Understanding check

Task 1. Match one element from the left to produce four sentences
with the right column which are true according to the text
I. Apart from some fixed assets a. are included within those of
the account... the Group.

II. The accounts of the company... b. are written off in the year

concerned.

III. Those foreign exchange c. operate on the basis of
transactions not included in original prices.

reserves...

IV. Variable amounts are allowed d. are seen as pan of trading
for goodwill which... profit.

Score: 4

Task 2. Say whether the following statements are true or false about depreciation.

a. The company writes off physical assets with regard to how long they are productive.

b. Whether the company owns or leases property always makes a difference for the depreciation period.

c. A good preparation machine would depreciate over three to twenty years.

d. A lorry bought by the company would have a written-off
period of three to ten years.

Score: 4

Task 3. For each of the following statements choose the ending which is correct according to the text.

I. Finished products and unfinished production are included in these accounts:

a. always at cost, including where necessary an amount for
production overheads.

b. either at cost or net realizable value, depending on which is lower.

c. at both cost and net realizable value.

d. either as cost or net realizable value, regardless of the amount of each.

II. When dealing with sales of property the company:

a. has a special category in the accounts to include them in.

b. treats cases when important factories are closed as a special category.

c. includes only important property sales in its accounts.

d. always includes gains and losses in calculating trading
profits.

Score: 2

Task 4. When the accountants talk of 'timing differences' in relation to deferred taxation, which of the following do they mean?

a. The company can decide when to pay this deferred taxation.

b. Those taxes will probably never have to be paid.

c. Some taxes are paid at different times of the current financial year.

d. Some taxation does not need to be paid in the present
financial year.

Score: 2

Total score: 55 points

UNIT VI

Task 1. Remember the meaning of these words and word-combinations:

off'balance sheet – збалансована відомість

to amend – вносити поправки; виправляти

acutely – гостро

to be aware of – знати; усвідомлювати

steady – рівномірний

gearing – левередж, співвідношення між власним і позиковим майном

to lure – приманювати; заманювати

to embark on – починати

distortion – перекручення; викривлення

omission – упущення

to mislead – ввести в оману

sophisticated – досвідчений; витончений; складний

Score: 12

Task 2. Read and translate the text.

Text

Cleaning up the balance sheet

However, it is not always the limit on borrowing power which prompts a company to seek off balance-sheet finance. After all, the articles of association can, with shareholders' approval, be amended. That change will not help the management if the main problem for the business is that its borrowings are simply too high. The stock market is acutely aware of the dangers for a company which has high levels of debt that must be serviced. One of the crucial factors in assessing a company is its gearing, the proportion of new borrowings to shareholders' funds. When gearing becomes uncomfortably high, the stock market begins to get a little worried and the pressure is on the company to reduce the ratio.

When a company finds itself in the unfortunate position of having high gearing which cannot be reduced, or even held steady, out of internally generated funds, it is easy to see why the management might be lured into one of these artificial funding schemes. The off balance-sheet finance may be applied to reduce existing borrowings, thus bringing down the gearing ratio, or it may be secured in order to embark on an important project or acquisition which is needed for the company's long-term future. Either way, it still represents a distortion of the company's true financial position which prevents users of the accounts obtaining a full and fair understanding of its affairs, and it may lead to an investment decision being taken on inappropriate grounds.

The position was summed up in the statement of standard Accounting Practice 21, which deals with leases and hire-purchase contracts. Leasing had become a substantial source of off balance-sheet finance, and the standard was designed to recognize the substance rather than legal form of a lease, to ensure that leased assets and the corresponding liabilities were reflected in the accounts.

The ASC said "When a company is leasing a substantial amount of assets instead of buying.them, the effects are that, unless the leased assets and obligations are capitalized, potentially large liabilities built up off balance-sheet; equally the leased assets employed are not reflected on the balance-sheet. These omissions may mislead users of a company's accounts – both external users of a company's own management".

It was quite a bold move by the ASC. The conflict between the legal form of a transaction and its practical substance is not an easy one to resolve. However, the introduction of the leasing standard passed off without too much trouble, despite the complexity of the subject. By and large companies have been happy to capitalise the assets purchased under finance leases, and, to incorporate the corresponding liability to the lessor in the balance-sheet. There is still some uncertainty over the distinction between operating leases, which do not need to be capitalised, and the pure finance leases which must be reflected in the balance-sheet. This aside, the leasing standard must constitute something of a victory for the ASC. The question now, is whether it will be able to repeat its success in dealing with leasing on the new and more sophisticated off balance-sheet financing schemes which have sprung up more recently.

Score: 15

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