FAC1601
NOTES
, HOW TO PASS FAC1601
Going over the past papers allows you to understand what is expected of you in the
exam.
Practice, practice, practice – PRACTICE.
MOST IMPORTANT: KNOW your formats off by heart!!!
The following are sections of the work I would recommend concentrating on:
1. Partnerships:
1.1 Liquidation of partnerships (simultaneous & piecemeal)
1.2 1st interim repayment
1.3 Profit-sharing ratios
1.4 Financial Statements (ALL)
1.5 Valuation Account & Capital & Current Accounts
2. Close Corporations
2.1 Financial Statements (ALL)
3. Cash Flow Statements (Direct & indirect Method)
4. Companies
4.1 General Journal entries (Shares)
4.2 Capitalisation Shares
5. Branches
5.1 Branch Accounts (at cost price & at selling price) Financial Statements & Bank
Account
6. Analysis & interpretation
6.1 Calculation & interpretation of ratios
TIME ALLOCATION (Stick to it)
If you haven’t finished it YET…. MOVE ON
Do the questions you feel you know best first. Take 5 minutes to check through the
paper before you start.
Do not panic! Although it’s a fairly long paper, by getting worked up, 1 tends to get
careless and make unnecessary mistakes.
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,STUDY NOTES
I received the following notes from a fellow student.
Study Unit 1:
Introduction to the preparation of financial statements
Intro
The Framework “conceptual framework” sets out the objectives and concepts that
underlie the preparation and presentation of financial statements. Prescriptive
(Normative) and Descriptive (explanatory) in nature.
The two main purposes
• To assist the accountant in preparing and presenting financial statements
• To serve as a general guideline to the users of financial statement in understanding
the latter
Issued by the International Accounting Standards Board (IASB) and adopted by the
Accounting Practices Board (APB) in South Africa and applies to most business (profit &
non-profit)
Financial Statements as part of Financial Reporting
The framework gives a descriptive approach as to what constitutes financial statements.
It excludes reports from directors, chairman of the company and similar items but
management has primary responsibility for the preparation and presentation of the
financial statements of the entity.
Objective of financial statements
It is to provide information about the financial position (plus change in position) and
financial performance to users of the information. It includes
• Balance Sheet: Financial Position of the entity
• Income Statement: Financial Performance of the entity
• Statement of Changes in equity: Changes in capital structure
• Cash Flow Statement: Changes in the financial position of the entity
Notes: Relevant additional information to give a clearer picture
Underlying assumptions when preparing financial statements
• Accrual Basis: the effects of transactions are recognized when they occur, Occur:
When transaction initially takes place.
Going Concern: it will continue operations for the foreseeable future. If not then the
“Framework” provides a structure
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, Qualitative characteristics of financial statements
• Understandability: An average person with a reasonable knowledge of business and
of account should not experience problems understanding the statements but
information that must be passed on to users out of necessity to serve the purpose of
accounting must not be omitted solely on the grounds that it might not be
understood by some of the users
• Relevance: Financial statements should disclose all items that are so important or
large that the exclusion thereof may influence the decision-maker to make a
different (incorrect) decision
• Reliability: Faithful representation, substance over form, neutrality, prudence and
completeness
• Comparability: The information in financial statements should be comparable with
information from prior periods, as well as with the information of similar entities
Constraints on qualitative characteristics
• Timeliness: Reliability is impaired by timeliness because delayed reporting, in order
to know all aspects, could be far outdated for good use. The balance is by satisfying
the decision-making needs best.
Costliness: The benefits derived from the info of the financial statements should exceed
the cost of preparing it
The elements of financial statements either fall under financial position (balance sheet)
or financial performance (income statement)
Financial Position (Balance Sheet)
Asset
Is a resource controlled by the entity as a result of past events and from which future
benefits are expected to flow to the entity
• Used to produce goods or render services to customers
• Exchanged for other assets
• Used to pay liability
• Distributed to owners of the entity
Physical form not essential (Eg. building, vehicles, goodwill, copyright)
Expenditure not main criteria (Eg. donation of assets or expense incurred but not an
asset)
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
• Payment in cash
• Transfer of other assets
• Rendering of services
• Replacement of that obligation with another
• Conversion of the obligation to equity
Future plan of new expenditure is not a liability
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NOTES
, HOW TO PASS FAC1601
Going over the past papers allows you to understand what is expected of you in the
exam.
Practice, practice, practice – PRACTICE.
MOST IMPORTANT: KNOW your formats off by heart!!!
The following are sections of the work I would recommend concentrating on:
1. Partnerships:
1.1 Liquidation of partnerships (simultaneous & piecemeal)
1.2 1st interim repayment
1.3 Profit-sharing ratios
1.4 Financial Statements (ALL)
1.5 Valuation Account & Capital & Current Accounts
2. Close Corporations
2.1 Financial Statements (ALL)
3. Cash Flow Statements (Direct & indirect Method)
4. Companies
4.1 General Journal entries (Shares)
4.2 Capitalisation Shares
5. Branches
5.1 Branch Accounts (at cost price & at selling price) Financial Statements & Bank
Account
6. Analysis & interpretation
6.1 Calculation & interpretation of ratios
TIME ALLOCATION (Stick to it)
If you haven’t finished it YET…. MOVE ON
Do the questions you feel you know best first. Take 5 minutes to check through the
paper before you start.
Do not panic! Although it’s a fairly long paper, by getting worked up, 1 tends to get
careless and make unnecessary mistakes.
Downloaded by: pthemba03 |
Distribution of this document is illegal
,STUDY NOTES
I received the following notes from a fellow student.
Study Unit 1:
Introduction to the preparation of financial statements
Intro
The Framework “conceptual framework” sets out the objectives and concepts that
underlie the preparation and presentation of financial statements. Prescriptive
(Normative) and Descriptive (explanatory) in nature.
The two main purposes
• To assist the accountant in preparing and presenting financial statements
• To serve as a general guideline to the users of financial statement in understanding
the latter
Issued by the International Accounting Standards Board (IASB) and adopted by the
Accounting Practices Board (APB) in South Africa and applies to most business (profit &
non-profit)
Financial Statements as part of Financial Reporting
The framework gives a descriptive approach as to what constitutes financial statements.
It excludes reports from directors, chairman of the company and similar items but
management has primary responsibility for the preparation and presentation of the
financial statements of the entity.
Objective of financial statements
It is to provide information about the financial position (plus change in position) and
financial performance to users of the information. It includes
• Balance Sheet: Financial Position of the entity
• Income Statement: Financial Performance of the entity
• Statement of Changes in equity: Changes in capital structure
• Cash Flow Statement: Changes in the financial position of the entity
Notes: Relevant additional information to give a clearer picture
Underlying assumptions when preparing financial statements
• Accrual Basis: the effects of transactions are recognized when they occur, Occur:
When transaction initially takes place.
Going Concern: it will continue operations for the foreseeable future. If not then the
“Framework” provides a structure
Downloaded by: pthemba03 |
Distribution of this document is illegal
, Qualitative characteristics of financial statements
• Understandability: An average person with a reasonable knowledge of business and
of account should not experience problems understanding the statements but
information that must be passed on to users out of necessity to serve the purpose of
accounting must not be omitted solely on the grounds that it might not be
understood by some of the users
• Relevance: Financial statements should disclose all items that are so important or
large that the exclusion thereof may influence the decision-maker to make a
different (incorrect) decision
• Reliability: Faithful representation, substance over form, neutrality, prudence and
completeness
• Comparability: The information in financial statements should be comparable with
information from prior periods, as well as with the information of similar entities
Constraints on qualitative characteristics
• Timeliness: Reliability is impaired by timeliness because delayed reporting, in order
to know all aspects, could be far outdated for good use. The balance is by satisfying
the decision-making needs best.
Costliness: The benefits derived from the info of the financial statements should exceed
the cost of preparing it
The elements of financial statements either fall under financial position (balance sheet)
or financial performance (income statement)
Financial Position (Balance Sheet)
Asset
Is a resource controlled by the entity as a result of past events and from which future
benefits are expected to flow to the entity
• Used to produce goods or render services to customers
• Exchanged for other assets
• Used to pay liability
• Distributed to owners of the entity
Physical form not essential (Eg. building, vehicles, goodwill, copyright)
Expenditure not main criteria (Eg. donation of assets or expense incurred but not an
asset)
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
• Payment in cash
• Transfer of other assets
• Rendering of services
• Replacement of that obligation with another
• Conversion of the obligation to equity
Future plan of new expenditure is not a liability
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