LO 1 Understand the regulatory framework for financial reporting
1.1 Describe the different users of financial statements and their needs
1.2 Explain the legal and regulatory influences on financial statements
1.3 Assess the implications for users
1.4 Explain how different policies are dealt with by accounting and reporting standards
LO 2 Be able to prepare financial statements from complete or incomplete records
LO 3
3.1 Explain how the information needs of different user groups vary
3.2 Prepare financial statements in a form suitable for publication by a sole trader, partnership and limited company
Assignment Brief
Purpose of this assignment
The manner in which items and transactions are treated and presented in the financial statements may affect an investor's perception of the position and performance of the business. Whilst individual accounting standards can be developed to deal with specific issues it is also important that there is a framework that sets out the wider purposes that accounting standards are intended to achieve. This assignment will help you understand the importance of accounting regulations, the importance of accounting information to different user groups with varied needs and the need to present financial statements in standardized formats
Task 1 - LO1 & 3 - Assessment Criteria 1.1 & 3.1
Describe the different users of financial statements and their needs. Explain how the information needs of different user groups vary
The objective of financial reporting is to provide information about the reporting entity that is useful for certain group of people who need to know that information. The regulatory framework does not only prevent preparers of financial statements from misleading users; but is also developed to ensure that the information in the financial statements actually does meet users' needs.
To achieve pass you must;
- List out and describe the different users of financial statements
- Identify different components of financial statements to be prepared by the company
- Explain how the information needs of different user group vary
To achieve M1, you will make effective judgements by comparing different users of financial statements as to how they use those information for decision making by linking to various financial statements prepared by the company
To achieve D3, you should show convergent and lateral thinking on how different user groups use the financial statement for decision making. You should illustrate conflicting interest of different user groups in using the financial statement for decision making. Also describe why do businesses need to produce financial statements and why company has to follow accounting procedures in order to produce financial information
Task 2 - LO1 - Assessment Criteria 1.2 (M3, D2):
Explain the legal and regulatory influences on financial statements
The preparation of financial statements of Limited Liability Companies is closely regulated. The regulation comes from three main sources: Company Law, Accounting standards and Stock exchange listing requirements.
Explain clearly the regulatory framework relating to Company Legislation, Accounting standards and other sources of regulations.
To achieve pass you must;
- Identify legal and regulatory influences.
- Explain how legal and regulatory aspects influence the content and the form of the financial statements.
To achieve M3, you have to explain a range of legal and regulatory influence including the regulation for stock exchange listing. Also explain both International and Local Accounting Standards.
To achieve D2, you will have to demonstrate autonomy and independence by bringing more information like how company legislation is linked to Accounting standards for detailed accounting guidance.
Task 3 - LO4 - Assessment Criteria 1.3 (M3,D1):
Assess the implications for users.
The general objective of financial reporting is to provide useful information to the users of Financial statements. Therefore, the Framework for the Preparation and Presentation of Financial Statements requires financial statements to be prepared on the basis that they comply with certain accounting concepts, underlying assumptions and (qualitative) characteristics".
Identify four accounting concepts/assumptions/qualitative characteristics and assess the implication of each of the above concepts/assumptions/qualitative characteristic on the users of financial statements
To achieve pass you must;
- Identify four accounting concepts/assumptions/qualitative characteristics.
- Explain each of the concepts/assumptions/Qualitative characteristics, which you have selected for users of financial statement and Assess the implication of the above for the users.
To achieve M3 you will have to use a coherent and logical approach assessing the implication for the users of financial statement.
To achieve D1, you have to make conclusions through synthesis of ideas and have been justified when assessing the implication of each accounting concepts/assumptions/qualitative characteristics. You should explain the fundamental and enhancing qualitative characteristics and link how enhancing characteristics strengthen the fundamental characteristics.
Task 4 - LO1 - Assessment Criteria 1.4 (M2,D1):
Explain how different policies are dealt with by accounting and reporting standards.
The accounting policies are the specific policies and procedures that are used by a company to prepare its financial statements.
Describe with examples, how different policies are dealt with by accounting and reporting standards referring to Inventory (IAS 2) and Depreciation (IAS 16)
To achieve pass you must;
- Explain the relevant accounting standards pertaining to depreciation and inventory
- Explain the importance of the concept of consistency in valuation of inventory and methods of depreciation though accounting standards.
To achieve M2 you will have to use range of information to explain the importance of consistency in accounting policy.
To achieve D1 your answer should reflect a critical evaluation on when a firm can change its accounting policy and validate your conclusion.
Task 5 - LO2 - Assessment Criteria 2.3 (M1,M3):
Prepare a consolidated balance sheet and profit and loss account for a simple group of companies
The Statement of Financial Position (SFP) of D Ltd. and Z Ltd. are as under: Statement of Financial Position as on December 31, 2015
|
Non current Assets:
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D Ltd
$
|
Z Ltd
$
|
|
Plant and Equipment
|
70000
|
16000
|
|
Land and Buildings
|
15000
|
2000
|
|
Investment (80% shares in Z Ltd)
|
60000
|
|
|
Current assets:
|
|
|
|
Inventory
|
90000
|
40000
|
|
Trade and other Receivables
|
50000
|
24000
|
|
Cash at Bank
|
20000
|
20000
|
|
Total Assets
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305000
|
102000
|
|
Liabilities
|
|
Equity share capital of R.O.1 each
|
65000
|
20000
|
|
Share premium
|
35000
|
10000
|
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Retained Earnings
|
70000
|
25000
|
|
|
|
|
|
Secured loans
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45000
|
20000
|
|
Current Liabilities:
|
|
|
|
Trade and other Payables
|
60000
|
20000
|
|
Accrual and other Liabilities
|
30000
|
7000
|
|
Total Equity and Liabilities
|
305000
|
102000
|
The following additional information is provided:
D Ltd acquired an 80% holding in Z Ltd on January 1, 2015. On that day the balances of retained earnings of Z Ltd stood at $12,500. D Ltd‘s accounts show $5,000 owing to Z Ltd; Z Ltd's accounts show $5,000 owed by D Ltd. No impairment of goodwill has occurred to date.
You are required to prepare the consolidated Statement of Financial Position of D Ltd as on 31st December 2015.
(B) On 1 January 2015 P acquired 60% of the ordinary shares of S. At the time of acquisition the Retained earnings of S stood at $20,000.
The following statement of Profit and Loss Account have been produced by P and S for the year ended 31 December 2015.
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|
P
$
|
S
$
|
|
Sales
|
630,000
|
260,000
|
|
Cost of Sales
|
(210,000)
|
(105,000)
|
|
Gross Profit
|
420,000
|
155,000
|
|
Distribution Cost
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(90,000)
|
(30,000)
|
|
Administration expenses
|
(60,000)
|
(45,000)
|
|
Profit from Operations
|
270,000
|
80,000
|
|
Investment income from S
|
18,000
|
-
|
|
Profit before taxation
|
288,000
|
80,000
|
|
Tax
|
(65,000)
|
(13,000)
|
|
Profit after Taxation
|
223000
|
67,000
|
During the year ended 31 December 2015 P had sold $42,000 worth of goods to S. These goods had cost P $28,000. On 31 December 2015 S still had half of these goods in Inventories. Goodwill impairment for the year is $2,000.
On 31 December 2015, both P and S revalued their Freehold land, resulting in a revaluation surplus of $8,000 and $5,000 respectively.
Calculate Group revenue, Cost of sales and prepare a Consolidated Income statement for the year ended 31 December 2015
Explain why consolidated financial statements are useful to the users of financial statements (as opposed to just the parent company's separate (entity) financial statements. (Provide Reference to IAS and IFRS wherever applicable)
To achieve pass you must
- Show the Group structure, calculation of Goodwill, NCI, and Group reserve and prepare the consolidated balance sheet of D Ltd as on 31 December 2015.
- Calculate the group revenue, Cost of sales and prepare the consolidated
Comprehensive Income statement for the year ended 31 December 2015.
To achieve M1 you have to make an effective judgment on application of relevant IAS and IFRS.
To achieve M3, you should use an appropriate structure as specified by IAS/IFRS in preparing the consolidated balance sheet. You should demonstrate the interdependence on Non- Controlling Interest, Goodwill and retained earning calculation. You have to solve the problem accurately and balance the consolidated SOFP.
Task 6 - LO3 - Assessment Criteria 3.2 (M1,M3):
Prepare financial statements in a form suitable for publication by a sole trader, partnership and limited company
The following trial balance was extracted from the books of B Ltd at 31 December 2015.
|
|
Dr
$
|
Cr
$
|
|
Share Capital:
|
|
|
|
60,000 shares of $ 1 each
|
|
60,000
|
|
Inventory in trade (Opening)
|
23,428
|
|
|
8% Loan Notes
|
|
20,000
|
|
General Reserve
|
|
10,000
|
|
Land (at Cost)
|
59,600
|
|
|
Plant and Machinery(at Cost)
|
13,000
|
|
|
Bad Debts
|
601
|
|
|
Wages and Salaries
|
29,820
|
|
|
Purchases
|
90,620
|
|
|
Sales
|
|
196,748
|
|
Allowance for Bad Debts
|
|
850
|
|
Accumulated Depreciation:
|
|
|
|
Plant & Machinery
|
|
750
|
|
Insurance
|
693
|
|
|
Office Expenses
|
4,142
|
|
|
Balance at Bank
|
29,544
|
|
|
Rates
|
2,010
|
|
|
Profit and Loss Account ( Opening)
|
|
3,900
|
|
Trade Receivables
|
16,923
|
|
|
Trade Payables
|
|
12,989
|
|
Rent Received
|
|
2,390
|
|
Directors Remuneration
|
26,000
|
|
|
General Expenses
|
11,246
|
|
|
|
307,627
|
307,627
|
You are given the following information:
1. Inventory in trade as on 31 December 2015 amounted to $6,426.
2. Bad debts to be written off are $2,700.
The provision for bad debts is to be allowed at 5% of Trade
Receivables.
3. Rent receivable due at 31 December, 2015 amounted to $ 130.
4. Insurance paid in advance at 31 December 2015 amounted to $ 86.
5. Depreciation on Plant and Machinery is to be provided for at the rate of 20% p.a. reducing balance method.
7. The outstanding Loan Notes interest is to be provided.
8. $ 7,000 is to be transferred to General Reserve.
9. Provision is to made for dividend at 20% on the issued capital.
10. Provide tax @ 20%.
11. The allocation of expenditure between distribution and administration expenses is as follows:
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|
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Distribution
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Administration
|
|
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Cost of sales
|
Expense
|
Expense
|
|
Wages and Salaries
|
100%
|
|
|
|
Rates
|
|
|
100%
|
|
General Expenses
|
|
|
100%
|
|
Directors Remuneration
|
|
|
100%
|
|
Office Expenses
|
|
|
100%
|
|
Bad Debts
|
|
100%
|
|
|
Insurance
|
|
|
100%
|
|
Depreciation - Plant and Machinery
|
100%
|
|
|
You are required to prepare:
a) A Income Statement for the year ended 31 December 2015
b) A statement of Financial Position (Balance Sheet) as at 31 December 2015 (in compliance with IAS1)
To achieve pass you must
Show the steps in calculating depreciation, provision for doubtful debts.
Prepare the income statement and the statement of financial position.
To achieve M1, you should use an effective judgment while making adjustments in the financial statements.
To achieve M3, you should use an appropriate structure specified by IAS/IFRS in preparing
the SOFP and the income statement. You should validate the result by balancing the SOFP. You will have to solve the problem accurately and balance the SOFP by applying creative thinking
Task 1 Recognize different financial statements and Understanding on different uses of accounting information and why they use those information.
Task 2 Able to explain legal and regulatory influences
Task 3 Assess the implication of Accounting concepts/assumptions/qualitative characteristic on the users of financial statements
Task 4 Explanation on how different policies are dealt referring to IAS 16 and 2
Task 5 Prepare consolidated Income statement and SOFP
Task 6 Prepare financial statement for publication.
LO1
1.1 Describe the different users of financial statements and their needs
1.2 Explain the legal and regulatory influences on financial statements
1.3 Assess the implications for users
1.4 Explain how different policies are dealt with by accounting and reporting standards
LO2
2.3 Prepare a consolidated balance sheet and profit and loss account for a simple group of companies
LO3
3.1 Explain how the information needs of different user groups vary
3.2 Prepare financial statements in a form suitable for publication by a sole trader, partnership and limited company