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AAT Financial Statements. Kiran Sagoo 0121 237 3818 harkiransagoo@bpp.com. Revision Tutorial 2012. How will the paper be assessed?. It is assessed by a 2 1/2 hour exam. The exam is in two sections: Drafting of financial statements (60% of the assessment) - PowerPoint PPT Presentation

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AAT Financial StatementsRevision Tutorial2012Kiran Sagoo 0121 237 3818 harkiransagoo@bpp.com

BPP PROFESSIONAL EDUCATIONBPP PROFESSIONAL EDUCATIONIt is assessed by a 2 1/2 hour exam.

The exam is in two sections:

Drafting of financial statements (60% of the assessment)

Analysis and interpretation* (40% of the assessment)

* Also the IASBs Framework for the Preparation and Presentation of Financial Statements and legal and regulatory framework

How will the paper be assessed?BPP PROFESSIONAL EDUCATIONSection 1 (Drafting)Part A Construction of the financial statements of single companiesPart B International Financial Reporting Standards (IFRSs)Part C Construction of consolidated financial statements

Section 2Part A Analysis and interpretation of financial statementsPart B Framework for the Preparation and Presentation of Financial Statements How will the paper be assessed?BPP PROFESSIONAL EDUCATIONK&U (2)Understand the key features of a published set of accounts

1. Describe the key components and the purpose of a statement of financial position2. Describe the key components and the purpose of a statement of comprehensive income.3. Describe the key components and the purpose of a statement of cash flows.4. Explain the content and purpose of disclosure notes to the accounts.5. Identify accounting standards and the effect of these on the preparation of the financial statements.

Assessment Criteria (Extract)BPP PROFESSIONAL EDUCATIONOverview of Session Revision through the main accounting standardsExamples of how to answer written questionsGood answers vs. poor answerBasic exam techniques

BPP PROFESSIONAL EDUCATIONTypes of Written QuestionsCould be:Knowledge based questionsScenario based questions

See examples later

BPP PROFESSIONAL EDUCATIONThe Accounting EquationASSETS = LIABILITIES + EQUITY

Assets CONTROLLED by entity as a result of PAST events, resulting in an INFLOW of ECONOMIC BENEFITS

Liabilities PRESENT OBLIGATION arising from PAST EVENTS, resulting in an OUTFLOW of ECONOMIC BENEFITS

Equity Owners RESIDUAL INTEREST in the assets of the entity after deducting all liabilities

BPP PROFESSIONAL EDUCATIONRelevance - if information is capable of making a difference in the decision made by users

Faithful Representation information represents the commercial substance of economic transactions and events. Information is complete, neutral and free from error. Fundamental CharacteristicsBPP PROFESSIONAL EDUCATIONIAS 16 Property Plant and EquipmentBPP PROFESSIONAL EDUCATIONIAS 40 Investment PropertiesBPP PROFESSIONAL EDUCATIONIAS 17 LeasesBPP PROFESSIONAL EDUCATIONTo show students how much they could earn if they progress onto further studies (taking CIMA as the example)IAS 36 - ImpairmentsIf the carrying value exceeds the recoverable amount then write down to the recoverable amount. Loss recognised in the Income StmtBPP PROFESSIONAL EDUCATIONIAS 37 Provisions, Contingent Liabilities & Contingent AssetsBPP PROFESSIONAL EDUCATIONDefine the terms finance lease and operating lease in accordance with IAS 17 Leases. Explain how operating leases are accounted for in the financial statements of the lesseeExplain how finance leases are accounted for in the financial statements of the lessee

Example of a knowledge based questionBPP PROFESSIONAL EDUCATIONOperating lease A lease other than a finance lease. Lease where risks and rewards of ownership are not transferred to the lessee. Finance lease A lease where substantially all of the risks and rewards incidental to ownership of an asset are transferred to the lessee.Treatment of an operating lease Payments in relation to the lease of the asset are charged to the income statement on a straight line basis. The leased asset is NOT recognised in the statement of financial position.Treatment of a finance leaseThe lease will be recognised as an ASSET on the statement of financial position. A LIABILITY will also be recognised for the outstanding lease payment, which is measure at the fair value of the asset or the present value of the minimum lease payments (if lower). Model Answer knowledge based questionBPP PROFESSIONAL EDUCATIONDuring the year the board of Morel Ltd decided to close down a division of the company and developed a detailed plan for implementing the decision. Morel Ltd wrote to customers warning them to seek an alternative source of supply. Redundancy notices were sent to the staff of the division. The board has a reliable estimate that the cost of closing the division would be 1,854,000.During the year three people were seriously injured as a result of food poisoning. It was claimed that the food poisoning came from products sold by Morel Ltd. Legal proceedings have started seeking damages from the company of 2,000,000. Lawyers working for Morel Ltd have advised that it is probable that the company will not be found liable.Prepare notes for a meeting with the directors to answer the following questions.(a) What is meant by a provision, according to IAS 37 Provisions, contingent liabilities and contingent assets?(b) When should a provision be recognised?(c) How should Morel Ltd treat the two matters set out in the data above in its financial statements?Example of a scenario based questionBPP PROFESSIONAL EDUCATIONIAS 37 Provisions, contingent liabilities and contingent assets defines a provision as a liability of uncertain timing or amount. A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of economic benefits.(b) A provision should be recognised when: An entity has a present obligation as a result of a past event. The obligation can be either legal or constructive; and It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and A reliable estimate can be made of the amount of the obligation.Model Answer scenario based questionBPP PROFESSIONAL EDUCATION(c) Accounting treatment of matters arising during the financial year(i) Closure of a divisionMorel Ltd has a constructive obligation to carry out the closure because it has communicated the decision to the people who will be affected: its customers and its employees. This communication appears to have taken place before the year end. It is probable that there will be an outflow of resources embodying economic benefits: the company will incur costs as a result of closing the division. A reliable estimate has been made of the costs. Therefore the company should recognise a provision of 1,854,000 at its year end.(ii) Legal proceedingsAs the company will probably not be liable it is unlikely that there is a present obligation or that there will be an outflow of resources embodying economic benefits. Therefore no provision should be made. However, the company does have a contingent liability (unless the chances of its being found liable for damages are remote). Details of the claim should be disclosed in the notes to the financial statements.

Model Answer scenario based questionBPP PROFESSIONAL EDUCATIONGood vs. Poor AnswerPrepare brief notes to answer the following points for the directors:(a) State how, according to IAS 36 Impairment of assets, an impairment loss iscalculated and which two figures are needed.(b) Explain what is meant by each of these figures.(c) State how an impairment loss is to be treated in the financial statements.BPP PROFESSIONAL EDUCATIONIAS 36 states that if an assets carrying value exceeds the recoverable amount then the asset is impaired. The difference between the two is the impairment amountThe carrying amount is the value recognised in the SFP after deducting accumulated depreciation and impairment losses. The recoverable amount is the higher of the fair value less costs to sell and the value in use, which is the present value of future cashflowsImpairments are recognised in the income statement unless the asset was previously re-valued upwards in other comprehensive income. In this case the revaluation will be reversed and any excess losses remaining will be recognised in the income statement

Good AnswerBPP PROFESSIONAL EDUCATIONThe calculation of impairment is the difference between the asset in the statement of financial position and the sale valueNO mention of appropriate terminology, didnt answer question fully.The asset is the cost less depreciation, the sale price is what the asset could be sold forNOT well explained. No use of appropriate terminologyImpairments are written off to the income statementNOT enough detailPoor AnswerBPP PROFESSIONAL EDUCATIONNeed to be able to apply knowledge to scenarios in order to achieve full marks.Must write in sufficient detail.No bullet pointingCover all buzz words in the standard, it will help you write about itBasic Exam TechniqueBPP PROFESSIONAL EDUCATION

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