;7
- )ecrease in current lia(ilities 6-7
- pa%ments from operating activities 6-7
The cash flow format is3
Cash flo from !perating "ctivities# include$ cash receipts from customers* cash pai) to suppliers
an) emplo%ees an) income ta, pai).
Cash flo from %nvesting "ctivities# include$ cash pai) for acquisition of equipment* cash receive)
from sale of a (uil)ing* etc.
Cash flo from &inancing "ctivities# include$ cash receipts from share capital* cash receipt from a
(an/ loan an) repa%ment of a (an/ loan.
%. &wner' s (quit) * Class 1 "ccounting of capitals
"wner#s equit% is the owner#s rights to the assets of the (usiness. In financial accounting* it is
the owners< interest in the assets of the enterprise after )e)ucting all its lia(ilities. "wner#s equit% is
equal to the assets amounts minus lia(ilities amounts of an in)ivi)ual or compan%. +or a compan%*
also calle) net assets. In accounting terms* after all lia(ilities are pai)* ownership equit% is the
remaining interest in assets. Assets - =ia(ilities > "wner#s $quit%
The equit% is )ivi)e) in to the following components3 share capital 61?17: share premium
61?47: revaluation reserve 61?!7: reserve 6concerning this component we can have legal reserve an)
other reserve7 61?'7: net profit or loss for the %ear 61217: accumulate) profit 6loss7- reporte) net
profit or loss 6117.
a. 'hare capital (1)1*
Share capital it is constitute) as a result of contri(ution of sharehol)er. Their contri(ution ma%
(e in mone%* assets or (oth. Accor)ing to the @omanian compan% law the share capital can (e3 1?11
su(scri(e) an) unpai) capital: 1?12 su(scri(e) an) pai) capital 6actual pai)7. The su(scription is
owner#s promise to contri(ute to the capital of compan%. 1ai) capital is the capital which is actuall%
(rought to (e use (% the compan%. The share capital ma% (e increase (% using the following
metho)s3 (% increasing the num(er of shares: (% increasing the nominal value of shares: (%
capitali2ation of reserves: (% capitali2ation of net profit for the current %ear or of accumulate)
profits: a conversion of )e(enture loans an) the other lia(ilities into shares. The )ecrease of capital
ta/es place when the sharehol)ers are ta/ing (ac/. The nominal value of one share can (e
calculate) as a ratio (etween share capital an) num(er of share.
b. 'hare premium (1)4*
3
Is an equit% item often foun) in pu(lic limite) companies (alance sheet an) refers to the
amounts of sharehol)ers contri(ution that e,cee)s the nominal value of shares.
Share premium appear )ue to increasing of capital as a )ifference (etween nominal value an)
mar/et value. Concerning this component we can have3 share premium 1?41: merger premium
1?42: share premium contri(ution in /in) 1?43: )e(enture conversion premium 1?44.
c. Revaluation reserve (1)+*
Asuall% onl% lan) an) (uil)ings are revaluate). @evaluation reserve can (e calculate) as a
)ifference (etween a mar/et value 6fair value7 of one fi,e) assets an) the entrance value 6or %ou can
sa% accounting value7. The revaluation reserve can (e use) to increase the reserves of the compan%.
d. Reserves (1),*
@eserves are to (e constitute) 6set up7 (% profit or from other sources li/e as share premium
or revaluation reserves. There are three t%pes of reserves3 legal reserve 61?'17. =egal reserve were
set up accor)ing to @omanian laws (% ta/ing in to consi)eration at least !B from profit until it
reaches 2?B of the share capital: statutor% or contractual capital reserve 61?'37. Statutor% reserves
are set up accor)ing Act Compan% an) other reserves 61?'.7. "ther reserves are constitute)
accor)ing to ACA 6Annual Ceneral 4eeting7 from net profit.
e. -et profit or loss and accumulated profits (121# 11.*
The current profit (121* can (e calculate) as a )ifference (etween income an) e,penses.
Actuall% the gross profit use to (e calculate) as a )ifference (etween income an) e,penses.
Reported result (11.* is )efine) as (eing the un)istri(ute) profit from the last %ear or uncovere)
loss from the last %ear. The profit can (e )istri(ute) on the following )estinations 6(% using the 120
account D1rofit appropriationE3 set up the )ivi)en)s: an increase of the share capital: set up the
reserves.
+. #ubsi,)- provisions an, long term ,ebt
a. Subsidy (subvention for investment). Are sums got with free title 6without charge7 form
(u)get or from other sources with the intention to financing some investments. The account that
/eep the evi)ence is 131** Investment su(si)ies##.
b. Provisions. 1rovisions are reserves use) to cover ris/s* e,penses or possi(le )epreciation.
The% are set up on the (asis of e,penses an) the% are close) on the (asis of revenues. The account
that /eep the evi)ence is 1!1**1rovisions##. T%pes of provisions3 1!11**1rovisions for litigation##*
1!12**1rovisions for customer warrantees##* 1!13**1rovisions for the )ecommissioning of tangi(le
concurrent assets an) the li/e 1* 1!14**1rovisions for restructuring##* 1!1!**1rovisions for
pensions##* 1!1'**1rovisions for ta,es##* 1!1.**"ther provisions## .
c. ong term debt. The long term )e(ts are o(ligations that must (e pai) in one %ear or more.
The% inclu)e3 1'1**Fe(enture loans## 61'.1 Accrue) interest on )e(enture loans7* 1'2**=ong term
(an/ loans## 6Accrue) interest on long term (an/ loans7* 1''**Fe(ts relating to financial assets##
6Accrue) interest on )e(ts towar)s companies within the group7* 1'**"ther loans an) similar
)e(ts## 6Accrue) interest on other loans an) similar )e(ts7.
$. Fixe, assets * Class 2 .on * current assets
+i,e) assets are use) (% an enterprise for a perio) longer than one %ear an) are e,pecte) to
(ring (enefits )uring several accounting perio)s. +i,e) assets cannot easil% (e converte) into cash.
The fi,e) assets categories inclu)e3 intangi(le assets* tangi(le assets an) financial assets. 4ost
tangi(le an) intangi(le fi,e) assets have a limite) useful life.
a. !ntangible assets are assets which )o not have ph%sical e,istence* it can not (e touche).
Intangi(le assets items3 formation e,penses 62?17* cost of )evelopment 62?37* concessions* patents*
licenses* tra)e mar/s an) similar right an) assets 62?!7: goo)will 62?7* other intangi(le assets
62?.7* intangi(le assets in progress 62337* pa%ments on account 62347. +ormation e,penses are
e,penses require) to set up of a compan%. The% are )epreciate) )uring a perio) of ! %ears.
4
Fevelopment represents the implementation of the research results in or)er to reali2e new pro)ucts
an) services. Concessions are the rights to use something goo)s. A patent is a set of e,clusive rights
guarantee) (% a state to an inventor. =icenses are a legal )ocument giving official permission to )o
something. Coo)will is an intangi(le asset which provi)es a competitive a)vantage such a strong
(ran) or reputation. It is )epreciate) over a ! perio) of %ears. "ther intangi(le assets inclu)e
computer program. It is )epreciate) )uring in a perio) of 3 %ears. Intangi(le assets in progress are
intangi(le assets unfinishe) until the en) of the perio).
(. Tangible assets are assets having a ph%sical e,istence* such as3 lan) 621117* (uil)ings
62127* plant an) machiner% 621317* motor vehicle 621337* fi,tures an) fittings 62147* tangi(le assets
in progress 62317* pa%ments on account 62327. Tangi(le assets has a real e,istence* is something that
coul) (e touche)* tangi(le.
c. "inancial assets inclu)e3 shares in affiliate) un)erta/ings 62'17* long & term loans
grante) 62'!7* interest on loans to long term 62''7* etc.
/. #toc0s * Class 3 !nventories
Stoc/s are assets that will (e sol) in the or)inar% course of the (usiness inclu)ing3 raw materials
- 3?1: consuma(les -3?2 6fuel* pac/ing material* spare parts7: wor/ in progress- 331: materials in
the form of small inventor% 3?3: finishe) goo)s -34!: merchan)ise -31: pac/age -3.1. Stoc/s are
those assets hel) for3 to (e sell in the same state: to (e consume) at the first use: to (e sell after
manufacturing.
1. Thir, part) accounts * Class 4
That class inclu)e3 suppliers 64?1* 4?47: (ills of e,change pa%a(le 64?37: suppliers &
invoices to (e receive) 64?.7: a)vance pa%ments to suppliers for the purchase of inventories 64?017:
customers 641117: (ills of e,change receiva(le 64137: customers & invoices to (e issue) 641.7:
a)vance pa%ments from customers 64107: emplo%ees & salaries pa%a(le 64217: a)vances to
emplo%ee 642!7: contri(ution to social securit%* health insurance* unemplo%ment fun)* 64311* 4313*
4317* current income ta, 64417: GAT 64427: other ta,es 644'7: )ivi)en)s pa%a(le 64!7: sun)r%
)e(tors an) cre)itors 64'1* 4'27: accrue) e,penses* )eferre) income 641* 427* etc.
There are to types of discounts$
1. Commercial )iscount which can (e3
- Tra)e )iscount 6ra(atul7 &given for low qualit%:
- A(atement 6remi2a7- given for the customer consi)eration * respect:
- Another )iscount 6risturnul7 - is given in case of (u%ing a great quantit%.
2. +inancial )iscount given for the pa%ment ma)e (efore the )ea)line.
2a)roll accounting
The emplo%er is require) (% law to )e)uct certain amounts from the emplo%ees# gross
earnings an) remit them )irectl% to government agencies to pa% ta,es owe) (% the emplo%ees.
These are /nown as emplo%ee pa%roll withhol)ings. The salaries are ma)e starting with gross salar%
a))ing the necessar% contri(utions. -et salar% is calculate) through the )ifference (etween gross
salar% an) the three contri(utions. $mplo%ee pa%roll withhol)ings usuall% inclu)e3 social securit%
ta,es: me)ical insurance ta,es: income ta,es: unemplo%ment ta,es: pension contri(utions. The
pa%ment emplo%ees actuall% receive is referre) to as net pa% or ta/e-home pa%. In a))ition to net
wages an) emplo%ee pa%roll withhol)ings* there are several ta,es on salaries owe) (% the
emplo%er3 social securit% ta,es* me)ical insurance ta,es* unemplo%ment ta,es* an) so on. All of
these ta,es are consi)ere) operating e,penses.
The wa% in which salaries are calculate)3
1. Cross salar%
2. 1rivate contri(utions 6a ; ( ; c7
!
a. CAS & social securit% 1?*!B , 617
(. CASS & contri(ution to health insurance !*!B , 617
c. C+S & contri(ution to unemplo%ment fun) ?*!B , 617
3. -et salar% 61-27
4. 1rivate mone% )e)uction 62!? lei a month for each wor/ing person7
!. "ther 1?? lei 6is a))e) (oth for each person %ounger than eighteen an) each retire) person
whose monthl% pension is less than 2!? lei7
'. The ta,a(le income 63-4-!7
. Salar% ta, 61'B , 6'7 7
.. The salar% 6sum of mone% receive) (% the en) of the month7 61-2-7
$mplo%er#s contri(ution in @omania are3 4311 Compan%<s contri(ution to social securit%3
2?*.B: 4313 Compan%<s contri(ution to health insurance3 !*2 B: 431% Gacation allowance3 ?*.!B:
43$1 Compan%<s contri(ution to unemplo%ment fun)3 ?*!B: 43/1 "ther personnel - relate) )e(ts-
in)ustrial acci)ent3 ?*4-2 B: 44$ Special fun)s - ta,es an) similar lia(ilities & guarantee fun)3
?*2!B: 431 IT4 contri(utions3 ?*!B
'