Exam (elaborations)
AAT Level 4 FSLC
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AAT Level 4 FSLC Questions and Answers 2023/2024
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AAT Level 4 - Financial Statements of Limited Companies - FSLCSole trader or partnership -: 1. Owned and managed by proprietor.
2. Not a separate legal entity.
3. Unlimited liability.
Limited company -: 1. Owned by shareholders and managed by directors.
2. Separate legal entity. Company itself enters into contracts.
3. Liability limited to shares paid for. Company responsible for own debts.
Limited company - advantages -: 1. Limited liability - shareholders can only lose up to
value of their investment.
2. Easier to raise finance by share issues.
3. Continues to operate regardless of ownership - perpetual succession.
4. Taxed under corporation tax not income tax and national insurance.
Limited company - disadvantages -: 1. Accounts submitted to Companies House,
where in public domain.
2. More regulation - Companies Act 2006.
3. Accounts must be audited - more costs.
4. Issues of shares are highly regulated.
Public limited company (Plc) -: 1. Has issued share capital of over £50,000.
2. Has at least two members - shareholders - and at least two directors.
3. Does not have to issue shares on stock markets.
Private limited company (Ltd) -: 1. Any company that is not a public company.
2. No minimum requirement for issued share capital.
3. At least one member - shareholder - and at least one director who may be sole
shareholder.
4. Shares not traded publicly.
Articles of Association -: A document that:
1. Provides constitution of a company.
2. Regulates its affairs.
3. Sets out rules for its running.
Regulatory framework for accounts -: 1. International accounting standards - IAS and
IFRS - rules.
2. Companies Act 2006 - administration.
3. The Framework for the Preparation and Presentation of Financial Statements -
principles.
, Responsibilities of directors under Companies Act 2006 -: 1. Keeping proper
accounting records.
2. Preparing financial statements, and having them audited and presented to
shareholders in general meeting.
3. Filing accounts at Companies House - within 6 months if Plc and 9 months if Ltd.
Framework for preparation and presentation of financial statements - set of principles to
apply, and on which accounting standards are based -: 1. Objectives of the financial
statements.
2. Users and their information needs.
3. Underlying assumptions.
4. Qualitative characteristics.
5. Elements of the financial statements.
6. Recognition of elements.
7. Measurement of elements.
Framework for preparation and presentation of financial statements - why a principles
based approach? -: 1. Avoids need to write a rule for every scenario.
2. It is possible to find loopholes in rules.
3. Gives accountants scope to exercise judgement.
1. Objectives of financial statements -: To provide information about the reporting
entity that is useful to existing and potential investors, lenders and other payables in
making decisions about providing resources to the entity.
2. Users and their information needs -: Primary users are:
1. Investors, existing and potential.
2. Lenders.
3. Other payables.
3. Underlying assumptions of financial statements -: 1. Accruals - costs and revenues
are matched together and included in period to which they relate.
2. Going concern - business will continue trading for foreseeable future (in practice, next
12 months). No intention to liquidate or reduce size.
4a. Fundamental qualitative characteristics of financial information -: 1. Relevance -
makes difference to decisions of user. Materiality is specific aspect of relevance related
to nature or size of items.
2. Faithful representation - complete, neutral, and free from error.
4b. Enhancing qualitative characteristics of financial information -: 1. Comparability -
can be compared across periods or entities.
2. Verifiability - represents economic reality.
3. Timeliness - available in sufficient time to influence decisions.
4. Understandability - understandable to users with reasonable knowledge of business
and economic activities.
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