ACCA F3 (INT) Financial Accounting - 2010 - Study text - Emile Woolf Publishing
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ACCA
F3 INT Study Text
Financial Accounting
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ACCA
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ACCA
Paper
F3
(INT)
Financial Accounting
(International)
Publishing
Publishing
Welcome to Emile Woolf‘s study text for
Paper F3 Financial Accounting (International) which is:
Written by tutors
Comprehensive but concise
In simple English
Used around the world by Emile Woolf Colleges including
China, Russia and the UK
ii
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Acknowledgements
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CharteredCertifiedAccountants.
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Paper F3 (INT)
Financial Accounting
c
Contents
Page
Syllabus and study guide 1
New terminology and presentation of financial statements 13
Chapter 1: The context and purpose of financial reporting 15
Chapter 2: Qualitative characteristics of financial information and the
fundamental bases of accounting 37
Chapter 3: The accounting equation and double-entry book-keeping 51
Chapter 4: Recording transactions: sales, purchases and cash 87
Chapter 5: Inventory 115
Chapter 6: Non-current assets 137
Chapter 7: Accruals and prepayments. Receivables and payables 177
Chapter 8: Provisions and contingencies 207
Chapter 9: Capital structure and finance costs 223
Chapter 10: Trial balance, correcting errors and suspense accounts 251
Chapter 11: Control accounts and bank reconciliations 271
Chapter 12: Preparing financial statements 287
Chapter 13: Partnership accounts 315
Chapter 14: Statements of cash flows 333
Chapter 15: Incomplete records 365
Answers to exercises and multiple choice questions 379
Practice questions 415
Answers to practice questions 435
Index 465
Paper F3: Financial accounting (International)
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© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 1
Paper F3 (INT)
Financial Accounting
S
Syllabus and study guide
Aim
To develop knowledge and understanding of the underlying principles and
concepts relating to financial accounting and technical proficiency in the use of
double-entry accounting techniques including the preparation of basic financial
statements.
Main capabilities
On successful completion of this paper, you should be able to:
A Explain the context and purpose of financial reporting
B Define the qualitative characteristics of financial information and the
fundamental bases of accounting
C Demonstrate the use of double entry and accounting systems
D Record transactions and events
E Prepare a trial balance (including identifying and correcting errors)
F Prepare basic financial statements for incorporated and unincorporated
entities.
Rationale
The syllabus for Paper F3, Financial Accounting, introduces the candidate to the
fundamentals of financial accounting, explaining its context and purpose with
reference to qualitative characteristics of useful financial information and to the
fundamental bases of accounting. The syllabus then concentrates in depth on the
basics of the double‐entry
system and on recording, processing, and reporting
business transactions and events. The syllabus then covers the use of the trial
balanceandhowtoidentifyandcorrecterrors,andthenthepreparationoffinancial
statementsforincorporatedandunincorporatedentities.
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Syllabus
A The context and purpose of financial reporting
1 The reasons for, and objectives of, financial reporting
2 Users’ and stakeholders’ needs
3 The main elements of financial reports
4 The regulatory framework
B The qualitative characteristics of financial information and the
fundamental bases of accounting
1 The qualitative characteristics of financial reporting
2 Alternative bases used in the preparation of financial information
C The use of double entry and accounting systems
1 Double-entry book-keeping principles including the maintenance of
accounting records and sources of information
2 Ledger accounts, books of prime entry and journals
3 Accounting systems and the impact of information technology on
financial reporting
D Recording transactions and events
1 Sales and purchases
2 Cash
3 Inventory
4 Tangible non-current assets
5 Depreciation
6 Intangible non-current assets and amortisation
7 Accruals and prepayments
8 Receivables and payables
9 Provisions and contingencies
10 Capital structure and finance costs
E Preparing a trial balance
1 Trial balance
2 Correction of errors
3 Control accounts and reconciliations
4 Bank reconciliations
5 Suspense accounts
F Preparing basic financial statements
1 Statements of financial position
2 Income statements and statements of comprehensive income
3 Events after the reporting period
4 Accounting for partnerships
5 Statements of cash flows (excluding partnerships)
6 Incomplete records
Syllabus and study guide
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 3
Approach to examining the syllabus
The syllabus is assessed by a two hour paper-based or computer-based examination.
Questions will assess all parts of the syllabus and will contain both computational and non-
computational elements. The examination will consist of 40 two mark questions, and 10 one
mark questions.
Study guide
A The context and purpose of financial reporting
1 The reasons for and objectives of financial reporting
(a) Define financial reporting – recording, analysing and summarising
financial data.
(b) Identify and define types of business entity – sole trader, partnership,
limited liability company.
(c) Recognise the legal differences between a sole trader, partnership and a
limited liability company.
(d) Identify the advantages and disadvantages of operating as a limited
liability company, sole trader or partnership.
(e) Understand the nature, principles and scope of financial reporting.
2 Users’ and stakeholders’ needs
(a) Identify the users of financial statements and state and differentiate
between their information needs.
3 The main elements of financial reports
(a) Understand and identify the purpose of each of the main financial
statements.
(b) Define and identify assets, liabilities, equity, revenue and expenses.
4 The regulatory framework
(a) Understand the role of the regulatory system including the roles of the
International Accounting Standards Committee Foundation (IASCF), the
International Accounting Standards Board (IASB), the Standards
Advisory Council (SAC) and the International Financial Reporting
Interpretations Committee (IFRIC).
(b) Understand the role of International Financial Reporting Standards.
B The qualitative characteristics of financial information and the
fundamental bases of accounting
1 The qualitative characteristics of financial reporting
(a) Define, understand and apply accounting concepts and qualitative
characteristics:
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(i) Fair presentation
(ii) Going concern
(iii) Accruals
(iv) Consistency
(v) Materiality
(vi) Relevance
(vii) Reliability
(viii) Faithful representation
(ix) Substance over form
(x) Neutrality
(xi) Prudence
(xii) Completeness
(xiii) Comparability
(xiv) Understandability
(xv) Business entity concept
(b) Understand the balance between qualitative characteristics.
2 Alternative bases used in the preparation of financial information
(a) Identify and explain the main characteristics of alternative valuation
bases e.g. historical cost, replacement cost, net realisable value, economic
value.
(b) Understand the advantages and disadvantages of historical cost
accounting.
c) Understand the provision of International Financial Reporting
Standards governing financial statements regarding changes in
accounting policies.
(d) Identify the appropriate accounting treatment if a company changes a
material accounting policy.
C The use of double entry and accounting systems
1 Double entry book-keeping principles including the maintenance of
accounting records and sources of information
(a) Identify and explain the function of the main data sources in an
accounting system.
(b) Outline the contents and purpose of different types of business
documentation, including: quotation, sales order, purchase order, goods