Acca 102 Accounting Notes

1ACCOUNTING Notes ACCA 102
Contents
1) Heading : ANSWERS TO QUESTIONS:...........................................................................5
2) Heading : Special/Odd Things to watch out FOR:.........................................................5
3) Heading: TERMS :.........................................................................................................5
4) Heading: Revision Common Problems..........................................................................5
2. DEPRECIATION.........................................................................................................5
Straight Line Method: (or Fixed Installment Method)....................................................5
Diminishing balance method (or Accellerated Method)................................................6
Production Method:.......................................................................................................6
2. Next heading:provision bad debts,realisation of assets,inventory in closing
entries(trading acc.)Closing entries,etc...........................................................................6
3. Provision bad debts + Bad Debts:...........................................................................6
5) FINANCIAL RATIOS / INTERPRETING FINANCIAL STATEMENTS......................................7
1. Financial Strength...................................................................................................7
i) Financing Structure / Solvability..............................................................................7
ii) Liquidity................................................................................................................7
iii) Income sensitivity /Cover Ratios..........................................................................7
2. Rate of Return/Profitability......................................................................................7
1. Growth.....................................................................................................................7
6) CHAPTER 2 CLUBS/NON-PROFIT ORGANISATIONS......................................................13
Introduction:..................................................................................................................13
Organisational & Control Characteristics.:.....................................................................14
Sources of finance for :..................................................................................................14
Accounting records:.......................................................................................................14
Entrance fees:.............................................................................................................15
Membership fees:.......................................................................................................15
Income from Bar,Tuck Shop,Restaurant:....................................................................15
Donations and Bequests:............................................................................................16
Receipts & Payments Statement:..................................................................................16
Income and Expenditure Statement:............................................................................16
Trading Statement:........................................................................................................17
Accumulated Fund Account...........................................................................................18
Special Funds.................................................................................................................18
EXAMPLE OF: A NON-EXPENDABLE SPECIAL FUND ACCOUNT:...................................19
EXAMPLE OF: An EXPENDABLE SPECIAL FUND ACCOUNT:..........................................20
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FINANCIAL STATEMENTS -for SPECIALFUNDS................................................................20

Statement of changes in Equity:.................................................................................20
Balance Sheet.............................................................................................................20
Notes to the statements;............................................................................................20
IF INTEREST FROM A NON-EXPENDABLE FUND – MAY BE USED FOR GENERAL
EXPENSES:show like this:...........................................................................................21
TO REMEMBER:IN GENERAL:..........................................................................................21
7) CHAPTER 3 Companies Financial Stments..................................................................22
1. The Company as a form of Enterprise...................................................................23
i) Introduction:..........................................................................................................23
ii) Shares :..............................................................................................................23
iii) Rights and Resposibilities of shareholders.........................................................23
iv) Incorporation of a Company:..............................................................................23
v) Managemnt of a Company.................................................................................24
2. Share Capital.........................................................................................................24
i) Authorised Share Capital.......................................................................................24
ii) Issued Share CAPITAL.........................................................................................24
iii) Share Values : Par value / No Par Value............................................................24
iv) Ordinary & Preference Shares............................................................................24
v) Recording Share Transactions:...........................................................................28
vi) The PURCHASE BACK of a companies own shares:...........................................29
4. Differences between company & partnership.:.....................................................29
5. Reserves & Dividends...........................................................................................30
1) Non-Distributable Reserves................................................................................30
2. Distributable Reserves.......................................................................................30
6) Tax of Companies..................................................................................................30
i) Provisional Tax;.....................................................................................................30
ii) Recording the provision for tax..........................................................................30
iii) The Tax Return:..................................................................................................31
7) Appropriation Account...........................................................................................31
8) Group Companies..................................................................................................31
8) The Companies Act 61 of 73.................................................................................31
9) The Annual Financial Statements of a Company...................................................32
i) Objective:..............................................................................................................32
ii) Format & contents..............................................................................................32
10) Disclosure Requirements.......................................................................................32
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i) Overall Considerations: as per AC101...................................................................32

ii) Identification of fin.stats-....................................................................................32
iii) Reporting period.................................................................................................33
iv) Notes to the fin stats..........................................................................................33
v) Measurement of elements of Fin Stats...............................................................33
11) THE BALANCE SHEET.............................................................................................34
i) Information to be presented on the face of the Balance sheet.............................34
ii) Info to be on face of Bal. Sheet OR in the Notes...............................................35
12. NOTES TO THE BALANCE SHEET............................................................................35
1) Generally accepted accounting practice............................................................35
2) Accounting Policy...............................................................................................35
3) (Assets:) Property Plant & Equipment................................................................35
4) (Assets:) Intangible assets..................................................................................36
5) Other Financial Assets........................................................................................36
6) Preliminary Costs and Share issue costs............................................................36
7) Inventories:.........................................................................................................37
8) Share Capital......................................................................................................37
9) Reserves.............................................................................................................37
10) Interest bearing borrowings:..............................................................................37
12. INCOME STATEMENT.............................................................................................38
13. Notes to the Income Statement:...........................................................................40
11) Revenue.............................................................................................................40
12) Profit from Operations........................................................................................40
13) Income from other Financial Assets...................................................................40
14) Tax Expense.......................................................................................................40
15) Extraordinary Items............................................................................................41
16) Earnings per share.............................................................................................41
14. STATEMENT OF CHANGES IN EQUITY....................................................................41
8) CHAPTER 3 : PARTNERSHIP ACCOUNTS.....................................................................44
1. Temporary & Permanent Partnerships:.................................................................44
i) Certain accounting aspects special for partnership:.............................................44
1. Legal Aspects of a Partnership:.............................................................................44
1. Partnership Agreement: Important matters to be included in it:...........................44
2. RECORDING OWNERS EQUITY...............................................................................44
i) Capital & Current Account.....................................................................................44
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ii) Valuation of contributions made by partners.....................................................45

ii) Loans & Advances..............................................................................................46
2. Determination & Distribution of Partnership Profits..............................................46
i) Distrtibution of Profit for period:............................................................................46
ii) Partners Salaries:...............................................................................................47
iii) Bonus to Managing Partner:...............................................................................47
iv) Interest on Capital: pg 527.................................................................................47
Drawings:....................................................................................................................48
iv) Adjustments & Corrections in respect of Previous Fin Periods...........................48
4. Financial Statements of Partnerships:...................................................................48
5. Changes in Composition of the partnership:.........................................................49
ii) A New Partner is added to Partnership...............................................................50
ii) Retirement or Death of a Partner.......................................................................53
6. Liquidation /Dissolution of a partnership:..............................................................55
7. Merger of more than 1 Existing Partnerships:.......................................................60
8. Take over by an existing Company.......................................................................60
9. Conversion to a company......................................................................................60
10. Conversion to a closed-corporation.......................................................................60
9) CASH FLOW STATEMENTS..........................................................................................61
1. WHY USE A CASH STATEMENT?.............................................................................61
2. GAAP & Law implications.......................................................................................61
3. INTRO of Cash Flow to other Fin Stat.....................................................................61
i) Operating Activities...............................................................................................61
ii) Investment Activities: DEFINITIONS: (copy down ac118.6 here later)................62
iii) Financing Activities: DEFINITIONS: (copy down AC118.6 here later)..................62
4. The Preparation of a Cash Flow Statement...........................................................62
i) Doing accounts to calculate TOTALS for the c/d statement:.................................62
CASH FLOWS FROM INVESTMENT ACTIVITIES.
1)Heading : Prescribed Books for second year:

Main one: Univ . of Limpopo –Introduction to Fin Accounting By A dempsey AND hn
pieters.
Also used :Financial Accounting An introduction:by ???????
And Study Master Guides for acc. grade 11&12,E conradie,A Marais,D G Strapp,etc
ACN-101-M Page 4
2)Heading : Special/Odd Things to watch out FOR:

1- NOTE:IF INVENTORIES CURRENT on stock take do not match the amount in the
"inventory account"(calculated amount) it is called a "deficit on inventory account"
and is put as expense in the income statement –ie goods stolen/lost etc.!
1)Heading: TERMS :
1- SEMI-ANNUALLY: every 6 months eg: interest at 10% p/a but calculated semi-annually
means :accrued(added to total of loan)&calc. 6 mnthly but at 10% p/a rate.
1)Heading: Revision Common Problems.
1. DEPRECIATION
Straight Line Method: (or Fixed Installment Method)
1. (Cost MINUS - SCRAP/RESIDUAL VALUE) Over/ fixed time or years usage estimated.
Diminishing balance method (or Accellerated Method)

1. (ONLY Cost ONLY -not minus scrap value) Multiplied by Certain % of Value.
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2. This method says asset looses more value in first years than in later years :(ie:amount subtracted auto.
decreases over time as asset value decreases)
3. This method DOES NOT SUBTRACT THE SCRAP VALUE from the COST PRICE to CALCULATE the RESIDUAL
VALUE.-at all ever
4. The carrying value at end of one of the years is simply deemed the Scrap value-then no more.
5. Use same Entries as above:just 'calculation' in calc. column different.
Production Method:
1. (Cost MINUS - SCRAP/RESIDUAL VALUE ) Multiplied by: ( Units produced this year /OVER/ Estimated no. of
units production from the asset in its.lifetime. )
2. variations include :hours worked , distance traveled .
3. The depreciation rate can also be worked out at: Rands per Production unit (or kilometre) and given 2 extra
columns: depreciation per unit & annual units : in the Schedule of depreciation ,and the standard depreciation
quoted as 'per unit' at top of asset register.
4. Use same Entries as above:just 'calculation' in calc. column different.
2. Next heading:provision bad debts,realisation of assets,inventory in closing

entries(trading acc.)Closing entries,etc
NOTE:IF INVENTORIES CURRENT on stock take do not match the amount in the
"inventory account"(calculated amount) it is called a "deficit on inventory account" and is
put as expense in the income statement –ie goods stolen/lost etc.!
3. Provision bad debts + Bad Debts:
Note:Provision for bad debts is NORMALLY NOT DONE ON ANY "pre-paid expenses" ,even
if they are added to "Trade&Other Receivables" in the Income Statement.
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1)FINANCIAL RATIOS / INTERPRETING FINANCIAL

STATEMENTS
1. Financial Strength
i) Financing Structure / Solvability
1- Solvency ratio =total assets/total liabilities = xx TIMES
ii) Liquidity
1- Current Ratio =current assets/current liabilities = xx:1
2- Quick Ratio /Acid test ratio =current assets - inventory/current liabilities = xx:1
3- Inventory Turnover rate= cost of sales/average inventory(last+this year over 2)=xx
TIMES(per yr
NOTE:for 'DAYS' allways put mentioned item on top.!!!
4- No. of days inventory on hand:= average inventory/costof sales*365/360 days= xx
days
5- Creditors payment period in days =outstanding creditors/credit purchases*360/365=
xxdays
6- Debtors collection period in days =outstanding debtors/credit sales*360/365= xxdays
iii) Income sensitivity /Cover Ratios
1. Rate of Return/Profitability
14- Return on Equity = Net profit after(interest+tax+preference dividends)/ordinary
shareholders equity*100=xx%
15- Return on tot shareholders interest before/after tax = Net profit before/after tax
(after +interest+????equity income???)/total shareholders interest*100=xx
%???????????????/
16-Return on Total assets= net profit before interest and tax/total assets*100=xx%
17-Return on current assets= net profit before interest and tax/net current
assets*100=xx%
18-Return on outside investments=dividends+interest/investments*100=xx%
19-turnover of total assets=turnover(sales)/average total assets = xx times
20-gross profit % on sales= gross profit/sales *100=xx%
21-gross profit % on cost of sales= gross profit/cost of sales *100=xx%
22-net profit % on sales or cost of sales= same as above ,just net profit.
23-earnings yield=earnings per share/market price*100=xx%
24-earnings ratio=earnings per share/market price=xx:1
25-dividend yield=dividends per share/market price*100=xx%
1. Growth
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1)CHAPTER 2 CLUBS/NON-PROFIT ORGANISATIONS

REMEMBER TO ADD A "STATEMENT OF CHANGES IN EQUITY"
Key concepts
. Receipts and payments statement
. Income and expenditure statement
. Trading statement
. Balance sheet
. Special funds
. Nonexpendable special funds
. Expendable special funds
. Accumulated fund
. Entrance fees
. Membership fees
Introduction:
1. A Non-profit organisation :economic entity which has the legitimate goal of furthering certain interests in the
community.-objective not distribute profits but use profits achieve stated goal.
ACN-101-M Page 12
2. Membership acquired through paying membership fees-not same rights as shares in a company.-not entitled to
distribution of profits.(normally clause in constitution that if entity is dissolved all assets go to a entity with
similar objectives.)
3. Funds from:donations,membership fees,fund raising projects,bequests,government subsidies.
4. Under section 21 of companies act-61 of 1973- may register as a company not for gain.
5. Must register for Vat if 'Taxable supplies' or Income/Revenue exeeds R300 000 ,or may register if below that
and want to.
Organisational & Control Characteristics.:

• Either voluntarily & unpaid by committee chosen by members or Paid managers etc in larger.
• Acc. records often incomplete-
○ Smaller-treasurer likely to keep cash transaction record in a receipts & payments statement,using a
single entry system.Here only control is bank reconcilliation.
○ If double entry system used- accrual basis used& normal acc. procedures followed.This means
depreciation + adjustments are done ,trial balance extracted& normal financial statements prepared.
○ eg:university discloses more info. to enhance usefulness of fin.statements
• In principle however-no difference between accounts of trading entity & non-profit organisation.
Sources of finance for :

1. Membership acquired through paying first entrance fees, thereafter membership fees-not same rights as
shares in a company.-not entitled to distribution of profits.(normally clause in constitution that if entity is
dissolved all assets go to a entity with similar objectives.)
2. Funds from:donations,membership fees,fund raising projects,bequests,government subsidies.
Accounting records:
1. Return on Capital not goal of – non-profit organisation- so EQUITY REPLACED by FUNDS.
2. Profit is called a Surplus and Loss is called a Deficit- Added/ subtracted to Accumulated funds account.
B.A.E of Non-Profit Organisations
ASSETS = FUNDS + LIABILITIES.
B.A.E of Non-Profit Organisations

ASSETS = FUNDS + LIABILITIES.
DIFFERENCE IN ACCOUNTS BETWEEN:
NORMAL ENTITY Non- PROFIT ENTITY
Capital Account Accumulated Funds Account
Profit and Loss Account (Yr.End) Income and Expenditure Account
Income Statement Income and Expenditure Statement
DIFFERENCE IN TERMS Used
Profit Surplus
Loss Deficit
Equity Funds
Accounting Treatment of various Sources of Finance
Capitalised:
First :"Entrance fees Acc"/"Bank Acc."
Entrance Fees
End of Year Close-off to "Accumulated
Funds Acc."
Revenue (Budget / No.members=annual
Membership Fees
fees)
Fees paid in Advance : to "Income Received
in Advance(Membership fees)" Account" +
'Trade& Other Payables'
MUST be written back out of 'in advance'
acc. in new year back into "Membership
fees" account as pay
Fees in Arrears to "Accrued
Income(Membership Fees)" Account.
+'Trade & Other Receivables' But in new
ACN-101-M Page 13
year re-reverse to act as a Debtors Account

Bad debts can be written off against
"membership fees" acc ONLY IF ACCRUED
MEMBERSHIP FEES have been recorded in
Memb. Acc.& "Accrued Memb. Fees Acc As
a debtor account) . at previous Fin year end
and reversed out in following year
beginning . – so to lessen bad debts from
the expected income to be balanced out
(cancelled) by the 'reversing' in the new
year ONLY EVER (from the accrued
expenses on the Dr side of it ).If no
accrued expense / reversal type "debtors
record"then for those Bad debts NO ENTRY
anywhere in books unless a Debtors
account exists somewhere (not usual).
Doantions & Bequests:
3.
Entrance fees:
a. Capitalised normally–Ie:First go straight to "Entrance fees" account- then at Fin .Year End with:Closing-
Entries/Procedure closed-off to "Accumulated Fund account" (like :Capital account).
b. DO NOT GET ADDED TO REVENUE in 'Income and Expenditure Statement'
Membership fees:
c. Annual Fee = Estimated Budget for Following Year / divided by / Number of members
d. Some fees could be in arrears,some could be irrecoverable.
e. "Membership fees :Income" account can act as a "debtors" account at same time as being income
account.-if there are no "debtors' for members but is actually ONLY an INCOME account by GAAP.So—
1-you can write off bad debts against it if no (2)... following is true: -2-have already (from past fin . year
end procedures)put fees in arrears on debit side –to act as a debtors.- BUT if a fin. year end has not
passed& the very bad debts have been written up as accrued income - then you cannot write the bad
debts off in this manner –nor in the books at all.
f. Sometimes no debtors accounts kept for arrears members fees-so one ONLY uses adjustment accounts
for arrears membership fees + fees paid in advance's at YEAR END ONLY.
g. SOME Bad Debts( if already an accrued income in books) CAN get written off against the "Membership
fees " account if there are no "debtors accounts" for members.
h. Only bad debts that have been moved to dr side from last year ,ie , as
accrued incvome reversed in new year, can be written off as bad debts to
cancel the dr (which would have been used to cancel any payment for last
years stuff in the current year).
i. "Membership Fees account" is empty at beginning of year:EXEPT FOR first entries are the adjustments
transferred back :Arrears=Debtor as DR ----- AND Income in advance='Income' as CR for new yrs.
income now showing .
ALL Arrears Fees :
i. get included in Fin. Stat. as income for the year(still owing – like a debtor)under "Trade& Other
Payables" :BUT ONLY AT YEAR END.
ii. "Adj:Accrued Income" can also be called:"Membership fees in Arrears" !!!!
iii.No other arrears payments go to same adjustment acc. they must go to another
iv.Fees in arrears go to :"Adj:Accrued Income (Membership fees)" –CONTRA- "Membership Fees
Income" account same as an adjustment " at year end –BUT MUST:
v.MUST get REVERSED back into 'membership fees' account in new year (to accurately show
income for new year)- on the DEBTORS SIDE if there are no Debtors accounts.-account acts as
a debtors account at same time as an income account here.:do exact opposite to above
procedure.
Fees paid in advance :
vi.go to separate account –same as for Adjustments- the 'Income Received in
Advance(membership fees)" account :Under "Trade & other Payables" on balance sheet.-
vii."Adj: income received in advance(membership fees)" can also be called "Membership Fees
Received in Advance" account.
viii.No other advance payments go to same adjustment acc. they must go to another
ACN-101-M Page 14
ix.'Must first go to "Membership fees: Income" Acc. from'Bank' Acc. , ONLY then to "in advance"
acc. AFTER by reversing -out of 'Membership Fees:Inc.' Acc
x. MUST be reversed back out of 'in advance' acc. in new year and re-reversed back into
"Membership account" to accurately show income for that year.
Income from Bar,Tuck Shop,Restaurant:
j. Gross profit –Not a Surplus- is Shown for "trading" only- in trading statement.
k. All trading closed off to Trading account at year end procedures as normal
l. The Gross profit for : Each trading activity must be calculated separately.as:
i. goes in income statement as calculation if any expenses which 'must' appear in inc& exp
statement are involved eg:wages: these must be subtracted in the inc & exp stat . and while all
other expenses come off in the Trading statemnt.- see example!!!!!! see calc . : Net
Income /'Gross Profit'/(Expenses Incurred here in brackets. eg: 'wages') in inc&exp. statement.
m. Otherwise all other expenses are subtracted as normal from all the Gross profits to show the Net
Surplus for the year at bottom on the "Income & Expenditure Statement". (Net profit)
Donations and Bequests:
1. Treated as REVENUE. :
2. Dr bank –CONTRA- Cr donations received( income account)
3. UNLESS: As an EXEPTION a 'special fund' is created from it –which must NOT be added to "accumulated
funds"(old 'Capital account'), but goes to "Special Fund "account which is regarded as a 'type' of
capitalisation:ALLWAYS utterly apart from other capitalisations though eg: if very large bequeathement from a
testament or donation or conditional donation.
Receipts & Payments Statement:

1. AN: analysed & classified Statement of ONLY the Cash transactions .-cash actually out or in.
2. Smaller entities with only cash as assets need ONLY show this statement For Fin.Stats. at year end.meeting-
BUT larger must show Balance sheet & Income & Expenditure Statement as well.
3. T format or Narrative-vertical where all ACTUAL cash received on DR and all cash Paid on CR.
4. Accrual principle not applied here:So Prepayments + Accrued amounts received or paid + Income received in
advance All recorded here.
5. All operational + capital nature (assets buy/sell) cash goes on here –no separate.
6. Opening balance = cash on hand in bank at beginning &
7. Closing Balance = cash on hand in bank at end of period.
8. Disadvantages: -1-No fin. performance OR fin. position can be determined from this statement.,-2-only cash
transactions recorded,-3-surplass/deficit cannot be determined,-4-includes cash from A/F/L & Inc/Exp accounts
All-no distinction.
9. ALL INVESTMENTS are cash payments=CR :even fixed deposits. ALL LOANS are cash receipts.
Income and Expenditure Statement:

1. Same as normal 'Income Statement' –also prepared according to GAAP-ias1(ac101)
ACN-101-M Page 15
2. Determine surplus / deficit for a fin. year.

3. All Income ONLY shown under ONLY :heading :INCOME &
4. All Expenses ONLY shown under ONLY :heading :EXPENSES
5. NOTE : MUST SUBTRACT / ADD all relevant accrued or pre-paid Income/Expenses for the period –AND
RE-ADJUST THEM IN START OF NEW PERIOD. (others as well as -see memb.fees)
6. The Gross profit Breakdown for all Trading activities works as follows:
7. IN 'INCOME' SECTION:
a. Gross Profit :'from xyz' =in this statement means no wages /similar expense still to be
deducted in this statement- was already worked out in trading statement.
b. 'Income from :xyz activity' 348.87
Gross Profit 389.44
Wages expense 40.43
.....means that an expense must still be deducted in this statement for some or ..
other reason and it gets shown like this :method 2.-The main reason being that wages do not form part of gross profit
and must be shown as a 'deduction' on this statement-not on the trading statement .
Trading Statement:
1. IF the scale warrants it :a separate ' TRADING STATEMENT ' can be prepared for each operational activity'.eg
:for Tuck shop one ,for restaurant one ,for fun run one etc.
2. Layout similar to Trading section (revenue+ cost of sales....+gross profit of a normal Income Statement.
3. Closes off with gross profit NOT surplus/deficit because trading calc. done here .
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4. WAGES MUST NOT BE SUBTRACTED IN THE TRADING STATEMENT :The main reason being that wages
DO NOT FORM PART OF GROSS PROFIT and must be shown as a 'separate deduction IN the Income PART'
of THE: "Income and Expenditure Statement"(see section on "Inc.&Exp. Statement")- not on the trading
statement.
5.
Accumulated Fund Account
1. The Capital Account is CALLED the 'Accumulated funds' account ,AND EQUITY is called "Funds" because: no
owners=no equity
2. The following go to the "Accumulated Fund account" (-old "capital" account)
a. Any INITIAL DONATIONS made to begin organisation.
b. Entrance Fees
c. Surplus / Deficit for each period.
d. "Special Funds" donated for "General Expenses" –separate investment account must be opened.
3. Separate investment accounts must be opened for "Special Funds" donated for a special purpose :to be able to
issue meaningful reports on the acquisition & utilization of funds.
Special Funds
1. Used like an "Income" and "Expense" account same entries style for Dr & Cr .- NOT like an 'ASSET' ACCOUNT!-
so for all assets bought(asset exchanges) FIRST move(REVERSE) cash from Specisl Fund to Accumulated funds
account-and leave it alone there.
2. Money can be set aside so not all the cash is spent on expenses of general nature :in a Special Fund..
3. A Special fund can also be established for a 'Legacy' or a 'Conditional donation' with special conditions
attatched.
4. When purpose of fund is Finished / finalised –it must be closed off to the "Accumulated Funds" account.
5. FOR A RECEIPT :ALWAYS FIRST to normal bank,then only to "Investment account" Bank account,
:ALSO for a PAYMENT :first from "Investment bank acc" to normal 'bank' acc–then ONLY PAYMENT MADE from
here. (:unless stipulated otherwise in exercise instructions).
a. RECEIPT:
i. Dr bank(normal ) –CONTRA Cr "Special non-expendable : Star Fund."
account.????????????????????/
ii.Cr bank (normal)-CONTRA- Dr Investment Bank account (eg : fixed deposit )...move to
investment account.
b. PAYMENT:
i. Cr Investment Bank account-CONTRA- Dr Bank account (normal ).FIRST move to normal
bank account
ii.Cr "Accumulated Funds" account –CONTRA-Cr "Special non-expendable: Star Fund." account.
FIRST Move to "Accumulated Funds" account(old 'Capital acc'.) as a new 'contribution' to
'Funds'-ONLY FOR ASSETS BOUGHT-asset exchange (not called capital here)
so for all assets bought(asset exchanges) FIRST move(REVERSE) to Accumulated funds
account-and leave it alone there.
ACN-101-M Page 17
iii.Cr bank(normal ) –CONTRA Dr "ASSET BOUGHT':eg:"Land & buildings" account

c. Interest either back to same ledger account as double-up account if non-exp. , or to other income acc. if
expendable.
d. Remember to add accrued interest at year end (with contra as :"accrued income") AND REVERSE IT
AT BEGIN NEW YEAR out of same account and out of contra : "accrued income" If interest is non-
expendable then it does not go to INCOME &EXPENDITURE STATEMENT or ....ACCOUNT.
6. If stipulated that interest MAY be used for "general expenses"-not only special ones- then the interest income
goes to separate income account :eg:"Interest: Star Special Fund :income" account. and DOES GO to normal
Income & expenditure account (old profit& loss account) & 'Income & Expenditure Statement' & part of
"Surplus or deficit "etc etc.
7. All interest not used, usually should be re-invested.
8. "Income & Expenditure Account OR ..Statement :NO ENTRIES: Special Funds :the donations for them
and the income from them and expenses paid from them- should NOT be reflected on the Income &
Expenditure Account OR ..Statement .-BUT through the fund account itself.-this account ats as a MINI Fin.
Statments all by itself, so no extra entries needed.
a. USED AS : 'Expense' account. –(all expenses -'Bank' is –CONTRA-)
b. Used as :'Income ' account
c. Used as :Income & Expenditure Statement.(only this fin. stat.)
d. Used as :Statement of Changes in Equities.
e. Used as:Accumulated Fund account.-is actually officially seen as 'capitalisation' ! ( old 'capital' account)
because never goes as 'surplus' to here.
f. Used as :Income & Expenditure account (profit & loss account)
9. Putting money in a special funds account is actually officially seen as 'capitalisation' of the funds-exept kept
apart from:
a. -"Accumulated Funds" account: .Special funds are normally accounted for separately from
"Accumulated Funds" account .& "Funds'( old equity)EXEPT any asset bought from/through a
special fund must be added/credited to the "accumulated fund " account-or any part of total money
contributed toward asset from special fund .
b. so for all assets bought(asset exchanges) FIRST move(REVERSE) to "Special Funds" account money used
to Accumulated funds account-and leave it alone there as 'FUNDS' (same as in equity-cash type capital
from an owner).
10.A separate investment (At the bank) bank account is normally opened for each special fund in which capital is
deposited.
11. A Special Fund can be either of 2 types.
a. Expendable Fund: May use Capital & Interest for specific purpose.
i. Investments from these funds must be shown as separate items on the balance sheet-Cross
References must be given.
ii.CAPITAL &INTEREST-Separate on balance sheet under :"Special Funds:Expendable Funds"
b. Non-Expendable fund: May ONLY use Interest for a specific purpose.
i. Investments from these funds must be shown as separate items on the balance sheet-Cross
References must be given.
ii.CAPITAL -Separate on balance sheet under :"Special Funds:Non-Expendable Funds"
iii.Any interest accrued ,where more than (excess to)expenses in year,IF not allowed to be
used for anything(see other no.s above) gets shown ,in addition to the above, as an extra
heading: "Special Fund :Expendable Funds" -SO 2 HEADINGS FOR 1 FUND.
iv.If expenses exceed costs for fund-entity must find other means to pay for them-may not use
capital portion at all.
12.AN ASSET bought from a special fund –MUST include note in Fin statements to show this transaction,BUT
treated normally in balance sheet exactly same as all other assets.EXEPT any asset bought from a special fund
must be credited to the "accumulated fund " account-or any part of total money contributed toward it .
13.NOTE: Accrued income: gets reversed from Cr side to Dr side in beginning of
ANY NEW FINANCIAL YEAR BECAUSE at end of LAST year interest owed on
account-went to "accrued income' account ('debtors type) and to Cr side of Special
fund account(as a income) to reflect.
EXAMPLE OF: A NON-EXPENDABLE SPECIAL FUND ACCOUNT:
Used like an "Income account"
ACN-101-M Page 18
EXAMPLE OF: An EXPENDABLE SPECIAL FUND ACCOUNT:

Ignore contents here –just any old account example was used –because Same as any other . ... account
NOTHING Special- used like an "Income account"
FINANCIAL STATEMENTS -for SPECIALFUNDS

Statement of changes in Equity:
a. special funds each in own single separate column to 'accumulated funds' .
i. headings for entries in special funds columns:
1. balance at beginning of year
2. Funds Invested /or Donations(in )
3. 'Accrued Interest Income'/ or just 'Interest Income'
4. Funds used(out)
ii. headings for entries in accumulated funds section
1. balance at beginning of year(uses same entry as above section)
2. surplus for the year
3. entrance fees
4. Lapa built from donation.etc.
Balance Sheet
1. All Special funds are shown under Accumulated funds on balance sheet –under 2 separate headings-one
a. Non-expendable funds
b. Expendable funds.(remember this includes interest from non-expendable funds under same name –one
put '-capital' , other put '-interest' next to heading (see below).
ACN-101-M Page 19
Notes to the statements;

1. normal notes + notes to disclose any assets purchased from special funds-now in accumulated funds.
2. table for depreciation: Just add below the "additions" :as a breakdown:( otherwise all the same)
a. from own funds
b. from special fund:star fund (etc)
IF INTEREST FROM A NON-EXPENDABLE FUND – MAY BE USED FOR GENERAL EXPENSES:show

like this:
TO REMEMBER:IN GENERAL:
1) There are 2 instances where one must reverse ADJUSTMENTS on the first day of the
new year in these books:
a) For MEMBERSHIP ACCOUNT:
ACN-101-M Page 20
i) Income received in advance gets reversed back in (to cr side)

ii) Accrued income gets reversed from dr side to cr side/ +deleted out of "accrued
income"(debtors)account
iii) last years total cd/bd GOES TO :INCOME & EXPENDITURE ACCOUNT-and
membership fees account is then EMPTY IN THE NEW YEAR ALLWAYS EVER!!!!!
b) fOR SPECIAL FUNDS ACCOUNT:
i) Accrued income: gets reversed from Cr side to Dr side in beginning of ANY
NEW FINANCIAL YEAR BECAUSE at end of LAST year interest owed on account-
went to "accrued income' account ('debtors type) and to Cr side of Special fund
account(as a income) to reflect.
2) Add all membership fees in arrears AS WELL AS SUBTRACT all fees paid in
advance to get the total for Income & Expenditure statement for the year.
ACN-101-M Page 21
1)CHAPTER 3 Companies & Financial Stments.

Notes:
These type ARE NOT TO BE PART OF "EQUITY"
These form part of non-current liabilities.-redeemable prefererence shares.
Preliminary &share issue costs each get their own account in ledger,and what is not
deducted therefrom as expenses in income statment that year,is then put as a non-
current asset.
Share premium is part of issued share capital=equity
1. The Company as a form of Enterprise.

i) Introduction:
1- Definition:Company
An association of people working together with the objective of making a profit.
2- Companies are an unseen entity controlled by ,and participates in legal
communications through, mangmnt bodies .
3- Conduct of companies is restricted for reasons :eg monopolies.
4- Financial differences between company and partnership,company has to provide for
these needs: Aquisition of more capital
To make continued existence of entity independant of owners
To be able to change owners
To limit fin.liability of owners.
ii) Shares :
1- Company divides capital into shares and sells,only keeps a shareholders register,no
extra shareholders current accounts etc,
2- Principle quality is shares are easy transferable.
iii) Rights and Resposibilities of shareholders
1- Change ownership : negotiable document = shareholders certificate is proof of
ownership,
2- Right to vote : At Annual general meeting(agm) vote for directors+ broad objectives
of company.
3- Dividend rights : Profit belongs to company – only dividends actually declared belong
to sharehldr
4- Liquidation Rights : Assets belong to company ,NOT belong shareholder ,Surplass of
assets after liabilities goes to shareholder only if liquidation.
iv) Incorporation of a Company:
1- Once registrar issues CERTIFICATE OF INCORPORATION=evidence 'COMPANY ACT'
etc was complied with,company comes into existence,THEREAFTER COMPANY MUST
APPLY FOR A 'CERTIFICATE TO COMMENCE BUSINESS' only once this is issued may
business be commenced.
(1) MEMORANDUM OF ASSOSIATION:
(a) Name of Company
(b)Activities / Purpose Company incorporated for.
ACN-101-M Page 22
(c) Amount of Share Capital And division thereof into shares ,with which
company registered.
(2) THE ARTICLES
(a) Regulate internal and management of company: eg:shares + share
cetificates,transfer of shares,loan powers,covening
meetings,rights+resposibilities of directors,voting rights,power of attorney
etc.
(3) PRELIMINARY COSTS.
(a) Debited to 'preliminary cost accnt',customarily written off against profits
over next few yrs. Eg: legal costs,registration fees.
(4) Most important consequence of separate legal entity
(a) Liabilities separate owners
(b)Profit + Assets belongs ONLY company,not to shareholders.
(5) Meeting in 60 days
(a) Shareholders must hold meeting in 60 days of 'certificate to commence
business'-primary objective appoint board of directors.
(6) Yearly shareholders meeting
(a) Appoint board of directors.,subject to provisions of the articles of ass.
(b)Annual Fin Stat. , incl. auditor report ,presented and approved.
v) Managemnt of a Company.
1- Shareholders := owners
2- NEXT Board of directors= not involved day to day running of comp.,only policy &co-
ordinating.
3- NEXT Management : running of company.
1. Share Capital.
i) Authorised Share Capital
1) Maximum Share capital it may obtain according to memorandum of association,can
be changed.
ii) Issued Share CAPITAL
1) Amount of shares actually issued, remainder is called Reserve or Unissued Share cap.
iii) Share Values : Par value / No Par Value
(1) Par Value (PV):
(a) Shares with Face value/Nominal value/Par Value :Value by which
authorised share capital is divided into shares,CAN be different to Market
Value.Only Original issue(sale) of shares is recorded in accounts, reselling
is NOT,then only changed in 'Shareholders Register'
(b)Share Premium is if Par Value shares are sold to the public at a higher
value than the par value
(c) All ordinary shares together must be the same ,either par value or no par
value,not mixed,all preference shares can be another type,but not mixed
either,one or other.
(2) No Par Value Shares
(a) System where the Authorised Capital of eg: 1000 shares have no face
value ,eg:R10
(b)Must write as heading for No par value shares account: Ordinary
Shares:Declared Capital. (or "...Stated capital")(also for pref.shares –
same style)
ACN-101-M Page 23
(3) Share Premium

(a) is if Par Value shares are sold to the public at a higher value than the par
value
iv) Ordinary & Preference Shares
(1) Ordinary Shares
(a) Dividends Only get paid AFTER preference shares,dividend not fixed-BoD
decides divident total value and then value divided up.Must have own
account,not mixed up with preference shares.,and dividends do not go to
communal accounts.
(2) Preference Shares
(a) Dividends Get paid Before ordinary shares,dividend% IS fixed on Issue.
(b)Pref. Shares must have own account,not mixed up with ordinary
shares.But dividends can all go to same account as ordinary shares.
(c) Dividend only get paid if a Dividend was actually declared by BoD
(d) All Pref. Shares have cumulative dividends(next year) if unpaid some
years. = becomes an accrued liability for company for next year –Unless-
stated not cuml.
(3) Redeemable Preference Shares (note: Not included as Equity!!!!)
(a) Special type of pref.Share where may be purchased back by company in
manner & price predetermined on issue.
(b)These type ARE NOT TO BE PART OF "EQUITY"
(c) These form part of non-current liabilities.
(d)May only be redeemed by funds from issuing new shares,or from profit
available for distribution as dividends.
(e) If from profits: Amount must first be tranferred to account called"Capital
Redemption Reserve Fund" ONLY from 'Distributable Reserves'- reason :to
maintain maintain capital of company-thereby protect creditors interests.
(i)
(ii) The capital redemption fund may also be used to pay up unissued
shares of the company for issue to members as fully paid up shares.
(f)
(g) PREMIUM ON REDEMPTION of Redeemable Pref.Shares.
(i) 'Provision must be made ' for premium either from :
1. Profits or from an
2. Existing share premium account.
(ii) Two new requirements of Act: (1)premium must be determined before
alotment of redeem. Pref. shares and(2)conditions of redemption must
be noted in articles. Before share premium acc. May be used to write
off premium on redemption.
(iii)Very complicated- must be researched.
(h)Different journal entries for redeem.pref.shares methods:
(i) P.s. :UNCLEAR ABOUT WHEN/ HOW CAPITAL REDEMPTION
RESERVE FUND must be created.
(i) New shares issued to pay:
ACN-101-M Page 24
(ii) From retained earnings:
(iii)From issue new shares at a prmium+balance from retained

earnings+as little retained earnings as possible to be used(already
7000 in old share premium acc)
ACN-101-M Page 25
(iv)By means of issue of no par value shares:
ACN-101-M Page 26
iii) Recording Share Transactions:

(1) Shares of Par Value issued at Par:
(a) Done normally ,same method for Ordinary and Preference Shares just
each type must have their own accounts –see example that follows:
(b)NOTE: SAICA have changed name of :Ordinary appication and allotment
account" & "Preference application and allotment account to :
ONLY " APPLICATION ACCOUNT" SAME ONE FOR BOTH.
(c) Note: IF A QUESTION SHOWS THAT SOME SHARES WERE SOLD AT A
LOWER VALUE PREVIOUSLY (WHETHER IT SAYS " FRESHLY ISSUED" OR
NOT) it means any shares of same type sold at a later date at a higher
price are treated as SHARE PREMIUM CASES.
(2) Shares of Par Value issued at a Premium:

(a) If issue price exeeds the par value:exess must be credited to "SHARE
PREMIUM ACCOUNT"(Same account is used for Preference Shares.)
(b)"SHARE PREMIUM ACCOUNT" forms part of Share Capital EQUITY.
(c) May be used according to 'companies act ' ONLY to write off certain costs.
(d)Note: IF A QUESTION SHOWS THAT SOME SHARES WERE SOLD AT A
LOWER VALUE PREVIOUSLY (WHETHER IT SAYS " FRESHLY ISSUED" OR
NOT) it means any shares of same type sold at a later date at a higher
price are treated as SHARE PREMIUM CASES.(exam)
ACN-101-M Page 27
(3) Issue of Shares of No Par Value:

(a) The entire issue of no par value shares is paid-up capital and should be
transferred to a separate account called "Ordinary Shares :Declared
Capital Account"
iv) The PURCHASE BACK of a companies own shares:

1) Companies Act allows buyback of companies own shares if :Artices + a special
resolution of BoD allows it and also if :Companies debts will still be payable as arise +
assets will still be more than Liabilities thereafter.See section 85 of companies act.
2) For PAR VALUE SHARES : issued capital must be decreased (cancelled) by par value of
shares aquired.(but will remain as authorised shares 'allowed' still)(expense or
loss????)
3) For NO PAR VALUE SHARES : Stated capital of shares must be decreased by book
value of of share capital aquired.Amount of decrease = divide stated capital /by / total
of issued shares bought back *multiplied by* amount of shares bought back.(ie: issue
value/total no. issued at the time* no. of shares bought back =amount to decrease
/cancel equity by)
4) If 1000 shares of value R2 are redeemed at R5 –Note: 'Ordinary/Pref Share account '
must be debited ONLY with the R2 per share bought back ,and reduce no. of shares
issued by amount bought back,the other R3 /share must be debited to "distributable
reserves" and will be disclosed in "statement of changes in equity"
5) The amount of shares bought back get SUBTRACTED from "issued no of shares".Ie: if
1000 bought back,then only eg:10000- 1000 = 9000 issued shares left-ie:company
cannot own its own shares.
4. Differences between company & partnership.:
See page 380 for more.
ACN-101-M Page 28
5. Reserves & Dividends
1) Non-Distributable Reserves
1) May not be disributed as dividends
(1) Voluntary:
(a) Comp. can decide it is prudent to withhold eg:Revaluation surplus(assets
revaluated)ledger account?
(2) Involuntary
(a) Prescribed by Companies act :eg "Capital redemption reserve fund"(eg:to
buy back redeemable preference shares)
(b)NOTE: if redeemable preference shares are redeemed with own
resources,and not from issue of some other shares,amount must e
transferred from profits to "Capital Redemption reserve fund"ledger
account?
2. Distributable Reserves
1) Dividends declared by directors at AGM,ARTICLES may authorise an interim dividend
at half-year as well.All declared in number of cents/share
2) Accounts as follows:
6) Tax of Companies
1) Companies must pay "normal tax" de3clared by fin minister in budget speech,as well
as Secondary tax on dividends.
ACN-101-M Page 29
i) Provisional Tax;
1) Company must pay Provisional Tax 2 times per year ,and then also pay tax
difference within 6 months after fin. year end( if estimate was lower than true tax) .
2) 1st provisional tax payment is 6 mnths after beginning of financial year= half of
estimated tax for year,second prov.tax payment is last day of fin. Year. = other
half of estimated tax liability.
3) Each provisional tax payment is DEBITED to 'SARS/or tax payable account'
ii) Recording the provision for tax.

1) If 'Sars/Provisional tax ' account has a debit balance =included as asset in balance
sheet,Credit balance=included as liability in balance sheet.
2) On the accounting date provision is made for normal tax liability.:see below:
ii) The Tax Return:

1) After end of Fin Year Copy of Fin Statements and Tax Return Doc. Are sent to
sars.Sars determines tax liability and issues an assesment to company and final
payment is then made for past year.
7) Appropriation Account
1- The Appropriation account comes after the profit and loss account at end of year,in
place of the "Owners Capital" account.All profit and loss, as well as last years
"retained earnings"(any unappropriated earnings)get closed off to this account.
2- Tax is trandsfered frfom here too.
3-
4- All the possible different transactions that can be done in an Appropriation account.
ACN-101-M Page 30
8) Group Companies
1- Parent –Subsidiary relationship-if have majority voting rights and right appoint
/dismiss majority BoDirectors.
2- Companies act says group statement s muust be prpared for parent company.
3- Parent compaay has 2 accounts for the investment in its subsidiary
1- Investment account= represents cost of the shares
2- Current account = for moneys lent to subsidiary.
8) The Companies Act 61 of 73
1- Protects shareholders& 3rd parties eg:creditors
2- Needed due to Mngmnt/owner separation & separate legal entity status
3- A company must present its audited annual fin.stat at AGM ,approved by board
+signed on behalf of board in one of official languages . Also copy must be set , at
least 21 days before AGM,every member of company,every debenture holder ,
+every other other parties entitled to,+ Registrar of Companies., + interim
statements for public companies at half year to members.
4- On incorporation constitutional documents of firm become private property.
9) The Annual Financial Statements of a Company.
i) Objective:
1- To provide info on the fin position,fin performance,and changes in the fin position of
the enterprise that is usefull to a wide range of users in making economic decisions.
2- 2 sets of fin stat . are prepared.One set is for internal use ,one set is for external
users eg investors,creditors.External set has least amount of info. possible on it-
spy's etc.
ii) Format & contents
1- Developments in field: improving comprehensability of.,single page for bal sheet
etc,notes separate,also narratibve form,not t form
2- Composition-as normal
3- Fair representation accordance GAAP: See company act for very ! detailed 'required'
4- GAAP-APB=acc.practices board part of SAICA,APB negotiates + accept new
accounting methods- REASONABLY REPRESENT THE STATE OF AFFAIRS OF COMP.
AND PROFIT&LOSS
10)Disclosure Requirements
i) Overall Considerations: as per AC101
(1) Fair Presentation and Compliance with Statements of GAAP
(a) Fin Stat should fairly present the fin perf. Fin pos. & cash flows of
enterprise
(b)Appropriate application of statements of GAAP with additional disclosure
when necessary,results in virtually all circumstances in fin stats. That
achieve a fair presentation.
(c) Must 'disclose' that fin stats . comply with GAAP, In notes.Departure from
GAAP must be disclosed in special way.
(d)Basicly fin stats. Must comply with GAAP and present
relevant,comparable ,Understandable info.,it must fairly present the fin
perf. Fin pos. & cash flows of..
(2) Accounting Policies
(a) Policies used to be selected as per GAAP,
ACN-101-M Page 31
(3) Going concern

(a) Assesment of enterprises ability to continue as a going concern,must
disclose in notes details if not.Pepared on agoing concern basis
(4) Accrual Basis of Accounting
(a) Transactions ony recognised when they occour,and reported in fin.stats.
in period to which they relate(matching principle)
(5) Materiality and Aggregation
(a) Each material item presented separately,immaterial items should be
aggregated
(6) Offsetting
(a) Assets & Liabilities should NOT be offset unless specific
required/permitted by Gaap.
(7) Comparative Information
(a) Comparative info for all numerical figures shown for For previous period
(fin year)+in same method /policy for both + in 'notes' if necessary.
ii) Identification of fin.stats-
Put name, date etc.
iii) Reporting period
1 year usually
iv) Notes to the fin stats.
Cross reference etc.
v) Measurement of elements of Fin Stats.
Historical cost
At Amount paid originally
Current cost
At amount needed to aquire assets, or to pay liabilities current prices.
Realisable(settlement )value
If you dispose of asset now at a disposal, amount.or liabilities at settlement today
values(undiscounted)
Present Value
At present discounted value of future net cash ouflow/inflow that item/liability is
expected to generate/be required to settle in the normal course of business.
ACN-101-M Page 32
11)THE BALANCE SHEET
ACN-101-M Page 33
ASSETS PAGE 44tsee-own notebook1-end ch3-format-dissertation. NO 2005 2006

TE
S
R R
Non-Current Assets ?????+ Provisions+????bad debts /guarantee TOTAL TOTAL
+ warrantee's.
Property Plant and Equipment 3 xxxxxxxx xxxxxxxx
Other Financial Assets : Investments (at cost)( shares-unlisted + listed + fixed 5 xxxxxxxx xxxxxxxx
deposits+ loans-put as sub-headings below)
Intangible assets 4 xxx xxx
Preliminary Expenses and Share Issue costs 6 xxx xxx
Current Assets TOTAL TOTAL

Trade and other Receivables xxxxxxxx xxxxxxxx
Cash and Cash Equivalents xxxxxxxx xxxxxxxx
Inventories 7 xxxxxxxx xxxxxxxx
Prepaid Expenses ( should go in Trade & other Receivables???) xxxxxxxx xxxxxxxx
Total Assets TOTAL TOTAL
EQUITY AND LIABILITIES

Capital and Reserves TOTAL TOTAL
Issued Share Capital / or Capital (optional) 8 xxxxxxxx xxxxxxxxx
x
Reserves(or –Other Reserves –optional)) 9 xxxx xxxx
Retained Earnings(optional)
Non-Current Liabilities-rem put in increasing order liquidity:check TOTAL TOTAL
chapter 15-payable last first ,those payable first go last!!!
Interest bearing Borrowings: total total
Long Term Loans.(over 20 years at 12% pa ) 10 xxxxxxx xxxxxxx
Mortgage Bonds (over 20 years at 10% pa ) 10 xxxxxxx xxxxxxx
Debentures: 10
Non-Interest bearing Borrowings. 10
Redeemable preference shares ?
Current Liabilites(in incresing order of liquidity remember:payable last TOTAL TOTAL
first) see page 291 t :chapter 14 : "current liabilities"
Trade and other Payables xxxxx xxxxx
Current portion of Interest bearing borrowings 8 xxxxxx xxxxxx
Tax Payable xxxxx xxxxx
Dividends payable
Bank Overdraft
Cumulative preference dividends????????????????(goes to 'Dividends payable'
think so .
Total Equity and Liabilities TOTAL TOTAL
i) Information to be presented on the face of the Balance sheet.

At a minimum, the face of the balance sheet should:
1. Property, plant and equipment,
2. I ntangible assets,
3. Other financial assets (excluding amounts shown under
4. Investments accounted for using the equity method,
5. Inventories,
6. Trade and other receivables,
7. cash and cash equivalents,
8. trade and other payables,
9. tax liabilities and assets as required by the statement
10.provisions,
ACN-101-M Page 34
11.non current interest-bearing liabilities,

12.minority interest, and
13.issued capital and reserves (AC 101 par .67).
i) Info to be on face of Bal. Sheet OR in the Notes
1 .further subclassifications of line items classified in a manner appropriate to
enterprises operations
2 . also amounts relating to parent & susidiaries
12.NOTES TO THE BALANCE SHEET
The following are the headings etc needed for the NOTES(in yellow)and descriptions.
NOTE: For bal. sheet notes,all must be for 2 yrs running figures,just "shares issued etc" not.(and obvious
ones eg:prop,plant+equip)
1) Generally accepted accounting practice

1.1 Generally accepted accounting practice
The annual financial statements are prepared according to the statements of generally accepted
accounting . .. . .... practice.
2) Accounting Policy
The accounting policy of the company is consistent with that of the previous years, and is as follows:
2.1 Measurement basis
The annual financial statements are based on historic cost unless stated otherwise.
2.2 Property, plant and equipment
Depreciation is not written off on land. Depreciation on a plant, buildings, machinery and vehicles .
is written off .. at rates deemed appropriate to reduce the carrying amount of the assets over their .
expected useful lives to their .. estimated residual values. The rates and methods are as follows:
Buildings 2% per year on the straight-line method
Plant 10% per year on the straight-line method
Machinery 15% per year on the straight-line method
Vehicles 20% per year on the straight-line method.
2.3 Other financial assets
Other financial assets are valued at fair value. Listed shares ae .‘aiued at market value. Unlisted ..
investments .. .. are revalued every year at net realisable value to establish the directors’ valuation.
2.4 Inventories
Inventories are valued at the lower of cost, on a first-in-first-out basis, and net realisable value. . .. An
appropriate ....part of the fixed and variable fac:ory overheads are included in determining the . .. cost of
work in progress and ....finished goods.
2.5 Revenue recognition
Sales are recognised upon delivery of products or performance of services.
(must show measurement bases used and each specific policy used in fin stats.needed
tounderstand)
3) (Assets:) Property Plant & Equipment
4)
ACN-101-M Page 35
Property Plant & Equipment: Land&Buildin Vehicles Machinary TOTAL

gs
Carrying amount: Beginning of the year: ( cost – xxx xxxx xxx xx
acc.depreciation)
Cost
Accumulated depreciation ------------------- (Brackets) (Brackets) (Brackets)
Additions (include all costs of : installation etc as COST

price!)
Disposals (Cost price – Accumulated depreciation ONLY ) --------------- (Brackets) ------------ -----------
Re-Evaluations. (Brackets) (Brackets) (Brackets) (Brackets)
Depreciation (One Year's including Pro rata for Disposals --------------- (Brackets) (Brackets) (Brackets)
+Additions)
Cost ---------------
Accumulated Depreciation(remember to add all up extra mnths to ------------------- (Brackets) (Brackets) (Brackets)
date sold
Carrying Amount: End of year: ( cost – acc.depreciation)
In Addition ,the land & buildings which the company owns is :erf 3432 in star industrial
park ,which was purchased for R23453,00. On the DATE: 24/12/2005.Additions were
made to value of R3999.(leave out additions and put date of revaluation, not bought
date, if revaluated- )This land is subject to a mortgage bond of 300000 at 10%p/a
4) (Assets:) Intangible assets
Intangible assets Brand names Licences TOTAL

Carrying amount: Beginning of the year: ( cost – xxx xxxx xx
acc.depreciation)
Cost
Accumulated amortisation ------------------- (Brackets) (Brackets)

price!)
Disposals (Cost price – Accumulated depreciation ONLY ) --------------- (Brackets) -----------
Amortisation (One Year's including Pro rata for Disposals --------------- (Brackets) (Brackets)
+Additions)
Cost ---------------
Accumulated Amortisation(remember to add all up extra mnths to ------------------- (Brackets) (Brackets)
date sold
Carrying Amount: End of year: ( cost – acc.depreciation)
5) Other Financial Assets.

1 Listed shares at market value
2 Unlisted shares at market value
ACN-101-M Page 36
6) Preliminary Costs and Share issue costs
Also: comission costs in resect of issueing debentures 24542 23455

Discount allowed in respect of issueing debentures 32434 24523
7) Inventories:
8) Share Capital
All Authorised must be first,then all Issued 2nd.
Any options granted or other movements must get a sentence at the bottom.
Not 2 yrs figures, just 1 figure needed.
Share Premium account is only allowed to be used for certain purposes.Any usage thereof must be
disclosed in the statement of changes in equity.
9) Reserves
10)Interest bearing borrowings:
ACN-101-M Page 37
12.INCOME STATEMENT
1- In the company balance sheet, there are no "Dist ,admin &Other expenses" MAIN
headings,only 'revenue' and different 'profits' MAIN headings.
2- In income stat. first put operating : all expenses and profits - then other profits and
expenses .
In operations section :must only put separately the 1-distribution + 2-administrative
expenses ,
All the rest go in 'other operating expenses' or 'other operating income'.
3- After profit from operations,then put first all other income ,then all other expenses.
4- If there are no minority interests' or extraordinary items' then one must leave out
"profit after tax" and 'profit from ordinary activities' and go staight to 'net profit for
year'
At a minimum, the face of the income statement should include line items that
present:
revenue,
the results of operating activities,
finance costs,
share of profits and losses of associates, and joint ventures accounted for using the
equity method,
tax expense,
profit or loss from ordinary activities,
extraordinary items,
minority interest,
and net profit or loss for the period.
Additional line items, headings and sub-totals should be presented on the face of the
income statement when required by a statement of generally accepted accounting
practice or when such presentation is necessary to present fairly the enterprise’s
financial performance (AC 101 par .76).
The financial statements should disclose either:(on the face)
(a) the cost of inventories recognised as an expense during the period, or
(b) the operating costs, applicable to revenue, recognised as an expense during the
period classified by their nature (AC 108 par .34).
ACN-101-M Page 38
In Notes or on Face-either of allowed- to display following

an analysis of expenses using a classification based on either the nature of expenses or
their function within the enterprise (AC 101 par .78).
Enterprises classifying expenses by function should disclose additional information of the
nature of expenses, including depreciation and amortisation expense and staff costs
NAME OF BUSINESS : XYZ Traders

INCOME STATEMENT for The YEAR ended 28 Feb 2007 (over a specific period)
ACN-101-M Page 39
SEE PAGE 140 S NOTES R

REVENUE 15 TOTAL
Cost of Sales (xxxxxx)
Gross Profit TOTAL
Other operating income xxxxx
Xxxxx
8 Xxxxx
8 Xxxxx
8 Xxxxx
8 Xxxxx
8 Xxxxx
Bad Debts Recovered Xxxxx
Discount received Xxxxx
Rent or(next line)Comisssion/etc. income Xxxxx
TOT. ALL
Income
Distribution Administration and other Expenses. (BRACKETS)
Discount Allowed Xxxxxx
Depreciation 1.2+3
Carriage on "Sales" (not purchases ! ) Xxxxxx
Packaging (also not in purchases ! ) Xxxxxx
Advertisements Xxxxxx
Wages and salaries Xxxxxxx
Water and lights Xxxxxxx
Finance Costs (BRACKETS)
Interest on Long term Loan: MUST apart 8 Xxxxxxx
Interest on Bank Overdraft: Must apart 8 Xxxxxxx
Interest on Debentures 8 Xxxxxxx
Profit (for the year) TOTAL
12.Notes to the Income Statement:

9) Revenue
There are various complicated rules for revenue,following is simplified version.
Total xxx xxxx

10)Profit from Operations.
This one points to 'profit from operations',but just tells all extra expenses under'other
operating expenses' and all extra profits under 'other operating income'
In income stat. you must only put separately the 1-distribution + 2-administrative
expenses ,
All the rest go in 'other'
Directors salaries & must be separate & auditors fees must be itemised-listed one by
one.
ACN-101-M Page 40
11) Income from other Financial Assets
12) Tax Expense

1- Must specify the different types and classes of tax individually in detail.
13)Extraordinary Items
1- Income or Expenses.
2- Events distinct not expected to reoccour frequently
3- Eg:loss on expropriation of assets /earthquake
4- Must allways show tax thereon separately in notes, but tax not included in income
statement as part of extraordinary item.
14) Earnings per share
Show only total rand Value of dividend declared and breakdown to cents/share ,in a
sentence format.
14.STATEMENT OF CHANGES IN EQUITY.
ACN-101-M Page 41
P.S. from old notes last year unisa(1) notes

PETER PUMPKIN Traders
NOTES FOR THE YEAR ENDED 28 FEBRUARY 20.1
(1):Accounting Policy
(1.1):Financial Statements have been prepared on the Historical cost basis in accordance with Generally
Accepted Accounting Practice.
(1.2) Property plant & Equipment:
Property plant & Equipment are shown at valuation on receipt of goods where cost price is not available.
Depreciation(OR/AND amortisation) has been calc. at 10 % of cost price of Assets using the straight line
method.(or . .. .... written off over 20 years for intangible assets –straight line method-)
Land and buildings have been classified as investment properties and have not been depreciated
(1.3)provision for bad debts has been provided for at 5% of debtors.
(1.4)Inventories are valued at historical cost.
+ research & development costs
+ provisions
+ employee benefit cost
+ definition of cash & cash equivalents
(1.5) Changes in accounting policy disclosure.
(2): Revenue is Recognised as Net Sales to customers/OR Fees charged for services rendered.
ACN-101-M Page 42
(3)
(3.1) Land & buildings consist of erf 1,miemville,with buildings ,purchased at R 150 000. :subject to a
MORTGAGE BOND in favour of xxx Bank .
(4) Trade and other Receivables consist of :

1:Debtors:starting balance
less provision for bad debt
less debtors with cedit balance
total:XXXXXXXX
2:Bills receivable
3:Vat control account
(5) Trade and other Payables consist of :

1:Creditors:starting balance
less creditors with debit balance
total:XXXXXXXX
3:Vat control account
(6) Inventories/y consists of:

(1)stationary
(2)unfinished goods
(3)merchandise for sale
TOTAL:XXXXXXX
(7)Investments consist of:

(7.1)Unlisted Shares at cost:
(7.1.1) 150 shares in XYZ Company bought for R3,00 per share(market value R3000)( put current value here, if
different to cost price it only goes here ,the cost price is what shows on the balance sheeteg:MARKET
VALUE: R5000)
(7,1,2) 100 shares in abc Enterprise at cost price R5,00 per share(market value 1000)
(7.2)Listed Shares at cost:

(7.2.1) 1500 shares in TS Stores bought for R4,00 per share(DIRECTORS VALUATION R7000)
(3)Loans granted:
(3.1) loan granted to xyz Company (pty)ltd at 10% pa repayable in 4 years on 31 Jan 2005 secured by fixed
property:erf 15 tekkiesville,valued at R100000.
(7.4)Fixed deposits:
(7.4.1) fixed deposit of R5000 over 5 years at xyz bank @ 5% interest p/a payable at end of term.
(8)Interest Bearing borrowings:

(8.1)Mortgage bonds consist of:
The long term loan secured by first mortgage :(Refer to note 3 .for details:)
The mortgage bond is for 500 000 repayable over a period of 4 years in installments of R128 000 per annum.,
Interest at 4 % per annum is levied on Outstanding capital and is also payable annually in addition to installment.
Outstanding liability = 500 000.
Less: Transferred to Current Liabilities: =128 000
384 000
(8.2) Debentures:
1500 Debentures at R100 are redeemable on 2 JAN 2008 to creditors.
ACN-101-M Page 43
Interest @ 10% p/a is payable each year .

The debentures are secured by a mortgage bond over land & buildings(refer to note xxx) in favour of the trustees.
Property Plant & Equipment: Land&Buildin Vehicles Machinary TOTAL

gs
Carrying amount:
Beginning of the year: ( cost – acc.depreciation)
Cost
Accumulated depreciation ------------------- (Brackets) (Brackets) (Brackets)
Depreciation (One Year's including Pro rata for Disposals --------------- (Brackets) (Brackets) (Brackets)
+Additions)
price!)
Re-Evaluations. --------------- (Brackets) ------------ -----------
Disposals (Cost price – Accumulated depreciation ONLY ) (Brackets) (Brackets) (Brackets) (Brackets)
Cost --------------- (Brackets) (Brackets) (Brackets)
Accumulated Depreciation(remember to add all up extra mnths -------------------
to date sold
Carrying Amount:
End of year: ( cost – acc.depreciation)
Cost
Accumulated Depreciation ( top : Accumulated. Depreciation ------------------- (Brackets) (Brackets) (Brackets)
at beginning of Year + PLUS +-middle : Depreciation –MINUS-
Disposals : their Accumulated Depreciation =EQUALS= THIS
AMOUNT.)
1)CHAPTER 3 : PARTNERSHIP ACCOUNTS

1. Temporary & Permanent Partnerships:
1- Teemporary partnership known as a "Consortium" or Joint Ventures" - eg for one big
construction job 2 companies co-operate or Doctors/Lawyers etc.
2- Separate set of books opened for a temporary partnership ,but often all transactions
are recorded separately in each companies own books as well.
3- Permanent partnership terminates on 1- death of a partner 2- legal process eg:
insolvency of a partner or /partnership / 3- one partner decides to terminate
partnership(could be liable for breach) 4-admission of new member 5- one partner
retires
4- MUST RESEARCH PARTNERSHIP AGREEMENTS ETC,ALSO basic charateristics of
partnerships etc.
i) Certain accounting aspects special for partnership:
1- Formation of partnership
ACN-101-M Page 44
2- Distr. Of profits/losses
3- Preparation fin. Stats.
4- Dissolution of partnership
5- Conversion into a private company
6- Takeover of , by an existing company.
1. Legal Aspects of a Partnership:
1) ??what do you tell crditors when you merge 2 partnership with liabilities?Nothing or
what- now 4 people each owe less ,before it was 2 people now you must fight 4,also it
may weaken firm etc???
2) The principles of common law are applied to settle disputes.
1. Partnership Agreement: Important matters to be included in it:

1- -Note: Two methods are used to make provision for in case a partner dies/retires and
the partnership can ill afford to pay out his share.(usually!) (sell all property etc.!)
a. The retiring partners interest is transferred to a loan account – (in
the articles/ partnership agreement :it must be stated how /time
period &interest rate( preferably low / 0)–safe!- this loan to be
repaid ie: so executors of will cannot force it's immediate
payment in court /argument etc.)
b. The Lives of the partners are insured at the time of the formation
of the partnership
1- Also whether assets& goodwill should be revaluated on death/retirement(common
practice= yes)
2- The profit sharing ratio between the partners.
3- Participation in management
4- Salaries,interest on capital & drawings
5- If a case of Negative balance on 'current account' arises : rules+interest rates.
6- Specify whether assets&goodwill should be revaluated each time a partner
joins/leaves or on dissolution or merger of partnership.
1. RECORDING OWNERS EQUITY.

i) Capital & Current Account
1- Distiction is made between capital contributions and retained earnings of partners:
2. CAPITAL ACCOUNT = 1 each for permanent investment of each partner
3. CURRENT ACCOUNT = 1 FOR EACH PARTNER for all current transactions of each ,incl.
share of profit/loss,withdrawals,interest on capital,interest on withdrawals,goods
taken for personal use.
4. WITHDRAWALS ACCOUNT = A SEPARATE ACCOUNT = is sometimes additionally kept
for each partner ,and transferred to each partners .current accounts at year end.
ACN-101-M Page 45
ii) Valuation of contributions made by partners.

1- NON-CURRENT ASSETS : at the values they were taken over –all partners must agree
value is fair & reasonable as agreed upon- regardless of depreciation etc.Future
depreciation starts again at 0-afresh- old books depreciation not continued.
2- ALL LAND OR VEHICLES : transferred must then be registered in the names of both
partners –since a partnership is not a legal entity.
3- DEBTORS : may be transferrred ,normal show at carrying value,at same time a
"provision for doubtful debts" is also included & deducted from capitalisation amount
of same partner.
4- CREDITORS: may be transferred – but reduces capital amount of the partner it came
from.
5- "GOODWILL"- may be added to capitalisation for a business of 1 partner taken over
by partnership.
6- CERTAIN RIGHTS& CONTRACTS & EVEN' EXPERTISE ' : may be transferred to a
partnership & be valuated.
7- Journalisiation of Partner A&B ' s contribution to a partnership at agreed valuations:
ACN-101-M Page 46
ii) Loans & Advances

1- Any loan by any partner to partnership –normally with interest -is regarded as a
normal creditor/loan -no special current or capital or other accounts used here-.
2. Determination & Distribution of Partnership Profits.
i) Distrtibution of Profit for period:
1- Partnership agreement should stipulate how profits divided/ratio
2- COMMON LAW principles apply:In ABSENCE of fixed agreement:
a. All Partners Equal share of Profit & contribute equally to Loss.
b. Partners entitled to Interest on capital or salaries,before profit
for period determined.
c. Somewhere Somehow if no profit/loss sharing ratio is given in
agreement,then they are shared according to the ratio of
partners capital accounts.(other text book says this)
1- Normal profit calc. in income stat. then,divided at end of.

2- Compensation for Capital = takes form of interest
3- Compensation for Services= normally form of salary.
4- Methods used to Distribute profits.
(1) Specified(fixed )ratios : eg. 60/40 % due to experience of one partner
(2) Relative Capital Investments of Partners :.one must stipulate if Capital ratio
at beginning, or end, or average for year :due to fluctuations in capital
during the year.
Eg:
(3) Service Contributions by Partners: specified ratios
ii) Partners Salaries:
2) Problem with Salaries : First :salary must be legally viewed as part of profits,since
owner cannot pay salary to himself.Secondly :If partners salary is treated normally in
income statement with other salaries,it presents a more accurate view of profit/loss &
expenses.So More correct METHOD ends up being treating salaries of partners as
normal salaries- this is also method commonly used in practice.
3) Can be yearly allocation or mnthly- but note :withdrawals NOT =salaries.
4) Salaries MUST pay to partner even if Profit insufficient: the resulting loss divided
equally between.
ACN-101-M Page 47
Eg:
iii) Bonus to Managing Partner:
1- Some agreements provide for a bonus of xx% of profit before distribution/division of
rest of profits to go to managing partner.
iv) Interest on Capital: pg 527
1- If one partner has larger capital contribution than other , the interest on capital could
first get brought into account ,remaining profit/loss only apportioned thereafter.
2- BUT it must be decided:To either use opening or closing or average balance of capital
account to calculate.
3- If Loss that year :still work out interest before loss apportionment ,and add it to
general loss/ and each partners capital – it should decrease the 'lower capitals' share
of loss and increase the others( the higher capital should have a 'ratio increase' from
this ,against other, by the way!)
4- Not operating expense- a distribution of available profit
5- (BUT a loan from a partner is an expense)
6-
Example 1 :for a profit example:
Example 2:for a loss example(NOTE!:)
ACN-101-M Page 48
Drawings:
All drawings can either come out of drawings account- then closed off to current
accounts at end year,or can go directly to current account.
Note : eg special type of drawings- goods all at purchase price
1- Drawings that are closed off to current account at end year BUT DO NOT go to
Apportionment Account at year end at all – only current account!NOTE.
iv) Adjustments & Corrections in respect of Previous Fin Periods.
1- Common to find mistakes made in previous Fin Period must be repaired in Current
Period.eg:
b. Types eg:erronoeous calc:Depreciation, inventory
valuation,omissions of income/expenses,or some non-compliance
with stipulations of partnership agreement.
1- Important:One must determine whether correction is; (Mostly it is -'Materiality
Consideration'- of the matter which is determining factor here)
a. Treated as determination of current years profit
b. Treated as adjustment of partners equity at:beginning of current
fin. Year.
4. Financial Statements of Partnerships:
1- Income Statement: One must break down all partners earnings ,then divide profit :
a. At end of income statement after "OPERATING EXPENSES" is
shown,in a long list FIRST the "before profit deductions: ie
salaries of partners, bonuses of, interest on capital etc,THEN
total of "Profit available for apportionment ".THEN division
between partners.
ACN-101-M Page 49
1- Balance Sheet: Stays the same : Just write "Equity" and one total of all partners
equity(add capital +current acc's), or you can put 'Current acc's'. and Capital acc's.
separate under equity and just put total of equity below or next to heading- 'equity'
2- St. of Ch. In Equity. :see example below
Method as per one textbook:
Alternative Method of doing Balance Sheet.:
For: ULIM lecturer type Inc.Stat. :do as follows

Below Net Profit for year:carry on as follows:
Less:Annual Salaries : For 'A' R5873.12
Annual Salaries : For 'B' R5235.12
Interest on Capital: For 'A' R127.12
Interest on Capital: For 'B' R186.12
Interest on Current Account For 'A' R5235.12
Interest on Current Account For 'B' R53865.12
Add: Interest on Drawings : "A" R7366.34
Interest on Drawings : "B" R3867.34
Profit Avaiable for Distribution: Rxxxxxxx
Capital "A" R0.5 of above
Capital "B" R0.5 of above
R -nil-
ACN-101-M Page 50
5. Changes in Composition of the partnership:

NOTE: if a new member joins /or leaves etc. it does mean that LEGALLY partnership is
dissolved but for accounting practice we do not restart books each time, the entries just
continue.
:The concept dissolution
i) Partnerships are dissolved from a legal point of view as a result of the following:
1- Voluntary action of partners
• mutual agreement by partners
• changes in the membership of the partnership by agreement
• end of the period for which the partnership was originally formed
• completion of the purpose for which the partnership was formed.
2- Unilateral action of one partner
• A partner can dissolve a partnership by unilateral notice. Under certain circumstances
he may
possibly be held liable by the other former partners for breach of contract.
3- Operation of law
• death or insanity of a partner
• insolvency of the partnership
• insolvency of a partner
when a partnership’s membership exceeds 20 (excluding the exceptions already
mentioned)
• on court order at the request of one of the partners. For example where the mutual
trust and good . relationship between partners have been irrevocably damaged as a
result of misconduct
or gross negligence.
ii) The partnership in most cases simply continues, albeit with a change in the
composition of the partners.
iii) Interested third parties will simply be notified of the change.
iv) Current accounting practice entails treating a partner’s interest as a share in a
continuing business which is transferable with the consent of the other partners. This
approach is followed in most larger partnerships.
v) It is :Note: definitely current customary practice to Revalue all assets&goodwill of a
partnership when interests in partnership change hands.
i) A New Partner is added to Partnership.
1- Admission & Retirement of partners can all take place simultanoeously.

2- Methods of New Partner Joining a partnrship:
ACN-101-M Page 51
(1) REVALUATION ACCOUNTS:

1) REM: Open a revaluation account – rem: any new provision for bad debts goes to
revaluation acc+capital acc's ,NOT to 'Bad Debts' as CONTRA acc.
2) REM: If debtors are adjusted on admission- the adjustment is done in the "Provision
for bad debts account" NOT as 'Debtors' , in the General Journal entry.The Prov. Bad
debts (debtors revaluation) is ALSO recorded in REVALUATION acc. CONTRA Prov.bad
Debts.acc.(and the Reval. Acc. closed off to Capital acc. of old partners in old ratio
before proceeding)
3) REM: ONLY the DIFFERENCE is recorded in the ASSET account Contra REVALUATION
acc – so NOT the full amount of the revaluation –and NOT write back /out the old asset
amount –JUST the difference between old/new amounts is recorded+entered in both
accounts.
4) The REVALUATION ACCOUNT is then CLOSED OFF to the CAPITAL Accounts of the
former partners NOT the new partner, in OLD RATIO, -BEFORE new partners ratio is
used .
5) IF: partners prefer the revaluations to NOT reflect in the books of new partnership
after new admittal-ie to leave values of assets unchanged-, the same amounts
(differences) added to each Asset & Prov.Bad.Debts accounts are then written back
AFTER new admittal, First from Capital Acc. of all parnters(incl. new partner) BACK to
revaluation acc again(re-open it from scratch) then close off new revaluation acc. to
relevant Asset acc's & Prov bad debts acc(if required), to write the amounts back OUT
of the Asset& Prov.Bad.debts acc's.- Now Gone!
(1) If not Stated how much of each old Partners Share Goes to New Partner.
1) Take the new partners share from old partners in SAME OLD CAPITAL RATIO of old
partners.eg 2/3 from 1 and 1/3 from other .NOT just 50/50!
(3) HOW TO CALCULATE NEW PROFIT SHARING RATIOS.
(3) Direct Purchase of an Interest: Not through firm but private transaction.
(a) No entry need to be made in the asset and liability section – no
cash/credit passes through books- only the capital accounts need to be
adjusted.
ACN-101-M Page 52
(b)Note total capital remains the same-none is contributed or subtracted

from firm.
(c)
(4) Contibution to Assets of Partnership: Without Goodwill:
(a)
(5) Contibution to Assets of Partnership: With Goodwill:

(a) Either new partner must pay for goodwill in his purchase price ,or another
possibility is that the new partner also brings goodwill into the
ACN-101-M Page 53
partnership. In such a case the partners will have to agree to a value for it
and it will be recorded and credited, together with any other assets which
the new partner contributes, to his capital account.
(b)
(6) Admission with goodwill ,but without it being shown in the books:
(a) The goodwill here is merely written into books in the old partnership ratio
of old partners and then written out of books again in the new (with extra
partner) ratio,effectively increasing former partners capital ratio and
decreasing new partners capital ratio.
(b)
ACN-101-M Page 54
(c) Revaluation Accounts Usage: One can use this method:see example
here.Remember provision for bad debts can use this as a contra account
instead of 'bad debts' account if a brand new provision for.. is made on
entry of new partner.This is to merely ,in the middle of financial
year,move the amount directly into old partners accounts,to be seen as if
it had happened in last end fin year and now merely reflects in the capital
balances already sort of style'.(try redo example etc. properly at later stage)
(d)
ii) Retirement or Death of a Partner

1- -Note: Two methods are used to make provision for in case a partner dies/retires and
the partnership can ill afford to pay out his share.(usually!) (sell all property etc.!)
2- The remaining partners each get amount owed to retiring partner credited to their
accounts-tey now owe him this part of formwr equity.
3- The following must be adjusted:
a. Corrrection of errors in accounts
b. Revaluate assets & goodwill.
l
(1) The retiring partners interest is transferred to a loan account
(a) – (in the articles/ partnership agreement :it must be stated how /time
period &interest rate( preferably low / 0)–safe!- this loan to be repaid ie:
so executors of will cannot force it's immediate payment in court
/argument etc.)
ACN-101-M Page 55
(b)
(2) The Lives of the partners are insured at the time of the formation of the
partnership .
ACN-101-M Page 56
5. Liquidation /Dissolution of a partnership:

-Open a Realisation Account for the profit/loss from each sale of assets etc etc – and
from here apportion all profits/losses to capital accounts of partners.
Summary:
1- : Open a "realisation/ or dissolution" account in the ledger for the determination of
the profit or loss on the realisation of the assets and the settlement of external
liabilities. The profit or loss is transferred to the capital accounts of the partners
according to the profit-sharing ratio.
2- The sale of asset does NOT go to a normal "Asset realisation account " as per
textbook –but:3 method for this
a. direct to asset account Also Accumul.Deprec.could get
transferred to the asset account- from here only profit/loss goes
to the 'realisation account –easy shortcut way.!
b. All the asset accounts as well as all Accumul.Deprec. Acc's are
closed off to the "dissolution-realisation" account ,and any
income from sales of assets also go to this 'dissolution account'
,from where any eventual profit/loss gets apportioned to
'Capital " accounts.
ACN-101-M Page 57
c. (it could if you wanted to here though –also Accum.Deprec. Acc

would have to be included -and then all 'profit/loss from sale of
assets' accounts merely transferred to "Partnership
dissolution/realisation acc.)
1- : Loans to partners. Transfer the balance of the loan accounts to the capital account
of the partner involved.
2- Loans by partners to the partnership are treated as external liabilities, for example as
payables.
3- Current accounts of partners are transfered to the relevant capital accounts.
4- After completing the above-mentioned steps, the capital accounts and bank account
vill be the only remaining accounts with balances. Settlement takes place as already
indicated. It is, of course, possible that a partner’s capital account can swing around
to have a debit balance. In such a case, the partner has to pay the amount into the
partnership’s bank account. This could also be the case when the partner with a debit
balance on his capital account is insolvent and unable to pay in the deficit. This
situation is illustrated in example 15.13.
(1) If Profit on realisation:
(2) If Loss on Realisation
ACN-101-M Page 58
(3) Gradual /Piecemeal liquidations.

(a) Problem here is partner with less capital cannot do any withdrawals
before others or he may end up owing them later – so a schedule of who
gets how much of possible asset realisations(AFTER ALL DEBTORSS ARE
PAID) first ,second etc must be worked out.
(b)
ACN-101-M Page 59
(c)
ACN-101-M Page 60
(d)
ACN-101-M Page 61
(e)
5. Merger of more than 1 Existing Partnerships:

NOTE:special procedures needed- not done this year
6. Take over by an existing Company
7. Conversion to a company
8. Conversion to a closed-corporation
NOTE:special procedures needed- not done this year.
ACN-101-M Page 62
1)CASH FLOW STATEMENTS

1. WHY USE A CASH STATEMENT?
(a) CASH inflow & outflow ONLY is recorded in Cash Flow Statement ,NO
Debt/Depreciation etc.
(b)Operating Activities:Extent to which able repay loans,maintain operating
capability of entity,pay dividends,make new investments without
financing,
(c) Investing actib=vities:(from statements of gaap) extent to which
payments made for resources intended to generate future economic
benefits.
(d)Financing activities: (from statements of gaap) predicting claims on future
cash flows by providers of capital.
(e) To answer questions like:
(i) How much cash was generated.
(ii) Forecast future cash flows from historical info.
(iii)How are employees paid,dividends paid,loans repaid,sufficient cash to
carry on...
(iv)Why did company ,though very profitable that year,pay such a small
dividend.
(v) How much spent on equipment&sources of finance for it.
(f) Income statement does not show ONLY CASH in/out ,due to accrual
concept-expense&income recognition-,so credit as well as .eg
depreciation is shown but deprec. is just 'academic' &creditors are not
yet +might never be realised.
(g)It is possible for a firm to be highly profitable while experiencing a critical
cash shortage.(eg the start of universal general requirement for cash
flows comes from large USA firm bankrupt 1950s seemed impossible –
started the trend.
(h)Provides info. on 'investment &other activities' not very clear in other
statements.
2. GAAP & Law implications.
1- Statement IAS7(ac118) concerns
2- Schedule 4 of companies act- cash flow stat. MUST be prepared.
3- C.C's do not need to prepare one,but it is prudent as per GAAP to .
4- AC118.02 : states :The objective of cash flow stat. is to provide info. to the users of
fin. Stst. Regarding the historical changes in cash & cash equivalents,classified
according to operating,investment,financing activities.
5- AC118 states: CASH = cash on hand & call deposits ; CASH EQUIVALENTS = highly
liquid short term investments which can easily be converted into cash and whose
risks of changes in value are insignificant.
3. INTRO of Cash Flow to other Fin Stat.
1- Cash flow stat just reconciles Cash beginning year with CASH end year – in many
cases it is just a summary of the cash received & cash payments journal.
2- ONLY CASH in/out flow is recorded :
ACN-101-M Page 63
i) Operating Activities
1- Ac118.16 (copy down AC118.6 here later)–All activities NOT under Investment or
Financing activities.,
2- This is the most important of generating activities.
3- All cash from calculating Net Profit of Entity.
4- Dividends paid& Interest Paid & Interest Received.
5- Cash from contracts for trading activities,income tax payments & refunds exept
where these relate to financing and investment activities,insurance,insurance claims
paid out,cash payments to and on behalf of employees,cash payments to suppliers of
goods & services;receipts from royalties,cash commissions,and other income;receipts
from sale of goods &rendering services;royalties,comissions,fees & other revenue.
ii) Investment Activities: DEFINITIONS: (copy down ac118.6 here later)
1- Ac118.18- Non-Current Assets mainly :Any +/- of Long term assets / Investments NOT
included in Cash Equivalents.
2- Prop./plant&Equip ;Intangible assets ; Marketable Securities ; Cash Advances & Loans
to other parties ; Recovery of Loans (payments Received ) BUT NOT :Interest
received from these loans is :Operating Activities!!!!
iii) Financing Activities: DEFINITIONS: (copy down AC118.6 here later)
1- AC 118.19 -NON-CURRENT liabilities & Owners Equity. Cash in/out from.- ie:Debt&
Capital Funding 'buy back' and issue ;mortgage Bonds; & other short or non-current
liabilities TYPE OF DEBT;Repayments of borrowings liabilities,NOT: Repayment of
interest & dividends: NOT( those are under 'Operating Activities ')Cash inflow from
DEBENTURE issue;bonds etc.
2- Finance lease payments by lessee to reduce outstanding liability.
4. The Preparation of a Cash Flow Statement.
1- The heading of Cash Flow Stat. is :....FOR THE YEAR ENDED ...
2- As per AC118 – Format must follow a logical hierarchy-starting with sources of cash
flows and thereafter the priority claims aginst the cash flows,thereafter how cash
surplass has been dealt with.Also Ac118 prescribes operating-then-investment–then-
financing-activities as the Order.
3- The Following is Required to Prepare a Cash Flow Statement. :
a. Income Statement & Statement of Changes in Equity for current
year
b. Balance Sheet of Current & Previous Year
c. Additional Information
1- Amounts in brackets=ouflows of cash / no brackets = inflow of cash
2- Direct Method:/ Indirect Method:Direct method is encouraged by Saaica because it
provides Info useful to predict future cash flows ,which is not available in Indirect
method.Difference between: ONLY in 'Operating Income' section ,the rest is same for
both - Direct is –We refer to the actual accounts to get the totals for certain items,not
to the income statement., whereas for Indirect -the figures are taken from the Income
Statement ,not from individual accounts.
3- we must move to another account while in the middle of doing one type, between
accounts, in order to get certain totals needed.This is a characteristic of these
calculations.
4- NOTE: One must often move to another account and complete it while in the middle
of doing one type,ie:jump between accounts, in order to get certain totals
needed.This is a characteristic of these type of calculations for cash flow.
ACN-101-M Page 64
i) Doing accounts to calculate TOTALS for the c/d statement:

(1)FOR : ASSET&LIABILITY&EQUITY Accounts:
(incl.Receivables/Sales/paidtosuppliers etc/costsales)
(a) Transfer previous Year to Debit Side at top.
(b) Current Year to Credit side at Bottom-(as Closing balance!) rework out-
wrong
(c) Other INFLOW (or additions to/large' ering of last years balance :eg:
purchases of assets for the 'equipment account') to Dr Side
(d)Other Outflow to Cr Side(eg sales of assets for equipment account)
(e) Your Answer is Balancing figure which: Note:funny method :goes to the
top of the balancing side ,not as a c/d or b/d figure and not below ruled
totals!-note-, with {details as= 'bank' etc.or whatever-use your brains
here-} Then if the total is on Dr side =income(inflow) -Vs- on Cr side =
loss(outflow)
EXAMPLE:
(2)FOR :INCOME /EXPENSE Accounts: (incl:

1- As income/expense comes from income statement,not 2 yearly balance sheet ,totals
for a t-account method go to different side than in asset/liability accounts-as per
normal Dr/Cr practice,nothing special here- .So Just use t-account to work out
amounts actually paid this year from the 'unpaid' at beginning & end amounts): by
putting Unpaid Amounts at Beginning of year to credit side{details = just :
balance b/d or c/d}(as per normal ie;as a credit,not funny style as for assets).Then
Unpaid amounts at End of year to Cr side {as details=Balance b/d}(below ruled
off totals) as well as to Dr side as the {DETAILS =balance C/d amount!}.Then
amounts owed(dividends declared in current year ,or interest actually due for year,or
actual tax expense for year) to Cr side as a normal liability-{details = tax/interest
expense or dividends declared} etc.( as per normal ie-Cr=liability).Then You can
calculate any amounts actually paid this year –this is the one funny entry and goes to
DR side –{with details='bank'} ,(above the c/d year end balance)and this is your
answer for cash flow statement NOTE: it does not matter if you paid last years
debts,no matching principle is applied in Cash Flow Statement!,just actual cash flow
itself is needed.
ACN-101-M Page 65
1-
2- Example of a CashFlow Statement:
ACN-101-M Page 66
ii) CASH FLOWS FROM OPERATING ACTIVITIES.

(1) InDirect Method:
ACN-101-M Page 67
(2) Direct method:

1- Direct method is encouraged by 'Saica' because it provides Info useful to predict
future cash flows ,which is not available in Indirect method.
2- The DIRECT METHOD info on major classes of gross cash receipts & payments taken:
a) from the accounting records of the entity; or
b) by adjusting sales, cost of sales (interest received and similar income and interest
expense and similar charges for a financial institution) and other items in the income
statement for:
(i) changes during the period in inventories and operating receivables and payables;
(ii) other non-cash items; and
(iii) other items for which the cash effects are investing or financing cash flows
(lAS 7 (AC 118) par 19).
3- A RECONCILIATION :between the profit before tax as reported in the income
statement and ‘the cash generated from operations, should be given as a note to the
financial statements if
such information is not supplied in the cash flow statement itself.
This reconciliation must disclose the movements in inventories, receivables and
payables related to operating activities and other differences between cash flows and
profits.
ii) Calculating each Operating Activities amount:

(2) Cash receipts from CUSTOMERS :(ACCOUNTS RECEIVABLE)
1- Very Basicly just :sales less increase in 'receivables'
ACN-101-M Page 68
2- INCOME RECEIVED IN ADVANCE :must be added to the 'cash received from

customers' Total :for T-account method you put previous year balance on CR side
&Current Year balance on Dr side.(opposite way around to receivables)
See 2 methods below:
(2) Cash payments to SUPPLIERS & EMPLOYEES:(Cost of Sales)

(a) REDRAFT INCOME STATEMENT/ Cost of Sales calculation.
1) NOT Ever Done in T-Account Format:In Column Format(like an income stat.)This is the
ONLY Item in Cash Flow Stat. that is treated so in calcs./workings(exept in notes)
2) Cash paid to suppliers and employees is determined by redrafting the income
statement and determining the amount of the total expenses which do not do not
include:
• items appearing on the face of the cash flow statement;
• items which do not represent cash flows.
This amount is then adjusted for the change in inventories and payables.
The change is derived by comparing the items on the given balance sheets year 1 & 2
with each . other. When inventories increase from one year to the next the effect on
cash flows is negative. . .. Payables include biLls payable as well as other amounts
owing.VAT owing is also included in . .. ... ... payables. Where payables have increased
from the last year to the next, there were less cash . .. ... outflows and the amount is
positive in terms of cash flow.
Example of 'Redraft' :
(a) Do additional t-accounts ;Inventory & Payables –to get totals for
the Redraft.
1- One must however do a few other accounts in t-format/or column in order to get
certain totals for the 'Redraft'.This means we must move to another account while in
the middle of doing one type,jump between accounts, in order to get certain totals
needed.This is a characteristic of these calculations.
ACN-101-M Page 69
2- Inventory:Assets accounts:year 1 to Dr side ,year 2 to Cr side,(other amounts which

must be included here perhaps use your brain :decrease years increase/decrease go
to Cr side,amounts which increase years incr/decrease go to Dr side total
3- Asset Disposal: to get a 'profit/loss on disposal of assets' amount for the redraft &
also for reconcilliation in 'Notes' ,do an 'asset disposal account' in the
"income/expense type format-normal dr/cr)" after doing an 'asset eg:equipment'
account to get the necessary totalsDO NOT TRY do both at once.First comes asset
account, it can also be used for all other places it is needed.
4- ANY POSSIBLE asset buy/sell :do an equipment account first to get / check totals
here,then an Acc depr. Account to get depreciation, then asset disposal account for
profit/loss:MUST.,
5- Any other accounts needed- same as above.
(3) Cash generated From Operations

Subtract 2 from 1 to get this.
(4) FINANCE COSTS :heading –(put no totals here-just a heading)
(a) Dividends Received/Paid
1- AC118 –Cash flow from interest& dividends to be disclosed separately ,each classified
as either ????operating,investment or financing activities????????
2- As income/expense comes from income statement,not 2 yearly balance sheet ,totals
for a t-account method go to different side than in asset/liability accounts-as per
normal Dr/Cr practice,nothing special here- .So Just use t-account to work out
amounts actually paid this year from the 'unpaid' at beginning & end amounts): by
putting Unpaid Amounts at Beginning of year to credit side{details = just :
balance b/d or c/d}(as per normal ie;as a credit,not funny style as for assets).Then
Unpaid amounts at End of year to Cr side {as details=Balance b/d}(below ruled
off totals) as well as to Dr side as the {DETAILS =balance C/d amount!}.Then
amounts owed(dividends declared in current year ,or interest actually due for year,or
actual tax expense for year) to Cr side as a normal liability-{details = tax/interest
expense or dividends declared} etc.( as per normal ie-Cr=liability).Then You can
calculate any amounts actually paid this year –this is the one funny entry and goes to
DR side –{with details='bank'} ,(above the c/d year end balance)and this is your
answer for cash flow statement NOTE: it does not matter if you paid last years
debts,no matching principle is applied in Cash Flow Statement!,just actual cash flow
itself is needed.
ACN-101-M Page 70
(b) Interest Paid /received

1- Works same as the above-but separate totals for paid and received.
(c) Tax paid /Received
1- AC118-Cash flows from Tax es on income shall be separately disclosed and shall be
classified as cash flows from operating activities unless they can be specifically
identified with financing and investing activities
2- Works same as the above interest or dividends.
(3) FINAL TOTAL for "CASH FLOW FROM OPERATING ACTIVITIES"
Below th above put a total: "Net cash from Operating activites" /or put next to the
heading at top of section.
i) CASH FLOWS FROM INVESTMENT ACTIVITIES.

1- Report separately all major classes of gross cash receipts& payments from investing
activities
2- INFLOWS: "disposal of n-c assets "
3- OUTFLOWS:"aquisition of n-c assets" :REPLACEMENTS(maintaining of operations-ac118) must be
separate from ADDITIONS(or ac118 extension of operations). UNDER THIS HEADING.
4- Revaluations :all revaluations are ignored completely here
5- Shares : investing/disposal of other company shares is seen as ASSETS
aquisition/disposal.
6- Assets: Buy/Sell :Must do an 'Equipment 'etc. T-account for each class
bought/sold(seen as prudent by gaap to "reconstruct the assets account' do this!)to
get all the facts straight for cash flow stat.Just do normal balance b/d year 1(seen as
beginning of year 2) and c/d year 2(seen as end of year 2)
a. Put gross carrying amount(less acc. depr!!!) at beginning of year
at dr side as b/d top corner
b. Put gross carrying amount(less acc. depr!!!) at end of year at cr
side c/d bottom corner & as b/d balance ,below totals ruled off.
c. All purchases on dr side, all sales on cr side
d. Finished –just use figures as you need them from all this!
e. Just divide up additions /replacements with :your own small calc.-
no special method.
6- Accumulated Depreciation: Do an Acc. depr. Account for each asset sold if time , Else
only for a calculation if needed to get "depreciation ' amount
ACN-101-M Page 71
iii) CASH FLOW FROM FINANCING ACTIVITIES:

1- Just do an asset type account for year1 /vs/year2 for each item and put the net
increase/decrease as the answer.
2- Share Premiums are counted as part of normal share values for the share calculation:
just add in line below the concerned share as 'share premium' to count as part of
same amount- in your asset t-account.
3- Loans are treated the same as asset account.!
iv) Net change in cash & cash equivalents
Just cash& cash equivalents :net increase/decrease –plus- cash&cash equiv at
beginning=cash& cash equiv at end.
Cash&Cash Equivalents = Bank Overdraft+Cash on hand+ Bank
v) NOTES TO THE FINANCIAL STATEMENTS :Reconcilliation Between The Net Profit Before Tax
With The Cash Generated By Operations:
DO NOT INCLUDE TAX IN THE :ADJUSTED FOR SECTION- IT IS ALREADY NOT IN
THE PROFIT BEFORE TAX TOTAL!!!!!!!!!!
ACN-101-M Page 72

Acca 102 Accounting Notes

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Acca 102 Accounting Notes

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1ACCOUNTING Notes ACCA 102

FINANCIAL STATEMENTS -for SPECIALFUNDS................................................................20

i) Overall Considerations: as per AC101...................................................................32

ii) Valuation of contributions made by partners.....................................................45

1)Heading : Prescribed Books for second year:

2)Heading : Special/Odd Things to watch out FOR:

Diminishing balance method (or Accellerated Method)

2. Next heading:provision bad debts,realisation of assets,inventory in closing

1)FINANCIAL RATIOS / INTERPRETING FINANCIAL

1)CHAPTER 2 CLUBS/NON-PROFIT ORGANISATIONS

Organisational & Control Characteristics.:

Sources of finance for :

B.A.E of Non-Profit Organisations

year re-reverse to act as a Debtors Account

Receipts & Payments Statement:

Income and Expenditure Statement:

2. Determine surplus / deficit for a fin. year.

Accumulated Fund Account

iii.Cr bank(normal ) –CONTRA Dr "ASSET BOUGHT':eg:"Land & buildings" account

EXAMPLE OF: An EXPENDABLE SPECIAL FUND ACCOUNT:

FINANCIAL STATEMENTS -for SPECIALFUNDS

Notes to the statements;

IF INTEREST FROM A NON-EXPENDABLE FUND – MAY BE USED FOR GENERAL EXPENSES:show

i) Income received in advance gets reversed back in (to cr side)

1)CHAPTER 3 Companies & Financial Stments.

Share premium is part of issued share capital=equity

1. The Company as a form of Enterprise.

(3) Share Premium

(ii) From retained earnings:

(iii)From issue new shares at a prmium+balance from retained

(iv)By means of issue of no par value shares:

iii) Recording Share Transactions:

(2) Shares of Par Value issued at a Premium:

(3) Issue of Shares of No Par Value:

iv) The PURCHASE BACK of a companies own shares:

5. Reserves & Dividends

ii) Recording the provision for tax.

ii) The Tax Return:

(3) Going concern

11)THE BALANCE SHEET

ASSETS PAGE 44tsee-own notebook1-end ch3-format-dissertation. NO 2005 2006

Current Assets TOTAL TOTAL

EQUITY AND LIABILITIES

i) Information to be presented on the face of the Balance sheet.

11.non current interest-bearing liabilities,

1) Generally accepted accounting practice

Property Plant & Equipment: Land&Buildin Vehicles Machinary TOTAL

Additions (include all costs of : installation etc as COST

4) (Assets:) Intangible assets

Intangible assets Brand names Licences TOTAL

Additions (include all costs of : installation etc as COST

5) Other Financial Assets.

6) Preliminary Costs and Share issue costs

Also: comission costs in resect of issueing debentures 24542 23455

10)Interest bearing borrowings:

In Notes or on Face-either of allowed- to display following

NAME OF BUSINESS : XYZ Traders

SEE PAGE 140 S NOTES R

12.Notes to the Income Statement:

Total xxx xxxx

11) Income from other Financial Assets

12) Tax Expense

14) Earnings per share

14.STATEMENT OF CHANGES IN EQUITY.