Financial Accounting and Reporting
June 16, 2025
1
,Financial Accounting and Reporting
Contents
1 Lecture 1: Introduction 8
1.1 Financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.2 Theoretical background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.3 agency theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.4 accounting standards & regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.5 External auditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2 Lecture 2 13
2.1 Chapter 2: Conceptual Framework for Financial Reporting . . . . . . . . . . . . 13
2.1.1 Usefulness and objective of financial reporting . . . . . . . . . . . . . . . 13
2.1.2 Identifying qualitative characteristics of accounting & basic elements of
financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1.3 Review the basic assumptions of accounting . . . . . . . . . . . . . . . . . 15
2.1.4 The application of the basic principles of accounting. . . . . . . . . . . . 16
2.2 chapter 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.2.1 Describe the basic accounting information system . . . . . . . . . . . . . 17
2.2.2 Record and summarise basic transactions . . . . . . . . . . . . . . . . . . 17
2.2.3 Identifying and preparing adjusting entries . . . . . . . . . . . . . . . . . 17
2.2.4 Preparing finanicial statements from the adjusted trial balance and pre-
pare closing entries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3 Lecture 3 20
3.1 Income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.1.1 Usefulness and limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.1.2 Content and format . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.1.3 how to report various income items . . . . . . . . . . . . . . . . . . . . . . 21
3.1.4 Reporting of accounting changes and errors . . . . . . . . . . . . . . . . . 22
3.2 statement of financial positions and statement of cash flows . . . . . . . . . . . 23
3.2.1 Uses, limitations & content of financial position . . . . . . . . . . . . . . . 23
3.2.2 Preparing classified statement of financial position . . . . . . . . . . . . . 25
3.2.3 Purpose, content and preparations of statement of cash flows . . . . . . 26
3.2.4 additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4 lecture 4: Cash and receivables, Valuation of inventories 27
4.1 Indicate how to report cash and related items . . . . . . . . . . . . . . . . . . . . 27
4.1.1 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.1.2 cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.2 define receivables and explain accounting issues related to their recognition . . 27
4.2.1 Recognition of accounts receivables . . . . . . . . . . . . . . . . . . . . . . 27
4.3 Explain accounting issues related to valuation of accounts receivable . . . . . . 28
4.3.1 Direct write off method for uncollectible accounts . . . . . . . . . . . . . 28
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,Financial Accounting and Reporting
4.3.2 allowance method for uncollectible accounts . . . . . . . . . . . . . . . . 28
4.4 Explain accounting issues related to recognition and valuation of notes receiv-
able . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.4.1 recognition of notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.5 Explain additional accounting issues related to accounts and notes receivables 30
4.5.1 accounts receivable turnover . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.6 Describe inventory classifications and different inventory systems . . . . . . . . 30
4.6.1 merchandising company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.6.2 Manufacturing company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.6.3 cost flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.7 Identify the goods and costs included in inventory . . . . . . . . . . . . . . . . . 32
4.8 Compare the cost flow assumptions used to account for inventories . . . . . . . 33
4.8.1 Specifi identification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.8.2 Cost flow: average-cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.8.3 Cost flow: FIFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5 lecture 5: Property, plant and equipment, Depreciation, Impairments, and deple-
tion 35
5.1 Identifying property, plant and equipment and its related costs . . . . . . . . . . 35
5.1.1 Acquisition of PPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.2 Discussing the accounting problems associated with the capitalisation of bor-
rowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.2.1 interest costs during construction . . . . . . . . . . . . . . . . . . . . . . . 36
5.3 Explaining acounting issues related to acquiring and valuing plant assets . . . . 38
5.4 Describing the accounting treatment for cost subsequent to acquisition . . . . 38
5.5 Describing the accounting treatment for the disposal of property, plant, and
equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.6 Describing depreciation concepts and methods of depreciation . . . . . . . . . 39
5.7 Identifying other depreciation issues . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.8 Explain the accounting issues related to asset impairment . . . . . . . . . . . . . 40
5.9 Discuss the accounting procedures for depletion of mineral resources . . . . . . 40
6 Lecture 6: Tangible Assets, current liabilities, provisions, and contingencies 42
6.1 Discuss the characteristics, valuation, and amortisation of intangible assets . . 42
6.1.1 Valuation for purchasesd intangibles (EXTERNAL) . . . . . . . . . . . . . 42
6.1.2 Valuation for purchased intangibles (INTERNAL) . . . . . . . . . . . . . . 43
6.1.3 Amortistion of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.2 Describe the accounting for various types of intangible assets . . . . . . . . . . . 43
6.2.1 marketing-related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.2.2 artistic-related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.2.3 Technology-related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.3 explain the accounting issues for recording goodwill . . . . . . . . . . . . . . . . 44
6.3.1 recording goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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, Financial Accounting and Reporting
6.3.2 goodwill write-off and bargain purchase . . . . . . . . . . . . . . . . . . . 44
6.4 Identify impairment procedures and presentation requirements for intangible
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.4.1 Impairment of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . 45
6.4.2 impairment of limited life intangibles . . . . . . . . . . . . . . . . . . . . . 45
6.4.3 Impairment of indefinite-life intangibles other than goodwill . . . . . . . 46
6.4.4 impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.4.5 Presentation of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . 46
6.5 Describe the accounting and presentation for research and development and
similar costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.5.1 Identifying R&D acitivities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.6 Describe the nature, valuation, and reporting of current liabilities . . . . . . . . 47
6.6.1 typical current liablities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.6.2 accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.6.3 notes payable (can also be long term . . . . . . . . . . . . . . . . . . . . . 48
6.6.4 current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . 48
6.6.5 dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.6.6 unearned revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.6.7 employee-related liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.7 explain the accounting for different types of provisions . . . . . . . . . . . . . . . 49
6.7.1 recognising of a provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.7.2 measurement of provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.7.3 common types of provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.7.4 Environmental provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.8 Explain the accounting for loss and gain contingencies . . . . . . . . . . . . . . . 51
6.8.1 Contingent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.8.2 Contingent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.9 Indicate how to present and analyse liability-related information . . . . . . . . . 51
6.9.1 presentation of current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 51
7 Lecture 7: Non-current liabilities & equity 52
7.1 Describe the nature of bonds and indicate the accounting for bond issuances . 52
7.1.1 valuation and accounting for bonds payable . . . . . . . . . . . . . . . . . 52
7.2 Explain the accounting for long term notes payable . . . . . . . . . . . . . . . . . 54
7.2.1 Mortgage notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.3 Explain the accounting for extinguisment of non-current liabilities . . . . . . . 54
7.3.1 extinguisment with cash before maturity . . . . . . . . . . . . . . . . . . . 55
7.3.2 extinguishment by exchanging assets or securities . . . . . . . . . . . . . 55
7.3.3 Extinguishment with modification of terms . . . . . . . . . . . . . . . . . 55
7.4 indicate how to present and analyze non-current liabilities . . . . . . . . . . . . 55
7.4.1 fair value option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.4.2 analysis of non-current libabilities . . . . . . . . . . . . . . . . . . . . . . . 56
7.5 describe the corporate form and the issuance of shares . . . . . . . . . . . . . . 56
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June 16, 2025
1
,Financial Accounting and Reporting
Contents
1 Lecture 1: Introduction 8
1.1 Financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.2 Theoretical background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.3 agency theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.4 accounting standards & regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.5 External auditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2 Lecture 2 13
2.1 Chapter 2: Conceptual Framework for Financial Reporting . . . . . . . . . . . . 13
2.1.1 Usefulness and objective of financial reporting . . . . . . . . . . . . . . . 13
2.1.2 Identifying qualitative characteristics of accounting & basic elements of
financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1.3 Review the basic assumptions of accounting . . . . . . . . . . . . . . . . . 15
2.1.4 The application of the basic principles of accounting. . . . . . . . . . . . 16
2.2 chapter 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.2.1 Describe the basic accounting information system . . . . . . . . . . . . . 17
2.2.2 Record and summarise basic transactions . . . . . . . . . . . . . . . . . . 17
2.2.3 Identifying and preparing adjusting entries . . . . . . . . . . . . . . . . . 17
2.2.4 Preparing finanicial statements from the adjusted trial balance and pre-
pare closing entries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3 Lecture 3 20
3.1 Income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.1.1 Usefulness and limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.1.2 Content and format . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.1.3 how to report various income items . . . . . . . . . . . . . . . . . . . . . . 21
3.1.4 Reporting of accounting changes and errors . . . . . . . . . . . . . . . . . 22
3.2 statement of financial positions and statement of cash flows . . . . . . . . . . . 23
3.2.1 Uses, limitations & content of financial position . . . . . . . . . . . . . . . 23
3.2.2 Preparing classified statement of financial position . . . . . . . . . . . . . 25
3.2.3 Purpose, content and preparations of statement of cash flows . . . . . . 26
3.2.4 additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4 lecture 4: Cash and receivables, Valuation of inventories 27
4.1 Indicate how to report cash and related items . . . . . . . . . . . . . . . . . . . . 27
4.1.1 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.1.2 cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.2 define receivables and explain accounting issues related to their recognition . . 27
4.2.1 Recognition of accounts receivables . . . . . . . . . . . . . . . . . . . . . . 27
4.3 Explain accounting issues related to valuation of accounts receivable . . . . . . 28
4.3.1 Direct write off method for uncollectible accounts . . . . . . . . . . . . . 28
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,Financial Accounting and Reporting
4.3.2 allowance method for uncollectible accounts . . . . . . . . . . . . . . . . 28
4.4 Explain accounting issues related to recognition and valuation of notes receiv-
able . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.4.1 recognition of notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.5 Explain additional accounting issues related to accounts and notes receivables 30
4.5.1 accounts receivable turnover . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.6 Describe inventory classifications and different inventory systems . . . . . . . . 30
4.6.1 merchandising company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.6.2 Manufacturing company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.6.3 cost flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.7 Identify the goods and costs included in inventory . . . . . . . . . . . . . . . . . 32
4.8 Compare the cost flow assumptions used to account for inventories . . . . . . . 33
4.8.1 Specifi identification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.8.2 Cost flow: average-cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.8.3 Cost flow: FIFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5 lecture 5: Property, plant and equipment, Depreciation, Impairments, and deple-
tion 35
5.1 Identifying property, plant and equipment and its related costs . . . . . . . . . . 35
5.1.1 Acquisition of PPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.2 Discussing the accounting problems associated with the capitalisation of bor-
rowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.2.1 interest costs during construction . . . . . . . . . . . . . . . . . . . . . . . 36
5.3 Explaining acounting issues related to acquiring and valuing plant assets . . . . 38
5.4 Describing the accounting treatment for cost subsequent to acquisition . . . . 38
5.5 Describing the accounting treatment for the disposal of property, plant, and
equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.6 Describing depreciation concepts and methods of depreciation . . . . . . . . . 39
5.7 Identifying other depreciation issues . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.8 Explain the accounting issues related to asset impairment . . . . . . . . . . . . . 40
5.9 Discuss the accounting procedures for depletion of mineral resources . . . . . . 40
6 Lecture 6: Tangible Assets, current liabilities, provisions, and contingencies 42
6.1 Discuss the characteristics, valuation, and amortisation of intangible assets . . 42
6.1.1 Valuation for purchasesd intangibles (EXTERNAL) . . . . . . . . . . . . . 42
6.1.2 Valuation for purchased intangibles (INTERNAL) . . . . . . . . . . . . . . 43
6.1.3 Amortistion of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.2 Describe the accounting for various types of intangible assets . . . . . . . . . . . 43
6.2.1 marketing-related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.2.2 artistic-related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.2.3 Technology-related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.3 explain the accounting issues for recording goodwill . . . . . . . . . . . . . . . . 44
6.3.1 recording goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3
, Financial Accounting and Reporting
6.3.2 goodwill write-off and bargain purchase . . . . . . . . . . . . . . . . . . . 44
6.4 Identify impairment procedures and presentation requirements for intangible
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.4.1 Impairment of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . 45
6.4.2 impairment of limited life intangibles . . . . . . . . . . . . . . . . . . . . . 45
6.4.3 Impairment of indefinite-life intangibles other than goodwill . . . . . . . 46
6.4.4 impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.4.5 Presentation of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . 46
6.5 Describe the accounting and presentation for research and development and
similar costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.5.1 Identifying R&D acitivities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.6 Describe the nature, valuation, and reporting of current liabilities . . . . . . . . 47
6.6.1 typical current liablities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.6.2 accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.6.3 notes payable (can also be long term . . . . . . . . . . . . . . . . . . . . . 48
6.6.4 current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . 48
6.6.5 dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.6.6 unearned revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.6.7 employee-related liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.7 explain the accounting for different types of provisions . . . . . . . . . . . . . . . 49
6.7.1 recognising of a provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.7.2 measurement of provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.7.3 common types of provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.7.4 Environmental provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.8 Explain the accounting for loss and gain contingencies . . . . . . . . . . . . . . . 51
6.8.1 Contingent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.8.2 Contingent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.9 Indicate how to present and analyse liability-related information . . . . . . . . . 51
6.9.1 presentation of current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 51
7 Lecture 7: Non-current liabilities & equity 52
7.1 Describe the nature of bonds and indicate the accounting for bond issuances . 52
7.1.1 valuation and accounting for bonds payable . . . . . . . . . . . . . . . . . 52
7.2 Explain the accounting for long term notes payable . . . . . . . . . . . . . . . . . 54
7.2.1 Mortgage notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.3 Explain the accounting for extinguisment of non-current liabilities . . . . . . . 54
7.3.1 extinguisment with cash before maturity . . . . . . . . . . . . . . . . . . . 55
7.3.2 extinguishment by exchanging assets or securities . . . . . . . . . . . . . 55
7.3.3 Extinguishment with modification of terms . . . . . . . . . . . . . . . . . 55
7.4 indicate how to present and analyze non-current liabilities . . . . . . . . . . . . 55
7.4.1 fair value option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.4.2 analysis of non-current libabilities . . . . . . . . . . . . . . . . . . . . . . . 56
7.5 describe the corporate form and the issuance of shares . . . . . . . . . . . . . . 56
4
