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  • FINANCIAL ACCOUNTING

    ACCA

    F3FIA

    FFA

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    ACCA QUALIFICATIONCOURSE NOTES

    JUNE 2012 EXAMINATIONS

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    THE BEST THINGS IN LIFE ARE FREE

    Free ACCA Lectures and course notes by Paper

    (on line on http://opentuition.com/acca/)

    F1 Accountant in Business / FAB Foundations in Accountancy

    F2 Management Accounting / FMA Foundations in Accountancy

    F3 Financial Accounting / FFA Foundations in Accountancy

    F4 Corporate & Business Law (English & Global)

    F5 Performance Management

    F6 Taxation (UK)

    F7 Financial Reporting

    F8 Audit and Assurance

    F9 Financial Management

    P1 Governance, Risk & Ethics

    P2 Corporate Reporting

    P3 Business Analysis

    P4 Advanced Financial Management

    P5 Advanced Performance Management

    P6 Advanced Taxation (UK)

    P7 Advanced Audit & Assurance

    To fully benefit from these notesdo not forget to watch free ACCA Lectures

    on our website

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    CONTENTS

    1 Introduction to Accounting 12 The Statement of Financial Position and Income Statement 53 Double Entry Bookkeeping 154 Accruals and Prepayments 255 IAS 37 Provisions, Contingent Liabilities and Contingent Assets 356 Depreciation 377 The provisions of IAS 16 Property, Plant and Equipment 478 Irrecoverable Debts and Allowances 499 Inventory and IAS 2 5510 Books of Prime Entry 6511 Journal Entries 7112 Sales Tax 7313 Accounting for Limited Companies 7914 Statements of Cash Flows 8915 Bank Reconciliations 9716 Control Accounts 10517 Adjustments to Profit and Suspense Accounts 11318 Mark-up and Margins 11919 Accounting Conventions and Policies 12320 IAS 10: Events after the Reporting Period 12921 Intangible Assets: Goodwill, Research and Development 13322 IAS 8 and IAS35 13723 Group Accounts The Consolidated Statement of Financial Position (1) 14124 Group Accounts The Consolidated Statement of Financial Position (2) 14925 Group Accounts The Consolidated Income Statement 16126 Group Accounts Further Points 16527 Interpretation of Financial Statements 167

    Answers to examples 173Answers to Multiple Choice Tests 195

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    June 2012 Examinations Paper F3

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    June 2012 Examinations Paper F3

  • For latest course notes, free audio & video lectures, support and forums please visit

    Free lectures available for Paper F3 - click hereChapter 1

    INTRODUCTION TO ACCOUNTING

    1 IntroductionIn this chapter we will look at what accounting is and why accounting information is prepared. We will also consider the different types of business entity that you can be asked to deal with and also the different users of financial statements.

    2 Definition of accountingAccounting comprises the recording of transactions, and the summarising of information.

    Recording

    Summarising

    Statement of Financial Position (Balance Sheet)

    Income Statement

    1June2012Examinations Paper F3

    http://opentuition.com/acca/f3/free-online-lectures-for-acca-paper-f3-financial-accounting-int/

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    3 Types of business entityThere are two types of business entity that you can be asked to deal with in the examination:

    Sole trader

    Limited liability company

    In all cases, we apply the separate entity concept that is that the business is regarded as being separate from the owner (or owners) and that accounts are prepared for the business itself.

    June2012Examinations Paper F3

    IntroductIontoAccountIng chapter12

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    4 Users of accounting informationUsers of the financial information for a business will include the following:

    management

    owners / shareholders

    potential investors

    lenders

    employees

    the government

    the public

    The main financial statements that are likely to be available to all users are the Statement of Financial Position and the Income Statement. Other statements may be required to be produced (or may be produced even if not required), such as a Statement of Cash Flows. We will consider these later.

    3June2012Examinations Paper F3IntroductIontoAccountIng chapter1

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    TestQuestion 1

    Which of the following are differences between sole traders and limited liability companies?(1) A sole traders financial statements are private; a companys financial statements are sent to shareholders

    and are publicly filed(2) Only companies have capital invested into the business(3) A sole trader is fully and personally liable for any losses that the business might make; a companys

    shareholders are not personally liable for any losses that the company might make.

    A 1 and 2 onlyB 2 and 3 onlyC 1 and 3 onlyD 1, 2 and 3

    (2 marks)

    June2012Examinations Paper F3

    IntroductIontoAccountIng chapter14

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    Free lectures available for Paper F3 - click hereChapter 2

    THE STATEMENT OF FINANCIAL POSITION AND INCOME STATEMENT

    1 IntroductionIn this chapter we will look at what information the Statement of Financial Position and Income Statement are giving and also examine the standard layout and terminology that will be required from you in the examination.

    2 The dual (or double) effect of transactionsLet us consider the effect of the following transactions on a sole trader:(a) The owner puts $10,000 into a separate bank account for the business:

    The business owns

    The business owes

    (b) The business buys a shop for $2,000The business owns

    The business owes

    5June 2012 Examinations Paper F3

    http://opentuition.com/acca/f3/free-online-lectures-for-acca-paper-f3-financial-accounting-int/

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    (c) The business buys goods for resale (in cash) for $1,000The business owns

    The business owes

    (d) The business buys more goods for resale (on credit) for $2,000The business owns

    The business owes

    (e) The business buys a car for $3,000 (cash)The business owns

    The business owes

    (f ) The business sells half of the goods for $2,400 (cash)The business owns

    The business owes

    June 2012 Examinations Paper F3

    ThE STaTEmEnT of financial PoSiTion and incomE STaTEmEnT chapter 2 6

  • For latest course notes, free audio & video lectures, support and forums please visit

    (g) The business sells the remainder of the goods for $2,800 on creditThe business owns

    The business owes

    (h) The business pays $600 of the amount owing, on accountThe business owns

    The business owes

    (i) The business pays electricity of $200The business owns

    The business owes

    7June 2012 Examinations Paper F3ThE STaTEmEnT of financial PoSiTion and incomE STaTEmEnT chapter 2

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    (j) The business receives half of the amount owing to it, on account.The business owns

    The business owes

    (k) The owner takes $1,200 from the businessThe business owns

    The business owes

    Check on profit:

    In each case, the summary we have prepared is effectively a Statement of Financial Position and shows the owner: how much they are owed, why they are owed it, and how the amount is held within the business.

    The check made on the profit is effectively an Income Statement. This shows the owner how the profit was actually made.

    June 2012 Examinations Paper F3

    ThE STaTEmEnT of financial PoSiTion and incomE STaTEmEnT chapter 2 8

  • For latest course notes, free audio & video lectures, support and forums please visit

    3 The Statement of Financial PositionBelow is an example of the layout of a Statement of Financial Position for a sole trader:

    Statement of Financial Position as at 31 March 2009

    $ $ ASSETS

    Non-current assets Land and Buildings 100,000 Plant and Equipment 50,000 Fixtures and Fittings 20,000 Motor Vehicles 30,000

    200,000

    Current assets Inventories 10,000 Accounts receivable 12,000 Prepayments 3,000 Cash 4,000

    29,000 $ 229,000

    CAPITAL AND LIABILITIES

    Capital Capital at 1 April 2008 130,000 Profit for year to 31 March 2009 50,000 Less: withdrawals (10,000)

    170,000

    Non-current liabilities 8% Loan 25,000

    Current liabilities Accruals 2,000 Accounts payable 20,000 Bank overdraft 12,00

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