OPERATIONAL LEVEL SUBJECT F1 Financial Reporting and Taxation CIMA OFFICIAL REVISION CARDS
FINANCIAL REPORTING AND TAATION British library cataloguing-in-publication data A catalogue record for this book is available from the British Library. Published by:kaplan Publishing UK Unit 2 The Business Centre Molly Millars Lane Wokingham Berkshire RG41 2QZ ISBN 978-1-78415-947-4 Kaplan Financial Limited, 2017 The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties. Please consult your appropriate professional adviser as necessary. Kaplan Publishing Limited, all other Kaplan group companies, the International Accounting Standards Board, and the IFRS Foundation expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials. Printed and bound in Great Britain. Printed and bound in Great Britain. 2
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FINANCIAL REPORTING AND TAATION How to use Revision Cards The concept Revision Cards are a new and different way of learning, based upon research into learning styles and effective recall. The cards are in full colour and have text supported by a range of images, making them far more effective for visual learners and easier to remember. Unlike a bound text, Revision Cards can be rearranged and reorganised to appeal to kinaesthetic learners who prefer to learn by doing. Being small enough to carry around means that you can take them anywhere. This gives the opportunity to keep going over what you need to learn and so helps with recall. The content has been reduced down to the most important areas, making it far easier to digest and identify the relationships between key topics. Revision Cards, however you learn, whoever you are, wherever you are... 4
FINANCIAL REPORTING AND TAATION How to use them Revision Cards are a pack of approximately 52 cards, slightly bigger than traditional playing cards but still very easy to carry and so convenient to use when travelling or moving around. They can be used during the tuition period or at revision. They are broken up into 3 sections. An overview of the entire subject in a mind map form (orange). A mind map of each specific topic (blue). Content for each topic presented so that it is memorable (green). Each one is a different colour, allowing you to sort them in many ways. Perhaps you want to get a more detailed feel for each topic, why not take all the green cards out of the pack and use those. You could create your own mind maps using the blue cards to explore how different topics fit together. And if there are some topics that you understand, take those out of the pack, leaving yourself only the ones you need to concentrate on. There are just so many ways you can use them. 5
FINANCIAL REPORTING AND TAATION Contents 1 Fundamentals of Business Taxation 2 Regulatory Environment for Financial Reporting and Corporate Governance 3 Single Entity Financial Statements 4 Accounting Standards 5 Consolidated Financial Statements 6 Short-Term Finance and Investments 7 Working Capital Management 8 Working Capital Management Receivables and Payables 9 Working Capital Management Inventory Control 10 Working Capital Management Cash Control Examinable legislation http://www.cimaglobal.com/students/2010-professional-qualification/operational-level/f1-study-resources/ 6
FINANCIAL REPORTING AND TAATION Assessment guidance The assessment will involve 60 objective testing questions in a one and a half hour period covering all of the syllabus learning outcomes. The pass rate is 70%. Core areas of the syllabus The syllabus comprises of: A Regulatory Environment for Financial Reporting and Corporate Governance 10% Quality and accuracy are of the utmost importance to us so if you spot an error in any of our products, please send an email to mykaplanreporting@kaplan.com with full details, or follow the link to the feedback form in MyKaplan. Our Quality Co-ordinator will work with our technical team to verify the error and take action to ensure it is corrected in future editions. B Financial Accounting and Reporting 45% C Management of Working Capital, Cash and Sources of Short-Term Finance 20% D Fundamentals of Business Taxation 25% 7
RevisionCards
Overview financial reporting and taxation RevisionCards
FINANCIAL REPORTING AND TAATION Regulatory environment for financial reporting and corporate governance Financial reporting and taxation Fundamentals of business taxation Financial accounting & reporting Management of working capital, cash and sources of the short-term finance 10
Fundamentals of business taxation financial reporting and taxation RevisionCards
FOREIGN / OVERSEAS FINANCIAL REPORTING AND TAATION Fundamentals of Business Taxation Change to International tax Accounting for taxation Definitions Trading income Direct tax Capital taxes Fundamentals of business tax Employment tax Indirect tax Consumption tax Misc taxes 12
FINANCIAL REPORTING AND TAATION Fundamentals of Business Taxation Carry loss forward against income of the same trade Trading losses Carry loss back Capital losses Carry loss forward against future capital gains DIRECT TA imposed directly on a person/enterprise Trading Income Profit Net Net Profit Disallowable Capital Taxes Sell assets e.g. Shares Proceeds less cost Allowable expenses e.g. Capital cost, costs to buy, improvements Income Expenses Tax Depreciation depreciation 13
FINANCIAL REPORTING AND TAATION Fundamentals of Business Taxation Trading Income Proforma Accounting profit Add back: disallowable expenses Less: disallowable income Add: depreciation Less: tax depreciation Taxable profit THIS IS A LEARN, COVER, PRACTICE PROFORMA! The taxable profit will then be charged at the appropriate tax rate for that accounting period. $ () () Capital Taxes Proforma $ Proceeds Less: costs to sell () Less: cost to buy () Less: original cost () Less: enhancements () Compensation for inflation (% cost) () Taxable gain THIS IS A LEARN, COVER, PRACTICE PROFORMA! The taxable gain will then be charged at the appropriate tax rate for that accounting period. 14
FINANCIAL REPORTING AND TAATION Fundamentals of Business Taxation INDIRECT TA imposed on one part of the economy with the intention to pass onto another Consumption Taxes Property Taxes Wealth Taxes Excise Duties Multi Stage Tax at each stage of production Exempt supplies Taxable supplies Standard rate Single stage Tax at one stage of production Cascade Tax No Refunds VAT Refunds Zero rate Outputs less inputs 15
FINANCIAL REPORTING AND TAATION Fundamentals of Business Taxation Personal allowances amount of tax relief PAYE Tax deducted at source by employer Employment Tax Income Salary, bonus, benefits Expenses Subscriptions to professional bodies, occupational pension schemes, business expenses 16
FINANCIAL REPORTING AND TAATION Fundamentals of Business Taxation Residency country of incorporation or control OECD Model Tax gross income in country of residency International Tax Gross income = amount received + total foreign income Total foreign tax Tax relief in country of residency (if tax treaty exists) Deduction method Withholding tax Tax at source Types of operation Double tax relief: Underlying tax Tax on profits used to distribute a dividend Branch Subsidiary Exemption method Tax credit method 17
FINANCIAL REPORTING AND TAATION Fundamentals of Business Taxation Payment made greater than last years liability add to current tax estimate Payment made less than last year s liability deduct from current tax expense Under provision Under/over provisions Over-provision Dr tax expense (SPL) Cr tax liability (SOFP) Accounting for tax SOFP SPL Current tax estimate (SOFP) Under provisions Over-provisions () Tax expense for the year Disclosures Current tax estimate Current liability 18
FINANCIAL REPORTING AND TAATION Fundamentals of Business Taxation Current tax This is the estimated amount of taxation payable on the taxable profits for the period: The taxable profit will then be charged at the appropriate tax rate for that accounting period. This is recorded as: Accounting profit Add back: disallowable expenses Less: disallowable income Add: depreciation Less: tax depreciation Taxable profit THIS IS A LEARN, COVER, PRACTICE PROFORMA! $ () () Dr Income tax expense (SPL) Cr Income tax liability (SOFP) The income tax liability is always shown under current liabilities on the SOFP and the liability should always represent this year s estimate for taxation. 19
FINANCIAL REPORTING AND TAATION Fundamentals of Business Taxation Under/over-provisions In the following period the income tax will be paid but it is unlikely that the exact amount provided for will be the same as the amount paid. This will result in an under/over-provision. This must be adjusted for in the current accounting period. Under-provision = more tax is paid than provided for in the previous accounting period. E.g. Liability $20,000 and a payment of $21,000 will result in a debit balance in the trial balance on the tax account. This under provision must be added to the current tax expense in the SPL. REMEMBER + Over-provision = less tax is paid than provided for in the previous accounting period. E.g. Liability $20,000 and a payment of $19,000 will result in a credit balance in the trial balance on the tax account. This under provision must be deducted from the current tax expense in the SPL. REMEMBER 20
FINANCIAL REPORTING AND TAATION Fundamentals of Business Taxation Definitions Incidence The incidence of a tax is the distribution of the tax burden and can be split into formal and actual incidence. Formal incidence This is the person who has direct contact with the tax authorities, i.e. who is legally obliged to pay the tax. Actual incidence This is the person who actually ends up bearing the cost of the tax. Taxable person The person accountable for the tax payment, e.g. Individual or company. Competent jurisdiction A taxable person normally pays tax in the country of origin. Competent jurisdiction is the tax authority that has the legal powers to assess and collect the taxes. Hypothecation This means that certain taxes are devoted entirely to certain types of expenditure, e.g. road tax is used entirely on maintaining roads. Progressive taxes These take an increased proportion of income as income rises. 21
FINANCIAL REPORTING AND TAATION Fundamentals of Business Taxation Proportional taxes These take the same proportion of tax as income rises. Regressive taxes These take a decreasing proportion of tax as income rises. Tax consolidation This is a type of group relief enabling trading losses to be surrendered between different companies. Excise duties This is a tax imposed on certain products to discourage over consumption of harmful products, to pay for extra costs (such as increased healthcare) and to tax luxuries, hence raise more revenue for the government. Consumption taxes This is a tax imposed on the consumption of goods and added to the purchase price. Withholding tax This is a tax deducted at source from foreign income. Underlying tax This is the tax on foreign profits that are used to distribute a dividend. Current tax The estimated amount of tax payable on the taxable profits of the entity for the period. Taxable profit This is the profit on which taxation authorites base their tax calculations. Accounting profit This is the profit before tax reported to the shareholders in the financial statements. THESE ARE ALL LEARN, COVER, PRACTICE DEFINITIONS! 22