question-2-single-company-accounts.doc

8/11/2019 question-2-single-company-accounts.doc

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Paper F7

Question 2 Single Company Accounts Guide

Step 1: Read Requirements

- See if it is asking to prepare statements of Comprehensive Income, Financial Position, and/or

Changes in Equity

Step 2: Cec! Additional "otes #or:

"on$Current Assets Cap %

- Costs- !evaluations- "epreciation- #overnment #rants- Investment Property- $orro%ing Costs

Reporting Financial Per#ormance Cap 7

- Changes in accounting policies

- Changes in estimates- Errors- &on-current assets held for sale- "iscontinued 'perations

Pro&isions' Contingent (ia)ilities' and

Contingent Assets Cap 1*

Financial Assets and (ia)ilities Cap 1%

- (easurement- )mortised cost- Compound Financial Instrument

(easing Cap 1+- 'perating *ease- Finance *ease

(imitations o# Financial Statements Cap 2,

- Effect of !elated parties p +- Events )fter !eporting Period p +.

-ntangi)le Assets Cap .

- !esearch and development costs- )mortisation depreciation of intangi0les1- #ood%ill

-mpairment o# Assets Cap +

- )ccounting treatment- Cash generating units

-n&entories Cap 12

- (easurement- Cost- !ecognition of E2pense

Construction Contracts Cap 12

- !evenue- Costs

(egal /s Commercial /ie0 Cap 1.

- Consignment Inventory- Sale and !epurchase )greements- Sale and *ease0ack transactions- Factoring !eceiva0les

- !ecognition of !evenue

Accounting #or aation Cap 17

- Current 3a2- "eferred 3a2

3i&idends

- if suggested no calculation1- "eclared calculation1- 4Charged4 no calculation, already included1

- "ividends reduce e2penses allocated ifincluded

Step *: Start 4it -ncome Statement

- calculate Cost of Sales- admin and distri0ution E2penses- 'ther Income- 3a2ation- 'ther Comprehensive income

Step %: Statement o# Canges in 5quity

Step .: Statement o# Financial Position

- Calculation of non-current assets


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Step *: Statement o# Compreensi&e -ncome Statement

56777!evenueCost of Sales calculation 0elo%#ross Profit

)dministration E2penses calculation 0elo%"istri0ution E2penses calculation 0elo%Finance Cost interest on preference shares and loans etc1Finance Income'ther Income like rental, grant income etc1Profit $efore 3a2Income 3a2 E2penseProfit for the 8ear from continuing 'perations

Profit from "iscontinued 'perations

'ther Comprehensive Income#ains on !evaluation

'ther income/ losses3otal Comprehensive Income for the 8ear

9919

919191999

919

9

99/91

9

Cost o# Sales

'pening InventoryPurchases*ess: Closing Inventory"irect Costs for (anufacturing"epreciation relating to P,P,E'ther E2penses allocatedCost of Sales

99

919999

Administration 5penses

*egal Fees 9)mortisation E2pense 9'ther E2penses )llocated 9

3istri)ution Costs

(otor ;ehicles E2pense 9(otor ;ehicles depreciation 9'ther E2penses )llocated 9

Step %: Statement o# Canges in 5quity

ShareCapital

SharePremium

!etainedEarnings

#eneral!eserve

!evaluation!eserve

3otal

'pening $alanceChange in )cc Policy3ransfer to !EErrorsIssue of Capital"ividends

Comprehensive incomeClosing $alance

9

9


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Step %: Statement o# Financial Position

56777Assets

"on$Current Assets

Property, Plant and Equipment see 0elo%

Intangi0le )ssets good%ill, patents etc1 chap =Investment Properties Chap 'ther )ssets motor vehicles etc1

Current Assets

Inventories3rade !eceiva0les'ther Current )ssets)ssets held for saleCash and Equivalents

3otal )ssets

5quity and (ia)ilities5quity

Share Capital#eneral !eserve!evaluation !eserve!etained Earnings

"on$Current (ia)ilities

*ong-term $orro%ings de0entures, preference shares etc1"eferred 3a2*ong-term Provisions chap >+

Current (ia)ilities

3rade Paya0les'ther Paya0les interest paya0le on loans and preference shares1*ia0ilities for assets held for saleCurrent Portion of *ong-term $orro%ingsShort-term $orro%ingsCurrent 3a2 Paya0leShort-term Provisions chap >+

3otal Equity and *ia0ilities

9

999

9999


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"on Current Assets Capter %

-nitially measured at cost: Cost is made up of:- Purchase price less trade discount or re0ate- Import duties and non-refunda0le purchase ta2es- "irectly attri0uta0le costs of 0ringing asset to %orking condition for intended use

- ?navoida0le costs of dismantling

&ot part of P, P, and E- administration and other general overheads- start-up and pre-production costs- Initial operating losses 0efore asset reaches planned performance

@hen asset is e2changed it is valued at fair value for 0oth assets

Re&aluation

#ain on revaluation after asset %as reduced in value"r )sset ;alue ,777 $/SCr Income Statement ,777 P/*

Cr !evaluation surplus =,777 $/S"ecrease in valuation after asset increased in value"r !evaluation surplus =,777 $/S"r Income Statement ,777 P/*Cr )sset ;alue ,777 $/S!evalued higher and depreciation"r "epreciation A,777 P/*"r )sset ;alue ,777 $/SCr !evaluation surplus B,777 $/S

3epreciation metods

- straight line- !educing 0alance

- (achine hour - Sum-of-digits

3epreciation #or Comple Assets assets made up of separate components are each depreciated overtheir useful life6&erauls treated as additional component and depreciated over the period to ne2t overhaul Ifoverhaul not qualified, then reverse all old overhauls and charge a ne% depreciation for the assetoverhauls %ere associated %ith

Go&ernment Grants

- method > !educe cost of asset 0y grant to get carrying value- Set-up as deferred income !educing it every year 0y its life#rant income D grant accrued during year plus grant current lia0ility grant repaid

-n&estment Propertyproperty, land, or 0uilding held to earn rentals or for capital appreciation or0oth (easured at Fair ;alue or Cost (odel Increase in investment F; is an investment incomeE2cept if it is stated to 0e part of comprehensive income

orro0ing Costs interest and other costs incurred 0y an entity in connection %ith 0orro%ing offunds 3his increases the cost of asset 0y funds 0orro%ed for making the asset capitaliation1

Specific loan D *oan utilied 9 loan rate 1 9 G of months / >1

For #eneral loan D amount utilied 9 %eigthed average rate1 9 G of months / >1


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-ntangi)le Assets Capter .

!esearch %ritten off as an e2pense as they are incurred P H for e2amples"evelopment Costs may qualify for recognition as intangi0le asset thus making one P H for criteria)mortisation 4depreciated4 over its e2pected life

-mpairment o# Assets Capter +

reatment )sset is measured at *o%er of:Carrying )mount &$; D Cost )ccumulated "epreciation1, or!ecovera0le )mount if lo%er there is an impairment1, %hich is higher of- Fair ;alue market value at arm6s length1- ;alue in use @hich is present value of all future cash flo%s

Allocating loss #or -mpairment o# Cas Generating 8nit

- First, reduce to any assets that are o0viously damaged or destroyed- &e2t, to good%ill- 3hen all other assets on a pro-rated 0asis

Reporting Financial Per#ormance Capter 7

Canges in Accounting Policy applied retrospectively, to events and transactions as though it hadal%ays 0een in use

Canges in Accounting 5stimates not applied retrospectively Effect of change should 0e includedin the determination of net profit or loss in one of:- Period of Change if only that period is affected1- Period of Change and future periods

5rrors corrected retrospectively (ost of the time, can 0e corrected through net profit or loss for thecurrent period

Assets eld #or sale measured lo%er of Carrying )mount or !ecovera0le )mount

3iscontinued 6perations present and disclose separately in the Income statement

-n&entories Capter 12

(easurement lo%er of cost or &et !ealia0le ;alue

Inventories include:- #oods purchases and held for sale- Finished goods- @ork in Progress- !a% materials

Costconsists of purchase price, costs of conversion, and other costs 0ringing them to present locationand condition

Recognition o# epense

- Carrying amount is recognied as an e2pense in the period %hich the related revenue isrecognied

- 3he amount of any %rite-do%n of inventories to &!; and all losses of inventories are recogniedas an e2pense in the period the %rite do%n or loss occurs

- 3he amount of any reversal of any %rite do%n of inventories, arising from an increase in &!;, isrecognied as a reduction in the amount of inventories recognied as an e2pense in the period in%hich the reversal occurs


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Construction Contracts Capter 12

5tract o# alance Seet step A 56777Recei&a)les

#ross )mounts due from customers3rade !eceiva0les

Current (ia)ilities#ross )mounts due to customers

9-

95tract o# -ncome Statement 56777!evenue step +E2penses step +E2pected *osses step Profit/loss1 step

991919

56777Step 1: Compare Contract /alue and otal Costs

Contract ;alue 3otal !evenue1

3otal Costs: Costs Incurred to date 9 Estimated Costs to Completion 9 'ther Costs )ssociated %ith construction 93otal E2pected Profit/ loss1

Step 2: 5pected Pro#it9 loss; #or te period

3otal E2pected Profit / loss13imes completed to date sometimes needs calculation1Profit / loss1

Step *: Re&enue' 5penses' and Pro#it and loss #or te period

3otal !evenue 9 completed less revenue previously recognied3otal Costs 9 Completed less Costs previously recognied

)dd: Foreseea0le losses >77 - completed1Profit/ loss1 recognied in period

Step %: Calculate amounts due to9 #rom customers

Contract costs to date!ecognied Profit/ loss1 to date step Progress $illings to "ate)mounts due from/ to1 customers

9

919

99

991

99

99

919/91


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e (egal &ersus te Commercial /ie0 o# Accounting Capter 1.

Consignment -n&entory

Indications of asset status p A=Inventory in su0stance an asset of dealer

- !ecognied in dealer6s 0ook %ith corresponding lia0ility to manufacturer- )ny deposit should 0e deducted from lia0ility and e2cess as a trade paya0leInventory not in su0stance an asset of dealer- &ot included in dealer6s statement of financial position- )ny deposit should 0e included under 4other receiva0les4

Sale and Repurcase Agreements

Indications of sale of asset pAIf repurchase unlikely, it %ill 0e treated as a saleIf it is likely to 0e repurchased, it %ill 0e treated as a secured loan 3he seller should continue torecognie the original asset and record proceeds received from 0uyer as a lia0ility Interest should 0eaccrued

Sale and lease)ac! ransactions

If it results in a finance lease it is in su0stance a loan from the lessor to lesseIf it results in an operating lease and %as conducted at fair value, then it can 0e regarded as a normalsale transaction 'perating lease installments are treated as lease payments, rather than repayments ofcapital

Factoring o# Recei&a)les9 de)t

Indications of treatment p AH

If not an asset of seller receiva0les should 0e removed from statement of financial position and nolia0ility sho%n in respect of the proceeds received from the factor Profit and loss should 0erecognied

If it is an asset of seller a gross asset should 0e sho%n in the statement of financial position of theseller %ithin assets and a corresponding lia0ility in respect of proceeds received from factor should 0esho%n %ithin lia0ilities Interest element of the factor6s charges should 0e recognied as it accrues andincluded in profit or loss %ith other interest charges

Recognition o# Re&enue Criteria

#enerally recognied as earned at point at sale- provided to the 0uyer- 0uyer recognied his lia0ility- $uyer has indicated his %illingness to hand over cash- (onetary value has 0een esta0lished


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(easing Capter 1+

p B7 for indications of %hether it is operating lease or finance lease

6perating (ease a lease other than a finance leasePose no accounting pro0lem 3he lessee pay amounts periodically to the lessor and these are charged tothe income statement If a rent-free period or cash 0ack incentive is given, this is effectively a discount

It %ill 0e spread over the period of the operating lease in accordance %ith accruals principal

Finance (ease a lease that transfers su0stantially all the risks and re%ards incident to o%nership ofan asset 3itle may or may not 0e eventually transferred

5tract o# -ncome Statement 79> 79 79+"epreciationFinance Costs step Interest of the year

>,=77>>,=7

>,=77.,7B+

>,=77A,7.

5tract o# Financial Position Statement 79> 79 79+&on-current )ssets *easehold )ssets F; less acc "epreciation1

&on-current *ia0ilities Finance *ease lia0ility step &e2t year6s 0alance

Current *ia0ilities Finance *ease *ia0ility step +

A>,=77

>B,+>+

>=,H+

H,777

7

>B,+>+

>B,=77

7

7

56777Step 1: Calculate opening )alance

F; less deposit or P; less deposit =A,777 H,7771Step 2: Finance Costs and Finance non$current (ease (ia)ility

)dd: interest K = a0ove 9 =1*ess: installment$alance +> "ec 79>

)dd: interest K = a0ove 9 =1*ess: installment$alance +> "ec 79)dd: interest K = a0ove 9 =1*ess: installment$alance +> "ec 79+

A=,777

>>,=7A,7771+,=7

.,7B+A,7771>B,+>+A,7.

7,+H>17

Step *: Current (ia)ilities Finance (ease (ia)ility

3his year6s 0alance less ne2t year6s 0alance79> D +,=7 >B,+>+ D >=,H+79 D >B,+>+ 7 D >B,+>+79+ D 7 7 D 7


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Accounting #or aation Capter 17

Current a is the amount actually paya0le to the ta2 authorities in relation to the trading activitiesof the entity during the period

)ny unpaid ta2 in respect of the current period to 0e recognied as a lia0ility E2cess ta2 paid should 0e

recognied as an asset

3e#erred a an accounting measure used to match the ta2 effects of transactions %ith theiraccounting impact (akes future ta2 payments higher or lo%er I)S > requires companies torecognie this as a deferred ta2 lia0ility or asset

5tract #rom -ncome Statement 56777Profit 0efore ta2 Income 3a2 Proceeds of sale1Income 3a2 E2penseProfit for the year

>,B7,777A7,7771.=.,777

567773a2 on profits income and gain1 )L) Provision1

"eferred 3a2ation transferred?nder Provision / over provision1 3a2 0y ta2 authorities less estimated ta21Charge for the year

+.,777

7,777A,777

A7,777

5tract #rom Statement o# Financial Position 56777Current *ia0ilities 3a2 paya0le ne2t period ta2 on profits1

&on-current *ia0ilities "eferred 3a2ation opening 0alance transfer1

+.,777

>7,777

question-2-single-company-accounts.doc

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