ACCN3 - Further Aspects of Financial Accounting

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  • ACCN3
    • Sources Of Finance
      • Purpose, Amount, Repayment, Interest, Security
        • Internal - Owner (capital from savings, family), Funds From Profits
        • External - Banks (overdrafts, mortgages), Private Equity Capital, Business Angel (provides capital in exchange for convertible debt or ownership equity)
        • Sources
          • Bank Overdraft - flexible, interest paid, repayable on demand, security required
          • Bank Loan - £1 to £100k available, interest F or V, set period of time, regular repayment installments, security required
          • Commercial Mortgage - security of property, interest F or V, fixed time usually 25 years
          • LTD Ordinary Shares - to owner, other investors for fixed amount per share, shareholders receive dividend, can buy shares for PLC on stock exchange
          • LTD Preference Shares - preference over OS, fixed percentage of dividend
          • Debenture Stock - fixed interest and repayment date, no ownership rights, large companies can trade it on stock market, security may be needed
    • Incomplete Records
      • Techniques - statement of affairs (assets and liabilities to find missing capital), accounting equation/net assets, cash/bank reconciliation, use of SLCA and PLCA, mark-up and margin
        • Assets - Liabilities = Capital
        • Opening Capital + Capital Introduced + Profit - Drawings = Closing Capital
          • Capital Introduced + Profit - Drawings = Increase in Net Assets
        • Mark Up: % added to cost to get selling price (COST 100)
        • Margin:  profit expressed as a percentage of sales (COST 100)
        • Partial loss of inventory
          • Stolen inventory - use markup/margin and trading section of income statement
        • Stolen Cash - reconstruct cash account, difference (balancing figure) is stolen cash
        • Disadvantages of incomplete records
          • cost, accountant will charge to construct
          • lack of up to date info
          • chasing receivables difficult if account inaccurate
          • difficult to verify loss/theft
          • lack of accuracy
          • added costs, bank statements/cheques
          • items may be missed
          • reliability of figures may be questioned - lenders, HMRC
    • Partnerships
      • normally 2 - 20 partners except large firms
      • Advantages
        • cheap and easy to set up
        • possibility to increase capital
        • each partner able to specialise
        • more people can cover illness, holidays
      • Disadvantages
        • more than one owner, decisions take longer
        • disagreements
        • each partner liable for debts
        • retirement or death could affect partnership
      • own partnership agreement or partnership act (1890)
        • profits/losses shared equally, no1 entitled to salary, no interest on capital/drawings, additional capital recieves 5% per annum on excess
          • appropriation account
          • current account
          • goodwill
          • retirement procedure
          • split years
          • revaluation
          • dissolution
      • Garner v Murray
        • if a partner is insolvent and cannot clear an outstanding balance on capital account, the remaining solvent partners share loss in the ratio of last agreed capital balances
    • Published Accounts
      • regulated by Companies Act 2006 and IAS's aimed at limited companies, LTD & PLC
      • Statutory Accounts
        • company law says have to produce and filed with Registrar of Companies within 6 months
        • IS, BS, CFS, Statment of hanges in equity, notes, directors report, auditors report
          • Directors Responsibilities: act within powers of article of association, ensure provisions of the Compaines Act are followed, statements prepared in accordance with IAS, report annually to shareholders at AGM
          • Auditors Responsibilities: states directors responsibilities, to give opinion on the accounts of a company
      • Corporate Reports
        • contains all statutory accounts plus info about company with illustrations, graphs and photos etc.
    • Schedule of Non Current Assets
    • International Accounting Standards (IAS's)
      • providing a framework, ensuring accountants follow same rules, reducing number of diffeeent accounting treatments
      • Benefits - standardizing financial statements, reducing variations in treatments, allowing for comparisons
      • Need To Know - 1, 2,7,8,10,1618,36,37,38
    • Cash Flows (IAS 7)
      • reconciliation of profit from operations to net cash flow from (operating,investing, financing) activities
        • O,P,A,L,(R),(I),(P),I,T
        • If (P)ete (N)eeds Paula She Is Really Dead Ratchet
        • Fat People Only Pick Love (C)ause (L)ove (D)elivers (P)izza
      • Users - Shareholders, Loan Stock/Debenture Holders, Managers, Employees
      • Assessing - important as identifies sources of cash flowing in and out, how and why they are used
    • Inventory Valuation
      • IAS 2 Inventories - value at lower of cost or net reliasble value
        • NRV: estimated selling price - costs to get product to condition to complete sale
      • Method should remain constant unless good reason
        • AVCO
          • Advantages: overtime fluctuations are smoothed, logical, same cost applied, closing inventory close to current market value, calculations can be computerized easily
          • Disadvantages: have to recalculate after every purchase, costs which never exist
        • FIFO
          • Advantages: realistic, assumes goods issues in order of receipts, easy to calculate, uses actual cost, closing inventory close to most recent cost
          • Disadvantages: not necessarily lastest prices COS may not represent recent prices, in times of rising profits more tax to pay, cumbersome method as has to be maintained

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