ACCA Paper F3 (INT/UK) and — FIA Diploma in Accounting and Business Financial Accounting (FA/FFA) Comniete TextBritish library cataloguing-in-publication data ‘A catalogue record fo this took isa cm the Bes Leroy Ison o7s.0as7a2.587-7 © Keplan Financial Umitod, 2012 Printed and bound in teat Stain “qusstons. The ans 18 the Chartered nets oF Contents Page Chapter 1 Introduction to friancal reporting 1 Chapter2 The regulatory framework 19 “Chapter3 Double entry bookkeeping 31 Ghapter 4 Recording basic transactions and balancing the 53 ledgers Chapter’ Retuims,clscounts an sales tax or Chapter 6 _Inventory a Chapter7 _Non-current assets: acquisition and depreciation 109 Chapter 8 Non-current assets: disposal and revaluation 131 Chapter9 intangible non-current assets 149 Chapter 10. Accruals and prepayments 161 Chapter 14. Receivables ww Ghapter 12 Payables, provisions and contingent 193 Ghapter 13 Capital structure and finance costs 208 Chapter 44 Control account reconciliations 228 Chapter 15 230 Chapter 16 The trial balance, errors and suspense acounts 251 Chapter 17 _ Preparing basic financial statements ar —-eeptce42 incor 501 Srapterte—Si 321 Chapter 20 _ interpr ff 351 Chapter 21 Cofisdldaied statement of financial postion 375 Chapter 22 Consolidated income statements and attSUAMSNV SOIOHO a1dILINN pz soydey, SNOILSIND SOIOHO 374LLINN- ez serdeug”Introduction How to Use the Materials a E make yout leaming experience 28 easy as possible and lo give ‘hanges of success in your examinat “The product range contains a number of process. They include: Tew ef ‘Study skills and revision guidance Complete text or essential text ‘Question practice “The sections on the study guide, the sylabus objectives, the exami study Skls sh designed to ‘and give you rise you witn the nature and content ofthe examination 18 on how to best to approach your earning. ‘The complete text or essential toxt comprises the ma ‘and gives guidance as to the importance of topes and Feeources can be found: Each chapter mapped te the examining bodys own 3 ‘objectives or outcomes. You should wee these to check you h understanding of all the topics on Which you might be abscss examination The chapter diagram provides a visual reference ‘chapter, alving an overview ofthe topies and how the ions provide an opportunity o assess i Key topics by applying what you have learned io short questions. Answers can be found at the back of each captor. therefore also contai ‘summary diagrams complete each chapter to show the important. between topics an the overall content ofthe paper. These diagrarhs shouldbe used to chock hat you nave covered and understood the core topics before moving on. provided al the back of eats text + Question practi Icon Explanations ‘efinition — these sections &xplain imporlant areas of Krowledge which ‘must be understood and reproduced in an exam environment, Koy Point — identifies topics which are key to success and are often Now —identiios topic that are brand new in papers that Bld and learning covored in earlier papors i ori Version or the Work book is @ imior® lustration ~ to holp develog an understanding of topics and the test your understanding exercise: tive examales can be used. Exclamation Mark ~ this symbol signifies a topic which can be more dict {0 understand, when reviewing these areas. cate. should be taken, ‘Tutorial note — included to explain some of the technical poinis in'more detail Footsteps — helptul wort. Ondine subscribers ine resources are designed is and provide you with immediate feedback on how you sing, Ask your local Gistoier Gervieds staf if you are not already a ber and wish fo joinlzez pyodsauu09 asou “soansolao werue9 paies ‘su ‘3 ays Buyaons 1 sesuadxe pu anvoro: jesse Aynuap! pue auyed (a) ta) sWeWeES oUeDN YEW un J0 woes jo asodind a Auopspue pueisionun (2) sodas e}oueuy jo syuomoy9 wrew ous Bumuodoi jelsuetly jo 8sodind pue yxajuoo ou1 = ssnqeiiks oun Jo Seaze a0 © Sidstisjeis jePoueuy jo UoneIaaIU & ‘Augduuco Augen poyuu © pue diyssouued “sepen, ‘9]05 © uaoayog Seauaseyip 1269} aun asjuBo00y (0) pyAuedwoo “Rigel payun “syyssouued open ‘10S Aja sSauisnd Jo SadKi susan pue Kuen! 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() S$ ipy Mauna, ‘uf papniour 9a pmoys si @ “90° yess uouine-bou'e Jo Uonen|enal ty poou {sf Svonsebueh S6ue4ox0 wed Guipnou| © 00 “SiNAAa ONv SNOLLOVSNVUL ONIGHOOAN. a ‘woRpApoTN,welopment caste In accordance with cial Reporting Starisards ‘31 prepering financial statement position) ‘Account for contras between trade receivables and payables! Cassy tems as current or non-current liabilities i tatement of financial position.(*) contingent assets Calculate provisions and changes in pro “Account forthe mavement inp Repot provisions in the final accounts {51 loan fetes, Record movements inthe share capital and share premium accounts (9, ‘Identify and record the other reserves which may the company statement of financial is} Define @ bonus (Capitalisation) iséue andits advantages and disadvantages."sh sy st eb eb a a za ay zr Jo waWarEYs pue WOUDIEYS wo: = ‘aulodut adtsueyosduso> yo sjuowoyeig pue siuowareys owooul Zz reoveuy, ‘sBuxsee poureos Bujpeay ein Aum puejssepun, (2) ionewo}u) UeAI6 wHoye}aeojdde se tprS8A0501 Jo eanjeu etn pueisiepun od iesauew jo ue uonenbs Gununesse a1 moy asuB0ao3 (e) ad uonsed jejoueuy jo swuoWOIES 1 SANAWALVAS TVIONVNId Disa ONRIVaSd qunoo0e estiedsns & jee) 0} seuius feusnol ae {ay Wunoo0e osuadsns e ut Ud ploosyy (9) ipyiunoose esuadsns yo Uoneato 9470} Bulpea| Sso49 Aue! 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Non curont asso ieucng ange ahd a intangible assets. figures. aia Distinguish between how adiu aus Aciéontioting terest )Tradeysimple investment ahig i 18.819 (©) Identity subsidiaries within @ group structure cashnow 3 (€)_Recoorise the benef and dranbads fuser of 7 ‘he financial statements of a stators A Classify the effect of transactions on éash flows.)secs eee tniunoo2e Ainba jo youd on aac (a) ‘inonas cross usa aq pue dysuoyea eas Koy oig OaL800- bbe 8k wesw 8104p suogems oun Ap pus s5uenDut ae ‘ueouubis pu ereposse ve Anuopt pub ouyed (©) ne] pus ‘aInpow yee YBnoa ssaiBaud nok se possosse oq 01 onUTUGD UD SIS 9n9] emo "s9neMOH} “one} jevo|ssejo1e 949 0) (uOeNFeAS pu sise\qUKS) (steffeue pue uoReoydde) z fone" ‘aInpow = Bip Aitedusco » (Y9}u) U0 Bulsue youd pesyee,un yo jeaowioys © Cree QSUBM Uy §p008 pue yseo Cupnpxe). 4 $92UsIea Buipen Aueduno.- 1 Ou ‘Siuodur aAsvoxoulion jo Soledad pus jo 1 undop remoayoiu oun steoIpUY sIoxPe39 o1eNbs Ut SsoquunU yduDssedne ous: @ ta 8 Aluo poutous imipo08 jy ou Bu er zer ~ #9 ]uoUTedus BuIpniE 0 Buipen Aueduos 4 Wold pesiesiun Jo erouieds (m) 4 $9608 pus yseo Buipnroxe) = 02 > S2oueiea Guipen Avedusoocieun jo voneunune (i) (wonerepreueo be p Suipnioxs) sareus, pue : ‘aja . -sseursna su pésn at avouines emu ae Je sefeve pe uogeyerdina aii mou acnoeeg te) euiss sywouore3e _yerousuy yp stehreue Jo osodind pue soueyodiny 5 SANSMIALVAS TWIONVNI4 40 NOLLVISUAHRINI {si Suipnulsoorew swesa “Ao Uonised lepueuy 0 uowore}s pareprosuoo 1edeud ue Jo Siueuediuog ayy aquoseq. (0)Introduction With a muitiple-choice question, eliminate first those answers that you know, si choose the most appropriate answer from those that are iswor to a multiple-choice question can be até the ones that-you know to be wiang, if you sere a oso pene excomputerbased ts of the sylabus and wl conta nal ond notveompulatonal ‘elements: ‘Number of reiks = | bow't pane you ease youve answered a questoninconect, Get Fifty 2-mark questions ie 100: os ah 5 sae {one question wrong will nt mean the difference between passing and fing, Total time allowed: 2 hours Study skills aid revision guidance ims to give guidance 6ri how ts stady for your ACCA exams ‘and to glve ideas on how to improve your existing study techniques. f-hased examination tips spendine tation Prepatng to study inutes ofthe examination fea the paper, Divide the time you spend on questions i proportion to the marks on fr. ‘One suggestion for this exam Isto allocate 2 minutes fo each mark availabe 1) Set your sbjectives what you Want to achive ~ Devise'a study plan Determine which times of the week you will study. ine Sessions of at least one hour for study of new material co, in doubt askthe assessment cenit slat to ep Putte times you plan to study onto a study plan for the weeks from now uni ‘Questions aro displayed on the sereen and answers are entered using keyboard and mouse. At the end of the exam, you ae given a certificate = showing the result you have achieved: BE the exam and set yourself targets for each per You aro studying Yor more than ohe paper ata time, ty to vary your subjects a5this can help youto keep ilerestod and seo subjects as part of wider ‘The CBE exam will hot only examine multiple choloe questions but could -includesquestons thal sequen cingla umhazentnjaramliglesespenee ater 8 CBE sit ye Do not skip any of them the sylabus. Read each question very carefully. “Double-check your answer before committing yourself 0, ss ‘Answer every quéstion ~ if you do not know an ans. jou dont lose anything by guessing. 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Supyew uojsioap sonymyoe Buylonvoo pue BuLuerd ABayens Buneinusio, 3} ju pue Bunwesent Suvnuep? YM powisou0> uy uoneuhoju s1ep-o+-dn pue peyej9p auow Yonul sunbes jusuaBeUEY, Sununosoe juowoseuey ——~ Bujold age sDeuly 0) ODAPONULcial reporting Bompanies Unike'sol6 rasérs'and partners ‘separate legal hills tothe) relurafora sharehotding ies ther tO wahare the business (.e.\4hat| whieh the business winds up): The liable for the-debts ofthe eornpany anid i the-compsny becomes insolvent they istandifg debtsofthe-eompanyifeuch a ‘companys dot affected by the iividual shareholders. z ‘assets must be met from sale of personal ‘Sole tradi on the fn janistions are normally small Bocauee they have totaly ssourees of thelr owner. The advantages of operating as a sole trader include flexibity and ‘autonomy. A sole trader can manage the business as he or she kes ‘and can introduce ar withdraw capital at any time, Partnership Like a sole trader, a partnership Ie not legally distinguished from its members, Personal assets ofthe partners may have to be used to pay the debis ofthe partnership business. sges-of trading as a partnership stem ‘more resources may be avaliable, including capital, specialist knowledge, skils and ideas; ive expenses may be lower for a partnership than for the equivalent number of sole traders, du to economies of scale: and Partners can introduce or withdraw capital at any time, providec the partners agree. _ | Comparison of companies to sole traders and partnerships ‘The fact that a company is a separate legal entity means that itis very afferent from a sole trader or partnership in 2 number of ways Property holding e company’s property (In a partnership the ngs directly to the partners who-can take it wth they leave the partnership.) Transferable shares the consent ofall existing partners, Suing aid being sued ‘Asa separate legal person, a limited company can sue and be Sued in hs own name. Judgements relating ta companies do not affect the members personally. Security for loans ‘A company hes giéater scope fot raising foane and May Seoued chaige fe useful when @ company has no non- susaisino aa ssanisna ‘21 patojdwe 2 jum foun own jo gue a,p 0) Ses eu se xo} prebas yum soya jeuonppe ewes Fupiodes eysueuy OF LONIAPONTL‘akfoddetion to financial reporting S g-1ne components of a Set of financial statements [a stortranca stalamenis nue, + the statement of financial po this curimanises the sects business at the end of the |, 88. balance s! ‘ahd bquity balances of the fod. This Used o be referred to ion mustipniect economic suba tion. Af example ofthe later ‘+ the statement of comprehensive income alsale has tke reallfsold the goods year-end revenues. {his'summarisés the revenues eamed and expens bbusiness throughout the whole ofthe reporting ‘efected fo 68 a ‘fot and loss account" incurred by the ‘TMis uted to be + the Statement of changes in equity. {his summarises the movement in equity balances (share c {his summaries the cash physically paid and received throughout the reporting period er the notes. accounting policies disclosures and any other =a sures required fo enable o the shareholders to make informed: ‘The outcome of many events and circumstances presented the iS physi 1 ho the seller, Prug: sais A degree of éaulian wien preparing fancalsiaternants 80 hat ‘seoteevenucs are not overstated and liabilves/expenses are not understated information is considered to ba relevant ite capable: jons of the users and itis provided in. wyoncing | {to influence »: a = “Suewayes jeeueuy 2p ut pasiuBooes : 909 Pingus pus seid ois ei oe oa ie Bunncrse ng ow ‘fworpuez a Au0% Cj Avo zpues a ‘Suoworeis jepueuy ou) ‘are 1 saouereg pur sivono ‘suondesueN Yor oy 260 uate syuowayes jaoueuy ayy ul umoYS 24 she | yo voayo JeosoWNIo0 OY FEAR SUED Ue ‘sjuowoyers jeoueUy ox} pastuBo0) ‘ve (aoueysqne jeoyshyd gum asoun 21) si28se 2jg)5UE) AUD (4) {pa1109 ove siuoWjeIs BUIMO}O} O41 40 YOIUNN ie seoulsnquiowio 1suleBe ‘24 0} Sunetos uonewiO}UlyeUEUY alEdulOD 6) O1Ge 94 YER SBE TaaideChapter summary B Management ‘They need detailed information in order to control thei snes ans make informed decisions about the fulure. Managemet formation ‘must be very up to date and is normally produced on a mont Other parties will need farless detai: urrently Competitors will be monitoring wnat the competition are & planning and working on, but they will not be making the KeY ves. Receivables ~ current asset. Cash ~ current asset. Loan repayable in two Payables — eurrent!Sio1p=uIp Auediwoo Jo senmiqisuodse1 pue seanp ow equosep ue ‘ooueWoNDB ayer0die9 Aq JUBOLN g JEU UIEIGXO 5 (sua) spepueis. Suniodey jeioueuly jevoneizeqiy oyos sun oueisiOpUN woisks AvojeInBoi Bujsods: yoUEUY oY Jo 0101 o19 puRyssepUN ‘012148 3q I NOK seideyO sx Jo LORe;CuIoD Uod) ‘Moy Buunsoy0p 404 aunseow @ kiduns 51 1eJeq pue siuond ‘suoNoeSU seanoefqo Bujuea) s9;deyy omewesy AyojeinBas ay 2 paquosep se Jesse uP Jo uoRep ou) 90u ‘foun se Buo] Se pasju60001 0q ew sjesse ejq\5urIU] PUE eraBUEY WOK ‘9 St 4amsue 3991300 ou,chapter 2 are also many oer pleces of UK. EU and even US Sarbanes alles our Regulatory Besulaton’ YL rpanciat Statements Corporate Governance n’ was considered necessary to provide formation fo an increasingly global audience. 4 ‘consistent and compar 2 The regulatory framework Why a regulatory framework is necessary if eomripnige Use diferent methods of Secourtind thon before any decisions ‘can be made about different entities the accounts would have to be re- ‘written s0 that the accounting concepts and principles applied are the same: only fren relevant comparicone-be mad. ‘A regulatory framework forthe preparation of financial statements is necessary for a number ‘undoubtedly have a ‘much better appreciation ofthe benefits of a harmonised approach to information that wi Ie in an international arena, + To regulate the behaviour of companies and directors towards their investors wn would nat be suticir ‘some legal and mark: ‘Account to achiove these standards on fon there mut “There are many etoments true regutatory environment of accounting. 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This includes concepts such as public duty and ‘corporate social responsi must also be held accountable to them, ‘ 7 Purpose and abjectives of corporate governance” The basic purpose of “within @ company who, govemance is to monitor those parties iol the resources and assots of the owners. ‘The primary objective of sound corporate governance is to contibilte to improved corporate performance and accountabilly In creating longcterm sharsholder valuejoo pue surorske yeu eDuapino 2 pue stieyshs 30 UBISOp pus foenbape oy pojenjers oney juawoBeueW 1ey) eoUSpIAD sjoniuoo pue Sysj“sossa0oud j2joueUN Jo U 40 ubisop pue Aoenbepe aus pojeniene seu uBUInD0p S89, onyoo jeuss1U1 Jo swiersfs punos ‘se0i0quo Joy au ‘uoRDIAUOS euwiuo 0} pee pinoo Ajduso9 0} eu} PUB Arosindutoa si 2ouE)dLI09 ‘ajeeKr- Mey Uy Paunysue $1 SOULWOREE ojes04L00 SF 24H UI ‘eouewuopied sojDeup je earedde | yoxo-0U Aq sWebeUEUT}O IYBIsIOND TOU6d joule Jo swonsAs annoys jwowobeuew aarooye + iqequnosse s "| -laphou s9ueteKo6 oy2i0dH69 punos Jo SvaUNa}e 01824 SUL > FY Kanxo SaueRIES shi -s10PIOyareUS ‘sop pse0q oun jo preoq ‘Auedusoo 01a jo dryss9pe0) J0 ssouonooys ‘sojueduuco osoiy SuBeuEN edoed au) neruncioe ex¢nbepe sepaci ein pue ssonoyezeys ounj9 sis Uunvaeseiuedwioo pouno Amaya seine ye wayeA8 8 9 and fds {20UEULEnOB Jo SBO,E On| UO COLEPING saprAcid Epo SU, ue pay you aneu fat se suojsinosd oneu in ou spomawess AOTESSI ST“chapter FThretregulatory framework. The fundamental aim of the Act fo provide the company, its cota Ss management, its board and aucit committee, and its owners and other 8 Chapter Summaary, stakeholders with a reasonable basis to rely on the company's financlal < statements.”voenbs bueno on, pur kiwo-oanep snp yo udoougp ou Ad pus Buoopun = eto e0u68 on — pounce — sp io oN” = i600 ep = ojineonye suo} ML puopUN REFS AOR, + ‘wonequewnoop ue uoHoesueg sssuienG Jo suo} brew a4) uielexe 018198 6q lyn no seyeUo iy yo UoReIdUHO UodA, senjooige unueo) so;deno, Buldeey400q Ayjue ejqnoq yousemoupctonaes y suey pue asNsOpSIp SsUeYyUssummarise those transactions and thelr consequences in Useful to the users of the financial statements ransactions a supporting documer ransaction has taken place, when the transaction took place and the ‘The table below summar ‘sources of data for an a ‘main types of business documentation and system, together with their content and Sales Stier adaniivabserctoniactaie ot goons required and pros: |o [Despatch note (goods -|depatehed note ~ GDN} name and address. Quantity received and purchase: Seeds receive nots (GaN) invoice quantiy, price, value, sales tax; terms.of.credi ate. [Statement _|aiount owing is correct, [Credit note [refer to purchase requisition fant to supplier as request or supply. To check to the is of goods | quotation and delivery nate. Debit note | Remittance advice Receipt Checked with documents [Contains details of goods: --| regarding goods retuned, <.~-|isgued by the company Method of payment Invote umber, account number, stalls of payment received,SuNaWanvaS TONNE spwyTva Tw, siunsaoy wn0021 jdB4> sup Joyo ido s0}ea10 ul pavoydKs oj dsou0D OP St su “AUBdusoo 949 J0 Alp oun 30 eto} wins eu: eanof uit” ood tiseo yoo Aep sumo seseuing yo09 hep stumas Sieg) yood fep saseyoungy "yoo9 Ae ss1eS ‘Anjo awd so 5008 ‘ypaio Uo WyBn6g spo06 jo suumMeR!| {Np} Vo pjos 6PO0B jo swiMRoY sesetjund ypax ‘xu1na ainda 40 Sx008 saounos viva \vousked Jo) poseyo 29 0) speeu OW" ‘UOStON FIR ‘gum worsts Bununosse pavedosd 9q ueo sneer jeuy at 210}9q s0M9 pue prt 1p219p pue used 0} pauusoyod oq 0} ney sjonuco Auewy “pasueunUn 104) UO ous Krone 1) Kop Jad SuOWESUER ‘571 941 Ut 999°2) bLoz sp20901 Bununoa: 2/39 ose fino ll’ epewi 2 yy : ee be aby ‘Aasnpuy seoyues ay ul ajezedo fan 3 {peinaqyed "vojiewuauinGop Jo stu0p __ Past tojewioju jo oounos uew 94) axe sseUisNg e jo siuneaDe Joba) OU, Oa Tams “ope yA WS le slid jo BioodFecorded in the cash book. ‘Date Invoice ‘Customer ** WedberRet © Tose isake RL3 2 Bella RLS 3 Fizz = RLS a RLt 6 RL wecetades, Total for lenge 41.X6 ‘The total sales ledgers in doubh tne day of $20,200 try format. Purchases day book, The urease dey bok summaries te ly purcheaes We goods are purchased and payment ig made at 1aees are fecordedin the cash book ‘Supplier ~~ Ledger Ref 41 X6 Harry PL 41X68 Ron PL37 4AX6 5609 Hermione PL 12 41.X6 2 Nevite PLO 4X6 srt Draco 2 PLt are kane Peer Total for 4.1.6 1.625 “Ths {otal purchases for the day of $8,615 willbe entered into the account {ledgers in double entry format. 3 Format of the sales returns day book Date Invoice Customer Ledger Ret 8 41x61 Max RLI2 50 41x62 Emie RZ 450 |) 41X83 Pat R20 390 | 4AXB 4 Sam RL? e7o | > 416 5 Milo Ru 2,900 |. Total for 4.1.X6 3eco | Format of the purchases returns day book Date Invoice Customer Ledger Ref 8 x6 412 Harry PL 600 56 Cho PLi6 75 SOT PL 00 x8 890 PI 50 44xXe 12 PLZ 100 bakeries. He id associated he purposes returns, but he is not sure how they should be record of is accounts, 1 August Mr Kipper-Ling purchases $2,000 worth of equloment from wholesalers TinPot Li. 2 August Mr Kipper-Ling returns goods costing $180 to another supplier, Cook 3 August Jack Flap buys $1,200 worth of equipment.“craew apres onl! prango %O ca} soph wt gdned ve {21009 a1e sjunod0e Josue Bujunsse ‘AEP 4 Jo PUP OM 09 Yse0 oi U SE}O} BY) WOH BuIsuE SaU|LD BunUNODDe OL Ve oov'ea orz'e*™L o8F or9'20 oor dous 9x8 009 og 09 ON OxyL oz. oz. an xr ooo'e xe 0s. ort wn ox Let s s 8 Sojgekeg gunossig yuee ea ea ‘ssourgng UNG jews & 40 YO0q stUOLIKEd YseD ous! BUIMONO} OUL oo9 sowed seo OU, wked uses 0 Sadi asAyeue O18—I0 39 8 96n 0} SessOUIENG 10} LOWED 61) sispetsigenjsoayjoyqeked sjuncose pus jeiousb ‘219 ujog ut Syunoo=Ip Jo Bulpiooas a1y He HIORY OFS S14) 400g USED 941 UI papiogs, osie 61 ponjonou pue LAN sjuno9sIp Usb Jo 2I0U y "400g sydjooes yseo & pue yoog SquowiRed yseo e — sJ009 yse9 14! “j009 yse8 o1n Ui Pepioge! exe yUER: yseo BUINJORUY SUORDESUE IY « 4009 useD OU S ae far Sep os looo'zt ooo’ PLM oH 8 slooo = pruuu 8 z|ooo'z —prrieat senddng, Bry 009 kep swinmyas seseyoind oe prod, ost 000 1 3 009 Aep seseusind S| oo loos'e temoyeg | ‘009 ow | l00z'z eno Fone 6 voumpbes, looo'y ® lemoxeg oor sm close’, deta yer removes loos Sy 1 s seuwoysno) Bny|$ sousysng any | ‘yoog Aep suunyas sa1es 3008 Aep sayes ‘0098 Bunsco soysip joo.d-uono owlos Shing namoyeR su ISnERY LL 002'2$ Suysoo spoo6 saseyaund BAG janee YnBny 6 Joc. 19088 Buysos jawdnbe Suinjas Burysoddy AW IsnBMY B Pr ums, 10H wou 990"01§ Gunso suano seseyoind Bur eddy 4 ISAENY @ PY) wun souddns sents wou skes) Suryea yo yom ogs seseyoind Burjseddp) wy isnBny G ‘000°P$ 20) Unno mou © SAng YTUM-PUES BHOIDIA ISN MY y 040] pauddns spo08 219 Jo Ubom ODE SuIN}as Yamayeig SIN YENENY Busdooyyoog Anus syqnaJOULE entry bookkeepin; Dr Rent expense $3,400 -} Cr Bank $6,610 ‘The discount is recorded as follows: Date os Bank received 5 18.7.X6 Monet 10,000 18.7.X6 Interest 20 Acc # 187.8 VVGogh 25,000 18:7.X6 Interest 100 Acc #2 18.7.6 PPicasso 13,700 _| What are the accounting the end of the day, assu ‘The cash transactions are recorded in total as | Dr Payabies ledger control account $3,210 Dr Payables ledger control account $160 ‘The following isthe cash receipts book of the SM Art Gallery Discount Receivables 8 500 ledger 8 10,000 25,000 19,700 48,700, Bank 1 20 (00 4 20 Controls over petty cash. The folowing controls and security over petty cash should be found in a business: ‘The petty cash must be kept in a petty cash box. ‘The petty cash box must be secured in a sae. ‘The person responsible for petty cash must be reliable and know | - what helshe is doing. All petty cash must be supported by invoices. cash vouchers must be signed by the claimant and the pers lar spot checks must be carried out to ensure thatthe petty ash is accurate. | Petty Cash Book ith the payments whi ‘book same way asa An imprest system will be adopted fe the petty cash book. An amount is jm the bank account which is referred as a "petty cash float pay or the various sundry expenses. The petty cord any payments, must be evidenced by an expense receipt and the potty iach a petty cash vouctier to each expense. agree to the total float. At the end of the ps “Topped up' by withdrawing an amount tr cash payment mada during the period,yO sho “mre Deed 39 asnabe she seco 7¥ |ec6@ ¢St] ceo Ci 7 ase hopoou besep thd 29 (e029 Ragpome bys okt. 8.4@ ‘om zejnopied Ww am Jase 2 )0 91008 squawoyes ]UeUiy 3 498 ‘Anuonbostod “pue souejad jeu sya|dulda e Sanpud ‘1969 oye1odas 04 a 96 p01, 2 S0 0) pooja 6] wayské yf UTIO=Se WES “ques pue Buljunosse uoKouo pue onnooyo a1 'Bs]un0d08 KUEW Moy O} $8 Oyn OU owe 3) po] 04s 40 wossyayp us pue syuneooe 19637 Z {804 108} pinoys siewno! eum, sjuncooe ou) porpeyos wood ou sey -seyound auy nq yoo 0098 1809 fal. Wwesneys0) alg Jo wave eq 24120) 4se9 20) 8805 mou OM yONOg 100] seOK O19 jo ePISEL eH UD (4) 2} spur pub woud jo odou dn ano soy 16) 29 218 Puyo. $§ wy 3809 yom oseay ss0K roaidap 81249 0} sp=24 406}, pepieses uooq You Sey 08228 401809 € Te EPOA Jo Samog OSz J0 AUUSAU! BUIEO ‘Aqua 249 ulex0 0} UaN 69 Pinoys anyEsIEUj ~ -ypo1o uo yesse juo.uno-uow mau e jo aseuysind stp pi09e1 0} x soigened 19) x Kem Buymoyos 24) wYno prel aq PINOYS JeuINO ieiuinor 8 ie WORE IUOEOTE ‘opeUs 99 0} s13m%9: AUS sjgnop Suydes,j009 @ 3n0 Gunes Jo Kem siqisuoyosdusoo pue 80/9 e 51 eUINO! Out ‘10119 Jo uoypeu00 ‘swoy uogsed yexoueuy Jo yuewso}eIs 10) seoueleq BuyUOdO ‘j98se juowuNo-oU Jo stesodsip pue-suonssinboe Aowonu Buse — ‘sweuXedesd pus sjeniooe = ou ye 2P0K ou sojg2nl2001 30} 20UuENo} uowanow ey; piosa! = wm igop ojqeiencoay — 1 aB1ey9 uoneroeidep — ‘swvoussnipe pusseak ‘uuud Jo 3009 sa4R0 Aue ut papsooes 104 PLE) #SUN S108 Yat Kuo Oud Jo 4009 & & UNO! OF ais ee Feasaichinte eat ne ran ese gwen We sak oud tg By reduc the sling prea buying ems bulk then hey aw able to Sure our produ cheaper, ‘Consumer cheaper too. For exam “ (| __ 2 Recording sales and purchases returns Accounting for trade discounts, |) From an accounting perspective, (etumns inwards) __-|Cr Receivables 4) [Purchases retums [Or Payables returns outwards) |cr Purchases returns Required: ‘Show how fre above should be recorded in both the books of Oliver and Sam business bank account. hen buys goods from Isabel, a supplir for $1,000 and pays by y for tem much quicker. tf ien.you will receive 2% 6g 0 as ‘cash discout 8 ny customers who ‘A sale is made for $400 ~ the customer pays by cheque. suflomises 6 esis-for$606 and the customer promises to pay in ‘discount cash discount of 3% is \Whilst offering this discount makes the cash low in quicker, its stil a ost F | cost to the business who offers such a discaunt Alfie pays Kamen $340, Bank interest of $20 is received._SS90x0 049 prelal 1 SS2UISNG ax xe) yndy0 Sp3eo%e xe} 1] 04) 0) Sse0K0 Ou) Shed SsoUISnA Oyj "(SOSCUDIN UO) xe (89,28 uo) xe) indino 3 seseyound 0} pepve xe sales je}0} aul pue sores: 0} poppe xe) Safe 16 1Unule e}o; au) SaIEIMDIeD SsoUssng ou) FUEIDOUSE, Loy ope. uno09p | useo ajo ooquerpe cove su pue shop wen uum eaten shed ob1005 X —(etoou!) paryaoeiyunoosig 19 x serqeseaia p2qja002 yunossiq i sep uot un uetuoyeis owoouy a4) us Jo1d SS016 WReeudg UMOUS S| ewWOoUY ey ‘ssoureng ou 10 sasuadko soIRo-spISBuO;E juowoyeys owoouy ayy ur Youd sso. sojgeniooay 10, messes sere eee feue sexqua ajqnop wau109 Bu, soigekeg 0S pamoye 1uNCosIa seiqeniooou 05 paniaoa yunco819, amore wnoosIa, os seigefeg, anjeoes aunoosiq, 08, saigeniooons saigekeg 09 ‘pamoye wnoosig sojgenioaors (09 panoses unoosiq : usiuted poweye wnoosig 09 sojqeed doid 30} suoysesuen pers Jo ase0 04) us UBNIG aq Kew SUNODSIC, ;poatooo2 sunoosiq '5e umoU —sonddns wo juncosip e oxlsoes Aew SSOUIEN Pomone yuneasiq se unos, —1uncosIp 8 sowoyeno Sion Kew ssouisNa y+ ‘sjunoasip juowoptes 405 Sununosoyimes referred to a8 value added tax or goods and = taxis charged onimost goods and services. ‘can be calculated using the relevant percentage depending on the price is tax inclusive or exclusive, whathe {at a variety of rates around the wotd,Itisaleo subjoct rent products within rational a variety of rates in the F3.exam. The rate always be given to you in the question sh Sales to uno (sales price tax inclusive) 17.5%6/117.5%) x $470 = $70 Sales to Cosmo (sales price tax exclusive) (17.5%/100%%) x $700 = $122.50 ‘Tylal sales tax collected: $70 + $122.50 = $192.50, 20% 17.5% 15% ico (tax exclusive price) 100.0% 100.0% 100.0% 20.0% 17.5% 15% 120.0% 117.5% 115% Lorenzo purchases goods for $174,240 (including sales tax) and sel ‘900d for $230,400 (Including sales tax) inclusive price) ‘What amount of sales tax s ultimately payable to the tax authorities? @ 00 B $14,926 © 4471 D $11,232 ‘The sales tax rate is 20% 7 Accounting entries for sales tax “The usual bookkéeping ent amended by sales tax, ly sight ‘ofa sales 2 PrPurchases = excluding sales tax (net cost) Dr Sales tax (sales tan), CrPayables/cash = including aids tax (gross cost) ‘The purch: expense: account does not include sales tax because itis not an I be recovered, mannaucine adiscounts and sales tax ‘Aé Setter discounts have an affect following procedure should be folower (1) Caleutate the net amount (usually given in the question) (2) Deduct the settlement discount Calculate the sales tax on the after settlement discount amount 8 Sales tax in day books If 2 business is registered for sales tax, the sales and purchases day books ‘must include entties to record the tax. 3 Invoice Customer Ledger Purchases day book The double entry for the above transactions: Sales r Receivables ledger control account $1,282.50 CrSales tax $192.50 Purchases Dr Purchases $1,800 Gr Payables ledger contol account $2,115 ‘What double entry arises from the d Baul Date Customer InvNo Ledger Sales ref 10 July Burns $ 1,300 (excluding sal ‘Quiney ie registered for sales tax, applied at a rate of 17.5%sueezs ve 89105 uneae js3409 sores 20899) s9yaeN fe oo'099'1s eS SL'BEE'ES 290p0|s0IGeNWoe — () susees duns s9}es o0'0s0'1S x81 591g yunoo9e jos}uos seuss Sores zy'0L0'2 J96pSo}qEAONY zve6zs x0} 598s uneo2e jox1u09 zro.o'es SOS SzLLLTS J06porsayqenmony oy Fy 2a ‘Axewuans s3;deu9 21009 Kep oy) wry Sospe Aue aIgROP 1EUM xa) sajes pue siunopsiprsUlNIeySales Receivables Sales Purchases: Payables Telephone expense cash Recelvables Payables Cash Cash Interest income Sales returns Cash Payables Cr Sales (Wet sale = $1,000 - 10%) ‘Sam's books: Dr Purchases Cr Cash (Net purchase = $1,000 ~ 10%) Leto 8 ) 900 200 900 =| Cash (97% x2,000) Discount received 3,400) Discount received 3 Payables Discount allowed 3| 8s s Balance bit 3,400|Cosh (97.5% x 3,400) 3.315 “=|aaadeus looo'e looo'at s 00's saigenoooy 8 soraekeg ‘088 ot snjd sp008 o4p 30 3820 om four se (qunouse £8016 ain) xe) S912 Bu looo'sez 8 eeueuy yo woUls.eIs 24) Uo @IGeKed stunod0® UI papNIOU open unde stuoseidey unooe wa sajes a 20 SOURIEG aH SY SON (sonuowne xe) nim junoase euosiad ©) junoase xe} sores junowse ssou6 oy) sraydens sy fed 0 spaou ssoussng oun se ‘sojes Jo onisnjoul popucaai 2q shu SeyqeKed O19 ‘seiqeneoos iM ey x | 00's sojegysaseyoing s s 1 a 0} Ked isn sewers looo'os Is soseyoung yp souneg soygeked o00'082 saigenjaoary ovo'ez overt P Ae a]20935 ree onv'oez. xe) seeSseres {r9e""X81 S0Tes Jo 19U papsosas axe sasey>uNd 18M SION, ‘2w09u! 104 s sm SB 8} SoJes BuIPNIoxe popsoos Le SaIBS TEM SION,Tho correct answeris B Purchases: 18,000 x 17.8% 12,455 x 17 5117.5 11,338 x 17.50117.5, 9,870 x 17.5/117.5, Balance bit The Sales day book Date Customer invoice Buy Simpson 10 July Burns Gr Sales tax Cr Sales “The double entry forthe shove ta Dr Receivables ledger control account Sales tax §] Sas: 3 2,625) 10,000 x 17.5% 4,750 1,886]7,402« 17.51117.5, 4,102 1,689) 6,745 x 17.5% 1180 4,470] 11,682%17.5/117.5 1,732 Balance of 1.875 Ledger Gross Salestax Net ret 8 5 8 a 411.25 61.28 360.00 Bs 1,527.60 227.50 4,300.00 1,998.75 288.75 1,650.00 51,938.79 $288.75 $1,650.00 ~ Inventory Chapter learning objectives Upon completion ofthis chapter you will be able to: record the adjustments for opening and closing inventory. apply thé principles af inventory valuation in accordance with IAS 2 recognide the costs that should be inékided in inventory Wwentory cost Using the FIFO and AVCO methods att of rvehtory valuation on cle 1 stand i iy roporied profs and assetsquaua}es aberony oor'ss v '9q ue is09 eBPIeAP oul. Jo wi us jorson ou! - ODAW 08 Seu0 i 9 01 pousnsse oie pant ‘Arviinr3a Suet 25 a 809 wy scodind 6uyeed 36.4) sea Oat chrojuany Buss 24) Jo Ona 94N SIEM, se on (nan Asowwaaui jo 3509 04) BuREInI]29:30 SpoNRaW So 3200 Aiouyoeus ue jueid 'so6em s,uewo10,‘sjeusIoU MeL ‘sprEANNO BBEWNED seGom 8 syojeu nes ‘slonuy sei ‘80 fue ue Wed) 390 Kyoeu pu wei 69008 169 S}800 ‘spiemut o6eUHeD ‘sjeuoIoUE Mey oe (sese0y009 007 ‘21) pusseaK ou e AuciUenUH w sose0y00q 20 80k OW P pios saszay00q eZ S¥101 Bups0.oe ‘sevojuanul yons jo anyen' ‘9q Aew uoium stuoy Jo ALO ss!8U00 5 049 0} ajeja1 SMU YS0 Jo scNO46 oso4 1509 pesuyono oxy peoids 0} yoy 0x0 SwoH Jo JoquIN e800 nog ‘SeDKOU! SA 03 BOY 1p 24 He YOIYM S)86O BEML! IM SI “UOISIOAUCD JO 1809) Sep‘Sam started her business on 1 January and provides detals of the following transactions: Purchases + Ast January: 5 units at $4/unit 2nd January: 5 units at $5i ‘rd January: 5 units at $5.50 7 unis for $t0/un sth January the value of the closing inventory at the end of the first rading using the FIFO and the AVCO methods. ent (sales revenue, cost of sales, ding using both FIFO and AVCO FIFO With this method of costing sold first, thereby leaving the business \When Sam sells the 7 units on 5 January we assume she sells the oldest items frst Therefore she wil soll all of the 5 units purchases on tst ‘January and 2 of the items purchased on 2nd January. This eaves her with the following items: $15.00 $2750 Sunits @ $5= 5 units @ $5.50 = Closing inventory cost $42.50 le] ul Z Aveo ‘With this costing method we work out an average cost per unit prior to the sale of goods and use that to coet the remaining inventories. ‘Average cost por unit ((S x $4) + (5 x $5) + (6x $5.50) /18 units = $4.83 per ut “| Closing inventory cost = 8 units x $4.63 = $38.64 ‘Trading income statement using the FIFO method 8 $ 70 Purchases (5 x $4) + (5x85) + (5x $5.50) 72.50 Less: Closing inventory (42.50) (30) Gross profit 40 8 8 70 ‘Trading income statement using the AVCO method 72.50 (38.68) Purchases (5 x $4) + (5 x $5) + (5 x $5.50) Less: Closing inventory (33.86) 36.14 Gross profit ‘chapter 6Aaoquanuy ay Jo ew0s 40 49049 feoIshud 2 Buyney Aq popicoes uonewvoyu) au 0 foesnoDe ty) YOOUD o} PEaL ‘Gq INS IM 20xn"pIODe1 ALOWanU sronUqUOD e S} 9164) j YEN “spic0e) Arowuenus snonui¥oo Sunmeyuets jo s1s00 aig UoLR SvOREMYS \Sou UI JedeauD ave KOU. + Bunoys doy 0 up9q se4 6 ‘uoseeu si) 0.4 "anyon ‘smojo} se ore spio0ei AuojuanU pus-poved jo sje tL 48882 uonssod jerouBUY J0 yu 1d yog sioeduu stu “sanien Auoquanul Bulsop Wa) ‘Spouyou UOReRIeR TUBE}HC) poued Buquncooe ‘soo} $2 018 spio091 (4ojuanu! snonuyuc® jo Los'e 10'¢ ‘Buunco {uoquenut snonunueo, se | oo8'z ove'z LL -20ue jee) ye KuojUaAI Jo Soul IE 1UNED ©} 29 PINON oe'e pas 8 8 word ss015 ——_Auoquonuy Bussoi9 ‘a4 UM siunoo ae04) Jo SyRSa) y axed. PUE PLD LA {ype Je SULe} Lo}onul Jo ajdwwes e UNO pinco ssoUrENG ei panes Sursn poured aun. 1d ss0u6 pur A. 6 ect E| asco pauojors) pou an Jo} Wox8 08 pe Kowonu BuRJe 1603 2 | potunos s: Konon orp) ‘iajueni Busop Buty peg, "Ssauisng e 30} esio10x9 Jofets © oq Ue jen ‘squsuoqeys (e;UeUy oun Buyedod u spi0001 Asowuonuy 6uidooy, (ub payejsepun-sewyoids « pejeisiopun ave siosse (00) 31 $9188 J0 1809 $e) WeUsaHEIS BwIODUE 24 ‘voy. ponyensepun.s}.ALOWIOAU (no 100) 81 s9}¢8 Jo 1809 se) 1UaWETE|S owooU SY) UFPETEISIENO'S! HOH + jwoueuy Jo weWeyEIS a4 UI PEIEISIONO GUE sIOSSE + Sous pOnIeAKO SHARP] suaideu>ith the cost of those sales the machines that are left We can calculate the gross profi Sales revenue 215,000 Opening inventory Less: Closing inventory Cost of sales (182,000) Gross profit 63,000‘o0e3 24 irom uontsod yroueuy Jo 1uaWo}e}S ay) UI BSE ALoJUaAU! BuO! a4 ke] oor wold sso (00s) (ove) Aso Buys049 5807 08 sesevind {108 39008 jo 805 08 ‘onvaney sores 00 $ $ oe. love oe. 189 o0e swaworers diu0ou 8 8 ‘Byasse Liojuaauy EY ©} pousoysuen vo axe saseyound pue onu useo}o0s 8 ~~ onuanos s9105 loos's loos" sp eourrea loos seseyoind|o00's s wsep 8 wares oe Auoquanuy 6us8019 [008 awoou! oy uayeL, ae [iS SeRnEnMREAnE s. a loo" (Goes 40 3800) Koqueau — 00's usea|ooo't love yates s is iewdeg ‘9u) Bue ‘sjUNOBee J9BpAI Su OIL Pave juowore}s swooU} oF UaNeL, ug 208163 wrea wowoye}s owoour ou ny poouereg ave syuneooeBalance bit ee bit 1,009] Safes revenue 3 $ Taken to income 1,000/cash 1,000 statement Purchases included in the statement of financial position. Inventory i Sales revenue Cost of goods sold Opening inventory Purchases Less: Closing inventory Gross profit The invent Balance bit 300|Cost of sales Cost of sales 500|Bal ct 00] Bal bit 500] Inventory (Cost of sales) 3 Opening inventory 300|tosing inventory akon to income 200] statoment | 001, Income statement for week 2 500 500 (900) 100 ‘asset on the statement of financial positon atthe end ofword ss019) 2 Svie1 Buipsor ur popnauy 9q fouues Yoryn suis] EIUOS SHOMSuE 0 1108 spo08 01500. 9S} Jomsue joou09 O41 (z20'8) F — I SGupuersiopun nokicor | by ois 7 o's ; $ $ uus'e ase se2s we sopue oer ae re a0 80 sopu0 ocr | | oe S208 8 sop ovr Aowenut-Odld +Taventory Non-current assets: acquisition and depreciation Chapter learning objectives Upon completion ofthis chapter you will be able to: + define non-current assets + explain the uitference between capital and revenue expenditure + explain the purpose of an asset register + prepare ledger entries to record the acquisition of non-cirrent assets, iS * defn calla ana cecor the depreciation charge on non{onen oon yeu) anjen Buyie9 jasn payoodxa uuonersaidep 42888 Jo voNeD0} soquiny souaiojayqev0s 9882 Jo vonduosap pow ‘aseypind jo a1ep weDytuBis & MoKA yseD :opnjouy Keus J948)604 & Yons UO prey sTeI9 ‘ss0ujsnq @ 10} Aypaupul Jo Aseuip aussour 2250406 0} pasn axe y8ueu 30 ajqiBuer 99 pINCD ‘912801 10) panboe Ayeuou jou axe ‘ommeu ut wo} Bu Uvojesiuebi0 ue Jo weisks 130 wed uno} aseuy “ssauisng & Aq pjeu sjasse WweLINO sneoeq sjosse qUaLINO Woy paysINBURSIP O1e sIesse yUALIND-LON, any 's3d ons Jo'Suo Se poyyssp 9g ABA Binppuadxe ssauIsnGe yey sMO}O} ‘eamjpusdxe onwonas pue reyideo € ade dap pue wayisinboe 519558 USUInf assets: acquisition and depreciation 5 Acquisition of a non-current asset ‘A non-current asset register is maintained in order to cont ‘assets and keep track of what is owned and where itis kept jon-current reconciled to the non-current asset accounts maintained in Acquisition of # non-current asset “The enst of @ non-current asset is any amount incurred to acquire the asset and bring io working condition includes _ [Excludes [Capital expe imousine taxi services on 4 Incurred the following Bilbo Baggine started a business providing january 20XS. In the year to 31 Decemt costs ture such as Revenue expenditure such purchase price repairs Office premises 250,000, fees associated with purchase of office 10,000 300 416,000 210 180 480 Drivers’ wages for frst year of operation 60,000 Blank taxi receipts printed 450 |] business name and number subsequent expenditure which enhances the asset adm tals and tests general overheads ining costs wastage “The correct double entry to record the purchase ie: :| What amounts should be capitalised as Land and buildings’ and "Motor Dr’Non-current asset X vehicles"? Cr BankiCashvPayables X Land and buildings Motor vehiclos 288,000 250,000, 250,300 ‘A separate cost account should be kept for each category of non- curent asset, e.g, motor vericles, fixtures and fitings. example of ‘can be cap) extra selling space. Depreciation matche: revenues genctated by that asset over148 40 no abesn ewes otf 306 A\LOWIUCD jm SOséo snp Bujsn pojerseadep Ajuowwo> 2x 5u09 6 esse ue Jo abies Jo ulated pule 28K Aish obeys ewes olf ul sneer poyrow duh ‘an ym ssouisng a4) Yow Suunp steak 0 soquinu payewss eu ‘981 20) BYEAe 6! y UaYM SUIBOG Fosse UR Jo LONE_O:dEG “op inyesn ayeivaidop 2q pinoys suing nq ‘wonerDexdop ‘ynbo4 you Sop os pue oy payujun ue Sey AyeUOU puE ‘Auenb e wos esouw © jo uonoeRXe ain 6'9 ‘uonaidep aumeu paseads @ Jo houypew pur ued 6'a ‘seBueyo joyous pue ABO}OUYDE, YBNOIKA eoUEDsaIORGO ‘Auiodord & vo 580] 204-8} e 0'2 ‘oun Jo Sussed 4380} pue seam jeoishyd wos) asue Aew uoneiooxdoa “ sae cor an teat ino Uo i A sesou8 Shun dio Bie ue Jeyp uonepeidep ox) picoee = ynuino fa jesse spuviva onron03 Laie — ‘uore}2eidop pue uo} oe #510558 1URITIAON:Non-current assets: acquisition and depreciation ‘This must be regulary revi longer matches the usage This is achieved by effect of which = Reduce the st ‘and may be changer the asset, '~ Record the depreciation charge as an expense: statement fo match tothe revenue generated by the non-current asset, Depreciation may arise from: physical wear and tear 12.6.9. ten-year lease on a property passing of ‘obsolesconce through technology and market changes, e.g. plant ‘and machinery ofa specialised nature | depletion, e.g, the extraction of a mineral fom a quarry. Depreciation of an asset bogins when itis available for use. ‘chapter 7 ‘7 Methods of calculating deprect sreacir une) REDUCING BALANCE 91,17 ‘equipment + Straighttine method Depreciation charge = (Cost — Residual valueyUsotul ie Alternatively it can simply be given as a simple percentage of cost Residual value: the estimated disposal value of the asset atthe end ofits sel i Useful life: the estimated number of years during which the business will use the asset. |The straight line method results in the same charge every year and is usod wherever the pat age of an asset is consistent throughout its life. | Buildings are commonly depreciated using this method because businesses will commonly get the samo usage out of a building every year.Trade — levies 3 ous @ leszs Vv eoxoz 1990190 1¢ Pepus 129K a4 30} 261249 uoNe;aXdEp JO) 941 SEAL, j20K a4y ut uou pue eseyound J0 480K 019 ut pabyeyp 5] uonerposdep £2804 yyy ‘2ouRyeg BuNDD: 142 1 snqquiw sup pue a AS %01 Ye UOKO alp sore}oodop ous (exoz eunr 1 peseyoind) 090'@1s Jo} sduy uo usuPRD ap axe} oF sNqjUKL (x02 soquic09q, 1 paseyoind) 090'Z$ J01S09 © ye UBLDIN AsossnU at} 20; UENO MEU E ‘maiB (Wasinu aig se sjasse SuyMOHo} BW WGNOG sys "LXOZ eOuIS sees @) (098 ~ 000°1)$ « %02, ost (002~000'r)8 x %0z oz 00's x %0z: 8 Brey NOx% aBreyo uonesaided 04, eAinp be si pe 280K Bujunoode ai S1B2A aay uy 249 Jo YoeO 304 aBieYD LOEHDa:dep eu "ed 9407 te 2ouE}eq Buionpes ayy Uo Saye.oeidop oy LPIA poumo uaeq sey yasse ‘syjuout jo sequin joexa ayy uo paseg ‘uone}oeidep eyeH-010 40 AUUOW 1 shem ay one oso ‘pod ex poss Bhog esse woLro-bow Boise sin wi piosruBNOR SEY ‘uounuoo & 61 44 “s9Be 1 Se 659] pue ss2/ psn ag lm osse oul eM voneioodxo ou aya! oF pasn st SIL TESSe op Jo ay tp noYBNONY ABLE Uuoneoaidap Buronpas Aqueysuco @ U!synsa) pourets @oUBIeG BAPE. HL uo uonepeidap porkynunase 889} ese2 juox!No-vOU OKA (no) oryen Bukueo x % x = aBse4 Uoneraided, Rowyou sailed BuISApSE "woulaoueape je0/50}0U408} 01 np sseaK otNon-current assets: acquisition and depreciation “The following information relates io Bangers & Smash, a car rep business: Machine 1 Machine 2 Cost 812,000 $8,000 Purchase date 1 August 20x5 1 October 20%6 Depreciation 20% straight line pro rata 10% reducing balance pro method rata Whatis the total depreciation charge for the years ended 31 December 20X5 and 20X6? 20XS—20x6, 8 $ A 2,400 2,600 (8) 1,000 2,600 2400 3,200 o 1,000 3.200 ‘8 Accounting for depreciation ‘Whichever method is used to calculate depreciation, the accounting remains the same: Dr Depreciation expense (1S) X Cr Accumulated depreciation (SFP) X + The depreciation expense account is an income statement account and therefore isnot cumulative, + The accumulated depreciation account isa statement of nancial 1nd as the name suggests is cumulative, Le. reflects + Onthe statement of nancial position itis shown as a reduction agahst the cost of non-current assets: Cost x Accumulated depreciation 0 ov x ‘chapter 7, ‘Santa runs a large toy shop in Windsor. In the year ended 31 August 20X5, she bought the folawing fixed assets: + Anew cash register for $5,000. This was purchased on 1 December 20X4, depreciated at 10% straigh ‘$22,000. The van'i to be depreciated at 15% reducing balance, Santa charges depreciation on a monthiy basis. CG cacto.) What isthe depreciation charge for the yearended 31st August 20x52 ‘Show the relevant ledger accounts and statement of financial position presentation at that date. Cash register Depreciation charge: 10% x $5,000 9/12 = $375 Delivery van Depreciation charge: 15% x $22,000 x 5/12 $1375 2 Cost (cash, s| 3 Cost ,000| Balance cit 5,000 5,000] 5,000 Balance tif 5,000] w~ enue 39os't wawayei¢ 9w0.u4 s s seveuupso SuteH 6 | eaadie woqepadog | — in aovees ‘ 1X02 Le 9X0 9x02 79080 | be Bapuo sre 0K oi 10 spose sat 2p Soptuncnoe bp axh MONS E sue \ pesodsp osak oun 4 - axou pue vibe Jo seok a UTPaBm\o | woRtodoh ook WY exoe vonou ssvodia uojeooing|sze'L wees | i aougieq Buonpas ay Bursn ed 9%¢z Te Payersaudap aq O} S| urEWUNOY SUL is t (wer Gayo) uonwroasdsp payemunday 00's 40) WEIUNO} sIeICaDyDE + 0000028 10} doys @ uo 9800). gee | see 19 eoueres| | ‘ssoujsng Bussiue6.0 Ayed | cee wp soueiea | as iE sz9'0z, 000'%e | Jooo'zz, 4/9 0uReEg ee os | pw — = Ee Is is (wen Kaaanopt 1503 8X0Z ASnBny Pf ye yeAXe uon}sod feroUEUY Jo JuOwOREIS Tae 10558 OTRIUand started depreciat 20K3 and subsequent years. ton-current assets: acquisition and depreciation lal depresiaton charge = ($100,000 §10.000)/5yeare= $18,000 | pa, 100,000 on 1 January 20%2 Residual vaiue was taken as was undertaken and the imated at e [At Jan 20%3 the asset would have accumulated one year's worth of depreciation. Its carying value would therefore be $100,000 - $18,000 = $82,000. ‘Alberto bought a wood fon 1 January 20%0. his pizza restaurant for $30,000 the oven's useful if ‘What s the depreciation charge forthe year ended 31 December 20x97 A’ $2,000 B 82,125 © s1s7s D s2a75 chapter 700't saxo 009° 0028 + o0r'2s 9x02 002 = z1/e x 000'88x wot :oxoz zounoens o0r'2 = oo0'zts x m2 oxo 000't = zis xoo0'2is x eae sxe Sst euuen si somsue yous oun | sze'es = (o0s'r~ 000'8 (0039S = Doo'ass x 182: PxOZ SnqIUIA oz 401 x 000'23 8 9xoz oro ymsue 3901109 94. Ziide> ‘sosuodx® Se WWOWO}EIS WOOL B49 0} UOHEI 9q Pinoys nq "posyeydeo ag youueo Koy s004 Krone pound ‘sosuadxe ByjoSu0 axe sydjooau pue soGem ssanyp '99) 92u80H| peo! UL amfiwpondeseuond | 41 J0 Hed io} yous SoBseWo WYo-oUe axe saIeKd JeqUIMU OU cceaussieos | | 3 ais soBseyo Aronyog |S 0128 sored soqwnn, coo'atss 19s 3 sopoovoyy € HOA J010% ‘as uodx OnUOne! B SP WOWOIES SUIOOU! O4N 01 uayer 09 Pinoys u peaisul"Pasiendeo a9 ou pINOYS 08 PUE B2y!0| ‘941101809 919 Jo ved t0} OU SBOP yUIEG and at JO 1800 OU, oo0'09zs sek 00°01 3509) e007 ooo'oszs ‘sesuiasd ou s6uipling pue puey Ws} somsue 3991209 ou, ‘ssomsue Bupueysiapun snof 3504 (aB3a 7s jase waNAn-UON200,000 3 4.000 4.000 | Balance wif [Batance bitLandes ee Z ‘ed 000'zs = ‘SuBAK Zb / OOS'LS ~ 00S'SZ$ = 8612yD UONeI@dap MON costes | | (sike x 099'18) — 000'0¢8 = sBueyo 40 aye 38 AD (005'1$ = $1694 927 000"0RS = a8seYo UoREDa:dap fEN ‘Sttamsue 320100 942 000'9 = S80 gzigo0'00eg “95227 1x0 cats xoorss aime | ooo 9eaeakgemaes sare | ox | (000'6 seH04 000'1 = %682 x 000'r6 surewnot (000'9 = s1#K Szinp0‘00Z$ 25807 | | ‘SxOz ‘sBupuom uoemaidap jenuuy a = Sr elez 119 2908188] euez Ws soueeg e9 vonemaidap 1x| 119 s0uBe9] Jose's 4p soueteg 2Brey9| ose vonepaider ox| iq 2006163 looo'r \o00's 61eyo| uoneexdop gy £ Is | ‘Wewunog — uoneposdap RayemNDDy yp soueres worjepeidep pue wonysinboeNon-current assets: disposal and revaluation Chapter learning objectives Upon completion of this chapter you wil be able to: prepare ledger entries to record the disposal of non-current ‘assets, including part exchange transactions. *+ calculate profits or losses on disposal record the revaluation of a non-current asset calculate the profit or loss on the dispozal ofa revalued asset, a how non-current assets are disclosed in the financial statementsesxoz soqus28d 1¢ papua seaK ot ‘an jo yoodses ul uoworeis ewooul ¢ £0,040) paBseU9 SI a resodsip uo son] 9 resodsip uo ose x sp2e00ia X__uoneeidep pareinuinooy| x 1800 eusBUo resodaa Jesodsip uo sso] 10 oss oun s! unde 4 SIESOdSIp OMY Uo eoUETEA oUL nove syesodsig 19) wnoo2e useo 40 ‘spo0s0sd ou piooays (€) 1un009e siesedsiq 20, quneooe uoxenseidep payeymunsay 10 yunecoe ,uoneaidop poyeynuunaoe, ‘24j woy Yesse yuauino-vou o1p uo uoneooidap payemMuNade axoUay (Z) Taxi —_ juncode 1800 siasse ON J wnodoe sjesodsiq 10 qunoose j9sse |wouna.ou, au) wos }sse u9LINE-UOU 34) JO 4509 FeUIBYO Uy BNOWO (1) sse000rd days-0014) ©5154 WoRTesapIstiNs yess i jazoatig esedaip vo $501 30 oud ‘hue spoyes yorum yunoooe juaUIayeS BwWOIU! UE SF SIyz yoSse WueLIMO-UOU eyo jesodeip au Burpiooed Laur pasinbas sijui009e | sjesodsip 1880] 30 osd JOURN = 5307 = wos = jetedsip is eeoinIOIA esode1p ou uo 80} Jold © p1co3 o) puE uoNysod yeroueU patejnuinooe paie!2os Jy Jo woUsIES syosse yuauno-uou yo yesodsia Z ‘ava ‘sissy anenino NON maysono } waiyenienai pus es0deyp Zs19se juoLINI-TONNon-current assets: disposal and revaluation 2 | a | Apart exchange agreement arisos whore an old asst Disposal through a part exchange agreement (PEA) payment fora new one, the balance of the new asset being paid in cas ‘The procedure to record the transact process seen for a cash disposal. The fi ‘stops 3 and 4 are as follows: very sirilar ‘wo steps are iden stop (3) Record the part exchange allowance (PEA) as proceeds Dr NC assets cost account (= partof cost of new asset) Cr Disposals accour (= sale proceeds of old asset) ). Record the eash paid for the new asset Or NC assets cost acco (Gr Gash account Again, the balance on the disposals T accounts the profit or loss on disposal: ‘Original Cost Profit on disposal $2,500, She deprociates sewing machines method ata rate of 20% pa, and she charges a om in the year of acquisition and none in the year of disposal ssiness has now grown such that she needs a faster machine, and ‘upgrade to the Soopasttch V during December 20X8. Tho: salesman has offered her a part exchange deal as follows, Part exchange allowance for Soopastitch I! $750 ‘Balance to be paid in cash for Soopastitch V $4,850 ‘Show the ledger entries for the year ended 31 December 20X5 to reflect, this transaction 3 Revaluation of non-current assets What isthe double entry to record this revaluation?” chapter &‘000'08z$ Jo wnowe ponyenas axn pue o9o'00z8 40 aid AO 24) UBaMjoq BDUOLOYIP OU SI2=Y21 000'0S (00010598 otacas vonenyenoy 19, 000'001$ vonsoaidap parejnuinsoy 1a, o0'0s¥s 1909 Butpung 4a, 's peanbas Kua axanop voyesdusen 42490 1}!04, ano paveoj0 3] unos0e uont=exdop payeinuunsoe ou "uoRENFEADY UO “900'088. ©1 000'0g¥$ Aa poste: oq 01 spaau yunoose ys00 BuIpHNG OU ‘210U u pesenca) :ewoou! ansuatesduscd Jo WEMIOIEIS But o00'038 aq souera ‘00'09s looo'oss (00070018 uonersesdop payeinuunaoy (000'00¢$ 1800 Buipyng, uo - ‘48 syunoo2e uy uy ssouEjeR uELIND UL 00'001 peieynunoy|oo'0ss speouees 00'08 (Gurpena) 1609 s. ls ‘ontesa1 uoREnFeAOY {2uogenyenas 249 pu002 0} paunbas Aquo eIgnoP 2uI S1EUNN 00°00 lovo'008 o00'001 Jie.2oupjea|o00'00k ©9001 uo tenons |e | TBuipuna) woperaesdap povejmunsay looo'os. ya 20ueres ‘on0'09e$ anves01 uoHenIenee 00'ase8 1809 pueT 4a o00'0s2 jooo'ose : | | o0orose ye. sounjeg|ooo'osr ——ensasas uoyenrenons | looo'00e aq souee | 8 s (Gurpung)¥s09 TA — ——— a giadeus Tompen|eAad pure jesodsyp :sjasee WONND-UONsets: disposat and revaluation In summary Revaluation surplus = Revalued amount - CV For anon-depreciated asset DrNor-curtent asset—cost revaluation surplus Cr Revaluation reserve surplus For a depreciated asset Dr Accumulated depreciation depreciation to date DrNon-currentasset—cost 8 Cr Revaluation reserve revaluation surplus Max now wishes to revalue the factory premises to $800,000 on 1 ‘January 20X7 te reflect the market value. ‘What isthe balance on the revaluation reserve after this ansaction? A $350,000 8 $295,000 © $404,000 D_ $413,000 chapter & 4 Depreciation and di Depreciation of a revalued asset be based on the revalued amount a remaining useful life of the asset this charge willbe higher than depreciation prior the excess of the new depre‘ charge should be transferred Dr Revaluation reserve X Cr Retained earnings X Note: retained earings are where the accumulated profits and losses: ‘of a company are reflected on the statement of financial position, This \wil be desenbed in more deta later when the text considers company er a 25 years ago (000, depreciating it over 50 years. At the start of 20X8 he {decides to revalue the unit to $800,000. The unit has a remaining useful REE Eddie owns a retail unit in ral Springfield. He bou What accounting enities should be made in 20x67 (On revaluation at start of 20X6 Dr Retail unit cost $700,000 Dr Accumulated depreciation $50,000 or Revaluation reserve $750,000 Depreciation for 20X6 Br Depreciation expense($800,000/25 yrs) $32,000 Cr Accumulated depreciation $32,000grap 180 124 passuBoo94 used anu PINON poles uaaq siasse fnjea n Suyeunse w penride suondunsse pue spoyaul syesodsp ‘ayes 10} poy se payysselo swosse _— Jo puo pue Guuibag oy) 12 now BUKLED poised ou) Jo pu pue BuIwUsB0q 9 "2 um payeBos662) uoKIe}o03Sep pal 1 pe Buipeal yosse y>ee 10 yo yunoare Suukuco ou 1 64 {sou0 wew oun eve O19} “sjosse wuoUNS-UOU 1 BuneTas syuaUIaLINbO> “aunsojssp jo sequinu e swewuoo uouidinb3 pue weld Kuedold 91 SVI squowayers Jeoweuy Kuedwoo ul seouejey yosse jueLuNo-uoU Jo oanso}osig S 0} pausee Sasso} pue syyoid ou We Jo FIO} wins aM Uuonenjero4 posyeavun aij wou yunoure panyeras ou) ‘S151 qUnowe penjenci O19 Jo ener auy BuIsIUB0091 jdeyo sy UI ODS Se pop109e4 1 Jasse panjeND! E unui Josee panieAdi eyo yesoasIG (000'0=$ S6ultHEO PoUrEION 10 (000'0€8 (000'2$ — 000'zes) an12ses uonenreNeR! 1 19x02 101 20)8ueN sonosoy ~ joker pue jesodsyp Zsi0ss@ uasIm9-0ONNon-current assets: disposal and revaluation Chapter summary NON-CURRENT ASSETS Cr Fixtures and fitings cost $3,000 (2) Dr Accumulated depreciation $1,050 Cr Disposals $1,050 Depreciation working: X2 10% 3,000 x 14/12 =275 X3 10% x 3,000 = 300 X4 10% x 3,000 = 300 X5 10% x3,000 x 712 = 175 Total: 1050 ¢ Dr Cash $2,000 Cr Disposals $2,000 Disposals: Depreciation charge for the year 175 Profitloss on disposal (50) 8 31.7.XS fixtures and 3,000]Accumulates 1,050 Fittings cost depreciation Profit on disposal (8) 0|Cash proceeds 2,000 3,089] 3,050 ‘The charge to the income statement for the year ended 31 December 20X85 is: chapter 8looo'oos ya 20vereg, 000'008 looo'oos 006'008 sp coverea}ooo'0se onenjensy jooo'osr a sousres 8 Is coerce aeemumeer soo Acres] ‘9 s140msue yooues ou. zi'18 = 02 009'9s SBuppom abseu9 uoneeidog une Omas — : ‘Dreys wonerseideg ose c 809 suNoeU BuIMES seeedsig 0s'ts = s122K Ex 902% oos'zs ‘Bupyom yq voneiooudag = Binge oat wa s20e;e9 ozs ozorz. ozt'b sxe6reyolozt't sewers | vonee0xdaq| 2 08" 4s) 0uereg|o0s't esedsig s (eunypeui 6uymas) voneraasdap payejmumnaoy loos's ng 20U2}08 oor'e foos'e 09's sp souerealoce'y use ose vad esse mony oos'z resodsig|oos'z wasoueieg s s ‘Sunysew Bumeg ‘9x0z Ainr te o1ep jesodsip| vod ou 20) wowsy23S aus0ou! oun 0} NOE IMWUOUW pobey si uogerDexdap SY ‘SION 201 sxoz Auenuer | le oBseyo 01 Asessazou: [ Topenjerss pue jesodsip 5}9550 1UOHTD-UON195s vou arqjOuei pue ajai6uey udoMiog aousvey)p ay astuB0091 ‘1 0192 9q WH NOK s8ySEUD sa Jo UORaIENICO wad soajoalgo Buus} s93de49, sjesse yuadino-uou 9/qibueyy| iioiaeiyenay pue ies0dsip isiosse yuasin9-uo}“eyeiyo ou 1204 1e1p si90f014 ye 01 poyde oq pinoys W ‘perdope s1 uopesyeydeD Jo Koyod qwoworeis owooul Asnoynaid ou” ‘ig tip sates 0] pub sk eapinays efod yes + “PoHeIBURO SATAN ‘SUTOTTOTOTORTE osye pue yousq jo poued aig Jeno pabieus 2q Pinoys 11 uoTanpoud yesounUU0D YM SoURWILIOD pANoYS uONeSHOWY — + uawoye}s awoout 94 ut snuanas oy) 0} paysiou! axe s3s09 ey sauNsUD SL YOUER, 0 poPadKo S1 yey! Poued a4] OKO PASHOW 2q PINOYS IOSSE Oy) + ‘sania VatAdOjaKSD REB;iENIEED fo VsiiyE uEAbOSANS jesse ue Se poyeysuios 99 0u009 1 ‘osuodxo Ue se poreon usod seu eIMHPUDGRO 200 « pauinouy 5} se yuowiajeys “WOOL! 24) 0} Yo URN .9q smu aunypuadx@ jUoUIdoFaROP "jou OU SIE ENBILD OnOge OU oy91ew09 0} o}qoHEAE SvaINOsOM — ‘eraewexd 123090, eraisea) Ayeouuyoout argen Ayeprouniog: = painseow Aiqeyu pue ejqeynuap! aimpuodiay — poled jesedag: — ‘wev90 tein pepinoud wuodo yuowdoyanoa, you a1e 10980 oja}6ueIU Ue 82 ps ey PeSEE SH axe sip epaat 5 w9LNO sno e8e9.0U PINON fontde FeUONIPPE 24 208S 4a sqyosd sons PINON estiodxa auoudayo} ]eUOMIPpE YL, oss siennoy so. | 0038 secuadko suudaye 1a inom Aue eignop au sasuodx> ‘euoydoro} 20} 0998 J0 jenzooe Ue YBN. 3 0} 210M amy! "oIOWIEXS 104 “suoqpesuen onoge o4n pioods 0} pauinbos siunosce J36p9| a4) MOUS, ‘2x0z Avenuer py yiun pied you sem 212 tex 01 s2yeNb <0; J¢9z sequIESEC 1 :UO ONp WvOULAed Feu SUL 3990190 2 ) ounr 62 (0 s9quie\dag oF 01 2HEND a4 98 (1X0 auNr OF O s8HEND oy (000'S8 (1x02 Umseyy Le 01 aHENb avn, co0'ss| ‘smoyp} $® 904 ‘net juas jo squewiKed yseo sia jx OZ JaqHII09G 1¢ OL yeaK aun BULNG os ooo'e sug yenssoy 00% \o00'zs looo'e fenssoy ca | o00'2t wows ewioout|00's seo) 8 ‘osuodxe AyoINoRa Tenuode ay MOUN +E poMoW ‘Sosuodxe ponsooe pue syunooze 106p97, O09'es stemsoy 49 O00'es asuarxe Kyowioers J 's}pauinbo1 Agua aiqnop at + 1ys29 ut Pies usog tou seu 1eUN OsuOdtx0 Qoo'Es at SI EMDR puETEAK ali + coo'e sa ens ooo'es Jooo's o00'2 wawaye}s ousoout|000's 8 Is ‘asada ANOLNO9R | ‘981ey> yuoWOVE)s OwiooU op MOWDA:Z POO ——————$—~.w | ‘syunoa9e Je6p9| aly Ul S2uIUe ]URNOION aL; MOUS Leek on 40) esuadx Kiaupoye aw 5: 284m pure poses s|yens00e pue-sGok Teun ‘9x02 Arenuer u! pred sy soyenb j20|@ SUL “pred uoag se 009'8S "SxOZ saquIe99q 100°Z18 OF juNoUe seB.ey9 AYDUIIOIO esoUISNG y uy 24) 205 fy Leonean ‘oumypusdxe ponsooy ue Senay‘Accruals and pi chapter oe 3| s | cash 20,000}tncome statement 24,000 [Prepayments cit 6,000 30,000) 30,000 Foo) 2 Prepaid expenditure ~ AUR rises whore some ofthe folowing year's expenses have n asset (called a prepaymer Dr Prepayment x Gr Expense account — x respect ofthe frst quarter's rent, During his first year of trade he also pays the following amounts: ‘The annual insurance charge for a business is $24,000 pa. $30,000 was paid en t January 20XS in respect of future insurance charges, 1e quarter ended 30 Septembs 25 September (in respect ofthe quarter $1,400 ended 31 December 13 December (in respect ofthe fist quarter of 20X6) $1,400 ‘Show these transactions inthe rental expense account, + The total expense charged to the income statement in respect of insurance should be $24,000. ‘The year-end prepayment is the $6,000 that has been paid in | respect of 20X6. Prepaid expenditur ates a current ncreases profiton the Income statement and also be included on the Statement of financial pos For example, fwo were to put a prepayment of $1,000 in our financial The double entry required is: Gore) +r Propayment | es ene CCrineurance expense $1,000 ieee erected ‘The prepayments side would increase our current assets by the $1,000. The insurance expense would decrease by the §1,000, and hence inerease our overall profits. | |ae | cote Seo oH 3 | -Cse coc el ne eS in aE, Pri | 0096 (Si) ewoous sara Yue 1 | cowsmen | GF aie paca wan 0098 (ds) uno pony oypeunbos ave ane a, | ponees nea | tienen on on nee nam one puse0k td (00e$ X21) 009'¢$ 89 Pinoys ws8s01Ut jo sedsos uy uaworeys auoour auf 01 paypar9 wnowe e101 HL, eum pur Yasse puesEAK oy ‘0 40) owoous js0s0)U UES 2H ‘sx0z 20qw200q Le 011894 2H syuea oo0'es "éWUoU! 49d 00ES Jo aU joqwauioyeig sno Uo 18882 x (gi) swoou4 1x (ag) atioou panscoy 0 etwoout penooe paites) vonysod eoueuy jo wawores a4) uj y98se Burpuodse1109 & ayee19 PUE 1A ‘pus0ut ou ul sulooul BNKS @Up poo2s O} Atessa0a0 Sf "289 peyeoo use9 Wk you Seu Ing poved pousee uoag sey 2t10% Buqunosoe jou sasve ewoour pocoy NY “apy sutoou penssoy y osrers. a | | _QueUseE}s eweoUy aig 01 ae4D AOUNDNIO BUS INNA 804 au jo ued jse} 24) J0} youpeIa 40 yo9dse: w 0ga'ts Pamo au YEW peteIna}e> Any 'SxOZ 42qNI9090 LE IY ores soqmanoN OL + osz'z$ isntiny 5 ooo'es Kon @ o0e'2s Arersqes 9 x02 10919900 1¢ popue sok ‘un Suynp swaued Cumnoqo; ag peut ae ssn IMA 'GXOZ Ateruer | UO (@suadxo pedaxd x Suuodo) 1a eoueres | (osusdxo predaid (osuade pansooe | yo sourjea) x Jeah atq 10} osuadk| x jawayeys awioou] pred reo) ue (esuadke pansoe| {esuedxe predaid x bujvodo) yq eouciea] x Buyuodo) ya eouere8“Fwwwhecesd pue eR‘uo pue gop aigeson0o: ‘ stuowrsnlpe o4p pu 010198 04 Wn nok sendeyo sta Jo UORe;dO UodA soansaigo Buuzesy s9;de49, sajqenisoey 02's o02'e oor" 179 ewoout pansooy | oor seo ex o1'9|o0r's oe" seo gx 2't o0e't uses exh e's seo sx'1'z|o08't 8 Tz wun) suoouy ey O0L'PLS = 00898 + 00z'as ‘010001 IO, 4yq eusoout pansooy wrewaye}s eusoou} ya. awioou pannoy ie E ~ Ee wiuauiKeda.d pub sendyReceivables ‘lowances for receivables 2 Cash and credit sales ‘@ sale is for cash, the customer pays for the gGodsiservices atthe point of The double entry for a cash sales i Dr cash Cr Sales revenue Under the accruals concept, the sale is recorded in the ledger accounts ‘hen the right to the income is eared, That fs usualy the po goadsiservices are delivered. Therefore when sales are rh: Fevenue is recorded with a corresponding asset that represents the customer's commitment to pay. The asset is referred to as a ‘receivable credit the “The double entry is recorded as follows: Dr Receivables CrSales revenue When the customer eventually sels the debt the double entry wil be DrCash account Cr Receivabios ‘This then clears out the balance on the customer's account | The majority of businesses will sel to their customers on credit and state ‘defined ime within which they must pay (a credit period). The main bonefits and costs of doing so are as follows: Benefits ‘The business may be able to enter new markets. There is a possibilty of increased sales. Customer yalty may be encouraged Costs accepting payment later. Cash flow ofthe business may det Aged recelvables analysis, Where cr ls are offered, its normal for a business to maintain an aged receivables analysis. + Analysis is usually alist, ordered by name, showing how much each ‘ustomer owes and how old their debts are. +The creait control function of a business uses the analysis to keep track of outstanding debts and follow up any that are overdue. Timely collection of debts improves cash flow and reduces the risk of them becoming imecoverable.2suadea siqap 919210100011 2) useo4a 1} Aqua Bujunceae euy peeisu, ‘souejeg soiqentooos ‘2g Jo ano uae} uoad Apease sey ‘9g 10uUe9 (anoge) AuiuD p919 BY ‘pS1enOD—I soigenioooy 10 seo 40 ‘5 Aue e|qnop jeuuoU ain s8wo}SNO e LOY PoNGDR: S| YSEO USM, sanoues) seIqen802%4 49 (siuno2oe ain wos) 99P 24 ‘osuedxo s1gop ojqesonooau 1a '1 Anu oygnop 24 yo USHUN sHIGep e UDMA, poued Bununosoe juonbosqns & ui paniooos ‘Aipejoadxeun ein i enp "Aouow oun jo Led 40 "Aeuow oly pue "INNER, porepep u9eq Se sauwojena ai asnedaq sdeisod ‘pouod Bununeose U0 Ul 2]qesanoz04! Se yo ay S| gop e BIaYM UOHENYS ajqssod e 1 a:04L posono204 siqop ayqes@nosauu! 103 BuunoDay S ‘qesenooe $e ‘gop oso4n yo BuNUA jo squaWorENS janUEUY a4) UI DY BY} BIEIMOIED ‘0¥2'1 00 9 jesy Guo paseaddesip Kyeio sey sours | 5 s9jgenjo0oy 19 osuodxe siqop o1qesanco 1 yronpe 0} paanbarAnua sianop au. |e a Erardew> ~ sonyroysp moy yseo Buiney sem souo}sno e j Azess900u oq pinom ‘ayqejooyeoun “99 01 pouepisuco 5140's! ony i9ap e s1 G@P alqesanoDeNa LY ‘S¥g0p o1qes0n000111 30) Bununosoy y ‘un am © UON y Aed 0) ace 2q pinom Kou ey amouy sem, je0S090U 99 pinom coy worn Buyrowes fe 950] 199 O1GPrERODOMH UP SE UIKOLD S1IGOP SA WON “panio2e: qm soworsno & Aq pamo junowe aun yeu Af@nun ABIL tosse ue oney foun eu) SuEoUL ‘01 pea Sun S20P AUD ION 'SIq9P “9pew! 510/05 @ usyM jeUy SoreyaIP yS2OUED sfENIODe ou Soouemojje pue siqap a1qes9n0D9111 ¢ ‘ssouysng @ yo ABoyeRS jun souwoysna mau 8 40 para Uo pros Junowe orn Bunty Aa sia6p jqesoxoo0uN Jo esauisna Oysls CoNpOs ‘Rew sy joyoosn oun ‘spinosd 01 1 smu “ewoisno yore ulsng ot Yetp wpe19 Jo juNoWe winwHLEL O19 ‘wpe ® 198 0} SSouisnq e404 eUIOU Ose ‘sii BSI jar Joyo sJao}sne AyCUOISEIG » jeyjoym jo ssojpe001 “siunooe ou) sayqenisoaeReceivables, ‘Some businesses may wish to keep a separat recovered’ account to sepa ‘etual costo period. 196. She also received the $699 Lenny Smith tat had already ten writes oth SOT What i the final balance on the receivables account at 31 December 20X7 and 20X8? 20x7 —20xa . s 8 2 2986 3,862 3,153 4551 3,852 6 Allowance for receivables ‘There may be some debts in the accounts where there is some cause for ‘concer but they are not yet definitely imecoverabie, prudent to recognise the possible expense of 1g the debt in but the receivable must remain in the accounts in 28 infact pay up. lowance is set up which is a credit balance. Ths is netted off against le receivables inthe statement of financial position to give @ net Faure for -celvables that are probably recoverable. There are two types of allowance that may appear accounts: organisation's e some specific debts where the Customer is known to be in cues, op therefore the amount Be ocoverable, Tho afewance oy sucha debts kan allowance. chapter 11 ‘general allowance. 7 Accounting for the allowance for receivables nce for receivables is set up with the following journal: Dr Irecoverable debts expense Cr Allowance for receivables lowance can increase or decrease, there may be a debit or a credit recoverable debs account so the above journal may be reversed. ‘and accounting for a movement inthe aliowa jowing steps should he taken: scoverable debts. late the receivables balance as adjusted ‘Ascertain the specifi allowance f an the amount receivables balance by the gene 1e general allowance required. |< (closing receivables — recoverable debts — debts specinically allowed fon), (©) Add the specific and general allowances requived lagether, (7) Compare tothe brought forward allowance. {8} Account for the change in allowance.ode im By oer loay oes couemoye us osee.culloay ya soverea sea te oe. 4g soueres| 8 is ‘s9]qento201 40) ou MON oars = ‘4x 000'918 ‘Paunbes eouENaITY looo'st sya 2oue}ea ooo'ot looo'or 00'9 sp souerea| 00'rs. yseo|o0o'00r sees looo'or ya soueree, 8 oyaea1020u ZxOZ 02's (o0e) sejgenieoe1 10) souemony :s507 000 sejgentoooy srosse wasn, 8 8 YopewWesed uopisod jejsuEup jo wAMETETS o0e looe oo owas ewoouto0e —_setqen16081 0} souRMoHY seaie. sea te s ls ‘osuadxe syqap arqesenoo0uy, 7 008 a Bo0BIee 008 : loo ove. ‘sigap etqeven0: 290 Le |o0e yp souerea $ is ‘SoIqEAIDD94 10) SDuEMONTY oes = ‘h@ x 900'01$ :peunbos soueMoMY ya eourres ooo'or o00'0 yp eouerea|ooo'o: sequienea Le ww s s SeIEAIBON TXOZ wornios oun 1ety pasaprsuoo ins e¥er exoz Jeqwe08q 1¢ IY seqEAI«o8: S14 wow} 000'968 P9i29109 puE O90'S6S 40 Seles epeUs aver ExOZ BULNG paysua asoyoiou ou ue siqop ‘2524 0 she Jo 1ueFeNINDS ou ‘00°01 80 sertenede! pey sueMINn axEr LxOz Jeqw209q L¢ UO | Pcie | SaqenTeaoyecelvables 31D8c Irrecoverable debts expense 3 § ls1 Dec Allowance for receivables 180[Income statement 180 120] 180 Statement of financial position presentation O—————————— eas recoverable debis expense 3 3 31 Dec 31 Dec Income statement 30| Allowance for 30 recaivabies 20 30 8 3 31 Dec Balance bit 480 decrease in allowance 30 Balance cif 450] 489) 480 Balance bit 450 —— ———~' 8 3 1 Current assets E 5 Receivables 16,000 Current assets Less: Allowance for receivables (480) Receivables: — Less: Allowance for receivables 15,520 20X3 Receivables | 8 Balance bit 16,000] Sales 95,099|cash 96,000 s Balance 15,000 Jon stamp has opening balances att Januar 20X6on his wade 15,000] pore: 515000 23% | Allowance for receivables nce for receivables account of $68,000 the year to 31 December 20X6 John ‘sales of $354,000 and receives cash from his ‘What is the amount charged to John's income statement for irrecoverable debt expense in the year ended 31 December 20X67 A $2,700 8 $5,100 © 82,600 © $6,000 What © effect be af recoverable debts on both the Income | Statement and the Statement of financial position? chapter 23Teiede oco'z woes awooulope't jo6z 8 ls ‘SBuSaKG SHOP ogeIOAOSon] lozszw 00's looo'sy sigop eigesenc001 looo'ay 8 ‘ayqeAlooeu ‘seuor a= saygenieaes Langa ‘saigeuoooy a sovees, pus pouod e soueje 'sa\genj20a) wos} ponowies POM OMY SY siomsue Buypueysiopun snok so, wos DNMOTIY VEIN 1404 9NULNNODW ‘Aseumuns s0,deu9 —sa1qeAj999,Balance bit |_Batance bit statement 422,000) 80,000] Inrecoverable debts expense 3 2,000] 20X6 [31 Dec Income statement‘suojsino1d uy SjuoWehow pue SuO|SIAON pioges PLE MIMIC» 20) 198 09 NOK seIdeuD s1A Jo UONO,AHIOD Uo) saanoeigo Bunuea 123deyD solyiqel) Juabuyuoc. pue suolsiAosd ‘sajqeAedg je1on0 u osea10p & asnEa Aum osuadD 7 24f MOUS JIM UBWIAREAS WOO] OY 00"r 0 eoueteq yeOwi2PUN “O00'08 yo woWoress O41, (009 Jo Wwawanou = gore 4M ~ ODS coors = 000'08s x %5 ‘S91geni2001 10; aouemoyry ~ BuPuOM, Jedos on 0} poay ous) 9104 | o00'r 000'r es s190p 9088000 200 1¢|o00'» yp couriea 990 56 coe sya e0ueiea wer 4 | xo | SoyaeA}e29¢ 30) OOUEMOTY sarqenror0uPayables, provisions and contingent ( j sesh eihaaaiai a 1 Overview resultof 2 Categorisation of lial UuasiuTiEs ON THE BUSINESS BY OUTSIOERS. ‘cunrenT UAB! = Ifthe purchase is on ero | goods/services after receiving ther. Typical | represents the obl chapters 3 Cash and credit purchases 2 purchase is for cash, the business pays for the goods/services at the point of sale. The double entry for a cash purchase is Dr Purchaseslexpenses crash rms the business settle outstanding debts when purchasing goods and services on recorded with a corresponding labilly that jon to pay the supplier ofthe goods/servieos. The is referred o as a ‘payable, “The double entry is recorded as follows: Dr Purchases/expenses Cr Payables When the payable iabilty is actually paid the double entry to reflect this is Dr Payables ercash 4 Provisions A provision can be defined as a liablty of uncertain timing or amount,280 s|voWO}e}S Je!OUEUY OLN UI O}OU OA ‘,A4que ue Woy) SenvOp Eur VOREBGO UE S1 Uo! "0 J0 wonesad0 1040 KD ones) yoesIUG9 @ Jo SUIO} out {wo Sonuap yeyi uoneBIgO Ue s} uoneBugo feBo1 { [eeceeresr he | | Taydeys 1 won 264 _3oup uo sys sowoysno & exo Kronugo., JoquioroN U2 0Z 194W0000 L¢ 51 puP- 9 UE 91) KOWR LOZ ssouor ‘oydwex 04 pua-se0f 2418 p2se6 64 uaaq sey Awtge} © 9 powod Bununodde UE Ui pepsc9e) '9q Aluo ues UoISINOA & Je\y UEDUI BnOGE of pe: 1809 equated ayy Jo oyewNSe aygeHare aq SMU AIoUL ‘syjauag 21u0U000 Jo 49;5UeR aIqeqe1d @ aq ysNU aN uo9 sed 2 ie LE SIU SN BONP2: OL “syoId one, una JO soe BuyUNdDse nitinol € BueiUBEsET I6; CUD ‘vonens 2uy syioq se OLIN -vou se weLne souno se pasyoBaieo oq 0} paaU Ms AIAN UoISINONG OU. Ayyctey uorsinose 20 sosueds 10 noe 0 9sunoo jenUo}od sy OU, ojsinoia 836} 6 ua pie SuoisinordPayabies, provisions and contingent lal ‘A contingent tabiliy is recognised when there is: 1 1m past events; or sufficient vy. Ekamplos of contingent potential costs cannot be | likelihood of tosing the i Include outstanding litigation where the lof one or more uncertain fulure events not wholly enterprise ‘The policy i well known and creates a valid expectation, There isa constructive ot ‘An example of a contingent asset is when a business is claiming ‘compensation off either an individual or another business and the outcome ___ ofthe claim is uncertain at the reporting date. Itis probable some refunds: ‘These can be measured using expected values. ‘Accounting for contingent ies.and assets Conclusion: A provision is required The requirements of lS 37 as regards contingent - ing table: [Biestyesieunderstanaina [Contingent liabilities [Contingent assets | | ity of Vial erain Provide Recognise ( ‘The draft nancial statements of Madras. | [Probable S95] [Provide Discosein note || Possible c= So/. [Disclose innote __|tgnore [Remote 2 51 Ignore llanore \ Note thatthe standard gives no guidance as the meaning ofthe terms in| the left-hand column. One possible interpretation is as follows: Vitaly certain > 95% Probable 51% — 95% Possible 5% ~ 50% a a Provision has been made by the company in the remote < 5% temer < 5% a ( tements, 198 varnnausatzrsoideus ami | jouew yoofans 199 Ae Ay ‘atae #48 paves sv sone | ‘Syumosae jou oy UF Susie AEE BURLORT uncade astedxe yUERO}eY 40 worsiiold 10 uoysiaoid uy esea199q, twostaotel 20 jungooe esusdxe yuenaxe8 10 Luojsroid w osea.0u, “ajeunyso 1S0q 1Ua.uNo otg 199y21 01 porshipe puE ‘ep uonisod jeouRUy yo 1UsUIOREAS YOO Ye PeMaIRad aq PINOYS SUOISIADIE ‘Sisis od ay ioWIOROR | youBUy au) wt Auedwie® Um SUOSE YM BTESPayables, provisions and contingent liab © Test your understanding answers Vg] [ipa jewincertanding 1S Capital structure and finance costs Chapter learning objectives (6) There's a reliable estimate The legal costs of $5,000 should therefore be provides for since Upon completion ofthis chapter you will be able to: the outcome of the case. Understand the capital structure of a limi ity company record movements in share capital and share promium accounts fine, discuss and record bonus issues and rights issues record dividends and finance costs in the ledger accounts identify and record other reserves record Income taxin the accounting ledgers of financial positionBo Faicke sobropo $e me os sor spuspinp Areupio se ‘0fe4o covey 28 peer aq pnom siopjodaveys 280 5 bred spuopinp Aue pue uontsod yepueuy Jo uoWoIeIS a. UO sont Sayeprro ' UMOYS 018 BS0UL GOP & 0 coUEpH 5! 54 Lou (o}geWI0O)} Sotore- ,__ /*Plo¥ozeys eouasejd ay) Aedes 0} uonebgo Aue st ae S40) Clad Ue Bupuadap "kynbo 10 gop 1oqyo oq Ueo ocoUy SEITE SOURTOFSR aoranjod Supuadap ‘sunbo 10 gop sve 99 UeD aFa1y ore ‘01 pos aq ueo yeup S20)A108 pue sp006 16010 *hyadod ‘Aroutoew “sjeH9e ‘oid wio4y uononpop e s1s14) IUoWeIEIS owodU! 219 UI esuedxO LE ‘se umoys 51 yoy ‘951249 aoueUy e Se poreon s} mowed s0101U OY, ‘vontsod nyeon yo uonesoue6 oun Ut pofoydue 09 ueo nq esn ou 0 om seyumo syudrein Suowos sede TE ‘ssoursng ou ut persanujeydeo aug Aq papinoud s} 2oueUs fory nd uono 40 “sjanpord astuanpe ‘were Jojeus me @seypind 01 o}Ge 09 YoU pinom Koy 'BuIpest LIGOa ‘o ajae aq you pnom ssouenq au) oe Aue Jo BUPUELY NOWAK “BE Kau in Rueduoo Jo adh 048 Jo S8aypseB. ‘paoueuy aq 0} aney SOILESWED ny vvonnquisip @ s1 1 InDo UI SoBUEY JO 1uOWIOIEIS oMp LI pOBTUGOOD! a1e SOUL ueUy Jo juOWEIES O41 Uo Aynbe JopUN uMOYS O7e SOrEyS 18240} Uojodoxd us pen o} saseao ‘Aueduios Aaynqen payjuiy Jo osmonns reside> UL Z, ue Auedwoo & 30 diysso ‘puopinip © wou Aed ‘gop axe Kou Joyoyen soa! AfuUD JOU sy PUE YO Jo sonsUB}IEIEyD ACL, ‘20UCUy Jo SULIO} awIOS Inq asuOBs}e9 0} ojduus exe aoUEUY J0 SUH} SOV 1 89899 1! Uaym ssouIsna a4y Jo s}O88e [eNPISO i 247 eIEYD UNO SI SY LES nq reyde> jeueuy yoeMTe ued ssoUssNG e YEAR SKeM Jo.JOqUNU e ave OJ0UL, momueno + 3is02 a2uvul) pur aimonns eudeekuce and finance costs 2.0rdinary:share-capital ‘exchange, the value le determined between buyers and sellers of sha ‘nancial statements, Other terminology to be aware of. + tesued share capital isthe sharé capital that has actually Been Iseued to shareholders. The number of issued shares is used in the calculation of dividends, + Calted-up share capita is the amount of the nominal value paid by plus any further amounts that they have agreed to ral value which has Accounting for the issue of shares. ‘company were to issue shares at their nominal value the double entry to record this aising offnantce would be: Orcash Issue price xno, shares Cr Share capltal Nominal value x no. shares ity companies generally issue shares at a price above theit nor value, This is feferred to as issuing shares at a premium, [3 premium ominal value x no. of shares sol jum accounts are shown on the costes saiiaxieuy A rights issue is: the offer of new shares to existing shareholders in proportion to their existing sharehalding ata stated price (normally below market values). pecans oe 44. Arights Issue is the cheapest way for @ company to raise finance Through the issuing of further shares. = aright iders has @ grester chance of success ‘compared with a share issue to the public. > Toe disadvantages are: issue is more expensive than issuing det. 1 the finance required. {A rights issue is accountad for in the samo way as a normal share issue and therefore has exactly the same impact on the statement of financial position as an issue at f chapter“ Sal © apo mS ar) we | V ls; eves ees ae aa unerse unex mys pu ade seus oe at 8 junoose winged ‘1eys 24) Bulan spew onsst snueg OL 40} Le s! a:0y) ISMBNY ZI opis 8! ‘coud ange} au “9Nss) swy6y ¢ 40} Z dn-uoyer Any st ou KleNUer LE 9xOz JoaM209G L¢ pepe ERA oy) ‘UL 00°87 S1 UNo3Se WunIwoxd Syeys ay) UO dy ‘enssi W saueUs O57 Q0'002 IM AueduoD Ay aoe t $s 8 as 98 euonsesuen ‘qunoo08 winuesd aseys pue yeydes O124s exp Uo SSOUEIEG OU) 2 unio 204s 94 ss} woes) ‘muy 06ND fonjen jeUMON —_jendeo axeys 29 (2nase1 20490 10) fenien jeUON wing ‘Sonio80) 0} 6940/0)214 ut posn 94 PInom junco2e tuniwald areys Oy) Se lyons eis9801 sjge;nquisp-uou © yBnoW ‘pasn ag vee anos AUY “22As080) wo Popuiy aq isnus ans ax ‘ens! snuog Woy ponjenes 8 SB OU Sy ‘anss} SnUOG 94) BUPYEU JO sIS09 UNUPE Oy ‘UB SaGeWeApesip 0% 1e1deo ove4ys Buseaiour pue eamvese: pores Buln ur pofordwo sesse yum ‘ve SeBeqweApe oy), anigoa! si yseo on “BuIployascys 6k 01 vojLodosd us sveproysieys Gusixe 0) Sa1eYS MOU SmSs{ 349, ‘91 nss1 snuiog yapitat structure ond 6 Dividends Dividends represent the di expressed as an a ‘nominal valve {sto shareholders. They are 9. 10c per share or 10% of Dividends on pre ry dividends ‘A company may pay @ mid-year oF intorim dividend. The double enty is Dr Retained earnings (and disclose in statement of changes in equity) xX x be paid after to be approved “Therefore proposed dividends atthe end of the year that have not been approved by shareholders cannot be recorded as Habilities at the year- end. 7 Loan notes (loan stock) limited company can raise funds by igeuing loan notes . These are fied life of the loan note wil be fixed and the company issuing them wil have to pay the loan note holder back at an agreed poi ‘chapter 33. ‘Accounting entries, Whe ‘ance i fist recelved the company receiving the finance must recognise the ebiigation o repay the loan hokier as follows: 7 Dr Cash Cr Long-term fiat ity Every year the business should recognise a finance charge (ie. interest) based upon the terms of the agreement as follows: $150,000 10% loon notes, redgemabie in 10 years time is payable hat yearly athe en of August and Eebeary. | SOEs? Soto eects fom een tanta pono seaeeeeee erase a oie Wat accounting entries are required in the year ended 31 December If the preference shares are iredeemable the shareholding and associated «dividends are treated exacily the game as ordinary shareholdings, as ‘explained above. Cracker, 2 company, has share capital as fotos | ovina shore capt oe shares) $200,000 = 49> 25D herds 8% redeemable Preference share capital $50,000eriadey> yseo 10, ‘yee xe3 uoyesodon 3 'a1Auo aiqnop parernosse: ‘UL “Pred pu pejernojeo aq ym AyugeN xe} FENADe 2p pusdiERA a4) BuIMO}OS zdas sy 81e4> x8) uowe10dion 40, 2) 24) 0 ayeums9 5 189K ath jo pus aun V 20) Rnue ajqnop Susmoto} ou yeu pynous Aue sw0o + dors ‘ei aioaias BuRpissaH 9) SUR siunospe seek Sumo) ig U9} aisnipe s1 {yoium xe] vonesodio9 Jo) uoysnosd 24) a}ewsa sopUN 10 10n0 1 sSajuedwoo yons se pue ayesnaoe Ajosque oq 0) Ajexqun aie Soqe uisaier 14300 405 INS ove ssautsn © Aq pojesoueB xd20 90} yo19 Kem WES OU Ul xe} au pue popiove: ‘951242 245 Xe) ssyoid aun "1809 Buroueuy © 0, xe} wonesodi09 oF svopjoyaseys wuoura ~ 30s) Agen xe, uonesodsog 19 | i reuy © Sale30p Auedusoo aig pua 1994 24) uj Srapjouareys aouersjoud ay) sked puE | ‘eye sod 26° ak joueuy au) enon ‘em ved pesejoep puEpIN @ 2) PUBPIAP WLOIUI UE Shed AUedUOD ouCapital structure and finance costs ‘As the company overestimated, the charge forthe fol by the appropriate amount so that over the two year charge has been recorded. ing year is reduces od the correct The income statement charge can be calculated as Current tax estimate Underi(over) provision in | | Total corporation tax charge year the year ‘chapter 13, est your understanding: Garry Baldy commenced trade on 1 January 20X4 and o the tax payable for the year ended 31 December 20X4 is In September 20XS, the accountant of Garry Baldy receives and pays a ‘Draw up the tax charge and income tax payable accounts forthe years ended 31 Decomber 20X4 and 20XS and detail the amounts shown in the statement of financial postion and income statement in bath years. ‘make a prudent estimate of the potential tax ‘accounts 273,000 285,000 "earn «Tas aSS Te ame so! srctmes = CT Luma 01522 yun > Mi Beco Bens | Goma ar AB SA Ca Noda Geter)= 1ende>(istructure and finance costs a (eee 20x4DrCash $500 Cr Share capital $500 20X5 For every five shares a shareholder owns, he of she is are entitled to buy another one. The offer is up, meaning hat 200 new shares are issued (7,000 sharesi5 x Dr Cash (200 x$0.75) 60 Cr Share capital (200 x $0.50) $100 GrShare premium $50 ‘Statoment of financial position Capital and reserves: s ‘Share capital ~ 50¢ ordinary shares 600 ‘Share premium 50 Accumulated profit x ‘The correct answer is B For every four shares held, @ new shar ) + Therefore 5,000 new shares are issued (20,000 shares/4 x 1) ‘Dr Share premium (5,000 x 50c) $2,500 Cr Share capital 52,500 Statement of financial position Capital and reserves: ida 8 ‘Share capital - 50¢ ordinary shares (20,000 x $0.5) + 12,500 $2,500 ‘Share premium (20,000 x ($1.25 ~ $0.5))~ $2,500 12,500 ‘Accumulated x Balance cit 77,000)Bonus issue 77,000) [Balance bit ‘Share premium Bonus issue (SC) Balance cif {Balance bit Statement of financial position Capital and reserves: Share capital - 25¢ ordinary shares Share pre ea promt Workings Fosse: 200 00015) x2 = 80,00 new shares Prooeeds: 60,000 180 = $144,000 Nominal value 80,000 x28 -¥20,000 Bonus issue: (280,000/10) x 1 = 28,000 new shares [Nominal value: 28,000 x 25¢ = $7,000 50,000 | 20,000 | 7,000 7,000 77,000 5 75,000 124,000 199,000 192,000 77,000 192,000am — (pu2-zeak a1d Augen © og youUeD asojor0UN PUE OY “pxog ul apeu voisiaaud-iapun ‘aug ye pancudde ut 10} payunoose 2q 10uUeD PUEPIAP [EUY AHL LON ‘24 29421 0) paseosoU! 51 SXxOZ Ut OBIEYD KET UOWOIEYS OwOOUT OY 5 seak yo pusiy (o00's) (000'r$ + 000'0s8) spuopixp o00'e2t jooo'ezt x se0k jo ele 2 SBuMues PaUTeI=y 8 aigeked xo ooo'ezt wowssyeys owoouy|000'S9 Aynbo uy soBueys jo uowoseS 000'r8 = %68 x 000'08 vosioud looo'et ‘opun sxoz /pUEPIN 20U218}01c) o00'oss = 99°21 x 000'00% o0'0s o00'ost ipuapaip eupro WHOL 00% wowyers awoou]o00' araeked xe | an wow iooovse aeked x61 »xO, 00'00r = 208/000'00z8 = 22:0Us {22.0 JO -ON Tsay s euioou) aseys Key ‘a 5} zomeue yoou09 ou, 00's 4q 200288 oxo2| ooo'aze coo'sze | 00's bate x 00998 qwawerers|o00's0r sp sures, fared 00's ooo'ost ua e0uejea ¢x0z)000'¢91 aya sxides oo0'0st looo'ost ooo'ast wewoyeis owooul wxoz 8 Is (eo jeu jo wouioye7s) oyqeked xed aaa HE 1509 auedl| DUE 95 TaeCapital strueturr and finance costs, "Statement of financial position | 20x 20x5 $000 3000 poration tax ibility 150 165 Income statement Control account reconciliations Chapter learning objectives ‘Tost yourundentanding S| a ‘The correct answer is C Upon completion ofthis chapter you willbe able to: payable forthe current year — last yoar’s overprovision. Understand the purpose of, and prepare, contrat accounts for recolvables and payables perform control account reconciliations and identify which errors ‘would be highiighted by such @ contol Identity and correct errors in control accountsx iqsouerea) x 49 soueea x x x ypsourrea} x sp-eoureg x enueg, x anieoa1 syun026iq seouereq| X asp} spunje(go)ueG] x (BOY) SUINjas soseYoING (8a) soseyond yp219) ya eouerea| x (go) ues x 49 souereg. juno2e jonues s96p2 sajqeked soma Sumouoy oun Jo Aue epnyour Kew yundo9e yos1u09 Jobpo) seigesed ays x a souerea] x ya s0u01ea x x x sp soverea] x yp eovereg 7 eauoa} x. pobrey rsar00u1 ‘sooueteg x Pomoiieswunoosia| x ypaio so spunjos (go) HueR senbay (jewnoh sigep eiqesorooey| x pasnovoys 10) veg x x x (gauss) sums sors} x (208) se1es wp010) 53 sasoverea|_ x ya eou0}¢8 juno228 jonues 4069] SojqenIo20y (ao) wee ‘Buymojo} ou s0 Aue opnyous Aew ynose jonas 4e6pe1 So}qeNI0001 S4L ‘syunoase jonues aapensnin € 8p) esouabyueU a uo aut aya da pox oq , 2693 sajqeked, 241 PUE 96 p} SoIqeRIo00), ‘all 88 0} pouejas “ABulsnyUCD ‘ueyo xe SeOUEIeS wNPLeSOUIOW OU ION Frade Ee '5] ssautsng e fq pajeledo jonuoo ‘wowoBedew Moy yse0 puE JONLOC HPON WM sitEse SIYL ONIN \yoee Ked 0} anp axe Kau yonw oy pue Aed oj anp 3 ‘sejuedwoo ey 05 910904 € Se Pasn st, 5601 seseyping 10, ‘| Axe eyan0p at 009 Aep eseyouNd OU 30 [O} UN 9}SUEN Kelp UEUN “enuano. s9jeg 10, tunodde jonueo 4989) SaIgeNa20y Ja, '3Aauo eranop 241 288 p91 Je10U96 og oi: 31009 Setes au J0 210) Aye aly 15JSUENT AUECHOD & Yen, maynsono ‘ 0908 jos105chapter 14 4 ables tedger Control account may show a debit balance for | Abbreviation key: SDB Sales day book ot exist and shauld be transferred to ina receivable account should be POB Purchases day book SROB Sales Ins day book Dr Recetvables PRDB Purchases returns day book Gr Payables GB cash book Debit balances in the payables ledger willbe adjust using exactly the | same double entry. i ii Note that any entries to the contro! accounts must also be reflected ‘in the individual accounts within the accounts receivable and Payable ledgers. prepares monthly Receivables and Payables ledger control ‘accounts. At 1 November 2008 the following balances existed in the company’s records. ‘where acustomer is also a supplier. instead of | os ob cue aime fot tsetenmecraie tances eter v Amey beagroedtat te | etn et sebee Sbt her ts] pene Spe eee mm ame) eee ‘The following information is extracted in November 2005 from the company’s records: Dr Payabies ladger contro! account | CrReceivables ledger control account Gracitsales @ 251,000 Cash sales Crectt purchases @ | Cash purchases 29, = Credit sales ceturns DZ +1000 | ‘Amounts received fom credit customers 2 242,000 ‘Sreait balances on the receivables ledger control account peepee a ‘credit suppliers “P vables ledger control account may show a credit paid to credit suppl the customer money. These amounts are usually The customer has overpaid Credit notes have bean issued for Paymentis received in advance ofut Bununowe *106pa} Sojgentooas ou um (sores) 8 : a ‘i ‘000'28 fa (paveissepun) sea.epun useq S24 YoseW 39} IO) Yoo Aep SaseyDuNG OM juno20e s26p2) jenpinpur s ydans ou useq)Sey Agua ou yng un690e fuiU09 ei Ul paye2N A}291100 ‘ua9q Sey £98 0} Sununowe soyddns e o} usuKed YsED Ayod y x x eee ane oa x 4p eounjeg pasinay| x ‘09 0} sjuounsnipy ‘siunoo2e J26p9enpIajpuotp U} pose U9 Uo. x sioue 10} swausnioy) X sauRUEXa aig fq YON eouEIeG (0) Bujunowe "yiuow 24) 305 panysoe1 JunoosIp JO FEI Bu — 7 a ‘pasoncosip axe $1010 Bu yunoa9e joxu09 105p) SOIGEAISION 10} 24) UoReuIUEX® LoWITY UO (€) zea't2s 100 3960} sojqeAed oul (2) s9r'618 no pays voaq ancy UoseyY |. Ye seUE}EG TUNODde Job 04 6 sr yoseW 1¢ 18 eoueleg wNosDe juoo e yo yeuse} Bu, s1's9jqenoo01 0) 9869 ZBuipuersiopun mekysox | FG paypeuos seq ancy sioMe omy 10 240 Joye Seousjed fenpinypul o ys Yunosoe JontueD aig Uo aoUEIeR pasyAes ‘4 40) payse 6q Aew! nok senamoy ‘voNey!DU0094 juNCdde fo;NUGD [Fy E ‘2anpoud 01 Paxse 09 10 I NOK “WEXS V.44/E-4 OU JO ounIeU eu O, ONG = ‘seouereq paysauios pue perebisanu) 29 pinoys sejouedasosip fe) Bu. “IunoD9e squnosae sob pai ou) i900) 94) luwaiap 0} godz,seauenon, s96p91 saigeXed 84) pus jUncade jonUeD 196} SIGE ‘10.19 40) siwounsnipy Is) woy parse se coUEIER pareraie> eqe1 gz) seoueyeq 49690 sae (000% _petercjeo’eq 01 sooueyeq aba seraeniooens $19 cer gua ‘eouereq unease tonuo> ym sooueyeg sajqenjoaas yenpyaiput jo uoneIoueDaN aja) “pasenxa se 's196p0} __sojgekeg pue sojaensoay ou ur seouetedControl account reconcillations -~ chapter 34, ‘Prepare the part of the payables ledger contrat accaunt reflecting the above information ‘eror affects the control account, not the payables n should be made by the bookkeeping entry: Prepare a statement reconciling the origina total ofthe individual balances with the ccrrected balance on the control arcount. account Cr Receivabos ledger control account Payables ledger control account xe SCOTS [7 | Discount received 4,718)91 Mar | | step Salesreceivabie edger 2004) Balance 21,992 The total of eizcount rocaivod inthe cash book should have been | Balance cif 20,113|Purchase 2,000 obit ai 23,¢22| 23,092 leary should be. AS this has already been entered into the ger accounts, no adjustment is required tothe list of Reconciliation of individual balances with control account balance Individual ered bolances are extracted from the payables ledger. Here, fects the ledger accounts balance. No adjustment is to the coro account, only to thelist of balances. Patty cash payment {Net total agreeing with control account error has been made in the individual uld be made to thelist of baiances, 0 the contre accounts, The total ofthe purchases day book is posted by debiting purchases and crediting payables ledger control account. If the total i understated, the following bookkeeping entry must be mado, posting the $2,000 understatement: Dr Purchases Cr Payables ledger control account ledger accounts in the payables ledger are posted;34m pus Buiked paau seavonui au |) eIS2 UI9q sey ADEIMODE BOUO + e sjueued Aue e10}0q 8ujop 10) asodind ous qunos0e | jonuoo 21g oy ueWeyEIs Zyddns ® 1oU0D0 01 10d Ose oso @) ous “2 oes 8 oee'es v suret 9894) Jo} BumOH s0ye sp10001 8 000 pue BBUO, uodMlag sUlEusa: AOUETEIORID TUM 308 pa] saReKEd aq UF amore JOU Sem jUNoOSIP ysE gpg e 1EU) Ye} OM 7009 £9 papsooes ueeq you SB 080'r$ Jo Poveieg e Bumoys 400% EY. *9bp9) agen2001 sjuno0e ou 1) pare uL Paunoucysip u99q Sey oWJEND © Los} ‘Sajqenjgoo4 249 ut posoive Wood Ie ‘Punoy YEL'OLLS 8 YOM ‘244 w sjunco0® fenpiNpUl ou, UO SeOUE}E 2 © Fenpinpur eu or Baigap uae sel gods 10 PANG sjuncooe jenpinpur oun ng poysoduadq sey Kuue ajanop yo=100 CE) moomoo wtp 564 00S 18 01m e109 Y 10981 0} 30630) nq 4000 Aa jr papioaas$,26u01 000 01 pred YsED Gumono} tN sjeones Uowebson4 -O0O'OLS 39.4000 01 anp aouejea © Smous OOP Seiceked 5.eBLOL “OLS FL 10 3) _qunod9e jox}v0d out y pepI0s—L {ou ng yunoode s38p91 STH; Aqoano> pajsod used eked J8IUNOD 'g 980}9 "ub AouEIUNODDE O6,0} © O1 COS’ rs 10 SBIES WPAN FIO inode s soworsno 3 (s) /-¥D),_Wneeoe jos1409 ‘941 ut Parstue vod9g 10U aneY 02S BulyEIor PEmOIE sIUNODSIC (y) yo0a1 syunosde uy GA) “8829 99.0690 9R00 vnpsiquo wong Adestou se souclene © ay Sens aunedy (6) spdn u9eq 704 ane ‘$598 10) boys y 1v00q sey Buy wy 888.94 Sayqensooas agate “suaienisu090) JuNOIe Jone(Control ackount recon -_~ Below is an example extract ofa statem c ___ STATEMENT Date | Francaction | Total [Gument| aor | 60r s [os Fo May 20x9[nvoie 100 [O80 f June 20xe [CN 2008 | 40) [say 20x0 101.99 5. aay 20x9 106.72 27865 ea[ 0084 Way remind you that our credit terms are 30 days. {| Here is the payables ledger whick corresponds with this supplier Nino Lta 8 1 June 20X9CN 24.56 |10May20x9 Invoice 100 4 ly 20x8 10 110.99 1S.luly20X8 Invoice 186 106.72 he invoice dated 4 July 20x: statement itappears the problem, the ledger that is incorrect then it should be updated 94.50 | the ledgeris of total | CORTROLACCOUNT RECONCILIATIONS nese ate a means of _chapter 14‘seoueyeq 1 041 wow payiue U99q sey edUE}eR 5 s ‘wetshs Bununodde s96p9| JeuWWoU 24 UHM PoUteIIOD yooq use ous. JUnoode UG OU) Jo pu0De1 5, yUEQ a4) 2" ‘ooUBIEG OWI YUEG ouL pue uneaoe yueq sie yo proses ,ssausng a4 21 ‘eouEJeq yoOOq YSED ou) « {uoomaa SoUBIayIP O\N aouadeL 0 5} UO 1u030s YUBG 2 Jo aaNaela0 ou uonenouesas queg ous Z anos soueteq 009 use mamueno b| thse are tems which aise inthe bank statements before they are | recorded inthe cash book Such unrecordad Wome may inude interest bank charges Shy ater . dedi ine cash book simply because the business at these lems have risen unt they see the Bank be posted? bank charges direct debits/standing orders ¢ directeredis >* ishonoured cheques received from customers bank interest received. By Timing differences, but due to the bank the bank’statement These items have been recorded in the cash ‘cheques (cheques sent to suppliers but (eared by the bank). + Outstanding/uncteared lodgements (cheques received by the business but not yet cleared by the bank) ~ Balance per bank statement x Less: Outstanding/unpresented cheques 0 Ad¢: Outstandingluncleared lodgements x Balance per cash book (revised) x | Errors.in the cash book Outstanding or unpresented cheques | suppose a cheque eating ta payment a suptr of Pooroy i ten, signe and posted on 29 March tales entered teach | Sook onthe samo day By etme as recovers cheque pals it his bark csour nd byte tne his ba has gone reg ie chequs dos nt appear on Posey’s Steere unl sy, 8 Ap Poot, wos eyard he payment cn bene ee postion Outstanding deposits/lodgements i way, a trader may receive cheques by post on 31 March, 1e cash book and pay them into the bank on theSr imdew> 48 exe's eouerea oY ek to eve oes Ae 6 sez ¥000 as, vex Kuea Wze% ay ss00ng 98 Zaz opuerciy ou bug epues'z a ppuez"t 9. spuce't Se. opuer'e v y009 4se9 04) UY UE UE aus HH SUHEH BEO4 JO HORAN junco0e 9W) 0} BSuIDaID ADeLIGDu enBaY) Ge ZB Nuea Aa 20U ‘001s setuey> ueR ‘L198 sanbayo Burpueysino (ut pred ondoys, (002'L$ poupaio jou syueur9§po7 ‘OSS VAIO BOLI, | _Yezs pemouousypue fuedco oy lyse 049 veomiog couasayip qweyunos0e ay uaUe}s UL oe ba sjooq use> pasinas ou sad a2unjeq ous Skemis st uopysed jeroueuy yo yuouoyess O49 uo a2ut ous sen O10N, {WeWE}eYS YUEq € UI sySodap Jo LOHEDaUBEe Jo a1EMog, x (osines) yooq yseo 10d ooueIes | cox uowiojes yueg a4 0} swouisnlpe JOM, x wowiojeys yuEq Jad eoueles ye se quamoye}s uonemoueses yueg x seq pesmou) x i189 pesnoy «yp ea posinexs siuauisnipy| x x 9 ea pesi.on x x r xxx | x ea noog uses woneyouoses yueq EULO}OIE y SEEchapter 4 Proforma bank reconciliation inte cash book? Cash book Balbit x Balbir Adjustments X [Adjustments Revised bal cf X [Revised bal of x Revised bal bit x |Revised bal bit ‘Bank reconciliation statement as at ... | Balance per bank statoment Cha no 5 Outstanding chenues Dec Balance 1]1 Dec Alexander 782 er Outstanding lodgements ee re teas ” (Other adjustments to the hank statement 2Dec Able 952|6Dec Burgess 783 33224 Baker 4,03|14 Dec Bary 784 ste 40Dec Gharlie 2.91217 Dec Cook 785 wor 14Dec Boke 4i9{24Dec Hay 786 343 21 Dec Echo 327|29Dec Rent — 787 hy 260 23Dec Cash 529] Balance per cash book (revised) x Beware of overdrawn balancos on the bank statement. Beware of debitsicredits to bank statements. Beware of aggregation of deposits ina bank statement, Note that the bank balance on the statement of financial position is always the balance per the revised cash book gad gedfa~ 30Dec Fred 119|31 Dec Balance 19,973 on finds thatthe following tems are causing a difference between the.cash book balance and bank statement balance: sot debit $530, ) Ledgements not eredited $1,200. ). Cheque paid in by the company and dishionoured $294 ) Outstanding cheques $677, ) Bank charges $100, ) Error by bank $2,399 (cheque incorrectly credited to the account),ort, (4) BE ae 4, byacdem © 19) Bqny <> 8 eae ee me) Sage O 402, 2egen? (c21) Bore paw, - hay @ ea xd 20008 swaprers (ns) zfo ome dy teh) 3 a =! a ey | 3ot cal 2 mex p38 yesproro sors (| byes 9 eIpiono ives cies v | 29X02 soqui909G F¢ 1e aWETEIS yUER oy) LO UMOYS s1 ooUEIea YEU | ‘99 se 004 Use ta i pavoius Ayoou00U! YoSG PEL 9$ 10} Umeyp anbouD V(b) quowKed & $0 jo pea} 009 yse ou) Ur d}o09u & se pessiue U9Eq PEY ZS 19} onboYD V. (C) ‘24H 01 pejwasaud usieg fou pey 29zs. 24000 Use Sul u paueque tueeq 04 pey juowisyers yueq ain uo pesaIue ge1$ Jo Seb s0n005Ip nO Uo ‘endeyo Aq ope siuowed pue poyUed a4e SIdI2001 IY 40} nok oj pajuasaid se yo0q yseO S,auy Jo ASeuaINS e s apne unosoe aa sequueceg 5 1 1woWeerS SLIEMA, sez'6s sever Gez seo'0z rs Bzr'02 q 829 = ost'g: zee ez'e, ele HS eree ze eet 90%, be 8 tor'r oat sie'or we oek eur s 8 8 sjemesp eouerea sysodod “WIM yp eouereg sidiooou, ‘oxoz soquooog neu a Ree aia 4p 20u%eg —eze01) 9B. usodeq sedoq ysedag vee sodog jouodes yueg @ o1edoie (0) 109 yses oun siendn (a) yousDes yueq e 2redo%es (©) soquseced 18 soqu2090 oF. soquusoea #2 soquuooea v2, soquisoea cz soquis00g Lt yequio099 Lt voquiened €L vequianed 14 soquse0ad oF sequis0ea 9 sobreyoquea —sequianea ¢ zl — soquia0eq § wsodea—sequosog z bez soquieo9g z 992 seqwenegz wqeouerea — sequieog 1 | sweea oa loved "N ~yuamaperg UES yueg ons BIH saidey ~~ ypuo%e TuesBank recon Chapter summary Bank valance records Bank statement Bank interest Ditect credits 8 X [Bank charges X [Direct debits! orders Dishonoured cheques Balance per Balance per cash book Balance bit Error ~ cheque 783 (221-212) Revised balance bit statement _. ‘Less: Outstanding cheques ($426 + $737) ‘Add: Outstanding lodgements Bank Account 3 ($529 Bank charges Rates ~ slorder IRevised batance off 137 19,797 19,982 “chapterstuowores reaueuy aig vo sone jo yoeduu aig aemore9 PUE puersiopUN ‘osuidens e yno seopa pue Eloisa yoau0o o} soujue jeusnol qunoase asuadsns # Jo asodind ou pueyssopun ‘ouejeg fe © Aa porysiutiy ‘9g 10u pynom pue pynom yoy s0119 40 sodA oun Anu ‘urdee,pio0g ut sno90 Ae yor so. Jo sedhy out AuNveP! souejed fein © oxedoud pue jo osodind oun Aynvop! 20} 2198 aq 1M NOK soyde4yp si JO UOREIdUIOD Lod saansalgo Buyweay 19;dey9, sjunoosoe esuedsns pue sioue ‘aouejeq jel} Oy J oussnanerenees : ose 9X0z 990 1¢ 18 4009 Yse9 Jod soueIeg (2) pewaserd 86 y0u Inq pans! senbaug :s807 (panvop) 9x0z Joquisoag 1¢ 1 wowNeIs yveR 19d BoUey yo souey uouysniny uqsoueealoa (+) anboyp.0 yo0g SED | 51 s9msue 3901109 04. Tp Smpucrsiepunmenises | By yoog yseo sod soueiee 1s yueq Jed soueeg soquioed 1¢ 1e se wowia}e\s uonetouose: YueR suoneqpuosasqueEyes and suspense accounts 1 Overview | 2The trial balance Comecting jours At the end of the year, once all ledger accounts have been balanced off, the Closing balances are Summarised on a long list of balances. This is referred in the acéounting system to ensure thatthe balances statements are accurate, The layout of atrial ‘Trial Balance as at 31 December 20XS Dr ocr ses) Revenue x Purchases x Administrative expenses x Non-current assets x Trade receivables x cash x Share capital x Loans x Trade payables x x x 3 The process of preparing financial statements | The process for preparing financial staterne FEA © pation questions may draw on any particular stago ofthis process,dro suBdss ayy O} Se yuauno-uou e sou u quncaoe {ues eu) ©) perigep u9eq seu Yse UI pled ORS 10 OsUEdKO SeIEy ;pepi0001 0U SEM OOF Jo aes USED Y ‘1019 Buyaoyo} at Jo Yow 981109 0} |ewINo| OLR OPIAOIES ‘Aypou109 peproses uesq 504 y "pouonuow jou s1 ANU oIgnop ay} Jo BpIS OUD BUY BUNESE SKEMIy (yp2u00 01) 2p 391 6] uoNDeM0o EY ssO}BI0yL CE) P pip.) zAstue ajgnop ey sem IeUNA ( (.00 prnous,) 20909 aney Anus axqnop otf prnous BAMA “pIsuso 0} S| yoeoxdde po08 e ‘S019 asouy BuNPe.H09 USHA, syueq 0} panneio pue sayes cr paygop uaeq ‘seu 0028 J0 919s yseo @5°9 "Ops BUOIM 84 UO Ng SIUNEDDE 1BN09 - ‘24901 paysod uooq sey junowe 1osu00 ot +s U}Ua JO [ESIOATH 298 ‘se papiogas us09 ang 2peu u99q Sey $}0 918s useo @ 8 fian0p wauico au 5 uG9P U99q SCH 00Z L$ JO ‘pew w999 ancy si0. 10 w)un029e 1491 9t) 01 pougop uoeq Set OOS Jo esuEdxe Saye “f'9 UNCDDe Buoy) ul papsooa) used Sey uoMesieN y ‘wo}sayunOD 50 4033 ;Pop10001 104 Sem OOLS JO al8s USED e 6'9 ‘sp1c9.1 BuLNODDE Ou ‘oy pannuo fjoroxdui09 u99q seu UondesueN Wy :uoISsiMO Jo 10113 MRT TORRE EY “squewoers yeoueuy a1 42 Foesncoe ‘941 se1uezen6 you Soop soueyed [211 peouEleg e "S040 BuqaIep 10) wstueygaus jonuce inch e sepInosd souUE}eG Tein O17 ISEYMR JEU SMOUS SAL SDNVIVG LON S308 DRYING Tyna 3H GHA soe ‘SDwvive us DNvIE “vr 3HL 23H SOE COUN! TIVE Wi SHOR toto jo od y soupreq en e pen ( -junosoe 18890, juen@y01 44 101309 pounbou ‘nove fa 0026 401401 Kod Fou foenwer sanbox Ka Steyn 010088 Ad KOU ‘sonuer 2 svonuer9 fxsnuers fosnuer ‘nbot 4 Kod pur og0'2$ 24 ver Krome hn Kau foonuer nbou> {hed pur 000'¥$ 10} 9p008 oseyound fOuL foonwor2 | "ys@9 10) feuded o1e¥s OD'OLS =ns81 AOU Aeruert | ‘parade suonsesuen SuIMOIO} ayy sep ouu yen aun UI pue Auediwod e se dh sies prT KemoIeD ‘Squnoase ssuadsns pue siove ‘esUe|eq Te AUbalance, errors and suspense accounts ‘A cash sale of $76 has been recorded as $67. A cash sale of $200 has been debited to sales and credi cash Errors where the alance does not balance Single sided entry -a debit entry has been made but no corresponding credit entry or vice versa + Debit and credit entries have been made but at different values, ies have been posted individual account, ie. miscasting + Opening balance has not been brought down. lance is different from the 8 s 5,000 550 1,000 200 Payables 600 Loan 2,000 © Share'capital 4,000 Suspense account 150 6,750 6,750 “The balance on the suspense account must be cleared before final accounts canbe prepared | corctone to any othe sik eos mentioned above wi et the suspense | Soe 5 Suspense accounts ‘A suspense account is an account in which debits or credits are hold temporaniy until sufficient information is available for them to be posted to the correct accounts. ‘There are two main reasons why suspense accounts may be created: On the extraction ofa trial balance the debits are not equal to the credits ‘and the diference is puto a suspense account When a bookkeeper performing double entry is not eure where to post tone side of an entry he may debit or credit a suspense account and leave the entry there u imate destination is clarified Approach to questions: ‘Take the same approach as before. Eg, The purchase of a non-current asset costing $100 has been recorded by debiting $10 to the non-current assets account and crediting $100 to cash, What should What was the Correcting the dou Journal double entry entry? (Did do’) have been? (Should dot) DNA 100] DrNCA $10|DrNca, $90 crcash '$100| Drsuspense (bal. $90/CrSuspense $90 fig) crash $100 Where an opening balance has not been brought down, journal itin and send the opposite entry to suspense, The correction journal must always include an equal debit and credit “chapter at osim susb 9fe asuadsns 49 "S151 SopoINeR JoIOW 1G) = UOHDSUICO lsh yse010 ‘615) 278 esuadsns 19 :paysod ancy Kou, yueq9 (005 2/e asuads (008 4se2 19 ‘90 2/8 asuedsne 1a persed ney KUL (003 useo 19 ‘005 solgesed 49 :ue9q oneY PINOUS H 29 2B2}¢00 19 °¢19 278 asuadsns 1g = UL oye esuadsns o4y 01 06 Ajeanewoyne pm $1940.40 seyjo ay 08°62 4U2A IO '0Sz aBeIs0d 19 paisod oney Kou ( su 9004 10°51 08 8149199100 01 pooU om JouINO! 4H Lopew v99q sey rey Aalue aignop a semreun (a) {90g ancy Anus aIgnop atp pINoUs Tey (c) 109 SojaIan. JOWY 40 U99q OAeY PINCUS 10 ‘00S saigeked a = uonos 10d 49 voag ney Pinoys: 1ujod yee Jo} SuoRsonb Euumoyo} Ou HOEINOK yse 01 paoULNOA junoaoe asuadsns siy seap pue Anoygory sod |< paroqunu uj van6 uonewuosul 219 YOnouyy Kem sno 10M 0} PAU MOU SpA a sou9.eg ‘yunoaoe osuadsng uses | un paised aney OM a9u0) smojo} $e S} aney om UoN'Sod GUNES ouL | fens & Buyse0}9 Jo ss0D01d Gqunoaoe esuadsns 24 sjeuuis pue siaLse ay 1991109 0} pounbar Ove SIeWNOT EUAN "98 8€ 3009 yse9 ou oTU pue Gg Se yuNoD9e 01 paieiue useq pey 'N seLUO}SND ypa:D @ W seworsno 1pe9 18 wo panjeoas ozig jo enboys © 40} pew seq sey ANU ON (J) ‘esuadsng 40, ue 3u88 Jc Anuo ou opew oy pue “iuNco0e AUER UNO SJOUMO a4 "wou! 009S 10 diane) a4) uM FOP o} aige you SEM 1edae%{O0G SUL (9) '$Z98 Se 3009 yse9 OM Ut po1alua UBEq peY Inq yuNoDDe sty OF pajsod Aqaeis09 ueeq pey "A "seworsno ype. e WON) S$ Jo 141000) ¥ (S) ‘20ue}eq 199P e Se SeOUE;EG Jo Sy BY} Uo PayDENKE AyDs1I0ON jeP OGLE Se SeaUEleq Jo Js 94 UO ~ayuiiaase asuadsne pue si esepense accounts ) should have been: Dr bankleash 81. Cr sundry income 81 ,). They have posted Dr sundry income 81, Dr bank 81 Cr suspense alc 162 Correction = Dr suspense ale 162, Cr sundty income 162 vables 5 ). Should have been Dr cash 5, Cr er (@) They have posted Dr cash 625, suspense afc 620 Correction = Dr suspense afc 620, Cr cash 620 ‘Should have been: Dr bank 500, Cr capital 500 ‘They have posted Dr bank £00, Cr suspense a/c 500 correction = Dr suspense ale 500, Cr capital 500 They should have posted Dr bank 120, Cr receivables (M) receivables 5, s0 Cr (0) They have posted nothing ) Correction = Dr bank 120, Cr receivables (M) 120 (©) {@) Should have been Dr cash 50, Cr receivables 60 (©) They have posted Dr cash 5, Crrecelvables 5 (€). Correction = Dr cash 45, Cr receivables 45 Now you can post: Corrections which af journals that you have listed under the (c) ‘suspense alc. ‘Then you can balance off your suspense alc and it should balance on both the debit and credit sides. Hence, this will clear your suspense alc and leave itwith a nl balance, ‘Once you have done so, you should get the following result: ‘Suspense Account 3| = Balance bi 4,075] Trial balance diference 957 Postage (1) 675|Payable (2) 500, ‘Sundry income (4) 162|Motor vehicle cost 1575 Cash 620] balance of $1,200 has been omitted from the TB BA ,eceipt of $1,200 for commission receivable has been omitted from the records 2 has been correctly entered into the plant cost account Discount received of $600 has beon debited tothe discount allowed account © Bond's TB failed to agree and a suspense account was opened for the difference, Bond does not maintain control accounts fo sales and purchases. The folowing errors were found in Bond's accounting records: In recording the sale of a non-current asset, cash received of {$33,000 was credited to the disposals account as $30,000. 2) An opening accrual of $340 had been omitted. Cash of $8,900 paid for plant repairs was correctly accounted for in the cash book bu’ was credited to the plant cost account.4 2,000 pal othe machinery the purchase of a machine was tas $21,000. + the errors wil require an entry to the suspense account to chapter:‘si eye ‘inom squsunsnipe wo nis yosdw09 jo 340 coo'eses ost'eses 9 oso'eaes @ ooo'rses v counbiy youd pasinay an set ‘000's6e$ 51 steuunof esau Jo Bunsod otg 0} Jous a:nBy oss youp su0R, Saydey> ‘yonnoxorg suo Aq parsed uaeq ancy sjevsnof w0}901169 Bul (00°98 use9 35, 000'9s esuadsng 19, (0595 ewa0U1 Aipung 49 0508 osuedsng 20, 000'1$ ve01 40 00'1$ seven ueoT Ia (¢) 08's esuadsns 19 00s'28 soiqeked sa 00's wee JO 000'rs esuedsng 30 (1) soquinid pofojdu- soseas0u1 Wold seseossep wod| word vo yoedus ON Word uo toed on soyeyn vo Bupuadap 1 oBueup & ur sas Kewl feusnot vor}29s00 a ayord 0) Squaunenipy 9 oe asundsne puesThe trial balance, errors and suspense accounts | Chapter summary TAKE THE TB DALANCE ‘CORRECTION JOURNALS REMOVE ANY SUSPENSE Inmpact of correction jnrnals on prof rot increases Test your understanding answers feu your understanding 1” Jan Suan 2uJan 4 Jan cash 3 Share 40,000] 2 Jan capital Revenue 1,500] 3 Jan Tan Ban 11,509] Balance bit 4,500] Purchases Delivery Payables Rent Balance cif Ordinary share capital 3 Balance 10,000] 4 Jan 10,000] Purchases: 3 cash 4,000] Payables 1.000 5,000} cash Bal by Tousqunosse svedou] 000'1$ saigefed.19| 000"1g seiaeced (000'1S s¥edo11g (0048 useo 40 008s use0 40 ‘oss wes4a eave nef Gunjo0x109] jgnop aM Sem TELIA (00°18 19558 ON, o0ss use o0ss soi ‘ors sores 018 seo zua0q| ‘oney Anus oianop| 24) Pinoys yeu] covet ooo 002 00'S 009'9 oz o00'2 00's oos'y 1a jardeu> wou | sajgeniezeys ‘enuanegs saigeted Avenue 6 ye se aoueyeg yeu looz sneslooz Is wou jooo's looo's sp eaverea}ooo's 8 ‘soyqeareoou loos'e sojenwaoy ver g ue er sloos's Is ‘onuoAeY ia souewe looo'. seseuyoing jooo'z 119 80ue1e8|900'2 \s wea Kroniog use9) wa soures ‘nuonoy yo soueres seo seo) Sjunoaoe asuadene ver @ wer 2 sion wer 2 | iT36 2 sp nts, Dr rent Cr eash $1,200 ales $200 eet the casting] Dreash $76 Ds cash $67 Dr cash $9 sales $76 Cr sales $87 (Cr sales $8 he extra ss not Previously recorded ‘cash $200 Dr sales $200 [Dr cash $400 ‘sales $200 (Cr eash $200 ss $400 reverse the $200 and fen record the sale 3 $200 correctly in both accounts [restveutinsistanainas MER | the correct answer is D || And C would resut in the credit side of the TB being $1,200 higher than the debit side. B wo side of have no effect on the TB since neither the debit nor the eredit 1 transaction has been accounted for. | Income statement profits | the correct answer is B Increase $ Decrease $ s rat prot 386,000 1 Rent 4.000 2.No impact 3 Loan intrest 4,000 4 Sundry income 950 SNo impact 3.650 oo | Revised prot 368,650 Statement of financial position Journal 4 ‘The Or entry would go towards clearing any suspense alc balance joan would increase the loan labiity balance. Itdoes not state whether itis eurrent or non-current. Journal 4 ‘The Or suspense ale would work towards clearing any balance let, Journal 5 De suspense alc would completely clear the balance in this account. The ‘would decrease the cash balance held, which is a current assetBugsnipe-vow so Bunsnipe se pouad Suyoday ayy saye syuona AySSeP PUE euyep sajou ainsopsip jo ssodind aun woraxo uwareIs owoou) ‘84,30 808 24; uo ainsojosip ajesedos BuuInbos sweN AIyuap! stuawerers eoueuy ureu oy) vaemyaq dysuoneyo.s9qu ip puEIsiepun jesuety jo uowa}e1s Auedusoo e uy santosa pode: pue AynUep! ‘pUEIsIopun voqeu ‘2ue0u1 anssuayosdutod Jo 1w0Wwe Sod jeroueuy yo UEUaIEIS ea) 10 2148 aq WH NOK sendeys sin Jo WoReIdWED Lad soanoaigo Buwes] 29;de49 s]UsW9a}e}s yeroueuy siseq Buuedoid wee ye) au2:The process of preparing financial statements statements! TRANSACTIONS RECORDED IN LEDGER ACCOUNTS LEGER ACCOUNTS BALANCED AND CLOSED OFF TRIAL BALANCE EXTRACTED In the previous chapter we introduced the process for preparing financial ook at now the financial statements are prepared from ths information trial balance 3, These include: + accruals and prepayments coverable debis and allowances for doubtful debts income tax (EPS BD THEI Had eueid) + provisions and contingent ia + events after the reporting period les, and ‘These adjustments need to be processed before the financial statements can be creates. (i) Depreciation charge for he year (chapter 7) Dr Depreciation expense (IS) Cr Accumulated depreciation (SFP) (ii) Accruals (chapter 10) Dr Expenses x Accrual (Liat oenord xB) WUeLIND 19 1) 281049 x81 10 x syesse 1701 L e9k soud wy) uorsinaucopun, * — (1) 2804 o4p 10) 96:49 xe 39 x seo ud x2) wa 40 x squauhedarg x sejqenene sewjo pue apt osspoxdiano, x sauequanuy syaese uaung, 20} sjuaunsnipy( x | xe}qweing 19 x sarqiueia, —— x ‘suowys9nu x qwowdinbo pue werd ‘Aveda | syasse quouno-UON, ws ws, é YOHOOE FOqMIODSG FE VE ZAKIO) joueU jo WiSWOIEIS ‘ouemoye UI asea.09q uauna-uou 10 wasn 20UiI9 Se poyssep og 0} Sonqiqey pue siosse saxnbos | S¥t eM ION | (das) sorgeneo: poued Bununosoe etm jo pus au) We (Auedwo9 ou Jo UoRIsod reueuy ax “21) saoueteg fynbo pue Anigen Tesse oxy SosuEUUNS Sty. ) asuodxo 190p of ‘2oUeMO|I Uy 8¢2:00) wopsod jeroueuy yo uowayers ou S (44 saxdeyo) saiqenjaoo1 10) souemony ‘smoy yseo owowsrIse + ue ‘sjunonoe ou 0} saj0u + ‘Aynbo u sobueyp jo wowayese ‘ucou, ansuayasdos (gs) sergeneo0u 29 ssv9dxe Ig9p ojqes9nc0=4H JO uous owoourue (44 sardeyo) sigop orqesancaau} Lonisod jepueuy jo ayes e ) sosvodes, ‘psuasaid aq 0} sjusUodo> BuMo|o} 24) SeuNbo: siyL “ESV fa papsno.d ‘v8 sjuOWoyeIS e}OUEUY Auedwlos paysygnd oj sjeuLo, PSuINbO! Ou Ing) wourkedore 19 Sjuewayeas fefoueuts yo voneiuasord | SY I oy mide) suatutodonsPreparing basic financial statements Equity Grdinary share capital x Irredeemable preference share capital x Share premium x = Retainéd earings x Non-curren abilities © Loanpotes _ x EAE. ee Cuce shoves ; AES Curren abilities Trade and oer payables x Overorats ok x Tex payable cps Clo site) Total equity and tables between current the rules tobe ay Current assets ‘An asset should be classified as a current assot itis: cash or a cash equivaler day bond). Allother assets should be classified as non-current assets ‘current aseots under (a) above, avon they may not be realised into ‘cash within twelve months. 6 The Income sts ‘This summarises the incomes earned and expenses incurted during the financial period. XYZ Group Income statement for the year ended 31 December XXX Revene (hes) Costot sales Gross p Profit befor tax ‘Tax expense ¢ Bx18 I xl chaptersmojoq unoys ‘s}uowsyeys awoou! pue Uonised jepUeUY Jo WOWOIES a4N Uo NOg HUH UL casa evoyacuos p voummapsowcme sou | Se et caeacact ran eee on SUN RRM juowdinbs pue yuerd ‘Auodoud “Auojuanu!j0 syuounredua ue "(siuounsonut 40) uawdinba pue werd “Asedoud jo jesodsip uo $980) 10 myonsisod jo ued ou our yo-ou0 Buy “sIweWoIEIS Tae 289K 94940} atuo9u) ansuoyardLs ere, con Uonenjenos fuadaxd uo ssoyure9 Fowo2ut SArsuayasdoo 10430 x povod a soy woud YON my esv0dea xe xe} a10}09 WoIg, sis00 eoueuts aw0ou1 iveWIsAUL suoyevedo Woy WoId seeuedxo om ‘5300 uosnay word 8809) nupy 0 sees 01869 a envoneys *yo00K s0qute20q He popua se0K O49 10} ZAX 40} suOdU! anssuayasdiIeD Jo WwLOIEIS Jamojo} $e uaUoreys eWwoou! 248 Jo pue 24) o1UO poppe axe sue pasyea,un ain peaisut ‘sores pasyess wos; poured youd aiq siuaso1do) ‘ox "poued otn 30) yosd Jou u! papnoUI eq OU pINoUs y UOSED SKN JO yew AuEdLuoD © pinoM UleD EU “o f seq Sunedog1 prafts and losses made by the poration and that have not yet been paid to shareholders as a dividend As these elements are particularly value thelr wealth or'share of the shareholders understand any mover: reason a statement of changes in equity is required. t summarises the tions on all these accounts and identifies the. | Share Share Revaluation Ret capital premium reserve earnings Sm Sat ‘sm Sm Si Disclosure notes are required for 6 variety of reasons, the accounting policies used in prop . the movement between the opening and closing balances cof major statement of financial pe roms, + _to show how certain balances are caloulated, and + asked to Wentify relevant to users ofthe nancial statements, as necessary forthe accounts to be understandable to the users | | For this exam you do not need to know the preset | relevant disclosure notes that suppor you do need to know and the chapter | + Non-currenttangie assets (chapters 7&8) | + Provisions (chapt Events after the porting period (his chapter), and Inventory (chapter 6) | Preparation of financial statements and the exam {You willnot be asked to produce a fll set of accounts inthe FSIFEA examination. You may be, however, requited to calculate certain closing balances as they would appe: basic accounts i also a cru knowiedge. For that reason you should wer preparation of an income state Ordinary snare capita Soles and purchases Inventory at 4 January 20%5 Rotuns Wages Rent (expan ) Motor expenses Insurance Irecoverable debts lowance for receivables {tenuney 208 588=> evdeus (-uON, $ ‘9xX0z s9quo90q LE 38 SB UoNIsod ye}ouEUY Jo OWES ‘21094 asua\ordusc® FOL {ye5 uopentenays ‘wou anysuaysiduioo su Kaun 30) Odd | ‘ung uney 410} 312 84918 Se UoTysod yeoUEUY Jo waUIE}ENS & puE Gxoz JeqWIEDeq LE Pepua JeOK oxy JO} ewooUs exlsuayeAdUIOD Jo jOUIDIEYS e axedale ‘9u0U pue uoninboe Jo 480K 21n Ur pobveyD st ‘iseq Soueyeq Buonpas & uo Aenuue 960€ ~ SojaIyon s0}0W (0) ‘2nyor jenpisar ou yen 180K any 0 of Injosn & Bujunsse ‘powpeu SUI WBIERS — $Bi 1 0915 sem pamo je0y pue IYO PLE O00'LS Ka PI ‘0R9'Szs Sem gxoz,sequis08q ‘uogeuoyul evOIPpe BUIAOHO Ay LAND axe:NOA x02 Uer | ye sBunuee poueroy ‘sxoz uer | tuonerosidap aiebax8Be ~ 10978 Sup nue, ‘soigesed pue sajaenisoays put sxozuer b Uuoneoaxdep peyeinunaoe — 000'82 1509 18 sGumiy pu Sous ovz'zi xoz ver b oxepseidap payeinunace — ooo've 1809 18 Sayan JOON. vL yso1syuy yeupreno eR roe yoy pue 1467 squn09sig a Suawaieis jepue: 2yseq 8uOrdinary share capital fa | Revaluation reserve (250,000 ~ 100,000) ‘Accrued expenses 46 23,464 402,608 | | Workings: 1 | wt) cost of sates Opening Inventory 23,340 Purchases 286,800 Returns out (1,600) 288,540 Closing inventory (25,680) 262,860 48,160 12,000 3.720 760 250 72) 864 3,834 14 (1.622) 2,000 5,600 3.528 Motor vehicles (W2) (W3) Non-current assets, s 250,000 ings 100,000 and fitings 28,000 Motor vehicles (W/4) 24,000 402,000 (W4) Motor vehicles Cost ‘Accumulated depreciation cv Depreciation rat Annual dep charge 76,796 8 8,000 22,400 15,768 46,168 s 250,000 92,000 5,600 8,282 355,832 $24,000 $12,240) x 30% $3,528 ‘Total accumulated depreciation = $12,240 + $3,628 = $15,768 chapterha 4 ee 005601 __G0s'60r a = cra { 000'e . esuedsng Agere] agobso eS OE : 00s ene moms al, org © i 009" ped puepeyp Kieupse uss i a a ag 006 2 08 \ 00's x02 Arenuer 1.18 swoad porenuincoy Anodes owe cnnene 2D 0a) 2. x o00'se AN|eN YOO JU Je S}ESSE WALN-UOHY ar Bacto a mo: jgnd oe quowsRe AS ONS pausya IUOUIEIETS eIOULY O19 LOIYM UO oIeP ‘000'6 th pu 2p Uotveod jeoueuy jo woworers ot Usemog InooD uM sane a evareul 2soun Se pouyop oq UeD eyep Poped Bunsodos ous Jaye SyUORZ | 000'8 205 saieus AeUIPO, . 5 osz'z yer use0 OP SH sep PENSE CHOMroNseeRTT, [Gf oov'z ‘9500 ugnestuesioes yeiuewepung ' coo'ez 00°F Sejaened pu segensoee oss'st soovadKe UoeRSIIPY wuss 034 Ue (y) ooo'a ‘3809 vonnasia Aanbo ut sebuetp o wou c00'a Acwon ‘onisod eoueuy jo wowoeis goves sone sesexaind pur ses our eneueyeldoao wow 5 ia - ssmoyoy se | sem gxoz s2qui000q je 18 se Auedwos e “wnSuad jo eouEIeg fe SL s0qul0o6q Le pepue JeoK ou 40} queWie,ers Buy ‘Sores A1eUIps0 Q00'» JO anes} out wor) spea0aud aug siuasaids, iunosoe esuadsns at Uo OUEIEq Su) (000218 1 LoqusKU Buso}9) foes — oce'218) soyger ‘s9yqenrooou opess (5M) a Tadey> casey seq Sued)REPORTING PERIOD ese evens provide additonal evidence of contons existing atthe Treas date. For example, recoverae dels aising one o wo rere ore reporting dat may nip © quan tp alwance fo eee eporing date ian adjsting evrt fs tnted the nareial statements rust be amended to reflect the relevant condition, (PE ww! e) destroyed. entrance ‘Examples of adjusting events Those are events. crefore, have any effect an items inthe income statemen' pole to the financial statements giving details of the event Examples of non-agiusting events Which ofthe folowing are adjusting events Is 30 June 20X6 and the accounts are approved on 18 August 20X6, sent after the reporting date of a court case which 8a year end obligation. ‘The receipt of information ator the reporting date that indicates that an asset was impaired atthe reporting date. ‘The bankruptcy of a customer ater the reporting date that confirms | that a year-end debt is recoverable. ‘The sale of inventories attr than cost. “The determination after the reporting date ofthe cost of asses purchased or proceeds from assets sold before the reporting date. 's showing thatthe fnancial 1 Feporting period at a price lower nradjusting events ig after the reporting date but which do not tons existing atthe reporting date. Such events wil not, statement ‘Announcing a plan to discontinue an operation, Major purchases of assets, ‘The destruction of assets after the reporting date by fre Entering into significant comm ‘Commencing 2 court case arising out of events after the reporting date. rents or contingent igo Ltd? The year end Sales of year-end inventory on 2 July 20X6 atless than cost, ‘The Issue of now ordinary shares on 4 July 20%6. Inthe main warehouse occurred on 8 July 20X8. All stock was wr aiaavdeas 941 UE papNoU! aq PRnoys syeWse | ‘hyenpadsoid 40} payunoooe 9q pINOYs $9 Buyunosse uw sebueys | [4 -sjewnse BuyUNodce Ue Ut BBueYD e Se Pareon 24 0} ebueyo ou ‘soouersunoup 9804p U Bununcooe pue sejajod Bujunoace w sabix oso: 2q 0) poou ‘fou sajeuseo-asoun “Ajuenbasqns pue apew 99 oy Buiney sereUINsO Uuninse: sequieuedun warauuy"swOWEIERS jepuEUy BuvedaNd UaLNA ‘soieiwives BuRUROSSE UT sOBIEID paveis0) aq pinoys WoReULO}U! anneredwoD “sByRUeS yio} 1ueURSnipe ue se payodss 9q pinoys SURLY IUEWIEIES at UO San|en ‘ut nossa Ae sass ‘eidwexs 104 ‘sjuawoieis 3 91 anouda SOBUELD UL ‘Koyod uj Bueyo e soxinbay Sass aU _ 3 apeu1 99 fjuo pynoys sobueYO "BESET EE TG El nuoyaysuco poydde oq pinoys senved pao}a5 P aun s9pIsU09 Ose PINUS AOUL 115. S8s1 JOprSUOO PyMoYS SoNNUS satdeyo ut poquosep se) onauses4 041 jo sonshoroe: 01 8e os pedojanap 2q pinous foyod Buaunosse Jo} satoyod ay ads ou 812 av04 VereMOY 31's, Sys 40 SjwawouNdes i Aiauioa 01 88 08 pajoejas aq pIncas SeID}Od BunUNEDoy ers eoueUy 219 Ut po|YoH ave sjuoR9 eH UE so0qoed qpersax) pays + saieunse Bununosoe v 3964240 Apprbopy enido - sweuninibe pou Bhp Tpprypaseayes oye < sep Hod Buunesne w so6UENO - sapyjod Bugunoace jo vosPeeS Jono8 suowo noooy SVE sort Bun pue soyewnse Bununoaoe uy soBuCYD ‘Sa!o;0d (2 svi) soroyod 6ununo2sy oF ‘apeus oq youues sve ue yons yoiy ouie}Ee 2 40 TSAO FEBUEUY a4] 0 o1eUINSO UE weno ay jo oamieu ou opuesyt a | gpuesz1 oo! gpuerzl a opuerh wv | oxo Average €L payep up souemnsu tue jo oeds01 w partooes sem 000'0058 ‘axoz BNBNY LUO (9)") ‘exoz Aine 12 uo pownboe sem pr eakusay, somadion # 7 jeydeo areUs auNIOMNY (S) ‘9x02 Ainr Ob Uo IdnyUeR parelpep sem soworsro wpaHN JOlewY eoerervr_e=— we i 1 2yaeq auiiedoid[Preparing ba chapter: ‘could reasonably be expected to have been obtained and taken into |" account in te preparation and presentation ofthose financial | statements the time when legal ownership rors should be corrected retrospectively. i.e ‘and opening retained e idbo the relevant amended has an obligation for unsatisfactory performance | beyond normal warranty provisions when the receipt of the cash fr the sale is contingent upon the buyer soling the goods on and rece’ whon the goods are to be instal rot yet been completed 11 Revenue (IAS 18) ir presentation of the nancial statements. With most ‘easy to identify when revenue is ‘earned but for some, for example where a company agrees to provide {leaning services for @ period of three years, it can be more difcul 'as been earned and, therefore, wh \when the buyer has the right to cancel the contract Revenue and ‘aecoréance wi 1en revenue from various sources may be sverie afising from three types of transaction or Rendering of services, © + sale of goods The provision of a sorvica is ikely to be spread over a petiod of time rendering of services lerest, royalties and dividends from the assets ofthe enterprise, Sale ot goods, |AS 18 states that revenue from services may be recognised according to the stage of completion of the transaction al the statement of financial position date, Revenue from the sale of goods should be recognised when conditions have beon sas: following ‘As withthe sale of goods, condiions must be satisfied: (2) The amourt ofthe revenue can be measured reliably. (©) The benefits from the transaction are They t9 flaw to the enterprise. The stage of completion of (2) The costs incurted oF to be incurred forthe transaction can be rolably measured {ownership have been transferred (&) Tho seller retains no effective contro over the goods sold (c)_ The amount of revenue can be reliably measured {(@) The benefits to be derived from the transaction are likely to flow to the enterprise. (6) The costs incurred orto be incurred for the transaction can be reliably e work can be measured reliably When a partly completed servi Is in ts early stages, or the outcome of the transaction cannot be reliably estimated, revenue should be recognised only Upto the amount ofthe costs incurred to date, and then only iit is probable recover in revenue at least as much as the cost. is probable thatthe costs ofthe transaction wil ot be recovered, no revenue is to be recognised.Jo so6ueuox | “anoge ainsopaa poysigerse useq sey lswiked on1o>91 r146u ssopoyareys ou ual pastuBo98! 6a pINoYS SPLAT quowaoi6e Wersyos OM ovepi0008 u siseq sfenuove Ue Uo pasIuBooad aq PIOUS SOIEAOY, 9889 ap uo pM aig jo yunoD9e | Bupfer syseq uowodsud-own @ Uo Pasiuto92! 2q Pinoys ysas0iU | 29 pinous su ‘Arewuins saydeu, Sardey>Preparing basic financial statements | "Test your understanding answers Penguin ‘Statement of comprehensive income for the year ended 31 December 20X5 Sales revenue Cost of sales (8,000 + 20,000 ~ 12,000) 34,000 costs (8,000) expenses (15.550) Operating profit 10,480 Fundamental reorganisation costs (2400) Fi charges Profit before taxation Taxation (3,000 ~ 500) forthe year Other Comprehensive income Revaluation Gain 6,000 Statement of financial position at 31 December 20X5 Non-current assets Tangible assets (35,000 + 6,000) Current assets, tnventory Trade receivables (Gash at bank and in hand Total assets Equity Ordinary share capita (8,000 + 2,000) 10% preference share capital Share premium account (3,000 + 6,000) Revaluation reserve Accumulated profits Non-current liabilities 10% foan notes Current Trade payables Taxation 12,000 10,000 7,250 20,000 3,000 “chapter: 29,250 70,260 10,000 9,000 9,000 6,000 5,250 39,250 8,000Davey ‘siunoooe puouse0k ou ul yons 82 Porsayas 2q pynous pantenes “siunoo2e ua weak ayy ut yo uayum 29 200) 9xoz ‘ung g€ 18 sowo}s79 ayy woy Bupuersine junowe poyisseppes 9 ‘woou09 Gul06 says aay ‘24 pue asnoye 10 ho $0088 euneniey Bunsnipe-uon Bunsnipy Bunsnipy Joidvooy pri couse, 0 voninboy sewoysno soleus asnoyoiem ut ou ‘ons! aeus, 9) ro) wo © @ ) st zomsue 3201109 ou, Dae UE DEES —QOTS GOT TOOT —_SXOZPEC TE We SOE 008 ‘0009000 (o0s'2) (oos'2) osz'y osz'y 000'9 009 Suppyng jo uonenqenors oo'rt ooo'e - 000-000" yeeouereg s $ 8 8 onesou rede syoxd vonen winword jon _winoay “ena 9seUS —_MEUIPIO ‘Sx0Z 19awdD0q Fe POPUD 1EOK OM 705 ‘Aynba uy saBuey> jo wauaers os’ 260K ou 205 (oos'z) ose'z S06 soup eoueus ‘900 uojesiveb.oos equowepul woud e801) s2}28 01809 ‘enuanoys ‘SXOZ J9qW]S9U TE POPUD TEAK By 10) WHOUOTETS OlPr Preparing basic financial statements, Incomplete records Chapter learning objectives Upon competion ofthis chapter you willbe able to: derstand and apply techniques used in incomplete record ng figures. ) use of given gross proft percentage to calculate missing figurespuey U1 yee) saigeked 0} pled Kavoyy ‘saseyas ‘sojgeniooss wo panleoas KouoW ‘Sat oméy ‘sejgentcooy yunoaze s98p97 ‘Rem Buoy} oun \u pan kuuowurco s 'siyncooe Jabpay Bussn ‘yosoxdde aunby Buouejeq at yoeosdde (esnby Guy2uejeq) junooze s06pey out £ oov'ss a os0'zs CO osv'es @ oszzs v aX0z Jequiso8a Le pepus se6K ‘41 Buunp pr dieg Apuy Aq opeus (xe) 210399) ssOyqyosd aun Sem EU ose'zs o10m | {2x02 s0qui200q L¢ Ye sBunuee poeta: auf yey) Nok pautsoU axeY a ‘ou Aigey xe 019 oyewns@ UeD Kor ‘41 Bunewnse djoy poau sio}pa ‘aney dea Apuy yo Spicoas ssuedk pue so cong oot'zs— seni ozs —teudeo ares + or'es ~ stesse waning, O00'01$—siessewouno-oN » | 'sa0ue}eq BuImo) mp 51 Bupuedxe yom eunBy Avo ol vostsod je!oueuy Jo 1weWwore suondes ons} stuasardes sg ie se Auesse9eu70U pur wsse + Sonroso1 s04}o + sSujmres pouyeyos + yeydes aseys. fBupsn auop oq ues sis seek oun ‘Fou y SuoqBeSUeN Jo UOHFEUNO} {) s6uusee peureyes ‘MOH “A uopenbs Sununosse ous Bus z ‘seu pue da ar20 ~ 5 pue ‘eep Burquequses Gus + oeosdde aunby Busueie poujow uoyenbo Bununcooy ‘seouejeq pue samnby, Susssu yeyn9qe9 01 Bsn UeD aM YOIYM SKEM IUBIOVIP Jo 1eqUINU B Ove OF6UL, -soun6y Bursstus Aus ayeunsan8, pus nok ov arqenene 5: yetp uoeuo}U1 4899 aX O87 O} BAEY I OK '@SED BUNS SN AT _suncaoe joauoo 10 spe] ayadusoour ue ancy ABU NOK YOUN A ‘quawores Jeoueuy 0188 8 aldo © nok o} a\geHEA LOEWE} BL JO HE ‘ane jou Keut nok re Aes jungaoe Jo os & Buyedaud axe nok Lau, spioaes ayeydiwoouy | puedxe Pinca ent jo} Se popuedKo oq ueo SUL a7 aya} dWOsUTMT__incomplete records chapter Cash at bank 3 $ $ “cash received from Blanco bt customers x. |cash paid to supptiow: x Total cash paid in x. ]Total puchases x Bankings fom cash inhand —X_ {Expenses x respect of purchases ash and credit) Sundry income x. [Drawings x (cash purchases and Money stolen x payments to credit supplies) eee . Balance of x x x _— = Balance bif _ x Gash in hand e 3 ‘Suppose tha op X_ |cash purchases x There have been x. {sundry Expenses x — |Bankings x receivables wore $37,000. X. |oney stoten x ” Veemeeect x What are total saes rhe yor?) code @ $65,000 oo? Roms Batanco bit i Bs & $50,000 Oe ee 6 case of receivables and payables, you may need to uso total © $47,000 aaa “vables and total payables accounts where information given cannot be D $62,000 a Balance bit tal sales (cash and credit) Balance bit ‘between cash and credit sales and purchases: Total receivables 8 x x x x Hota! cash received in respect of sales (rom cash and crectt leustomers) Balance eff ‘The opening payabies of Dick Dastard-Loo's business are $15,000. ‘Total payments made to euppiors during the year were $14,000. Discounts received were $500 and closing payables were $13,000. ‘What aro total purchases forthe year? A. $1650 B $16,000zexoz Aime Le Pepue-seas ey Jo} pr suliog yo SnuUanA: Sofes IO} SUF Sen TEUN ‘sroulo}sno ypa.n way sidisno samysuoo 49puEWISS ‘94, -soyes yseo WOH s€04 oxy Buunp poniooas sem SEy'eSs 10u ‘theood I yBe0, 1894 ey} Bun sieUIoIsno Woy panteDsi Wood sey 519928 yeu palejnojeo seu pue JeaK oy) Jo} suOW}ER yueq oun LHI 'S¥00q USED B41 PayoUODB! Sey s18d90%H/009 :MOK Jo BUONOK SI5Se OL wnpuesowouy/soo ‘aes0n02aL 88 Yo Uo soy su $ PUS-seOK Bujpuesino seiaen20a1 oun 3}9eA1090 J0 184 O49 poMaAD! ‘key NOA "SZp'A6S Sem ‘UoH!sod jeOUEUL Jo UBWEIEIS SJe—K JOU ‘941 woH vaser"exoz AP LE 1 unBy SoyqeAlB09) open GUIEOP 0M, {joy owos paou hou sw 0} poteuew oxoy Ket 4J0U Jo WOE ISO} DFT joqJ0 “sjuowsyeRs 4ueq 103009 YSED O1N 8uysn smoyno pue smoyul ysed sou pruisUODe, seme UeD Kuedwoo 2 ‘sjunoo2e Jo6p9| 049 wo Surssiu og AEw eIep ysIUMN eH SowNese PowreuL SIL. "yoeoxdde wunoooe s06 po} OU 0 JejIs 5 SoLEWUUNS yUEq JO 9SN UL, 06's a. oor'ers cos'nis a | vos'zis v | ‘sei Jeoy aly saquiecag 1¢ UO "pled a:em Q90'Z8 Jo Safem pue .2)p Se no pred Sem Qoo'LS ‘PoyUeG Sem QOO'DLS JO YSED Yea au 1 0068 J0 Toy Yse> € PEY SSeUIENG s.uIeUD BesIEq, ous a zevs v aeok amp 30} sdiaoaL jo} 2e TEM, Sussoyo uy) soqus900q 4¢ vo pu 9ES'9s PaO 12aK a1y 298° L$ Aq umesps0no 8 | wey ApourDer ‘219 30) 424 pue hyouroe Jo} s9BveU> UaUIOTENS owOOL! OM cos predoid way | does ponooe Aisunets —_sequl0seq LE LO coo'es we 00's Ayouners 120k aig uipied use ces : predesd uo : oszs poniooe, a ‘Auenuer | uo Jss0ussnq $,pe0H ‘ie Jon] ©} Saye UoHeUHO}U BuywojO} UL, arin oR S| My suonenda 0 sjunos9e- Jotnp asn osusde Yoee Jo} anjon BuISSIU OY aIeINOIED OL ‘suoukadaid pue sjenso0e Buisor uypryouy uonewuioy Jo 8B WO, "sanIEA sate “seun6y queworers eluodu! GuresHL, 2jeiNaIe0 01 NOK o: Jado pue syuowked ‘spio20) ayajduoouybe performed to obtain the correct identify which fgures you need to ‘Cash received from credit customers. Bal ef at 31 July 20%9 To be able to complete the RLCA account we need four figures: Roceivabies at 1 August 20X8 Cash mesived from cre Receivables at 31 July 20X9, and ) Credit sales for the year. customers Lot's now work through each of these figures in tur: (1), Receivables at 1 August 20X8 (opening receivables) willbe the same as last year’s closing figure of $98,425, 1 cash received during the year was $245,675 and $53,435 (0 cash sales then the remaining $192,240 ($245,675, '$53,435) of the receipts relate to payments from credit customers. fore the closing receivables figure is $106,550. ales can now be worked out by filing inthe Taccount, as | 199,865|Cash received fom 192,240 cred Balcifat 31 July 209 106,050 298,290] 298,290 ‘Therefore the correct answer for fatal sales i as follows: 8 Cash sales 53,435 Credit sales 199,865 Total sales 253,300 —Taide ‘samnb 12189 0 2Ige q pinous aim youd 25046 pue safes jO1800 ue aBeyuaoied uiBseU 0 dn-yew au s2y}@ MOU am 682 000" word 500] %0z o00't 1yo1d ss015 $4004 (oo0'v) sajes 0800] %02 000'r sees 01500 ‘4824 000'S sojes|%001 000's sores ores orey s aH aE "Nok apyroid Layo im SuonSenb weXS woud $8016 noge uojeuuojur an iieia pue wiEHEW BuIA oozs a oszs 9 cows 9 osis cainfy sejes s04 seu, ‘dn eu 9467 & pue 098s J0 $9125 701800 SEY NCW EUI0 | sonew 1) Fe Bulbwersiopun inok jse4. _ a ‘492 = 008 x(000"r000'H) = dn HEN + +602 = 001 x (090'G/000"t) = uib1eW woHd S801 00's word ss015 (000'v8) sores 401809 ooo'ss sees Co sajes J0 800 40 sees soins Jo of aDIed & Se passords oq Ueo Woxt 53015 ujBsew pue dn yeu ~ sone s yayduIOTHT[Incomplete records Val (Fecveurunderses Jethro Longhorn can youth oowng wi road usnse Margin pening imi $800 | Cong neta $600 Pchess $2840 ‘Complete Jethro's income statement withthe above figures. Missing inventory flaures the adopiion of powerful comp systems) many businesses did not keep an account "They would keap records of quantities would not complicate matters by keeping © 41 sccounting records of costs and valuations. Instead they would perform 2 = year-end reconciliation of valuations using the principles discussed earlier in 5 this book. ‘also possible to use the methods described inthis chapter to calculate the value of inventory. Remember that cost of sales is equal (t simple to opening inventory + purchases - cbsing inventory. We have just lusrated how to work out cost of sales using margins and mark-ups, We <1) can also use edger accounts and eash cecoeds to reconstruct otal * purchases forthe year. In combination we can use these methods to entity {the value of either opening or closing inventory. «Jack Spralt provides the following information about his business: Sales 100,000 (Opening inventory $10,000 | Purchases $82,000 cot af Gale soe. ee $3,000 2224s Wh: A $12,000 © $69,000 D $5667 | Double entries for inventory and lost inventory Actual closing inventory is posted by: Crincome statement X Lost inventory wil still be cresived to the income statement so that tis ies. However, th ide of the entry will depend lost inventory has been insured! linsured: insurance company (Other receivablesicurrent asset) Crincome statement (Cost of sales) W not insured: Dr Income statement (Expense) Crincome statement (Cost of s Mark up 25% “cep _ Ce con sPadle & Sales $10,000 ‘Opening inventory $2,000 Purchases $7,500 Prepare Fred's income statement and show the journal to record closing Inventory,ae looo'ze wa 200g | cows cose ——pamayenocnlonres «eae pap sijosd 120 wouino = oge's$ — 09r'6S | seaK wwauino + eBuIiee Pouleo! 180K Joud = sBuweS pOLIEIas BUISOKD 00r'68 = sBumses poureiog sbulusee pours! = o08'e$ 02s — ores dn pua am e;nunoy RQ AB UEHE-25 am 08" + sSuuues pouryes + 0028 = OOF'ELE eto} + senuasel soigo + sSujuse poueras + ended axeys = S125 ‘9 Stzomsue 320102 4. ‘ssomsue Buppueysiopun anok yso4 (op stn iow = ‘Areununs soydeugcredit sales + Total receivables cash sales = $50,000 + $15,000 = $65,000 Receipts (8) Balance Wt Balance cif0st 0s" 00% (000'8) (oos"t) 09's 00'z ooo'at s s o00'za o09"o1 ‘24 fq ppkousep KuojuanUi paunsuiun jo Gurpi0ses ain Guroa (sojes jo ayoad 805 (9) 980) A100) soseypines ‘Auowonus Buu9do 'sajes 0 180 sae ayoud ss019, (8) 801 Aojony eoqwanus Busi seseyoines Osis = 9652 x 0088 wos ss015) \y sysomeue 320109 24. loses = 952 * 000'1$ 1yosd 99015)MiP incomplete records Statement of cash flows Chapter learning objectives Upon camplation ofthis chapter you wil be able t: +. diferentiate between profit and cash flows. tne benefits and drawbacks to users f fancial ‘of a statement of eash flows + calculate cash flows from operating activities using the indirect and direct method + propare statoments of cash flows and extracts from given information,Tae ‘vorsuede souiny puny pue 9p Jo wouKedas ‘uowedeidos esse aIqeUe Or JenUOss> ‘uonisod yseo ayenbape ue~smoy yse oumny esiuane poyedxoun Aue 0} esuods0: UI SMoY Yeo 5 | omo2ye 238101 oyge 2g Kuedusoo a4) an Anngerde pred 9q 0} spusps eayuns oy ounsua. arqeue 01 pue ssoursng an 208889 51 UORISOG Uy ‘Auygeydope jeoueuy pue fouenjos “hypinby soup Jo wowssosse oUp U SISISSe 1eMN LOREWO;L BPINOAG, sseesoufsnq, {wo10pp Jo souBULOHd Moy YseD OU J0,uOSECWOD San 184) Kem & ut moy yse9 Jo sjusuodusoo ueoyUbIS ou 8 ‘Aq poud © 30; uondhosqe ysee pue uoREsSUas ts ‘saquedwoo ey) ainsuo 0} ale J gyi so sanqo—tGo OU ‘Smo aE Fo HiowO IEE TSI 1) ssoussn -0dKe Kota gop Jo jon9} Oxf aBeUeW Osie snus Keun Opis d) | senooe1o1 wone ue 1 uanepinby Jo uonensionupe | eoney uona ew Auouine x21 10 29p09 ‘sadn @ queuads 9589 810m | “ay ut ‘suosoues pue sauy Jayne J0 pood saydére eat ‘swUoUKed .Ho4 uMe}P Wn Kou OU Op Aap “an nos ‘oy osie nq JeaK oy J0 pus OM ‘sroydns sy fed 0) yo} yseo ou anu ng na ‘sseujsng e 05 8 serdey sual 1294 sydaouco asou “Ai Jo sounseaw fay 249 Jo 240 Jo seen jeu) eos Jets eUEUY o yd 09 tun atues 21 Ye UBD {exo poo6 e =} uojerpeidep ‘ypedus yseo OU ONE, Tein pestuscoas axe yey) sosuadxo Jo Jequmnu e osye ave av0U4 “seseuniNd ‘ures ati, “penlaoa! 8] YSe9 OU Inq pasILBoD S| ;p900 uo ype axe SeO1AINS PE SPOOB OMY feo ave (quaweye}s @useOUT BMY WOM) ON asd yup swoyIOX! Sp JO} UOSESS UL UL “moyyses Se OLS oy) 100 1unupe oqul nd aq pinom feun sigop 2164) A8d yOu prnoo 1} Ked 01 o4ge 99 0} SPO pou Kou SIMA ANOMUDE O4.“ONAINS Roun ues jou Soop sh aygenjo1d 24 UDI SsSUISNG E STUN, ees pile oka ‘smoy yseo Jo WOWO}E}S E 104 PooU O41 Z mavens mou HSV 30 Tewos wnaeenis aN 3Klevance of the figures contained wi ions, e.g, bonus issues of shares and revaluations ted in the statement of cash flows (although 3 Format of a statement of cash flows IAS 7 Statement of cash flows requires ar of cash flows 2s gart of ther annual finan ed using standard headings, Ne this chapter. ‘Statement of cash flows for the petiod ended 31 December XXX $000, $000 Peaentowstiomaneatingactiiies Saree SE Cash generated from operations (described ~ oie inca Nw irs pat Dividends paid* 7 Income ako pat Net ash fom operating acts x “Cash ows rom investi SO on Purchase of property, plant and equipment ey es Proceeds of sal cf equipment x inert reed x Disdend reed x 0 x ~ Dividends paid“* - Netcath usd i tnancing aces 1 x x Cash and cash wayne tthe nd otha x periogsuoneredo woy payes0ue8 YseD ‘soguodeo Yse9 | ova'te S0|gen}a091 wos} POnyB091 USED re ao maa Som Sater a mM pesn poyrewy ou. "POYFew ;eNOLY gaxsos ws pec popr roe 000'9re ove'saz sajgensoay Bureyr oR POPOL OM UL 3 ese ae ‘poe'6r vOC'ESE ‘slosse jUauIND-LON ms aero omy 7 eeeeeee eee ceneee eee eee | ae saan aoe ‘oe Sseulsng #0 suonysod jersueuy jo 1ueuoreIS Ou | -usor pous) squounrsanut jesse wvouno sueoUs siveFeAnDS Use e | wee | srunooaejoques Buen oyduveca | supe seoueparunooe nea ie maya wero auesarases = | Et | | care areal rere ees ions 0 suausked yse9 oA) | (svat 899 WON PONIEaes YEO NLA joo Krewuns Buoruysu0o Aq se9h oun ti8od jour Jo wouIei® Bussop put Bu sco og Bunet0 fans ou 0 spose! Bulunoeoe | sponuap 2q ues pouiau nay s4i 20} Aess000U soy Yyse SSO 94, poujow yoeup Buysn suoneinajes jo o1duiexa crdew>chapter [Extracts from te income statement ‘Sales revenue Cost of sales Purchases (no inventory) Wages and salaries ‘Additional information (1) Payables consist of Payables ledger Other Wages acerued the year. method. Re non-current assets '¥o# « Calculate the net cash flow from operating 46,000 258,240 14,650 | Purchase invoices relating to the acquisition of non-currert assets 380,000 have been posted to te payables ledger curing | Operating a Cash received Receivables ledger control account Balance bit Sales revenue 11985,287 | E awa) Payables ledger control account (excluding non-current asset purchases) gj $ Cash paid (8) 41,154,231]Balance bit 210,564 Balance of 258,240) Purchases 1,105,830 96,077 ‘uranic >seidew? a 5 siasse ero. seg ‘eqene00 puspi ‘S0\GeRNIROO Aped ‘uowonue ‘esse weun9 oro oz) (061 uoneioaidop poreinuinaoy ose a00't ‘Sja850 ylino-UON 000s 00s sxoz9x0z ‘wou! se9. 18H! O49 pUE LORIEOd [e!DUBU JO UDWEIES 1804, wueuino a4 Woy, uoReWO,4!‘smoy YseO yo wOWNYEYS e e1eCEXd 0 19P10 UL seo gonpay ysnus sayqeced Ll voronpes 949 asne59q paranpag —saIqesed af seo: uy eseoss9p aun asneseq uo peppy ssojqenioaes u dh pay ina yseo ou post wed ssi e8neD0q polanpag sojqen Poronpep st pred Aiwenioe yseveyu aux) suoesado wos pojesou: {ys29 Jo Hed j0U 6111 osneDaq eG PapPY — aeuOdxe 19020 osv0dso uyseo-Uou e 611 osne9q IO4d of yeeq peppy — UoNeaNd=q ‘vanveo 0} Aresseoau sjueuysnioe ou) axe sounby BuILE ‘2W00U1 94 Uy UMOUS se xe} B10}2q WJ 4) YI SuiBaq BUPHOM SHEL , suojesedo wo) payes2us6 yseo pajesoue6 yseo pue Jeaieq s02U008: owes auioou au ew sul BouaWi Ho9;ip averse, 7S Se. 000'008 006'Srt v1 ove'e rerea 069682 $ 8 wenuooseiem 'sMol) syonaanes2850 yee sae- o> Income statement of Geronimo at 31 December 20X6 + Operating expenses include a loss on disposal of non-current pean the cash generated from operations using the indirect method. 200-409 ve cle ~ Cid chapter 5 Cash from operating act Cash flows may include: rest paid income taxes paid Calculation of interestincome taxes paid The cash flow should be cale the income statement): and + the charge to profits + anyopening of closing payable balance shown on the statement of financial p ‘ATT account working may be useful e.g. Intorestitax payable account 8 $ Interest accrual bit x | Cash paid (8) x [income statement Interest charge x Interest accrual et x —| = x x It there is no change to the opening or should be the statement offnancial positon payable the remaining amounts to be shown undé ‘om operating activities’ within Geronim cash flows.‘Smoy YSED J0 UOLLAIEIS § OWNOIOD, 1 Buysanut wow Soy YseD, Bulpeat ayy sepun ‘uous 09 01 Ueludinbo jo ojes oy WOH speaz0id oun pUE UOC UE Ue\d Auadéad eseyoind 0} moyino YseO euy aYeINEIED PLE (aad oseyoind ob uses =) AD Ie SuORIPPY semnby Buuereg se voyo — puno} smoy ysee pounbos ax pue siunos0e 4 aseut ‘qu parequa aq uaiA pinays siuauiayes[eOUELY 2ounos ayy Ut Popo. BEC) (quenayas sieum) yunon0e syesodsip tunosoe uoweroaidap poreynuunsce yunos0e i809 ‘sjasse Jo eseyo Yee 40; paunbo! aq wwe sunosoe 4 Bumoyo; UL posn o1e sBypuom tun0oe 1 1eu1 Par yse9 0 uowores & un4o0d94 240}610K) 5! ‘SMOY ‘aJenoIe9 o} ysan|NI ay UEYO we sLUNOWE esoyL {WoiaiaNABS Jo 9]RE jo epassoia ue yuowdinbo pur yueid *Kyadoud jo aseysind yo uonein>qeD Bride ‘sh04 USED JO WEWHIEYS §,oUILOIED ‘ya soquaae Bunsonuy wou, OY YSeD , mous 20 0} penteaei ysaiequ ue spuEpINp OM ei argenaoss ysoseIU1 1124s 914094} ug aigensoas sare, x (9) poneoas use| sryosn 09 eu BUBYOMIUNODD® LY 04 e;sueUY Jo maW=}e}s Bulso} pue Buado yy wou souejeq sejgenanes jenafas fue pue yueuieyeys euuodut ou ut UMOUS ‘aigeniones awooul ay) YNoa Jo yuNoaae OYEI PINOUS UOREIRO|ED OU) UTED ‘ianja501 spiopiAip pu ysaxaquT jo uoneINdIED quouidinbe pue jueld “*yodoxd o aseysund ‘epnpul Kew sMoyano USED ‘wewdinbe jo 9/88 Jo spoa001d panjeses spuspinp poneoos sos) ‘opnjour Kew smopu yseD sonianze Bunsonuy wos} USED 9 2jowewsiis”Mp _sratement of c 7 Cash from financing activities, cash inflows may include: issue of shares of oaneldabentures. proceeds proceeds of Gash outflows may include: ayment of ioansidebentures. Calculation of proceeds of issue of shares, “Ths cash inflow is derived by comparison of the sum fought forward and sum carried forward balances on two accounts: + share capitat share premium. Iculation of proceeds of issue of loans/repayment of loans 1s cash fow is derived by simply subtracting the brought forward balance the carried forward Janies can only record dividends paid in the financial statements the ‘om retained earnings. As ‘cash flow is simply the vid Test your understanding 5 Identify and calculate each ofthe amounts to be shown under heading “Cash Rows fr within Geronimo's | statement of cash ows ‘chapter s: ‘Statement of cash flows for Geronimo for year ended 34 December 20X6 $000 Cash flows from operating activities ‘ seco Cash generated from operations Interest paid Tax paid Net cash from operating activities Cash flows from investing a Proceeds of sale of equipment Purchase of propery, plant and ‘equipment Interest received Dividends received Not cash used in investing activities Cash flows from financing activities Proceeds of issue of shares Repaymentofloans Dividends paid Net cash used ir financing activities Net increase in cash and cash ‘equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end period~ 6rseideus f o00'0z, (ooo'et) oo'ee (ooo'zv) 00°08 «o00'021) oca'o0z s 2x07 rn a5 oer ‘Pappe 10U ‘Pelonpep useq eney pinoYs seiqeked uy eBE—z0u1 (E) ;pajanpep jou ‘poppe used ancy pinous jesodsip Uo sso} SUL Jo uoyaaup pue sseibosd ‘uogised au uo wood ‘parede ‘ney nof juowore}s OM pu ‘UaN—D sjuNOSOe pesuRALNS oN BUST (a) JOU, "PaPpE UBER AREY pINOYS SaIGENBI U! BSEO:9U), _-9PeW 99g oneY I9eAXO O41 Jo SU Bumoy out sejgeked ui déea.0u), sajqengoo: u os¢9.2U Jesodsip uo sso, ‘woud Bunered wouwebiy sn :5010N, 280K 0) 01d }0N sare (oo0'0s) sosuodi3 000'001 (o00'001) 988 301809, 000'002 saeg s 9xoz a ovo'eve coo'r 00'09 ooo'ost 00's woo'oz oon'y o00'0 ooo'eve 00'08 000's9 00'69 o00'08 00's ooo'sz c00'9 ooo'z ‘o00'or 00'zez o00'e coo'a ‘00's cover doo'ee 00'9r (000'41 090'06 000'0» (000'S 00°11 000°9 s 8 8 udea 809 AD 2x0z e‘uowebjy Jo siunon0e oy) “uuo4 postiewLNs ut “ROjeR LONI B12 NOA wea sejaeed soi0u ueo7 S40} pee 1s yo seu0ys Kieupig yuea seigenoooy o00'at 00°08 soupire | | ‘000'» 00°01 weld S20 udeg 1509, 9xoz “1x02 PUE 9X0Z 10} ‘Auedwod por~ Which ofthe estcisms is vai? Ls tony fe 2andzony | > nonocttnem ‘Test your understanding 9 Which ofthe following could appear in a company's sistement of cash flows? Proposed dividena Dividends received Sa [savaTmtaamas The follows 210 provided to the accountant of Caddyshack Lt, raft of $469,880 in the year ended 31 ‘The following extrac ofthe statement of financial position at 31 December 20X5 and 20X6 have been provided: 31 December 31 December 20X6 20x5 000 000, 145 167 202 293 27 16 ‘Trade payables 196 Interest accrual . opera. gro Ke Wes ase af deere Sash. cl 13 Gea 4 loss fax 4 So. emma es pega es—eriedewp oz 00s 0008 aBiey2 uoyepade|oet spa @ 19 s2uereq]sh sjesodeig jooos ‘onejoeidep payepunoay (so) Jodo wioy poresoua8 use, Smoy 589 jo WEUIESStatement of cas? flows cash paid (8) Tax pavable cit ‘chapter 39) Interest received $15,000 Dividends received Dividends receivable | Dividends receivable 50] Cash received (3) 60 br Income statement Dividends receivable oft s7 ividends receivable 7 | x| x Balance bit ‘Additions (= Cash toa {ns | ES yo sous - | 2 (sp eh aa oy wots) se (Cue) red spuoeina oz uqeoueea pied spuopisia proaerveeq sey gO 04S BO}O0UL, + ‘o00'o02s si 9x02 v1'Sx02 U 990'008S SEM tundoDe HED] uO SDUEIED + woo} jo wouKedon i | won ones} anes yo sp3890%e os nooo coc Bu ana) el ' (eu) qwotwdinbs pu ued “Kyadaud jo asoypung S e “mide 09 quouudinbs jo 65 Jo $p9000%4 00! “en | soyanoe Buysonuy wy smoy 4s sonince Bunesodo wos payes0u06 yse9 39 901 4 Payes0U06 YseD ION z oe = te pedxe, | 2h | ———___——__— z61 ped yoru fF | 08 | suoqatodo way pereieue6 yse5 |- | somian2e 6unesodo wou smoy use: ° soot 0008 : ss SMoH USED | 09 (a) spose s resodsip uo 9807) | : st | parenunaov|oe ia) | soos jit ae an en menor ‘aiesodsia Gradeyschapter 25 Fstatement of cash f0¥S —— = | Workings ‘statoment of Cashflows for Algernon for year ended 34 Decenber S007 (0) Rectot rom sales Fe s s Receivables control © | ash nows from operating activities i asl e ‘Cash receipts from customers (0) 490,000 | Balance bit 40,000] cash receipts (6) 190,000 cemployeos (2 (185,000) - 240,000] ae Cash generated from operations 1000 Intorost paid Dividends pale (20,000) . (W2) Payables and wages controt Net eash from operating ativiies 2,000 | Cash flows from investing activities — Payable and wages control Purchase of tangible non-current assets (41.000) s Cash paid (8) 185,000] Balance bit 40,000 (60,000) Depreciation ecoolene tot asesrecostot 130,00 (71,000) sales (W3) ° Ccash flows from financing act Balance aif 60,0001 j issue of shares (10,000 + 2,000) 12,000 eres Loan notes 0,000 = ! 247,000 |. Net cash from financing actiitios . 217,000 Net decrease in cash and cash equivalents z na | cashandeasn equvatans at January 20x7 3,000 (Wa) Cost of sates i ‘cash and cash equivalents at 31 (4,000) Cost of sales December 20X7 ; aaa Opening inventory payed Purchases and : 31 December wages (8) 65,000 20x6 20xT 5 8 Batance at ark 3,000 (4,000) 185,000 or astuaworers epueuy ‘41 UM pOUFEIUCO LoREULO}L OMY WY SUOFENIOUCD PEA MEG) « Sones voomog SdiySuORRIOUAU OB Yee uonisey fouomuy = br Augewod = ssones Bunundooe ox Summoyoy aun uooMiag drysuonejas ow exdoI pue alee). Sones Jo wonejaidioy au 30 asadind oy WER owuounus ssoutsng e ul pasn s} uowareys retoueuy Jo sisKieue pue uoeroxdait aut Moy 2auoSeq)- 6 ‘0k 2148 29 jm NOK seideuo sip Jo UoRaIdIeD vod, saanoalgo Guruesy sosdeys, sjuaW9}e)]s Jeloueul JO UoHejosdsayUl < ¢ ou op suogoesuen J0\Yo 9X), 019082 YseD @ AnfORU! Panlooal spUEpINIG ‘9 S]s9msuE 7991109 OL Lyseo-uoU e S14 Se mo1d 01 yo89 pape dq PIOUS [esodsIp Uo sso V a st somsue 90109 ML ido Oularey ip Any voog eney sess ot qn paysonul sey UOUREIY (q) "Smay) yse9 jo SWAT~ chapter 20 ‘Other potential users include: 4 Overview financial institutions employees professional advisors to investors nancial journalists and commentators, |) 3 Ratio analysis ctions insets of data, kod to changes sales ‘upon wages and wus to see those 15¢ on their own, thus, the following points should serve that a business has made profits of $1 milion what does t the business? Does It suggest the business fs a success? in the previous year th ed What does a change in the ratiomean? + Whats the norm? + ‘What are the limitations of the ratio? important that users of financial statements can inter id conclusions. Type: © use of comparisons to prior years, forecasts and competitors. Users can compare sales and expense figures, asset and lability balances and cash flows to perform this analysis. 4 Profitability ratios Gross.profitmargin. On a unit basis the gross profit represents the difference between the unit sales price and the: ‘The margin works this out on an average basis across all sales for the year. Gross profit margin is calculated as follows: Gross profit ‘When interpreting financial statements it is important to ascertain who 00% Te ara od urate oy ond | Sales revenue + management — concemed | this is the main measure of ih the rend and level of profits, sinceoe ade ‘ORUONDI GA DUH UT BBUEYD O1 pexDedKS jou Bi0}6r—uR ue (s1509 Aadosd “6) paxy-wes 10 pexy ase s3s09 ewos eu pul U1 89g “suoseduscs auI-kq-ouy soyRny S5u0e1d | wournord 10} oon sins fons ust evo oseanur oy GuAn 0 Gonpax8 ou @ Bun hon 09 feu a saved ood BONS ‘Beu2a1ad youd ss018 ou Jo Ny Us UNO SH Uo pasn oq Feu sores 0809 @s9psIp ou Seop Kuedujoo ayy pue srasN 0} In;9SN hyenda ‘513 99a UIBseW Word S506 oun UEWA SLOPE) B20u Kq pEIDEME SI SIU ‘sounjon sayes s2M0 'sn pjnom siojamap S9}eS 40 BuNyOn UBLY | poddns 01 oo} “aiduexs jevodus Keoads 11800 jony GuSueyD Aipides Bursmianpe uy sjuounsenuyjuecwubis squauoaiSe eas u sobuey 204 107908 ewes ‘fang injaen 1 uj6seu yord 55036 yo uosuedusos Kuedwo2-s0301 gap ajqesonesa: sjesodsip 10 suonsinboe ofise} 0) enp uonanaidap 0} saBuey> (oye fouepunpas waynes) suisyed yuewKordusa Ut soBueyD Syo-ym queoyiubis gaunupuodxe (a2? eases ‘e}duexo 10} ~ S925 0 1500 0} pareo|e Bulog sis00 10H | 40 ¢(Weves UOIYse Se Yons “908K fattejon © w sayes0do Auedusoo sup azaumn fren) Syo-ewn ALOWOAL, elpr0s spo08 aia oinjonynueLs Kuedwo9 ou S20p “8 Jom140 || Aueduioa exp Jopun 1800 ain 818 ‘05 1 :S}800 ,oSeLDING, paseSIOUt ‘onisuoyxdiuos @ jou S11 'suonsoB6ns 2 a4) JopIsUCO pabueYD sey 88 poulewes sey wBrew ssou6 ou auasaidas ase uiBsew Buneedo ay ng ‘moy samnseow osje ulBiew Buneiado oui seayvos pues) Nos pue eonpoud ues Auedwioo 2 Aigewoud Mou Jo ainseew e 5} YBseu SSO.6 Out suonenes fxoweny = ‘anvanes sales eee 001 x —= ‘9900 2801 Liga ‘88 poteynojeo s) UiBsew yosd you 40 wyBsew yosd Bunesedo ou, Vilar Vou) HEN WoL BUTEAD‘chapter 20 ‘other costs are variable (2.9, packing and distribution, and ble business with valuable assets such as property.) | Furtnermore, a iow return can easily become a loss ifthe business turn, ROcE “Tis is an important analysis too! as it allows users to assess how much fs generates fom the capital invested init. Profit margins of due to dies Net asset turnover ‘The net asset turnover is Sales revenue = times pa Capital employed (net assets) 100% business. Generally speaking, the highor the business Is. Capital employed is measured as: jo the more efficient the = equily, plus interest bearing finance, Le, non-currentfoans plus share ‘capital and reserves, ‘Note that this can be further subdivided into: be compared with: ‘non-current asset turnover (by making non-current assets the ided there hrave been no changes i? ie adjustments have been made tO not replacing u .OCE where the company's management turn a8 part ofits budge! provedur®. The short term affects the business to mee! the target May this does not mean the business is actual be an indication of future gains.