Frank Wood's A-level Accounting: GCE Year 2

Description

This edition of Frank Wood’s A-level Accounting has been restructured to match closely the AQA A-level syllabus, now covered in the first fifteen chapters. In particular coverage of partnership accounts, now in one chapter; all company accounting is covered in one chapter; and standard costing and variance is covered in a single chapter. The book builds on a first course in accounting and includes coverage of the more advanced aspects of financial and management accounting. As well as providing instruction and practice in the preparation of accounting information, the text stresses the need for students to understand the business reasons behind accounting techniques. A continuing strength of the book is the large amount of question material. Recent past questions from the main examining bodies are included as well as a useful guide to examination techniques at A-level.   Cover A-Level Accounting Contents Detailed contents Preface Introduction: The scope of this book Part 1 Further Aspects of Financial Accounting Incomplete records Why double entry is not used Profit as an increase in capital Drawing up the financial statements Incomplete records and missing figures Where there are two missing pieces of information Cash sales and purchases for cash Goods stolen or lost by fire, etc. Non-profit-oriented organisations Non-profit-oriented organisations Receipts and payments accounts Income and expenditure accounts Profit or loss for a special purpose Accumulated fund Drawing up income and expenditure accounts Outstanding subscriptions and the prudence concept Life membership Donations Entrance fees The differences in headings Partnership accounts The need for partnerships The characteristics of a partnership Limited partners Partnership agreements An example of the distribution of profits The profit and loss appropriation account Capital accounts and current accounts The balance sheet Structural changes in the ownership of a partnership Goodwill Goodwill in the partnership accounts Asset revaluation Partnership dissolution The rule in Garner v. Murray Piecemeal realisation of assets Valuation of assets Part I: Valuation of Stock Different valuations of stock First in, first out method Last in, first out method Average cost method Stock valuation and the calculation of profits Reduction of stock valuation to net realisable value Stock groups and valuation Some other bases in use Periodic stock valuation Factors affecting the stock valuation decision SSAP 9, Stocks and long-term contracts The conflict of aims Work in progress Goods on sale or return Stocktaking and the balance sheet date Stock levels Part II Revaluation Of Assets Fixed asset revaluation Part III Measurement Of Income And Asset Values Measurement of income Asset valuation alternatives Capital maintenance A worked example Combinations of different values and capital maintenance concepts A worked example Operating capital maintenance concept Problems during a period of changing price levels Types of organisations and sources of finance Types of business ownership Companies Long-term sources of finance Other sources of finance Part 2 Published Financial Statements Of Limited Companies And Accounting Standards Published financial statements and requirements of user groups The functions of accounting Company trading and profit and loss account differences Company balance sheet differences Users of published financial statements and their needs Aspects of company financial statements for external use Published financial statements Published profit and loss account: Format 1 Published balance sheet: Format 1 Published balance sheets and GCE A-level examinations Other statements and notes required in the annual report Additional requirements introduced or amended by FRS 3 Small and medium-sized company reporting requirements Summary financial statements Other issues Illustrative company financial statements: example 1 Illustrative company financial statements: example 2 Reserves, bonus issues and rights issues Shareholders’ funds The nature of reserves Revenue reserves General reserves Capital reserves Profits available for payments of dividends in cash Allowable reductions of capital reserves Bonus shares Rights issues Published financial statements and ratio analysis Part I: Accounting Ratios Why use ratios? How to use ratios Users of ratios Liquidity Profitability Efficiency ratios Capital structure ratios Shareholder ratios Overtrading Part II The Analysis And Interpretation Of Accounting Statements Interpretation of ratios – trends and comparability Sector relevance Trend analysis Comparisons over time Comparisons with other businesses Pyramid of ratios Return on capital employed: company policy Fixed and variable expenses Summary of ratios Cash flow statements Need for cash flow statements FRS 1, Cash flow statements Businesses other than companies Profit and liquidity not directly related Where from: where to Construction of a cash flow statement for a sole trader Note on the use of brackets Adjustments needed to net profit Example of adjustments A comprehensive example UK companies and FRS 1 Cash flow Operating activities and cash flows Dividends from joint ventures and associates Returns on investment and servicing of finance Taxation Capital expenditure and financial investment Acquisitions and disposals Equity dividends paid Management of liquid resources Financing Material transactions not resulting in any cash flows Exceptional and extraordinary items Two further examples Uses of cash flow statements Accounting standards Why do we need accounting standards? The background The Accounting Standards Board International accounting standards GCE A-levels and accounting standards FRS 18 Accounting policies (issued 2000) SSAP 9, Stocks and long-term contracts (revised 1988) FRS 15, Tangible fixed assets (issued 1999) FRS 10, Goodwill and intangible assets (companies) FRS 11, Impairment of fixed assets and goodwill SSAP 13, Accounting for research and development Other standards that may be relevant to your syllabus Further thoughts on concepts and conventions Limitations of published financial statements The historical perspective of financial statements Lack of disclosure Changes to the sources of information One set of financial statements for all purposes Aggregation Objectivity vs. subjectivity Timing differences Part 3 Further Aspects Of accounting For management And decision Making Absorption costing, marginal costing and decision making Absorption and marginal costing Allocation of indirect manufacturing costs Absorption costing: effect upon future action The lesson to be learnt Fixed and variable costs Cost behaviour Marginal costing and absorption costing contrasted Comparison of reported profits – constant sales and uneven production Pricing policy Full cost pricing Example of full cost pricing Contribution Using marginal costs Maximisation of total contribution Activity-based costing (ABC) Standard costing and variance analysis Part I Standard Costing And Variance Analysis Comparison with actual costs Setting standards Variance analysis Adverse and favourable variances Computation of variances Part IIMaterials And Labour Variances Materials variances Materials variances – analysis Key questions of variances Formulas for materials variances Inventory records under standard costing Disposition of variances Costing for labour Labour variances Labour variances – analysis Formulas for labour variances Part III Overhead And Sales Variances Management overheads Predetermined rates Variances in overhead recovery Assessing variances Formulas for overhead variances A comprehensive example Variances and management action Sales variances Capital investment appraisal Introduction Accounting rate of return Payback method The time value of money Cost of capital Present values Net present value Internal rate of return (IRR) Relevant and irrelevant costs Sunk costs A comparison of the methods Merits and demerits of the techniques Surveys of practice Other factors affecting decision making – social accounting Introduction Costs and measurement The pressure for social actions and social accounting Corporate social reporting Types of social accounting National social income accounting Social auditing Financial social accounting in profit-oriented organisations Managerial social accounting in profit-oriented organisations Financial and/or managerial social accounting for non-profit organisations Conflict between shareholders’ interests and social considerations Reports from companies Part 4 Management Accounting principles And Budgeting Elements of costing Costs for different purposes Past costs in trading companies Past costs in manufacturing companies Product costs and period costs Advantages of a costing system The control of costs Costing: manufacturing firms compared with retailing or wholesale firms Contract accounts Accounts and the business cycle Opening contract accounts Certification of work done Allocation of overheads Example Profit estimation Anticipated losses SSAP 9 Job, batch and process costing Introduction The choice of job costing or process costing Job costing Cost centres – job costing and responsibility Process costing Normal and abnormal losses Under/overabsorption of overheads Other kinds of firms The problem of joint costs Budgeting and budgetary control Financial budgets Budgets and people Budgets, planning and control Preparation of estimates The production budget Even production flow Uneven production levels Cash budgets The need for cash budgets Timing of cash receipts and payments Advantages of cash budgets Profits and shortages of cash funds Co-ordination of budgets Master budgets Capital budgeting The advantages of budgeting The use of computers in budgeting Flexible budgets Part 5 Supplementary Topics Break-even analysis Introduction The break-even chart Changes and break-even charts The limitations of break-even charts Contribution graph The accounting equation and the balance sheet What is accounting? What is bookkeeping? Accounting is concerned with . . . Users of accounting information The accounting equation The balance sheet and the effects of business transactions Equality of the accounting equation More detailed presentation of the balance sheet The double entry system Nature of a transaction The double entry system The accounts for double entry Worked examples A further worked example Abbreviation of ‘limited’ Accounting concepts Introduction One set of financial statements for all purposes Objectivity and subjectivity Accounting standards and financial reporting standards Accounting standards and the legal framework Underlying accounting concepts Fundamental accounting concepts Materiality The assumption of the stability of currency FRS 18, Accounting policies Appendix I Examination techniques Appendix II Glossary Appendix III Answers Index