116 Accounting A2 Level (Theory and Practice)

Description116 Accounting A2 Level (Theory and Practice) by Muhammad Nauman MalikThe globalized frame work of Cambridge International Advanced Level, in practice over 125 countries, has led to the introduction of an international format and layout for all its syllabuses. With a thorough discussion of the basic double entry principles for the beginners, the ‘A2 Accounting – Theory & Practice’ is also useful for those who have some knowledge.The strengths and weaknesses of accounting practices are reinforced by a set of Review Questions at the end of each chapter, enabling the students to put, what is learnt, into practice. These Questions have been developed by the author and are not taken from past exam papers and Accounting A2 Level Theory and Practice Books.This book is completely revised and updated to fully comply with the new CIE Advanced Level Accounting syllabus for 2016-18. Five new chapters have been included in the book in view of the new syllabus.These topics include ’Auditing and stewardship of limited companies’, ‘Consignment Accounting, Joint Ventures’, ‘Activity based costing’ and ‘Computerized accounts’.In addition, topics like ‘manufacturing accounts’, ‘non-profit organization have been shifted from ‘AS Accounting – theory and practice’ to this book. New material on overhead costing is also added to the topic ‘standard costing’. As syllabus contents relating to topics like ‘ratios’ and ‘Accounting standards’ have been reduced in new syllabus so these topics have been rewritten accordingly. Solutions to odd numbered questions are given in the appendix at the end of the book.In addition solutions to even numbered questions are available in a separate manual. Teachers using “A2 Accounting – Theory & Practice” as a text book, may get the manual by applying officially on a school letterhead. Providing the students with a solid foundation in the “Why” as well as the “How” of accounting concepts, the emphasis is put on understanding rather than mere cramming.A brief list of learning objectives at the beginning of each chapter will assist the readers to determine the things they should understand while going through the chapter.Hence, checking back may help them to identify weak areas which still need thorough review. Constructive criticism and suggestions to make the subsequent editions more useful would be appreciated and thankfully acknowledged.Table of ContentsPrefaceChapter 1 Accounting for Non Profit OrganisationsComparison Between Profit and Non- Profit Making Organizations accounting a Level Theory and Practice BookIncomes and Expenses of Non Profit OrganizationsIncomes of Non Profit OrganizationsExpenses of Non Profit OrganizationsSome Peculiar Terms of Non Profit OrganizationsLife Membership FeeLegacyGiftGrants and DonationsAccounting By Non Profit OrganizationsReceipts and Payments AccountIncome and Expenditure AccountTrading AccountIncome and Expenses on Same HeadAccounting for SubscriptionsPreparation of Financial StatementsReview QuestionsChapter 2 Sale of BusinessReasons of Selling a BusinessRealization AccountAccounting Treatment on Sale of BusinessAssets on DissolutionGoodwill on DissolutionLiabilities on DissolutionExpenses on DissolutionProfit (loss) on Realization AccountPartners’ Loans Accounts on DissolutionCurrent Account Balances on DissolutionCash or Bank Balance on DissolutionPartners’ Capital Accounts on DissolutionSale of Business to a CompanyReview QuestionsChapter 3 Business Purchase and MergerPurchased GoodwillInternally Developed GoodwillPersonal Goodwillthe Opposite of Paying for Goodwill (NEGATIVE Goodwill)Accounting for Negative GoodwillDifference Between the Purchase of a Business and the Purchase of AssetsComponents of Purchase ConsiderationAssets Taken OverLiabilities Taken OverDissolution ExpensesAccounting Treatment of Amalgamation of BusinessesDistinction Between Amalgamation and Purchase of BusinessAmalgamation of BusinessesReasons for AmalgamationAccounting ProcedureGoodwill on AmalgamationConversion of Partnership Into CompanyPayment for Purchase of Business – Purchase ConsiderationEntries to Record the Purchase of BusinessCash and Bank Balances of Partnerships on PurchaseReturn on InvestmentReview QuestionsChapter 4 Company Financial StatementsThe Need for CompaniesSources of Finance for a CompanyTypes of SharesOrdinary SharesPreference SharesDebenturesConvertible Loan StockPublished Accounts of Limited CompaniesRole of IAS 1 in Preparation of AccountsAccounting Concepts Applied in Preparation of AccountsStructure and Content of Financial StatementsReporting PeriodIncome StatementStatement of Financial Position (BALANCE Sheet)AssetsLiabilitiesNet Current AssetsEquityNotes to the Financial StatementsStatement of Changes in EquityDividends on Ordinary SharesIAS Rules for Ordinary DividendsWhy Company Accounts Are Published?Limitations of Published Company AccountsFinancial Statements in CIE ExamsReservesDifference Between Provisions and ReservesDirectors’ ReportReview QuestionsAccounting A Level Theory and Practice BookChapter 5 Issue of Shares & DebenturesPrices of a SharePar ValueIssue PriceBook ValueMarket ValueSelling Shares to the General PublicIssue of Shares At ParIssue of Shares At Premium (at a Price More Than Face Value)Rights IssueAdvantages of Rights IssueDisadvantages of Rights IssueBonus or Scrip IssueReasons for Bonus IssueEffect on Earnings Per Share (EPS)Advantages of Bonus IssueDisadvantages of Bonus IssueDifference Between Rights and Bonus IssueIssue of Loans and DebenturesIssue of Debentures At ParIssue of Debentures At Premium (at a Price More Than Face Value)Issue of Debentures At Discount (at a Price Below Face Value)Review QuestionsAccounting a Level Theory and Practice BookChapter 6 Statement of Cash FlowsClassifications of Cash Flows – An ExampleCash and Cash EquivalentsCashCash EquivalentsBank OverdraftsPreparation of a Statement of Cash FlowsCash Flow From Operating ActivitiesImportance of Cash Flow From Operating ActivitiesCalculation of Cash Flow From Operating ActivitiesCash From Operating Activities in Direct MethodCash From Operating Activities in Indirect MethodCalculation of Operating ProfitInvesting ActivitiesFinancing ActivitiesCash Flow At a GlanceUses of a Statement of Cash FlowsLimitations of a Statement of Cash FlowsUsers of Statement of Cash FlowsDisclosure of Non Cash ActivitiesStatement of Cash Flows for Businesses Other Than Limited CompaniesReview QuestionsAccounting a Level Theory and Practice BookChapter 7 International Accounting StandardsIAS 1 Presentation of Financial StatementsIAS 2 InventoriesIAS 7 Statement of Cash FlowsIAS 8 Accounting Policies, Changes in Accounting Estimates and ErrorsIAS 10 Events After the Reporting PeriodIAS 16 Property, Plant, and EquipmentIAS 36 Impairment of AssetsIAS 37 Provisions, Contingent Liabilities and Contingent AssetsIAS 38 Intangible Assets7 Ethics Relating to the Practice of AccountingReview QuestionsAccounting a Level Theory and Practice BookChapter 8 Auditing and Stewardship of Limited CompaniesRole of DirectorsRole of AuditorsPreparation and Rendering of Auditors’ ReportTypes of OpinionUnderstand the Entity’s EnvironmentWhat is Not Expected From AuditorsDifference Between the Duties of Management and AuditorsTrue and Fair View in Financial StatementsAccounting a Level Theory and Practice BookChapter 9 Ratio AnalysisFinancial RatiosAnalysis of RatiosComparing One Year With Another (Trend or Time Series Analysis)Comparing One Business With Another Business (Cross-Sectional Analysis)Demonstration of RatiosRatios in Advanced Level SyllabusWorking Capital CycleNet Working Assets to Sales (revenue)Earnings Per SharePrice-Earnings (P/E) RatioDividend Per ShareDividend Yield RatioDividend CoverIncome GearingGearingUses of Ratio AnalysisLimitations of Ratio AnalysisUsers of Financial RatiosReview QuestionsAccounting a Level Theory and Practice BookChapter 10 Joint Venture AccountsFeatures of Joint VenturesObjectives of Joint VenturesExamples of Joint Ventures:Partnerships and Joint Ventures ComparedDifference Between Consignment and Joint VenturesAccounting for Joint VenturesReview QuestionsChapter 11 Consignment AccountsCharacteristics of ConsignmentDifference Between Consignment and SaleTerms Used in Consignment AccountsConsignorConsigneeGoods Sent on ConsignmentProforma InvoiceExpenses on ConsignmentCommissionLosses on ConsignmentNormal LossAbnormal LossAccount SalesAdvance Payments By ConsigneeValuation of InventoryReturn of Goods By the ConsigneeAccounts Prepared By ConsignorConsignment AccountConsignee’s AccountConsignment of Goods At Invoice Price (at Cost Plus Profit)Review QuestionsAccounting a Level Theory and Practice BookChapter 12 Manufacturing Accountsthe Prime Cost SectionRaw Materials CostDirect Labour CostDirect ExpensesFactory (PRODUCTION) OverheadsManufacturing Accounts for Separate ProductsPurpose of Manufacturing AccountsTrading SectionProfit and Loss SectionStatement of Financial PositionInventories in a Manufacturing BusinessFactory (MANUFACTURING) ProfitBenefits of Transferring Goods At Production Cost Plus Factory ProfitDrawbacks of Transferring Goods to Trading Account At Market PriceAccounting TreatmentProvision for Unrealised ProfitReview QuestionsAccounting a Level Theory and Practice BookChapter 13 Activity Based CostingCosting Issues in Conventional CostingApplication of Activity Based CostingDifference Between Conventional and Activity Based CostingTerms Frequently Used in Activity Based CostingActivityResourceCost DriversHierarchy of ActivitiesUnit (output) Level ActivitiesBatch Level ActivitiesProduct (Product Sustaining) Level ActivitiesFacility (Facility Sustaining) Level CostsCustomer Level ActivitiesExamples of Cost DriversBenefits of Activity Based CostingLimitations of Activity Based CostingSteps for Implementing Activity Based CostingRole of Activity Based Costing in Non-Manufacturing SectorReview QuestionsChapter 14 Standard CostingTypes of StandardsAdvantages of Standard CostingLimitations of Standard CostingSetting Standard CostsSetting Standards for Direct MaterialsSetting Direct Labour CostVariance AnalysisTotal ‘DIRECT Material Cost Variance’Material Price VarianceMaterial Usage VarianceSymbols Used for Calculating Direct Material VariancesWhen Material Purchased is Different From Materials UsedTypical Causes of Material VariancesTotal ‘DIRECT Labour Cost Variance’Labour Rate Variance’Labour Efficiency VarianceSymbols Used for Calculating Direct Labour VariancesStandard HoursTypical Causes of Labour VariancesVariable Overhead VariancesVariable Overhead Expenditure VarianceVariable Overhead Efficiency VarianceTypical Causes of Variable Overhead VariancesTotal Fixed Overheads VariancePeculiar Nature of Fixed Overhead VariancesFixed Overhead Expenditure (spending) VarianceFixed Overhead Volume VarianceFixed Overhead Efficiency VarianceFixed Overhead Capacity VarianceTypical Causes of Fixed Overhead VariancesSales VariancesSales Price VarianceSales Volume VariancesQuantity VarianceTypical Causes of Sales VariancesFixed BudgetFlexible BudgetSteps for Preparing a Flexible BudgetReconciliation of Budgeted and Actual ProfitsReview QuestionsChapter 15 Budgeting and Budgetary Control15 Difference Between Budgets and Budgetary ControlDifference Between Standard Costs and BudgetsAdvantages of Preparing Budgets From Standard CostsDifference Between Forecasting and BudgetingPurposes of BudgetAdvantages of Budgetary Control SystemLimitations of Budgetary Control SystemStages in the Budgetary Planning ProcessEffects of Principal Budget Factors on the Preparation of BudgetsBehavioural Aspects of Budgetary Control SystemBudget PeriodSales BudgetFactors Considered for Preparing Sales BudgetSteps for Preparing a Sales BudgetProduction BudgetFactors Considered for Preparing Production BudgetSteps of Preparing a Production BudgetPurchases BudgetPurchase Budget for Trading FirmsSteps of Preparing a Purchases Budget for a Trading BusinessPurchase Budget for Manufacturing FirmsSteps of Preparing a Purchases Budget for a Manufacturing BusinessDirect Labour BudgetSteps of Preparing a Labour BudgetTrade Receivables BudgetTrade Payables BudgetAdvantages of Using a Trade Payables BudgetCash BudgetSteps for Preparing a Cash BudgetSections of a Cash BudgetDifferences Between a Cash Budget and a Statement of Cash FlowsUses of a Cash BudgetActions to Avoid Cash ShortagesMaster BudgetBudgeted Income StatementBudgeted Statement of Financial PositionReview QuestionsChapter 16 Capital Investment AppraisalReasons for Making Capital Investment DecisionsSteps in the Capital Investment Appraisal DecisionsMethods for Capital Investment AppraisalAccounting Rate of ReturnAdvantages of Accounting Rate of ReturnDisadvantages of Accounting Rate of ReturnPayback PeriodPayback Period With Even Cash FlowsPayback Period With Uneven Cash FlowsAdvantages of PaybackDisadvantages of PaybackTime Value of MoneyCompound InterestPresent ValueCost of CapitalDiscounted Payback Period RuleNet Present ValueCalculation of Net Present ValueSelection of ProjectAdvantages of Net Present ValueDisadvantages of Net Present ValueInternal Rate of ReturnWhich Rate is Better?Calculation of IRRAdvantages of Internal Rate of ReturnDisadvantages of Internal Rate of ReturnNPV and IRR, Which is Better?Why NPV is Preferred?Sunk CostRelevant CostsNon Financial Factors Involved in Capital Investment DecisionsSensitivity AnalysisPresent Value TableReview QuestionsChapter 17 Computerised Accounting SystemsDifference Between Hardware & SoftwareAdvantages and Disadvantages of Computerised AccountingAdvantages of Computerised AccountingDisadvantages of Computerised AccountingDifferences Between Manual and Computerised AccountingUsers of Computerised AccountingTransition of Manual to Computerised AccountingIntegrality of Data During Transfer to and in Computerized accountsSolutions to Odd Numbered QuestionsChapter 1Chapter 2Chapter 3Chapter 4Chapter 5Chapter 6Chapter 7Chapter 9Chapter 10Chapter 11Chapter 12Chapter 13Chapter 14Chapter 15Chapter 16Key to Even Numbered QuestionsIndex