ACCN3 - Further Aspects of Financial Accounting
- Created by: LeanneSmith
- Created on: 25-03-15 20:52
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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
- Purpose, Amount, Repayment, Interest, Security
- 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
- 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
- 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
- profits/losses shared equally, no1 entitled to salary, no interest on capital/drawings, additional capital recieves 5% per annum on excess
- 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
- reconciliation of profit from operations to net cash flow from (operating,investing, financing) activities
- 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
- AVCO
- IAS 2 Inventories - value at lower of cost or net reliasble value
- Sources Of Finance
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