ACCA F3 Revision Notes OpenTuition PDF

Paper F3
Revision notes
ACCOUNTING CONCEPTS
Fundamental Assumptions
Fair presentation
Going concern
Accruals
Consistency
Materiality / Aggregation
Faithful representation
Substance over form
Neutrality
Prudence
Completeness
Comparability
Understandability
Separate entity
Money measurement
For latest course notes, free audio & video lectures, support and forums please visit
Paper F3
Revision notes
BASES OF VALUATION
Historic cost
Replacement cost
Net realisable value
Economic value
Paper F3
Revision notes
IAS 8: Accounting policies, changes in accounting estimates and errors
1.
Changes in accounting policy should only be made if required by a standard, or if the change will result in a
more appropriate presentation
2.
The change should be applied retrospectively (unless not practical).

Adjustments in respect of previous periods should be made to the opening balance of retained earnings,
and to comparative figures.
Paper F3
Revision notes
IAS 2: Inventories
1.
Value at lower of cost and net realisable value
2.
Measurement of costs:
actual cost
standard cost
retail method
FIFO
average cost
3.

If we produce our own goods, the inventory is valued at the full cost of production.
ie including all factory overheads.
But, do not include any non-production costs (selling and administrative costs)
4. (Not in IAS 2, but remember)

If we reduce closing inventory, then the profit for the year will reduce.

(However, Opening Inventory of next year will reduce, so next years profit will increase)
Paper F3
Revision notes
IAS 38 - RESEARCH & DEVELOPMENT
Research:
searching for new knowledge / searching for new product
Development:
developing an idea into a new product
Treatment:
Research must be written off in the year of expenditure in the income statement.
Development expenditure must be written off in the year of expenditure, unless:
clearly defined product
expenditure is measurable
market exists for the product
adequate resources exist
in which case, expenditure must be capitalised as non-current asset, and amortised (depreciated).
(Note: tangible non-current assets involved in research & development (e.g. research building) treated as normal
non-current assets - capitalised and depreciated over expected useful life)
Paper F3
Revision notes
IAS 37 - ACCOUNTING FOR CONTINGENCIES

Provision a liability of uncertain timing or amount
Contingent liability a possible obligation of uncertain timing or amount
Liability
Asset
Certain ( >95% )
Accrue (Provision)
Recognise in accounts
Probable ( >50% )
Accrue (Provision)
Disclose as note
Possible ( <50% )
Disclose as note contingent liability
No action
Remote ( <5% )
No action
No action
Paper F3
Revision notes
TYPES OF ERROR
Errors of omission

Entry is missed out
Errors of principle

Balance sheet item entered as if Income Statement item (or vice versa)
E.g. payment for car repairs entered to Motor Vehicle Account
Errors of transposition

Number reversed
E.g. 581 entered as 851
Errors of commission

Entry posted to the wrong account

E.g. rent payment entered on Electricity Account
Compensating errors

Two (or more) errors where the net effect is zero (or very small)
Paper F3
Revision notes
IAS 10: EVENTS AFTER THE Reporting Period DATE
Events after the reporting period: events occurring between the date of the Statement of Financial Position and
the date on which the accounts are approved
Treatment:
If amounts as at the date of the Statement of Financial Position are changed - alter the figures in the accounts
If amounts at the date of the Statement of Financial Position are not changed - disclose as note if material
Paper F3
Revision notes
COMPANY ACCOUNTS DISCLOSURES (1)

Income Statement
Significant categories of revenue
Finance costs
Staff costs
Depreciation and amortization
Tax
Profit / loss on discontinuing operations
Profit / loss on sale of part of business
Statement of Financial Position

Equity
Share Capital
Reserves

Capital reserves

Revenue reserves
Non-current assets (and movement over year)
Current assets
Non-current liabilities
Current liabilities
Paper F3
Revision notes
COMPANY ACCOUNTS DISCLOSURES (2)

Statement of changes in equity

Profit / loss for the year
Proceeds of issue of shares
Profit on revaluation
Dividends

Prior year adjustments
Paper F3
Revision notes
COMPANY ACCOUNTS - TERMINOLOGY

Share capital:
Ordinary Shares (Equity shares) The amount of the dividend each year varies (depends how well the
company is doing)
Preference Shares
These shares get a fixed dividend each year. (10% Preference
Shares get a dividend of 10% of nominal value each year, so
if the nominal value is 50c, the dividend will be 5c per year.
Dividends:
Interim dividend
dividend paid during the year
Final dividend
dividend paid after the end of the year (when the profits are known)
Proposed dividend the amount of the dividend has been suggested by the directors, but
has not been paid. (The final dividend will normally be proposed)
(Only dividends actually agreed (voted on) appear in the financial statements not dividends proposed)
Rights issue of shares:

New shares sold to existing shareholders (to raise cash)
Bonus issue of shares:

New shares given free to existing shareholders (transfer from reserves)
Reserves:
Everything owed to shareholders in addition to the share capital
Capital Reserves Can not be paid as dividend (Share Premium Account and Revaluation
Reserve)
Revenue Reserves Can be paid as dividend (Retained earnings / Accumulated Profits)
Paper F3
Revision notes
BANK RECONCILIATIONS
At 31 December 2010, the balance on the cash account was $18,260 (DR), but the balance appearing on the
bank statement was $19,750 (CR).
The reasons for the difference were as follows:
1.
2.
3.
4.
5.
Bank charges of $30

A payment of $1,200 had been entered in the cash account as $120
A cheque for $500 had been dishonoured
There were unpresented cheques totalling $8,200
Lodgements of $5,100 had not yet appeared on the bank statement
You are required to calculate the correct balance on the cash account, and to prepare a bank
reconciliation statement.
Answer
Balance b/f
Balance b/f
Cash a/c
18,260 Bank charges
Error on payment
Dishonoured cheque
Balance
18,260
16,650
Bank reconciliation statement

Balance on bank statement
Less: Unpresented cheques
Add: Lodgements not entered

Balance per cash account
30
1,080
500
16,650
18,260
19,750 (CR)
8,200
11,550 (CR)
5,100
16,650 (CR)
Paper F3
Revision notes
ACCRUALS AND PREPAYMENTS

A company pays rent quarterly in arrears on 31 March, 30 June, 30 September, and 31 December each year.
The rent was increased from $60,000 to $72,000 per year as from 1 August 2010.
What rent expense and accrual should be included in the companys financial statements for the year
ended 30 November 2010?
Answer
Expense
1 Dec 2009 to 30 July 2010
1 Aug 2010 to 30 Nov 2010
(8 Months) 8/12 x 60,000

(4 months) 4/12 x 72,000
40,000
24,000
$64,000
Accrual
Oct & Nov 2010
(2 Months) 2/12 x 72,000
$12,000
Paper F3
Revision notes
BOOKS OF PRIME ENTRY

Cash Book (usually two books Cash Receipts Book and Cash Payments Book)
-
lists of cash receipts and cash payments
analysed into columns based on reason for receipt or payment
not double entry
Payables Journal (also known as Purchase Day Book)

-
list of purchases on credit (credit purchases)
not double entry
Receivables Journal (also known as Sales Day Book)

-
list of sales on credit (credit sales)
not double entry
(Other books may exist as required e.g. Petty Cash Book, Returns Journal)
Individual items in these books are entered to the relevant accounts for individual customer or suppliers in the
Receivables Ledger and Payables Ledger, (also known as the Personal Ledgers)
The double entries are made in the Nominal (or General) Ledger using the totals from the Books of Prime Entry.
(e.g. the total of the Payables Journal is debited to Purchases Account and credited to the Payables Account)
The Total Receivables Account in the nominal ledger is known as the Receivables Ledger Control Account.
The Total Payables Account in the nominal ledger is known as the Payables Ledger Control Account.
Paper F3
Revision notes
CONTROL ACCOUNTS
The balance on the Payables Ledger Control Account for SLtd as at 1 January 2010 was $98,000.
The following is a summary of SLtds transactions during year ended 31 December 2010:
Credit purchases
Cash purchases
Returns to suppliers
Discounts received
Cash paid to suppliers
Contras with Receivables
Refunds from suppliers
$224,000
$2,600
$8,000
$1,200
$216,000
$1,700
$2,000
What was the balance on the Payables Ledger Control Account at 31 December 2010?
Answer
Returns
Discounts
Cash
Contras
Balance b/f
Payables Ledger Control Account a/c

8,000 Balance b/f
1,200 Credit purchases
216,000 Refunds
1,700
97,100
324,000
Balance b/f
98,000
224,000
2,000
324,000
97,100
Paper F3
Revision notes
DEPRECIATION
Example 1
The motor vehicles at cost account of a business for the year ended 31 December 2010 was as follows:
Motor Vehicles - cost
80,000 31 Mar Transfer disposal account
1 Jan
Balance
1 Sep
Cash purchase of car
20,000
10,000 31 Dec Balance
70,000
90,000
90,000
The companys policy is to charge depreciation at 25% per year on a straight line basis, with proportionate
depreciation in the years of purchase and disposal.
What is the depreciation charge for the year ended 31 December 2010?
Answer 1
1 Jan 31Mar
31 Mar: Disposal
1 Apr 30 Aug
1 Sep: Purchase
1 Sep 31 Dec
80,000 x 25% x 3/12 =

(20,000)
60,000 x 25% x 5/12 =
10,000
70,000 x 25% x 4/12 =
5,000
6,250
5,833
$17,083
Example 2
At 31 December 2010, P Ltd owned a building that had been purchased 20 years previously for $20,000. It was
being depreciated at 2% per year.
On 31 December 2010 it was revalued at $210,000, and had a remaining useful life of 30 years.

a) what is the depreciation charge for the year ended 31 December 2011?
b) at what amount does the revaluation reserve stand at as at 31 December 2011?
Answer 2
Net book value at 31/12/2010:
Cost
Accumulated Depreciation 20 x 2% x 20,000

Profit on revaluation
20,000
(8,000)
12,000
210,000 12,000 =
Depreciation charge for 2011
based on revalued amount 210,000/30

based on original cost 12,000/30 =
Amount transferred from revaluation reserve = 7,000 400
Balance on revaluation reserve at 31/12/2011 198,000 6,600 =
198,000 (Revaluation
reserve at
31.12.2010)
7,000
400
6,600
$191,400
Paper F3
Revision notes
INCOMPLETE RECORDS
Example 1
The net assets of Orange at 1 January 2010 amounted to $128,000.
During the year to 31 December 2010, Orange introduced a further $50,000 of capital and made drawings of
$48,000.
At 31 December 2010 the net assets of Orange were $184,000.
What was Oranges profit for the year ended 31 December 2010?
Answer 1
Increase in net assets = capital introduced + profit drawings

56,000
= 50,000 + profit 48,000
Profit = $54,000
Example 2
Plum makes a standard mark up of 30% of cost.
The following information is available for the month of January:
Opening inventory
$10,000
Purchases $50,000
Sales $58,500
Calculate the value of the closing inventory.
Answer 2
=
Cost of sales
Closing inventory
58,500/1.3 = 45,000
=
10,000 + 50,000 45,000 = $15,000
Paper F3
Revision notes
INVENTORY VALUATION
Example 1
X plc had no inventory on 1 October.
During October they made the following purchases and sales:
Purchases:
10 October 200 units
$15 per unit
$18 per unit
$22 per unit
Sales:
12 October 50 units
29 October 50 units
Calculate the value of the closing inventory at 31 October, using:
a) FIFO
b) Average cost
Example 2
Y plc has a year end of 31 December 2010, but had counted inventory on 5 January 2011 and valued it at
$254,800.
Between 31 December 2010 and 5 January 2011 they had received goods from suppliers at a cost of $2,300 and
sold goods to customers which has cost $8,100.
What was the inventory valuation at 31 December 2010?
Answer 1
(a) FIFO
Units in inventory: 200 + 300 + 100 50 200 50 = 300 units
26 Oct
100
x 22 =
2,200
x 18 =
3,600
15 Oct (balance) 200
300 units
$5,800
(b)
Average cost
10 Oct Buy
12 Oct Sell
15 Oct Buy
20 Oct Sell
26 Oct Buy
29 Oct Sell
units
200
(50)
150
300
450
(200)
250
100
350
(50)
300
$15 =
3,000
$15 =
$18 =
2,250
5,400
7,650
$17(i) =
$22 =
4,250
2,200
6,450
$18.43(ii) =
5,529

(i) 7,650/450 = $17; (ii) 6540/350 = $18.43
Answer 2
Inventory at 5 Jan 2011
254,800
Less: goods received
(2,300)
8,100
Add: goods sold
$260,600
Paper F3
Revision notes
IRRECOVERABLE AND DOUBTFUL DEBTS

Trade receivables at 31 December 2010 were $76,000.
An irrecoverable debt of $3,000 is to be written off.
Specific allowances of $700 and $2,300 are to be made for two doubtful debts.
A general allowance of 6% is to be maintained. The opening balance on the allowance account was $4,000.
A debt of $1,500, which was written off as irrecoverable 2 years ago, was paid in full during 2010.
a)
b)
What is the charge in the Income Statement?

What will appear in the Statement of Financial Position?
Answer
Allowance for receivables
Specific allowance (700 + 2,300)
General allowance 6% x (76,000 3,000 700 2,300)
Opening balance
Increase in allowance
(a)
(b)
Income Statement expense

Irrecoverable debt
Increase in allowance for receivables
Irrecoverable debt recovered
3,000
4,200
7,200
4,000
3,200
3,000
3,200
(1,500)
4,700
Statement of Financial Position

Receivables (76,000 3,000)
Less: Allowance for receivables
$
73,000
(7,200)
$65,800
Paper F3
Revision notes
SALES TAX
During October, ZLtd made sales of $42,000 (excluding sales tax) and made purchases of $23,600 (including sales
tax).
The balance on the sales tax account at the beginning of October was $850 (debit).
The rate of sales tax is 18%.
What is the balance on the sales tax account at the end of October?
Answer
Tax on sales
=
Tax on purchases =
Balance b/f
Tax on purchases
Balace c/f
18% x 42,000
23,600 x 18/118
=
=
7,560
3,600
Sales Tax Liability

850 Tax on sales
3,600
3,110
7,560
Balance b/f
7,560
7,560
3,110
Businesses not registered for Sales Tax
Paper F3
Revision notes
SUSPENSE ACCOUNTS
The totals on the trial balance of Blue were:
Debit
$23,200
Credit $24,100
and a suspense account was opened for the difference.
The following errors were found:
1.
a receipt from a customer of $2,300 had been entered correctly in the cash account, but had been posted
to the receivables account as $3,200.
2.
a payment of $8,000 for a car had been correctly entered in the cash account, but had been posted to the
credit of the motor repairs account.
What balance will remain on the suspense account after correction of these errors?
Answer
Balance b/f
Balace c/f
Suspense Account
900 Receivables
Car
16,000 Motor expenses
16,900
Balance b/f
900
8,000
8,000
16,900
16,000
Paper F3
Revision notes
FINANCIAL RATIOS
Profitability:

Return on Capital Employed
Net Profit Margin
Asset Turnover
Gross Profit Margin
Liquidity:

Current ratio
Acid-test / Quick ratio
Receivables Days
Inventory Days
Payables Days
Gearing:

Gearing Ratio
Paper F3
Revision notes
ISSUE OF SHARES
In 2002 a company was formed by an issue of 100,000 $0.50 shares at par.

In 2007 they had a 1 for 2 rights issue at $1.20.
In 2010 they had a 1 for 6 bonus issue.
What were the balances on the share capital and share premium accounts after the bonus issue?
Answers
Shares
2002
2007
2010
100,000
50,000
150,000
25,000
175,000
Share
Capital
$
50,000
25,000
Share
Premium
$
35,000
12,500
$87,500
(12,500)
$22,500

ACCA F3 Revision Notes OpenTuition PDF

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

ACCA F3 Revision Notes OpenTuition PDF

Uploaded by

Copyright:

Available Formats

Paper F3

Net realisable value

IAS 8: Accounting policies, changes in accounting estimates and errors

The change should be applied retrospectively (unless not practical).

Value at lower of cost and net realisable value

4. (Not in IAS 2, but remember)

IAS 38 - RESEARCH & DEVELOPMENT

searching for new knowledge / searching for new product

developing an idea into a new product

IAS 37 - ACCOUNTING FOR CONTINGENCIES

Disclose as note contingent liability

Entry is missed out

Entry posted to the wrong account

IAS 10: EVENTS AFTER THE Reporting Period DATE

COMPANY ACCOUNTS DISCLOSURES (1)

Statement of Financial Position

COMPANY ACCOUNTS DISCLOSURES (2)

Profit / loss for the year

Proceeds of issue of shares

Prior year adjustments

COMPANY ACCOUNTS - TERMINOLOGY

dividend paid during the year

Rights issue of shares:

Bonus issue of shares:

Bank charges of $30

Bank reconciliation statement

Add: Lodgements not entered

ACCRUALS AND PREPAYMENTS

(8 Months) 8/12 x 60,000

(2 Months) 2/12 x 72,000

BOOKS OF PRIME ENTRY

lists of cash receipts and cash payments

analysed into columns based on reason for receipt or payment

not double entry

Payables Journal (also known as Purchase Day Book)

list of purchases on credit (credit purchases)

not double entry

Receivables Journal (also known as Sales Day Book)

list of sales on credit (credit sales)

not double entry

Payables Ledger Control Account a/c

Cash purchase of car

10,000 31 Dec Balance

80,000 x 25% x 3/12 =

Depreciation charge for 2011

based on revalued amount 210,000/30

IRRECOVERABLE AND DOUBTFUL DEBTS

What is the charge in the Income Statement?

Income Statement expense

Statement of Financial Position

Sales Tax Liability

Businesses not registered for Sales Tax

Return on Capital Employed

Net Profit Margin

Gross Profit Margin

Acid-test / Quick ratio

In 2002 a company was formed by an issue of 100,000 $0.50 shares at par.

You might also like

Paper F3