The family next door has both girl and boy children. Each of the boys has the same number of brothers as he has sisters AND each of the girls

has twice as many brothers as she has sisters.

How many boys and girls are there?

ANSWER:

4 boys and 3 girls.

Prepare an income statement Calculate adjustments following a share

issue Prepare statement of financial position Identify the elements listed in the

framework

Lesson objectives

Which one of the followingstatements is the accounting equation?

A. equity = assets + liabilitiesB. assets – liabilities = equityC. assets + profit = equityC. liabilities + profit = equity

Income

Define the terms ‘income’, ‘expenses’ and ‘profits or losses’ in accordance with the definitions in theConceptual Framework for Financial Reporting.

Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets, or decreases of liabilities that result in increases in equity. Not those relating from increases from shareholders.

Define the terms ‘income’, ‘expenses’ and ‘profits or losses’ in accordance with the definitions in theConceptual Framework for Financial Reporting.

Profit or Losses

Expenses

Profit or Losses Profits are increases in equity

Losses are decreases in equity

Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or increase of liabilities that result in decreases in equity. Not those relating to dividends paid to equity holders.

1.

2.

The Conceptual Framework for Financial Reporting identifies two fundamental qualitative characteristics

(a) State the two fundamental qualitative characteristics identified by the ConceptualFramework for Financial Reporting.

1. Relevance

2. Faithful representation

The Conceptual Framework for Financial Reporting identifies two fundamental qualitative characteristics

(a) State the two fundamental qualitative characteristics identified by the ConceptualFramework for Financial Reporting.

1.

Explain what is meant by each of these

fundamental qualitative characteristics.

2.

1. Relevance. For information to be relevant it must:

Be capable of making a difference in the decisions made by users

Help users to predict future outcomes Help users to confirm previous evaluations.

Explain what is meant by each of these

fundamental qualitative characteristics.

2. Faithful representation -The information must

• Correspond to the effect of transactions or events

• As far as possible be complete, without bias, and free from error.

State the four enhancing qualitative characteristics identified by the Conceptual Framework for Financial Reporting.

1.

2.

3.

4.

State the four enhancing qualitative characteristics identified by the Conceptual Framework for Financial Reporting.

1. Comparability

2. verifiability

3. timeliness

4. understandability

Statement Accounting concept

The financial statements do not include the personal assets and liabilities of those who play a part in owning or running the entity.

The statement of comprehensive income shows the amount of expense that should have been

incurred.

The financial statements are prepared on the basis that there is no intention to reduce significantly the size of the entity.

Low-cost non-current assets are charged as expenses In the statement of comprehensive

income.

Write in the accounting concept which

relates to each of the statements below.

Statement Accounting concept

The financial statements do not include the personal assets and liabilities of those who business entityplay a part in owning or running the entity.

The statement of comprehensive income shows the amount of expense that should have been accruals

incurred.

The financial statements are prepared on the basis that there is no intention to reduce going concernsignificantly the size of the entity.

Low-cost non-current assets are charged as expenses In the statement of comprehensive Materiality

income.

Write in the accounting concept which

relates to each of the statements below.

You are to fill in the missing figures for the following businesses: Assets Liabilities Equity £ £ £

Business A 50,500 17,250 ............

Business B 64,900 ............ 35,600

Business C ............ 25,750 40,680

Business D 93,270 ............ 53,140

You are to fill in the missing figures for the following businesses: Assets Liabilities Equity £ £ £

Business A 50,500 17,250 33,250.

Business B 64,900 29,300 35,600

Business C 66,430 25,750 40,680

Business D 93,270 40,130 53,140

Explain what each of the terms ‘assets’, ‘liabilities’ and ‘equity’ means.

Assets

Liabilities

Equity

Explain what each of the terms ‘assets’, ‘liabilities’ and ‘equity’ means.

Assets – a resource controlled by the entity as a result of a past event and from which future economic benefits are expected to flow to the entity.

Liabilities – a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

Explain what each of the terms ‘assets’, ‘liabilities’ and ‘equity’ means.

Equity – the residual interest in the assets of the entity after deducting all its liabilities.

Users include managers, investors, suppliers, customers, lenders, employees, competitors.

The capital invested in a company by its owners, divided into individual shares.

Shares have a nominal and market value.

The nominal value is the face value, decided when the shares are issued and remains the same.

Share capital

Shares are stated in the balance sheet at their nominal value.

The market value is the value at which it is traded on the stock exchange. This is irrelevant to the accounts

Share capital

Authorised share capital is the maximum amount of share capital the company is permitted to issue.

Issued share capital is the nominal amount of share capital that has actually been issued to shareholders. (Allotted share capital is the same as issued share capital)

Share capital

Entitle the holders to share in profits after all prior claims have been satisfied (creditors, preference shareholders).

They can vote in general meetings Cannot be certain of the amount of

their dividend. In theory they can determine the

policies of the company

Ordinary shares

Retained profits Share premium account (non-dist) Revaluation Reserve (non-dist) General reserve (set up by directors) Other reserves (set up by directors)

Reserves

 Issue at par: Dr: BankCr: Share Capital

Share Issues

(IAS 1)The Statement of changes in equity must show:

Total comprehensive income Changes in accounting policy Correcting prior period errors Share issues, payment of dividends

The Statement of changes in equity

In group prepare notes to brief class on given topic

1. Accounting standards2. Duties and responsibilities of directors3. Objective and users of financial

reporting4. Useful financial information5. Elements of financial statements

The Framework