About financial accounting

Description

Cover Half Title Title Page Copyright Page Table of Contents Chapter 1 Introduction to the preparation and presentation of financial statements Overview of the introduction to the preparation and presentation of financial statements 1.1 Introduction 1.2 The South African regulatory reporting framework 1.2.1 Introduction 1.2.2 The current South African financial reporting framework 1.3 Conceptual Framework for Financial Reporting Overview of the conceptual framework for financial reporting 1.3.1 Introduction 1.3.2 Purpose and status of the Conceptual Framework 1.3.3 Chapter 1: The objective of general purpose financial reporting 1.3.4 Chapter 2: Qualitative characteristics of useful financial information 1.3.4.1 Fundamental qualitative characteristics 1.3.4.2 Enhancing qualitative characteristics 1.3.4.3 The cost constraint on useful financial reporting 1.3.5 Chapter 3: Financial statements and the reporting entity 1.3.5.1 Objective and scope of financial statements 1.3.5.2 Reporting period 1.3.5.3 Going concern assumption 1.3.5.4 The reporting entity 1.3.6 Chapter 4: The elements of financial statements 1.3.6.1 Introduction 1.3.6.2 Definition of an asset 1.3.6.3 Definition of a liability 1.3.6.4 Definition of equity 1.3.6.5 Definition of income and expenses 1.3.7 Chapter 5: Recognition and derecognition 1.3.7.1 The recognition process 1.3.7.2 Recognition criteria 1.3.7.3 Derecognition 1.3.8 Chapter 6: Measurement 1.3.8.1 Introduction 1.3.8.2 Measurement bases 1.3.8.3 Information provided by particular measurement bases 1.3.8.4 Factors to consider when selecting a measurement basis 1.3.8.5 Measurement of equity 1.3.9 Chapter 7: Presentation and disclosure 1.3.9.1 Presentation and disclosure objectives and principles 1.3.9.2 Classification 1.3.9.3 Aggregation 1.3.10 Chapter 8: Concepts of capital and capital maintenance 1.3.10.1 The concepts of capital 1.3.10.2 The concepts of capital maintenance and the determination of profit 1.4 Presentation of Financial Statements (IAS 1) Overview of the presentation of financial statements (IAS 1) 1.4.1 Introduction 1.4.2 Definitions 1.4.3 The purpose of financial statements 1.4.4 General features 1.4.4.1 Fair presentation and compliance with IFRSs 1.4.4.2 Going concern 1.4.4.3 Accrual basis of accounting 1.4.4.4 Materiality and aggregation 1.4.4.5 Offsetting 1.4.4.6 Frequency of reporting 1.4.4.7 Comparative information 1.4.4.8 Consistency of presentation 1.4.5 Structure and contents 1.4.5.1 Introduction 1.4.5.2 Identification of the financial statements 1.4.5.3 Statement of financial position 1.4.5.4 Statement of profit or loss and other comprehensive income 1.4.5.5 Statement of changes in equity 1.4.5.6 Statement of cash flows 1.4.5.7 Notes 1.5 Financial instruments 1.5.1 Introduction 1.5.2 Definitions 1.5.2.1 Financial instrument 1.5.2.2 Financial asset (IAS 32.11) 1.5.2.3 Financial liability (IAS 32.11) 1.5.2.4 Equity instrument (IAS 32.11) 1.5.2.5 Fair value (IAS 32.11) 1.5.2.6 Contract 1.5.3 Identification of financial assets and financial liabilities 1.5.4 Classification, recognition and measurement of financial instruments 1.5.4.1 Classification of financial assets 1.5.4.2 Classification of financial liabilities 1.5.4.3 Recognition 1.5.4.4 Measurement 1.6 An illustration of disclosure according to the requirements of IAS 1 and IFRS 9 1.7 Special notes to the reader of Volume 2 1.7.1 Cash transactions 1.7.2 Calculations 1.7.3 References to gender 1.7.4 Taxation rates 1.7.5 The use of account names versus financial statement terminology 1.7.6 Interest calculations 1.7.6.1 Simple interest 1.7.6.2 Compound interest 1.7.6.3 Effective interest rate 1.8 Summary Chapter 2 Establishment and financial statements of a partnership Overview of the establishment and financial statements of a partnership 2.1 Introduction 2.2 Reasons for the formation of partnerships 2.2.1 Increasing the amount of capital in the business 2.2.2 Eliminating competition 2.2.3 Uniting capital and technical expertise 2.2.4 Retaining skills and technical expertise 2.3 Legal position of a partner 2.4 Establishment of a partnership 2.4.1 Action 2.4.2 Agreement 2.5 The partnership agreement 2.6 Dissolution of a partnership 2.7 Accounting procedures and specialised accounts 2.7.1 Recording of equity 2.7.1.1 Capital accounts 2.7.1.2 Current accounts 2.7.1.3 Drawings accounts 2.7.2 Loan accounts 2.7.3 The appropriation account 2.7.4 Recording of salaries and bonuses paid or payable to partners 2.8 Financial statements of a partnership 2.9 Summary Chapter 3 Changes in the ownership structure of partnerships Overview of the changes in the ownership structure of partnerships 3.1 Introduction 3.2 Valuation adjustments 3.2.1 Recording valuation adjustments in the books of an existing partnership 3.2.2 Reversing valuation adjustments in the books of a new partnership 3.3 Goodwill 3.3.1 Description of goodwill 3.3.2 Calculation of goodwill acquired 3.3.3 Initial recognition of goodwill acquired 3.4 The calculation of new profit-sharing ratios 3.4.1 Calculation of a new profit-sharing ratio on the admission of a partner 3.4.2 Calculation of a new profit-sharing ratio on the retirement or death of a partner 3.4.3 Calculation of a new profit-sharing ratio on the concurrent admission and retirement of a partner 3.5 Recording a change in ownership structure by way of a personal transaction 3.6 Recording a change in ownership structure by way of a transaction with the partnership 3.6.1 Accounting procedure based on the legal perspective 3.6.2 Accounting procedure based on the going-concern perspective 3.7 Abridged case studies 3.8 Summary Chapter 4 The liquidation of a partnership Overview of the liquidation of a partnership 4.1 Introduction 4.2 Liquidation methods 4.3 The liquidation account 4.4 Accounting procedure to record the simultaneous liquidation of a partnership 4.4.1 Profit on liquidation 4.4.2 Loss on liquidation 4.5 Accounting procedure to record the piecemeal liquidation of a partnership 4.5.1 Calculation of interim repayments according to the surplus-capital method 4.5.2 Calculation of interim repayments according to the loss-absorption-capacity method 4.6 Summary Chapter 5 Close corporations Overview of close corporations 5.1 Introduction 5.2 Attributes of a close corporation 5.3 Advantages of a close corporation 5.4 Disadvantages of a close corporation 5.5 Prescribed forms of a close corporation 5.6 Name and registration number of a close corporation 5.7 Membership of a close corporation 5.7.1 Number of members 5.7.2 Membership requirements 5.7.3 Member’s interest 5.8 Internal relations 5.8.1 The fiduciary relationship of members 5.8.2 The liability of members in the case of negligent conduct 5.8.3 The association agreement 5.8.4 Variable rules in respect of internal relations 5.8.5 Prohibition of loans and providing of security to members and others by a close corporation 5.9 External relations 5.10 Joint liability of members and others for the debts of a close corporation 5.11 The tax position of a close corporation and its members 5.12 Accounting records and financial reporting 5.12.1 Close Corporation Act requirements 5.12.1.1 Keeping accounting records 5.12.1.2 Financial year and financial statements 5.12.1.3 The accounting officer 5.12.2 Companies Act Regulations applicable to close corporations 5.12.2.1 Public interest score 5.12.2.2 Audit exemption 5.12.2.3 Audit requirement 5.12.2.4 Independent review 5.12.2.5 Trusts as members of close corporations 5.12.2.6 Financial Reporting Standards 5.12.3 Accounting procedures 5.12.3.1 Recording of the distribution of total comprehensive income 5.12.3.2 Preparation of financial statements 5.13 Deregistration of a close corporation 5.14 Summary Chapter 6 Introduction to companies Overview of the introduction to companies 6.1 Introduction 6.2 Characteristics of a profit company 6.3 The formation (incorporation) of a profit company 6.4 Types of companies 6.4.1 Profit companies 6.4.1.1 Personal liability companies 6.4.1.2 State-owned companies 6.4.1.3 Private companies 6.4.1.4 Public companies 6.4.2 Non-profit companies 6.5 Shareholders 6.6 The rights of shareholders 6.6.1 The right to sell or buy shares in the company 6.6.2 The right to vote 6.6.3 The right to receive a share of the profits 6.6.4 The right to share in the net assets 6.7 Share transactions 6.7.1 Introduction 6.7.2 Authorised share capital 6.7.3 Issued share capital 6.7.4 Classes of shares 6.7.4.1 Ordinary shares 6.7.4.2 Preference shares 6.7.5 The issue of shares 6.7.5.1 General aspects 6.7.5.2 Recording the issue of shares 6.7.6 Schedule for the allotment of shares 6.7.7 The issue of capitalisation shares 6.7.8 Underwriting of shares 6.8 Dividends 6.8.1 Introduction 6.8.2 Preference dividends 6.8.3 Ordinary dividends 6.8.4 Interim, final and annual dividends 6.9 Debenture transactions 6.9.1 Introduction 6.9.2 Types of debentures 6.9.3 The issue of debentures 6.10 Annual financial statements of companies 6.10.1 Introduction 6.10.2 Content of the annual financial statements 6.11 Summary Chapter 7 Statement of cash flows Overview of the statement of cash flows 7.1 Introduction 7.2 Main objective and advantages of a statement of cash flows 7.3 Format of a statement of cash flows 7.4 Relationship between a statement of cash flows and other financial statements 7.5 Identification of non-cash entries in financial statements prepared on the accrual basis of accounting 7.6 Preparation of a statement of cash flows from financial statements prepared on the accrual basis of accounting 7.6.1 Cash flows from operating activities 7.6.1.1 Cash generated from or used in operations according to the direct method 7.6.1.2 Cash generated from or used in operations according to the indirect method 7.6.1.3 Operating activity items disclosed after the cash generated from or used in operations 7.6.2 Cash flows from investing activities 7.6.3 Cash flows from financing activities 7.6.4 Cash and cash equivalents 7.6.5 Disclosure of additional information concerning non-cash transactions related to a statement of cash flows 7.7 Summary Chapter 8 Analysis and interpretation of financial statements Overview of analysis and interpretation of financial statements 8.1 Introduction 8.2 The nature and scope of financial statement analysis 8.3 The objectives of financial statement analysis 8.4 Application of financial statement analysis 8.4.1 Profitability ratios 8.4.1.1 Return on equity (ROE) 8.4.1.2 Return on total assets (ROA) 8.4.1.3 Gross profit percentage 8.4.1.4 Profit margin 8.4.1.5 Financial leverage and financial leverage effect 8.4.2 Liquidity ratios 8.4.2.1 Current ratio 8.4.2.2 Acid test or quick ratio 8.4.2.3 Trade receivables collection period 8.4.2.4 Trade payables settlement period 8.4.2.5 Inventory turnover rate 8.4.2.6 Inventory-holding period 8.4.3 Solvency ratios 8.4.3.1 Debt-equity ratio 8.4.3.2 Times interest earned ratio 8.5 Limitations of financial statements analysis 8.6 Summary Chapter 9 Branches Overview of accounting for branches 9.1 Introduction 9.2 Accounting for dependent branches 9.3 Recording of transactions where inventory sent to the branch is invoiced at cost price 9.3.1 Introduction 9.3.2 Inventory sent to the branch and purchases by the branch 9.3.3 Inventory returned to head office 9.3.4 Sale of inventory by the branch 9.3.5 Settlement discount granted to debtors 9.3.6 Inventory marked down 9.3.7 Cash embezzled or stolen 9.3.8 Inter-branch inventory transactions 9.3.9 Branch expenses 9.3.10 Inventory in transit 9.3.11 Inventory on hand 9.3.12 Inventory shortages and surpluses at the branch 9.3.13 Balancing of branch accounts 9.4 Recording of transactions where inventory sent to the branch is invoiced at selling price 9.4.1 Introduction 9.4.2 Calculation of the profit mark-up in branch inventory 9.4.3 Inventory sent to the branch and purchases by the branch 9.4.4 Inventory returned to head office 9.4.5 Sale of inventory by the branch 9.4.6 Settlement discount granted to debtors 9.4.7 Inventory marked down 9.4.8 Cash embezzled 9.4.9 Inter-branch inventory transactions 9.4.10 Branch expenses 9.4.11 Inventory in transit 9.4.12 Inventory on hand 9.4.13 Inventory shortages and surpluses at the branch 9.4.14 Balancing of branch accounts 9.5 Summary Chapter 10 Manufacturing entities Overview of an accounting system for manufacturing entities 10.1 Introduction 10.2 Introducing a manufacturing cost statement 10.3 Defining manufacturing costs 10.3.1 Direct material 10.3.2 Direct labour 10.3.3 Primary costs 10.3.4 Manufacturing overheads 10.4 Stages of the manufacturing process 10.5 Recording the transactions of a manufacturing entity 10.6 Preparing a manufacturing cost statement 10.7 Recording the transactions relating to the sale of finished products inventory and the incurrence of administrative expense by a manufacturing entity 10.8 Adjusting the allowance for unrealised profit in finished products inventory 10.9 Preparing the statement of profit or loss and other comprehensive income of a manufacturing entity 10.10 Summary Chapter 11 Budgets Overview of a master budget of a manufacturing entity Overview of a master budget of a trading entity 11.1 Introduction 11.2 Description and main function of a budget 11.3 The relationship between budgets and managerial activities 11.3.1 Planning 11.3.2 Coordination 11.3.3 Control 11.4 Employee participation 11.5 Advantages and limitations of budgets 11.6 The role of accounting information in the budgetary process 11.7 The budgeting procedure 11.8 The structure of an elementary master budget 11.8.1 The operating budget 11.8.2 The financial budget 11.8.3 The budgeted financial statements 11.9 The structure and preparation of the operating budget of a manufacturing entity 11.9.1 Main operating budgets 11.9.1.1 The sales budget 11.9.1.2 The production budget 11.9.2 Subsidiary operating budgets 11.9.2.1 The direct raw materials usage budget 11.9.2.2 The direct raw materials purchase budget 11.9.2.3 The direct labour budget 11.9.2.4 The manufacturing overhead budget 11.9.2.5 The cost of sales budget 11.10 Preparation of a cash budget 11.11 Summary Index