AIMS
To
understand and apply the techniques used to prepare
year-end financial statements of partnerships
and companies which comply with International
Accounting Standards, and to interpret financial
statements and the relationships between their
elements using ratio analysis.
OBJECTIVES
On
completion of this paper, candidates should be
able to:
- draft
partnership and company financial statements
from the appropriate information to comply
with International Accounting Standards
- correctly
identify and implement adjustments and identify
unusual issues, referring such issues and
any unresolved discrepancies to an appropriate
person
- understand
the importance of an organisation’s procedures
and policies, including confidentiality procedures
- prepare
and interpret a company cash flow statement
- identify
the general purpose of company financial statements
- identify
the elements of company financial statements
and the relationship between them
- interpret
the relationship between the elements of financial
statements using ratio analysis drawing valid
conclusions and presenting interpretations
and conclusions to the appropriate people.
POSITION
OF THE PAPER IN THE OVERALL SYLLABUS
A
thorough knowledge of Paper 1, Recording Financial
Transactions and Paper 3, Maintaining Financial
Records, is required for Paper 6.
SYLLABUS
CONTENT
1
General framework
(a)
General purpose of financial statements, users
and their
needs
(b)
Financial statements and their relationship
(i)
income statement
(ii)
balance sheet
(iii)
interaction of the income statement and balance
sheet
(c)
Elements of financial statements and their interaction
(i)
assets
(ii)
liabilities
(iii)
equity and contributions from owners
(iv)
income
(v)
expenses
(d)
Conceptual framework
(i)
framework for the preparation and presentation
of financial statements
(ii)
accounting concepts and policies
(e)
Regulatory framework
(i)
standard-setting process
(ii)
relevant International Accounting Standards
(iii)
format of accounts and disclosure requirements
(f)
Notes to the financial statements.
Only
the following notes to the financial statements
will be examinable:
–
non current assets
–
events after the balance sheet date
–
contingent liabilities and contingent assets
–
statement of changes in equity
(g)
Business organisation
(i)
structure
(ii)
procedures and policies
2
Preparing financial statements
(a)
Preparation of partnership and company financial
statements from a trial balance, including adjustments
where appropriate for:
(i)
accruals and prepayments
(ii)
income tax
(iii)
dividends
(iv)
depreciation
(v)
bad and doubtful debts
(vi)
closing inventory
(vii)
issue of share capital
(viii)
revaluation of non current assets
(ix)
provisions
(x)
admission and retirement of partners
(b)
Taxation
(i)
presentation of income tax
(c)
Non current assets
(i)
distinction between capital and revenue expenditure
(ii)
accounting for acquisition and disposal of assets
(iii)
depreciation – definition, reasons for and methods,
including straight line, reducing balance and
sum of digits
(iv)
research and development
(v)
elementary treatment of goodwill
(d)
Current assets
(i)
inventory
(ii)
receivables, including accounting for bad and
doubtful debts
(iii)
cash
(e)
Current liabilities and accruals
(f)
Shareholders’ equity
(g)
Events after the balance sheet date
(h)
Contingencies
(i)
Presentation of financial statements
3
Cash flow statements
(a)
Preparation of a single company cash flow statement
(b)
Notes to the cash flow statement
(c)
Interpretation of a cash flow statement
4
Interpretation of financial statements
(a)
Ratio analysis
(i)
profitability
(ii)
liquidity
(iii)
efficient use of resources
(iv)
investors
(v)
financial position
(b)
Identification of unusual issues or trends
(c)
Presentation of reports targeted at the user and
drawing appropriate conclusions
5
Consolidated accounts
(a)
Groups of companies – preparation of basic consolidated
financial statements for a simple group
(i)
consolidated balance sheet
(ii)
consolidated income statement
(b)
Overview of distinction between a subsidiary and
an associate
EXCLUDED
TOPICS
The
following topics are specifically excluded from
Paper 6:
- detailed
or computational questions on deferred tax
or discounting of provisions group cash flow
statements
- joint
ventures
- long-term
contracts
- foreign
currency, segmental reporting, impairment
of assets, retirement
- benefits,
derivatives and capital instruments
- uniting
of interests.
KEY
AREAS OF THE SYLLABUS
The
two main skills required for Paper 6, Drafting
Financial Statements are:
- the
ability to prepare basic financial statements
and the underlying accounting records on which
they are based
- an
understanding of the principles on which accounting
is based.
The
key topic areas are as follows:
- preparation
of financial statements for partnerships and
companies
- basic
group accounts – consolidated balance sheet
and income statement for a simple group
- elements
of financial statements and the interaction
between the elements
- accounting
conventions and concepts
- interpretation
of financial statements
- cash
flow statements.
APPROACH
TO EXAMINING THE SYLLABUS
The
examination is a three-hour written paper. The
examination consists of four compulsory questions.
Question
1 30 to 40 marks
Question
2 25 to 30 marks
Question
3 15 to 20 marks
Question
4 15 to 20 marks
Total
100 marks
ADDITIONAL
INFORMATION
Accounting
standards will not be examined until six months
after they have been published. The cut off date
for the June examination is 30 November preceding
the June examination. The cut off date for the
December examination is 31 May preceding the December
examination.
RELEVANT
TEXTS
There
are a number of sources from which you can obtain
a series of materials written for ACCA CAT examinations.
Candidates
may also find the following texts useful, although
they should be aware that these are based on UK
accounting standards:
Wood,
Frank and Sangster, Alan. Business Accounting
2 (8th edition, FT Pitman Publishing) (This
covers more than is required for this syllabus,
but has a useful approach to consolidation.)
Black,
Geoff, Students
Guide to Accounting and Financial Reporting Standards
(8th Edition, FT Prentice
Hall)
Wider
reading is also desirable, especially regular
study of relevant articles in ACCA’s student
accountant magazine.
STUDY
SESSIONS
1
Framework of financial reporting
(a)
Explain the need for, and objectives of, financial
statements
(b)
Identify the users of financial statements and
their particular interests in the statements
(c)
Discuss how the accounting systems of an organisation
are affected by its roles, organisational structure,
its
administrative
systems and procedures and the nature of its business
transactions
(d)
Describe and explain the following elements of
the financial statements and their interaction:
(i)
assets
(ii)
liabilities
(iii)
equity
(iv)
income
(v)
expenses
(vi)
contributions from owners
2
Conceptual framework
(a)
Discuss the nature and purpose of a conceptual
framework
(b)
Explain the potential benefits and drawbacks of
an agreed conceptual framework
(c)
Explain the role and general issues covered by
the Framework for the Preparation and Preparation
and Presentation of Financial Statements
(d)
Identify and explain the qualitative characteristics
of financial information
(e)
Discuss and apply accounting concepts and policies
(f)
Discuss the shortcomings of historical cost accounting
and how they might be overcome
3
The regulatory framework
(a)
Understand the structure and role of the:
(i)
International Accounting Standards Committee Foundation
(Trustees)
(ii)
International Accounting Standards Boards (IASB)
(iii)
Standards Advisory Council (SAC)
(iv)
International Financial Reporting Interpretations
Committee (IFRIC)
(b)
Explain the standard setting process
4
& 5 Non-current assets
(a)
Distinguish between capital and revenue expenditure
(b)
Explain, calculate and demonstrate the inclusion
of the profit or loss on disposal in the income
statement
(c)
Account for the revaluation of non-current assets
(d)
Account for gains and losses on the disposal of
revalued assets
(e)
Account for depreciation – definition, reasons
and methods, including straight line, reducing
balance and sum of digits
(f)
Account for changes in the useful economic life
or residual value of assets
(g)
Explain how non-current asset balances and movements
are disclosed in the financial statements
6,
7 & 8 Partnership accounts
(a)
Identify the key features of a partnership
(b)
Outline the advantages and disadvantages of operating
as a partnership, compared with operating as a
sole trader or company
(c)
Outline the conventional methods of dividing profit
and maintaining equity between partners
(d)
Draft an appropriation account for a partnership
(e)
Distinguish between partners' capital and current
accounts
(f)
Record the partners' share of profits and losses
and their drawings in the ledger accounts
(g)
Record introductions and withdrawals in the ledger
accounts
(h)
Draft the income statement and appropriation account
and the balance sheet for a partnership from a
trial balance incorporating period end adjustments
including:
(i)
accruals and prepayments
(ii)
depreciation
(iii)
bad and doubtful debts
(iv)
closing inventory
(i)
Explain why a revaluation is required after an
admission, a change in the profit sharing ratio
or a retirement
(j)
Revalue the partnership after such a change and
calculate the goodwill
(k)
Make appropriate entries in the ledger accounts
(l)
Draft the partnership balance sheet after a change
in the partnership
(m)
Draft the partnership balance sheet after a uniting
of two sole traders
(n)
Account for the dissolution of a partnership
(o)
Prepare final accounts from incomplete records
9,10
& 11 Company financial statements
(a)
Prepare the financial statements for a company
from a trial balance, including adjustments for
items including:
(i)
income tax
(ii)
dividends
(iii)
depreciation
(iv)
bad and doubtful debts
(v)
closing inventory
(vi)
share capital
(vii)
accruals and prepayments
(viii)
revaluation of assets
(ix)
provisions
(b)
Prepare a statement of changes in equity
(c)
Prepare the following notes to the financial statements:
(i)
non-current assets
(ii)
events after the balance sheet date
(iii)
contingent liabilities and contingent assets
(d)
Derive missing figures from incomplete records
12
Accounts and disclosure requirements
(a)
Prepare the financial statements of companies
in accordance with prescribed formats and relevant
accounting standards
(b)
Discuss relevant accounting standards and be able
to apply them
13
Taxation
(a)
Define current tax
(b)
Account for current tax on the profits of companies
(a detailed knowledge of deferred tax is not required)
(c)
Present current tax in the published statements.
14
Goodwill and intangible assets
(a)
Define and calculate goodwill
(b)
Distinguish between purchased and internally generated
goodwill
(c)
Explain and apply the accounting treatment for
both types of goodwill
(d)
Explain and apply the requirements of International
Accounting Standards for intangible assets
15
& 16 Share and loan notes
(a)
Distinguish between issued and authorised share
capital and between called in and paid in share
capital
(b)
Distinguish between ordinary and preferred shares
(c) Account for a share issue
(d)
Explain the share premium account
(e)
Define and account for a bonus issue
(f)
Define and account for a rights issue
(g)
Outline the advantages and disadvantages of a
rights issue and a bonus issue
(h)
Distinguish between the market value and nominal
value of a share
(i)
Explain why companies will be concerned with the
value of their shares
(j
) Define and account for loan notes
(k)
Explain the advantages and disadvantages of raising
finance by issuing loan notes rather than issuing
shares
17
&18 Events after the balance sheet date, contingent
liabilities
and contingent assets
(a)
Define an event after the balance sheet date
(b)
Distinguish between adjusting and non-adjusting
events
(c)
Account for each category of event in the financial
statements
(d)
Define a provision, contingent liability and contingent
asset
(e)
Understand the general recognition principle
(f)
Account for provisions, contingent liabilities
and contingent assets
19,
20 & 21 Cash flow statements
(a)
Explain the need for a cash flow statement
(b)
Prepare a cash flow statement including relevant
notes for a single company in accordance with
accounting standards
(c)
Appraise the usefulness of, and interpret the
information in a cash flow statement
22,
23, 24 & 25 Consolidated accounts
(a)
Describe and be able to identify the general characteristics
of a parent company, investment, subsidiary and
associated undertaking
(b)
Describe the concept of a group and the objective
of consolidated financial statements
(c)
Describe the circumstances and reasoning for subsidiaries
to be excluded from consolidated financial statements
(d)
Prepare a consolidated income statement and balance
sheet for a simple group including adjustments
for pre and post acquisition profits, minority
interests and consolidated goodwill
(e)
Explain why intra-group transactions should be
eliminated on consolidation
(f)
Account for the effects (in the income statement
and balance sheet) of intra-group trading and
other transactions including:
(i)
Unrealised profits in inventory and non-current
assets
(ii)
Intra-group loans and interest and other intra-group
charges
26,
27, 28, 29 Interpretation of financial statements
(a)
Calculate the following ratios:
(i)
profitability
(ii)
liquidity
(iii)
efficiency
(iv)
investor
(v)
financial
(b)
Analyse the interpret the ratios to give an assessment
of a company's performance in comparison with:
(i)
a company's previous period's financial statements
(ii)
another similar company for the same period
(iii)
industry average ratios
(c)
Identify and discuss the limitations of ratio
analysis
(d)
Prepare a financial analysis report of a company
in a suitable format
30,
31 & 32 Revision |
