ACCA F3 Paper
Suggested Study Notes for F3 ACCA Examinations
REVIEW OF SOME KEY FUNDALMENTALS
1 Accounting Matrix
Trial Balance
Debit
Assets
Liabilities L
(+Capital) C
Expenses E
$
Credit
Gains
Comparing assets and liabilities, this statement is called the balance sheet.
Comparing expenses and gains, this statement is called the profit & loss account.
Follow the rule of double entry on any transaction.
Buy a car for cash: Debt asset / credit bank
Buy stationary on credit: Debit expense (stationary) and credit creditor (name of supplier)
When you pay the supplier, you debit creditor account and credit bank account.
Pay wages: Debit wages and credit bank.
Make a sale on credit: Debit debtor (customer) and credit sales.
Make a cash sale : Debit bank and credit sales.
2 Know all accounting concepts and fundamentals terminology. E.G.
Going concern
Normal assumptions that entity will continue for next 12mths. If not, then
assets would then need to reviewed, show at "breakup value".
Materiality
Include all material items. If excluded, this could influence the decision
on the users viewpoint of the financial statements
Accruals
Prudence
Exercise caution. Ensure all costs and liabilities are correctly stated.
If loss foreseen, it should be accounted for and provision made.
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KEY
Debit $
Sales
Discounts Received
Discounts Allowed
Opening Stock
p&l
Closing Stock
p&l
Purchases
Carriage Inwards
Carriage Outwards
Salaries
Rent
Rates
Insurance
Selling commission
Bad Debts
Bad Debts recovered
Sundry Income
Depreciation of equipment
Equipment - cost
Accumulated Depreciation - Equipment
Investments
Stock
Debtors
Bad Debts Provision
Bank Deposit
Bank overdraft
Creditors
Bank Loan
Preference Shares
Ordinary Share Capital
Reserves - Opening
Credit $
161950
190000 G
200 G
E
E
6000 G
E
E
E
E
E
E
E
E
E
1000 G
3000 G
E
A
6000 L
A
A
A
1500 L
A
15000 L
3000 L
37000 L
100000 C
100 C
C
362800
362800
50
5000
60000
2000
4000
40000
10000
1000
3000
3800
3000
3000
30000
10000
6000
15000
5000
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< PROVISION
< PROVISION
Loss b/f
30000
2000
Debtor - T Murphy
Debtor - J Smith
100000
62000
190000
192000
192000
Purchases Account
Creditor - S Pierce
Creditor - B Hoey
Bank - cash purchase
35000
20000
5300
Creditor - S Pierce
(credit note received)
60000
60300
60300
5 The system for looking after petty cash is also known as an imprest system.
Keep a pre-determined float and use vouchers to track costs and analysis.
The expense total is refunded later to reinstate the float or imprest amount.
6 Understand sales tax or VAT (value added tax)
Assume all cash transactions:
DR
CR
300
1000
1230
230
488
600
112
Therefore the net VAT due is $118 (230-112). When paid the entry will be:
VAT
Bank
118
118
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190,000
5,000
60,000
2,000
(6,000)
Gross Profit
(61,000)
129,000
Questions can be given to work out the missing entry. Follow the format to solve.
Note that carriage outwards (freight costs for selling and shipping goods out to customers)
is not part of this format. Carriage inwards is the freight cost for buying goods for resale, so
part of cost of sales.
8 Stock valuation
IAS2 states that inventory should be valued at the lower of cost and net realisable value (NRV)
In stock
item 1
item 2
item 3
cost
sales value
NRV
Stock Value
30
20
10
50
18
20
45
17
9
30
17
9
60
88
71
56 = Ans.
LIFO
Weighted Average
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If at end of year 2 the car was sold for 10,200, what is the profit / (loss) on disposal ?
30000 Bank
Accum. Deprec.
Profit & Loss a/c
10200
18000 9k x 2
1800 loss to P&L
30000
30000
Note: Net book value (NBV) of car in yr 2 is 12,000 (30k less 18k)
Check Ans: 10,200 less 12,000 = 1,800 loss.
Extract Trial Balance:
Debit
Disposal of Motor Vehicle
Credit
1800
Review period of accounting and dates. If purchased or sold mid year, then you will need
to time apportion values.
Ensure you know different methods:
Straight line
Reducing balance
yr2
yr3
500
500
1600
Accruals
Light & Heat
1000
Credit
500
500
1600
Pay
bill
1000
reverse
accrual
P&L Extracts:
Yr 1
Yr 2
Yr 3
500
500
600
Accruals
Accruals
Accruals
500
1000
0
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500
Profit & Loss
Debtors
(bad debts written off)
3000
1500
1500
Bal b/f
3000
2500
3000
Bal c/f
1500
1500
1000
1000
1000
Where a trade debtor will not pay or you assume the debt is doubtful to be received, you can
1) clear the account be writing off the ledger balance or 2) leave the ledger balance put make
a provision in another account - called BDP above. The BDP a/c can be general say 10% of
the debtors total or specific to individual debtors. Any movement in the BDP a/c is shown in
the bad debts account in the P&L account.
Where a debt was written off (ledger balance = 0) and later received. We setup a new
account called bad debts recovered. The entry goes straight there and shown separately in the
p&l. This account highlights the fact that it was recovered after a decision was made to
write off.
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(15,000) Cr
credit balance
in ledger=overdraft
(100)
Incl adj needed to
our books
(15,100)
(10,000) Dr
2,000
chq no.
00501
00502
00505
If Cr bal. then no
brackets.
2,100
1,000
4,000
(7,100)
(15,100)
Typically the bank is normally right and our books would need to be adjusted for omissions etc.
Rarely will the bank be wrong, if so, you show the error under the bank statement line
noting it is an bank error and due to be reversed in the future.
NB:
Dr for bank statement = overdraft
Cr for bank statement = in funds, you have money
=>
=>
In any bank reconciliation, important to check if opening balances agree. If not you may need
to follow though this reconciliation first, so you can then finish the closing reconciliation.
Some entries may still be outstanding and so you will need to c/f again on your closing
reconciliation.
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Rights Issue
Share Premium
Bonus Issue
No cashflow involved.
Moving other reserves to share capital.
No dilution of existing shareholders.
Sometimes known as "free shares". However, as everyone
gets them on the same basis, the market value adjusts per
share to reflect the change.
14 Cashflow Statement
Understand format. To show cashflow movements only, thus explain the bank movement.
If you buy an asset this is a use or application of funds, so deduct.
Increase in debtors (an asset), is therefore deducted as a working capital adjustment.
An increase in creditors (a liability), gives you extra funds. You are getting more credit. So
you add to working capital adjustment.
The opposite is true for both debtors and creditors.
Depreciation and the disposal account is not a cashflow item, so you add back.
(if profit on disposal you deduct, if loss on disposal you deduct)
Do "T accounts" for the following balance sheet accounts to get the cash flow item for:
Purchase of fixed assets (non current assets)
Taxation paid
Dividends paid
=>
=>
=>
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IAS27
Own over 50% or deemed to have control of an entity. You then consolidate results.
Understand the adjustments for the combined entity:
1) Inter-trading
2) Inter-trade debts
3) Remove unrealised profit from inter-trading
and:
Calculation of goodwill
Calculation of non controlling interest (NCI)
=>
=>
=>
Review acquisition date as you may need to apportion the profit figures in various
workings.
In a combined entity the holding company share capital is always stated in
the consolidated balance sheet.
Add 100% of the subsidiary P&L results, you then deal with the non controlling interest
share of profits at the end.
Important to understand mark-up and margin. As you may need to work out the unrealised
profit element for the stock adjustment.
Mark-up is on cost
Margin on sales
1,500
(1,000)
500
33%
100%
67%
33%
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The next course commences on Monday, 27th August 2012. Lectures are delivered from our
City Centre location (South Great Georges Street, D2), Templeogue (Dublin 6W), and are streamed
online live and are recored for online review.
DAY
Monday
Tuesday
Wednesday
Thursday
PAPER
F6
F2
F1
F3
PAPER2
F9
F8
F5
F7
PAPER3
P4
P3
P2
P1
PAPER4
P7
F4
P5
P6
Course Fees:
Wednesday
Full course
Revision
350
199
F1
Accounting in Business
F2
Management Accounting
Tuesday
350
199
F3
Financial Accounting
Thursday
350
199
F4
Tuesday
650
295
F5
Performace Management
Monday
650
295
F6
Taxation
Wednesday
650
295
F7
Financial Reporting
Thursday
650
295
F8
Tuesday
650
295
F9
Financial Management
Tuesday
650
295
P1
Thursday
795
325
P2
Corporate Reporting
Wednesday
795
325
P3
Business Analysis
Tuesday
795
325
P4
Monday
795
325
P5
Wednesday
795
325
P6
Advanced Taxation
Thursday
795
325
P7
Monday
795
325
The most up-to-date course materials are included in the course fee.
Apply online at www.citycolleges.ie or call 1850 25 27 40
Dublin City Centre (Dublin 2), Templeogue (Dublin 6W) and Online
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