Financial Accounting 2 Donna Treleaven Examiner

2. 2 10/12/2009 Financial Accounting 2

3. 1. The Financial Accounting 2 Syllabus Conceptual and regulatory framework (30%) Compulsory question on paper plus MCQ Understanding of theory is fundamental Key areas: Why regulation is important IASC Framework IAS 1 IAS 8 Role of internal & external auditor Internal controls Exam tip – Students need to read the requirement and not answer what they think should have been asked

4. 1. The Financial Accounting 2 Syllabus Financial Statements (50%) Examinable under International Professional Regulation Statement of comprehensive income Will remain on exam Trial balance plus adjustments Unlike 2009/10 may include preference dividends Form suitable for publication Understand what income statement tells the user and be able to explain in narrative form Exam tip – Layout and presentation was poor. Depreciation calc and classification presented problems

5. 1. The Financial Accounting 2 Syllabus Financial Statements (cont’d) Statement of financial position Will remain on exam May include requirement to prepare notes Form suitable for publication Unlike 2009/10 may include preference shares Understand what statement of financial position tells the user – in narrative form Exam tip –Students had great difficulty with easy adjustments such as dividend and debenture interest calculations.

6. 1. The Financial Accounting 2 Syllabus Financial Statements (cont'd) Statement of changes in equity Examinable Know how to prepare Know how to use information contained in statement eg for preparation of cash flow statement, ratios etc Include preference share capital and preference dividends (to be treated as equity instruments) Exam tip – Ignored by many students on summer paper, others presented a range of 'statements' which did not gain any marks.

7. 1. The Financial Accounting 2 Syllabus Financial Statements (cont’d) Cash flow statement Examinable Students must understand treatment of: non-cash items Accruals and prepayments PBIT – know correct starting point and where to find it Presentation is important Cash flow from operating activities – direct method not examinable Exam tip – students obviously uncomfortable with cash flows. Lot of work needed to improve standard of answers both in terms of presentation and content.

8. 1. The Financial Accounting 2 Syllabus Financial Statements (cont’d) Manufacturing account Cost classifications Raw materials, WIP, Finished good May be combined with incomplete records

9. 1. The Financial Accounting 2 Syllabus Financial Statements (cont’d) Partnerships Examinable Changes to partnership agreement incl dissolution of partnership is not examinable (appears on syllabus in manual in error) Adjustments to profit, current accounts, revised balance sheet Exam tip – students comfortable with theory questions in MCQ but a lot less comfortable with practical questions. Appropriation accounts presented in many forms, many of which did not show either workings or appropriation of profit clearly.

10. 1. The Financial Accounting 2 Syllabus Financial Statements (cont’d) Incomplete records Examinable as part of a question only Students should review chapter in FA1 manual

11. 1. The Financial Accounting 2 Syllabus Financial Statements (cont’d) Other areas: Property, plant & equipment (capitalisation of costs, revaluations, disposal, disclosures) Inventories (valuation techniques not examinable) Leases (Operating v’s finance leases, ledger accounts. Calculation of PV or interest charge not examinable) Government grants (revenue and capital grants, accounting treatment, disclosures, non-monetary grants, government assistance, repayment of grants)

12. 1. The Financial Accounting 2 Syllabus Financial Statements (cont’d) Other areas (cont'd): Events after reporting period (adjusting v’s non-adjusting events) Provisions, contingent liabilities, contingent assets (definitions, treatments, disclosures) ‘Other areas’ likely to appear anywhere on exam

13. 1. The Financial Accounting 2 Syllabus Interpretation of Financial Statements (20%) Ratio analysis Understand, calculate and interpret ratios Critically assess ratios in reporting format Students to determine relevant ratios (eg liquidity, profitability etc) Preparation of financial statements from ratios not examinable Limitations of ratio analysis is examinable Exam tip –Easy marks lost where ratios calculated for only one year when question asks for ratios for two years.

14. 2. Format of Exam Exam based on format used in pilot papers (3 pilot papers prepared by current examiner) Section A (60 marks) 3 compulsory questions Theory question (20 marks) MCQ (15 marks) Other (25 marks) incl computational and written parts Section B (40 marks) 2 out of 3 questions Presentation marks (6 marks)

15. 3. Exam learning points Weak areas likely to be re-examined: Journals – students very weak at basic debits and credits, many do not know how to present a journal Cash flow – students very uncomfortable with this topic, both content and presentation Calculation of ordinary dividends – simple maths catches students out Income statement cost allocations – eg depreciation between COS and indirect costs Presentation Presentation and Presentation (6 marks) Show workings – cause of students losing valuable marks Complete cover sheet correctly File all pages for each solution together, solution pack should be easy to follow

16. 3. Exam learning points Potentially fatal errors: Not showing workings Not answering required number of questions Not answering all MCQ questions Answering more than required number of questions and wasting time Making a solution to a question fit on one page when more than one page required Making solutions to more than one question fit on one page when more than one page required Spending too much time completing one question, probably gaining few extra marks, and leaving no time for other questions.

17. 4. Exam guidance Journals will appear on exam Cash flow statement likely to appear on exam Manual is only source material Extensive coverage of syllabus in exam Questions may include mixed topics Fundamentals are important: Double entry book-keeping Income statement, balance sheet, cash flow statement Regulatory framework Interpretation of financial statements (narrative discussion and ratio analysis)

18. 4. Exam guidance Topics not examinable: Preparation of financial statements from ratios Admission, dissolution, retirement, revaluation (partnerships) Calculation of interest charge or present value (finance leases) Cash flow from operations – direct method

19. 5. Student manual/Syllabus Revised manual published Manual is source material for course and exam

20. 6. Questions