FiFA - FA1, FA2, F3

NGUYEN LAM BAO TRAN, ACCA FOUNDATION IN FINANCIAL ACCOUNITNG
FOUNDATION IN FINANCIAL
ACCOUNTING
Lecturer: NGUYEN LAM BAO TRAN, ACCA

Contents
Chapter 1: Business Transaction and Documentation ............................................................................................................... 1

1. Type of Business Transaction ......................................................................................................................................... 1
2. Type of Business Documentation ................................................................................................................................... 3
3. Coding System ................................................................................................................................................................ 6
4. Computerised Accounting System.................................................................................................................................. 7
Chapter 2:................................................................................................................................................................................... 9
Financial Reporting and Financial Statement............................................................................................................................. 9
1. Definition:....................................................................................................................................................................... 9
2. User of financial statements and accounting information: ............................................................................................ 2
3. Governance: ................................................................................................................................................................... 2
4. Main elements of financial statement ........................................................................................................................... 3
Chapter 3:................................................................................................................................................................................... 5
Regulatory System ..................................................................................................................................................................... 5
Qualitative Characteristics of Financial Information.................................................................................................................. 5
1. International Accounting Standard Board ...................................................................................................................... 5
2. International Financial Reporting Standards (IFRSs) ...................................................................................................... 6
3. IASB’s Conceptual Framework........................................................................................................................................ 8
4. Qualitative characteristics of accounting information ................................................................................................... 8
5. Other accounting concepts ........................................................................................................................................... 11
6. “Fundamental” IAS ....................................................................................................................................................... 12
Chapter 4: Recording Business Transaction within Accounting and Double Entry System ...................................................... 14
1. Double Entry System .................................................................................................................................................... 14
2. Books of prime entry .................................................................................................................................................... 15
3. General/Nominal Ledger: ............................................................................................................................................. 17
4. Accounting Equation .................................................................................................................................................... 18
5. Payables and receivables.............................................................................................................................................. 18
6. Double entry bookkeeping ........................................................................................................................................... 19
7. Payables and receivables ledger................................................................................................................................... 21
8. Discounting ................................................................................................................................................................... 22
9. From Trial balance to Financial Statement ................................................................................................................... 22
Chapter 5: Bank Reconciliation ................................................................................................................................................ 23
1. Introduction:................................................................................................................................................................. 23
2. The Cash Book .............................................................................................................................................................. 24

3. Bank Reconciliation ...................................................................................................................................................... 25
4. Petty Cash ..................................................................................................................................................................... 27
Chapter 6: Sale and Receivables .............................................................................................................................................. 28
1. Sale Tax......................................................................................................................................................................... 28
2. Accounting for sale tax: ................................................................................................................................................ 29
3. Discounting ................................................................................................................................................................... 31
4. Aged Receivables Analysis ............................................................................................................................................ 31
Chapter 7: Purchase and Payables ........................................................................................................................................... 33
1. Purchase: ...................................................................................................................................................................... 33
2. Credit Control ............................................................................................................................................................... 33
3. Discount Received ........................................................................................................................................................ 34
4. Discount Allowed and Discount Received .................................................................................................................... 34
Chapter 8: Inventory ................................................................................................................................................................ 35
1. Cost of Goods Sold........................................................................................................................................................ 35
2. Accounting for Inventories ........................................................................................................................................... 36
3. IAS 2: Inventories.......................................................................................................................................................... 39
Chapter 9: Irrecoverable Debts and Allowance ....................................................................................................................... 41
1. Irrecoverable Debt........................................................................................................................................................ 41
2. Allowances for receivables ........................................................................................................................................... 41
Chapter 10: Tangible Non-current Assets ................................................................................................................................ 43
1. Overall: ......................................................................................................................................................................... 43
2. IAS 16 – Property, Plant and Equipment ...................................................................................................................... 44
3. Depreciation accounting............................................................................................................................................... 45
4. Revaluation of non-current assets ............................................................................................................................... 47
5. Non-current assets disposal ......................................................................................................................................... 49
6. Disclosure in financial statements ................................................................................................................................ 50
7. The Asset Register ........................................................................................................................................................ 51
Chapter 11: Provision and Contingencies................................................................................................................................. 52
1. Provision: ...................................................................................................................................................................... 52
2. Contingent Liabilities and Contingent Assets ............................................................................................................... 53
Chapter 12: Intangible Non-current Asset ............................................................................................................................... 56
1. Intangible Asset ............................................................................................................................................................ 56
2. Research and Development Cost.................................................................................................................................. 56

Chapter 13: Accruals and Prepayment ..................................................................................................................................... 59
1. Accruals and Prepayment ............................................................................................................................................. 59
2. Principles ...................................................................................................................................................................... 59
Chapter 14: Labour Cost and Remuneration Methods ............................................................................................................ 61
1. Introduction.................................................................................................................................................................. 61
2. Labour Cost ................................................................................................................................................................... 61
3. Payroll........................................................................................................................................................................... 63
4. Accounting for Labour Costs ......................................................................................................................................... 64
Chapter 15: Trial Balances and Correcting Errors..................................................................................................................... 65
1. Recording transaction and Trial Balance ...................................................................................................................... 65
2. Errors on trial balance .................................................................................................................................................. 66
3. Correcting errors........................................................................................................................................................... 66
4. Control Account Reconciliation: ................................................................................................................................... 67
Chapter 16: Incomplete Records .............................................................................................................................................. 70
1. Incomplete Records ...................................................................................................................................................... 70
4. Extended trial balance: ................................................................................................................................................. 71
Chapter 17: Preparing Financial Statements ............................................................................................................................ 73
1. Share Capital................................................................................................................................................................. 73
2. Reserves: ...................................................................................................................................................................... 75
3. Bonus Issue and Right Issue.......................................................................................................................................... 77
4. Ledger Accounts and Limited Liability Companies ....................................................................................................... 78
5. IAS 1: Presentation of Financial Statements ................................................................................................................ 79
6. Statement of Financial Position.................................................................................................................................... 80
7. Statement of Profit or Loss and Other Comprehensive Income: .................................................................................. 81
8. Statement of Changes in Equity: .................................................................................................................................. 81
9. Notes to Financial Statements: .................................................................................................................................... 82
10. IAS 18: Revenue: ....................................................................................................................................................... 84
11. IAS10: Events after the reporting period .................................................................................................................. 85
12. Practice Questions: ................................................................................................................................................... 86
Chapter 18: Statement of Cash Flow ........................................................................................................................................ 89
1. IAS 7: Statement of Cash Flow...................................................................................................................................... 89
2. Reporting Cash Flows from Operating Activities .......................................................................................................... 91
3. Preparing Statement of Cash Flows.............................................................................................................................. 92
Chapter 19: Consolidated Financial Statement ........................................................................................................................ 95
1. Group and Consolidation .............................................................................................................................................. 95

2. Associates and Trade Investment ................................................................................................................................. 97
3. Consolidated Statements of Financial Position: ........................................................................................................... 98
4. Consolidated Statement of Profit or Loss and Other Comprehensive Income ........................................................... 102
Chapter 20: Interpretation of Financial Statement ................................................................................................................ 103
3. Ratio Analysis ............................................................................................................................................................. 103
Chapter 21: Partnership ......................................................................................................................................................... 109
1. Introduction:............................................................................................................................................................... 109
2. Profit Sharing:............................................................................................................................................................. 109
3. Capital and Current Account: ..................................................................................................................................... 110
4. Loan Interests: ............................................................................................................................................................ 110
5. Admission of a New Partner ....................................................................................................................................... 111
6. Pro forma Partnership Account .................................................................................................................................. 113
Chapter 1: Business Transaction and Documentation
1. Type of Business Transaction
 Definition of Organization
1|Pag e
 Type of Transaction
2|Pag e
2. Type of Business Documentation

 Examples of Business Documentation
3|Pag e
Sale Invoice
4|Pag e
Credit Notes
Statement of Account
5|Pag e
3. Coding System
 Attributes of Coding System
 Concise
 Precise
 Automatic Processing
 Checking
 Benefit of Coding
 Different Method of Coding
Sequential Codes
6|Pag e
Hierarchical or significant digit codes
Block Codes
4. Computerised Accounting System
7|Pag e
 Exception Reports
8|Pag e
Chapter 2:
Financial Reporting and Financial Statement
1. Definition:
9|Pag e
 Sole trader
• Advantage
• Disadvantage
 Partnership:
• Advantage
• Diadvantage
10 | P a g e
 Limited Liability:
• Advantage
• Diadvantage
1|Pag e
2. User of financial statements and accounting information:
3. Governance:
 Legal responsibility of directors
2|Pag e
 Responsibility for financial statements
4. Main elements of financial statement
 Statement of Financial Position

 Asset
 Liability
 Capital and Liability
3|Pag e
 Form of the statement of financial position
 Statement of Profit or Loss

 Revenue and expenses
 Form of statement of profit or loss
4|Pag e
Chapter 3:
Regulatory System
Qualitative Characteristics of Financial Information
1. International Accounting Standard Board

 IFRS Foundation:
5|Pag e
 IFRS Advisory Council
 IFRS Interpretation Committee
2. International Financial Reporting Standards (IFRSs)
 Standard-setting process
6|Pag e
 Current IFRSs:
7|Pag e
3. IASB’s Conceptual Framework
 Going concern concept
 Accruals Basis
4. Qualitative characteristics of accounting information
8|Pag e
 Relevance
 Materiality
 Faithful Representation
 Substance over form
9|Pag e
 Comparability
 Verifiability
 Timeliness
 Understandability
10 | P a g e
5. Other accounting concepts

 Fair presentation
 Databases
 Business Entity
11 | P a g e
6. “Fundamental” IAS
 IAS 1: Presentation of Financial Statements
 IAS 2: Inventories
 IAS 16: Property, Plant and Equipment
12 | P a g e
 IAS 18: Revenue
 IAS 37: Provisions, Contingent Labilities and Contingent
13 | P a g e
Chapter 4: Recording Business Transaction within Accounting and Double

Entry System
1. Double Entry System

Diagrammatic Form
14 | P a g e
2. Books of prime entry
 Sale and Purchase Day Book

Sale and Sale Return:
15 | P a g e
Purchase and Purchase Day Book:
 Cash book
16 | P a g e
 Petty Cash Book
 Impress System
3. General/Nominal Ledger:
17 | P a g e
4. Accounting Equation
5. Payables and receivables
 Payables
18 | P a g e
 Receivables
 Matching
6. Double entry bookkeeping
 Dual Effect
19 | P a g e
 Rule of double entry bookkeeping
 Credit transaction
 Journal
20 | P a g e
 Analysis of Day Books
7. Payables and receivables ledger
21 | P a g e
8. Discounting
9. From Trial balance to Financial Statement
22 | P a g e
Chapter 5: Bank Reconciliation
1. Introduction:
Common Method of Transaction
23 | P a g e
2. The Cash Book
Analysis of Cash Book
24 | P a g e
3. Bank Reconciliation
 Differences between Bank statement and Cash Book
 Bank Reconciliation
25 | P a g e
 Examples:
26 | P a g e
 Reconciliation
4. Petty Cash
27 | P a g e
Chapter 6: Sale and Receivables

1. Sale Tax
 Inclusive and exclusive sale tax
 Irrecoverable sale tax
28 | P a g e
Examples Cash book with Sale Tax
2. Accounting for sale tax:
29 | P a g e
Illusion of Calculation of Sale Tax:
30 | P a g e
3. Discounting
4. Aged Receivables Analysis
31 | P a g e
With Sale Tax
32 | P a g e
Chapter 7: Purchase and Payables
1. Purchase:
2. Credit Control
33 | P a g e
3. Discount Received
Illusion of Discount received:
4. Discount Allowed and Discount Received
34 | P a g e
Chapter 8: Inventory
1. Cost of Goods Sold
 Carriage Inward and Carriage Outward
 Goods Written off
 Good Written down
35 | P a g e
2. Accounting for Inventories
 Posting to Financial Statement
 Accrual Assumption:
36 | P a g e
 Counting inventory
 Valuing inventory
Basic Rule
Techniques to value closing inventory
37 | P a g e
+ FIFO:
+ AVCO
38 | P a g e
3. IAS 2: Inventories
 Definition:
 Measuring inventories
• Cost of inventories
Cost of purchase
39 | P a g e
Conversion cost
Other costs
• Net Realisable Value (NRV)
 Disclosure
40 | P a g e
Chapter 9: Irrecoverable Debts and Allowance
1. Irrecoverable Debt
 Written off irrecoverable debts
 Irrecoverable debts written-off and subsequently paid
2. Allowances for receivables
 Doubtful debts
 Recover of Doubtful Debt:
41 | P a g e
 Allowance for receivables
 Ledger Accounting Entries
42 | P a g e
Chapter 10: Tangible Non-current Assets
1. Overall:
 Non-current assets
 Capital and Revenue Expenditure
 Capital and Revenue Income
43 | P a g e
2. IAS 16 – Property, Plant and Equipment

 Definition:
 Recognition and initial measurement
 Component of cost
44 | P a g e
 Not be parts of the costs of PPE
 Subsequent expenditure
3. Depreciation accounting
 Useful life
45 | P a g e
 Requirement of IAS 16 for depreciation
 Depreciation methods
• The Straight Line Method
• Reducing Balance Method
 Change in method of depreciation
 Change in expected useful life or residual value of an asset
46 | P a g e
 Ledger entries
4. Revaluation of non-current assets
• Illusion:
47 | P a g e
48 | P a g e
 Revaluation downwards:
5. Non-current assets disposal
 Principle to calculate profit/loss
49 | P a g e
 Part-exchange
6. Disclosure in financial statements
50 | P a g e
7. The Asset Register
51 | P a g e
Chapter 11: Provision and Contingencies
1. Provision:
 IAS 37: Provisions, contingent liabilities and contingent assets
• Main points under IAS 37:
52 | P a g e
• Subsequent Accounting Entries
2. Contingent Liabilities and Contingent Assets

 Contingent Liabilities
 Treatment
53 | P a g e
 Contingent Assets
 IAS 37 Flowchart

 Contingent Assets
54 | P a g e
 Contingent Liabilities:
 Provision:
55 | P a g e
Chapter 12: Intangible Non-current Asset
1. Intangible Asset
2. Research and Development Cost
 Definition
56 | P a g e
 Difference between research and development
 Component of R&D cost
 Impairment of development costs
57 | P a g e
 Recognition of R&D cost
58 | P a g e
Chapter 13: Accruals and Prepayment
1. Accruals and Prepayment
2. Principles
59 | P a g e
 Double entries for accruals and prepayment
 Effect on profit and net asset
60 | P a g e
Chapter 14: Labour Cost and Remuneration Methods
1. Introduction
2. Labour Cost
61 | P a g e
4.
62 | P a g e
5.
3. Payroll
63 | P a g e
4. Accounting for Labour Costs
Illusion:
64 | P a g e
Chapter 15: Trial Balances and Correcting Errors
1. Recording transaction and Trial Balance
65 | P a g e
2. Errors on trial balance

 Error not found on Trial Balance
 Errors founded on Trial Balance
3. Correcting errors
66 | P a g e
 Suspense Account
 Illustration of suspense account
4. Control Account Reconciliation:

 Reasons for Reconciliation
67 | P a g e
 Illusion for Receivable Control Account and Receivable Ledger:
68 | P a g e
 Reasons for having control accounts
69 | P a g e
Chapter 16: Incomplete Records
1. Incomplete Records
70 | P a g e
4. Extended trial balance:

 Establish Cost of Sale
 Stolen Goods or Good Destroyed
Mark-up
71 | P a g e
Margin
Accounting for Good destroyed, stolen or otherwise lost
72 | P a g e
Chapter 17: Preparing Financial Statements

1. Share Capital
 Capital of Limited Liability Companies
 Authorised, Issued, Call-up, Paid-up Share Capital
73 | P a g e
 Preference Share
 Classification of Preference Share
 Ordinary Share
74 | P a g e
 Loan Stock or Bond
2. Reserves:
 Share premium account
75 | P a g e
 Illusion:
 Reserves
 Dividend:
 Retained Earnings:
76 | P a g e
 Distinction between Reserves and Provision
3. Bonus Issue and Right Issue

 Bonus (Capitalisation) Issue
 Right Issue
77 | P a g e
4. Ledger Accounts and Limited Liability Companies

 Dividends
 Loan Stock
 Reserves and Share Capital
 Finance Charges
78 | P a g e
5. IAS 1: Presentation of Financial Statements

 Items disclosed
 Identification of Financial Statements
79 | P a g e
6. Statement of Financial Position

 Profoma
80 | P a g e
7. Statement of Profit or Loss and Other Comprehensive Income:
8. Statement of Changes in Equity:
81 | P a g e
9. Notes to Financial Statements:

 Tangible NCA
 Intangible NCA
 Provision
82 | P a g e
 Other notes
83 | P a g e
10. IAS 18: Revenue:
 Definition:
 Recognition:
 Scope:
84 | P a g e
 Measurement of Revenue:
11. IAS10: Events after the reporting period

 Definition:
 Events requiring adjustments
 Events not requiring adjustments
85 | P a g e
 Disclosure
12. Practice Questions:
86 | P a g e
87 | P a g e
88 | P a g e
Chapter 18: Statement of Cash Flow
1. IAS 7: Statement of Cash Flow
 Objectives of IAS 7:
 Scope
 Benefits of Statement of Cash Flow:
 Cash and Cash Equivalent:
89 | P a g e
 Definition:
 Operating Activities
 Investing Activities
90 | P a g e
 Financing Activities
2. Reporting Cash Flows from Operating Activities
 Direct Method:
 Indirect Method:
91 | P a g e
 Notes:
 Interest and Dividend:
3. Preparing Statement of Cash Flows

 Notes to adjustment on Working Capital:
 Advantages of Cash Flow Accounting:
92 | P a g e
 Criticism of IAS7:
93 | P a g e
 Profoma
94 | P a g e
Chapter 19: Consolidated Financial Statement
1. Group and Consolidation

 Group
 Subsidiaries
 Definition:
95 | P a g e
 Control and Ownership?
 Illusion:
96 | P a g e
2. Associates and Trade Investment

 Investment in Associates
 Equity Method:
97 | P a g e
 Illustration:
 Trade Investment
3. Consolidated Statements of Financial Position:

 Goodwill Calculation:
98 | P a g e
 Fair Value of Net Asset at Acquisition:
 Consideration Transferred in form of Share
 Non-controlling Interests
 Retained Earnings:
99 | P a g e
 Intra-group trading and Unrealized profit
 NCI and Unrealised profit:
 Acquisition of Subsidiaries part way through the year:
 Acquisition of Subsidiaries part way through the year:
100 | P a g e
 Profoma:
101 | P a g e
4. Consolidated Statement of Profit or Loss and Other Comprehensive Income

 Principle to calculate profit/loss
 Example:
102 | P a g e
Chapter 20: Interpretation of Financial Statement
3. Ratio Analysis
 User Group
 Trend analysis
 Comparison with other companies
103 | P a g e
 Type of Ratio Analysis
 Profitability and Return
104 | P a g e
 Gearing/leverage
 Liquidity and Working Capital (Effectiveness)
105 | P a g e
 Main points about Cash Cycle
106 | P a g e
 Measurement of Receivables Collection Period
 Measurement of Inventory Collection Period
 Reduction of Operating Cycle
 Presenting information:
107 | P a g e
 Limitations of Ratio Analysis
108 | P a g e
Chapter 21: Partnership
1. Introduction:
2. Profit Sharing:
109 | P a g e
3. Capital and Current Account:
4. Loan Interests:
110 | P a g e
5. Admission of a New Partner
Illustration:
111 | P a g e
112 | P a g e
6. Pro forma Partnership Account

 Statement of Profit or Loss
113 | P a g e
 Statement of Financial Position
114 | P a g e

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NGUYEN LAM BAO TRAN, ACCA FOUNDATION IN FINANCIAL ACCOUNITNG

Lecturer: NGUYEN LAM BAO TRAN, ACCA

Chapter 1: Business Transaction and Documentation ............................................................................................................... 1

2. The Cash Book .............................................................................................................................................................. 24

3. Disclosure in financial statements ................................................................................................................................ 58

1. Group and Consolidation .............................................................................................................................................. 95

Chapter 1: Business Transaction and Documentation

1. Type of Business Transaction

2. Type of Business Documentation

 Different Method of Coding

Hierarchical or significant digit codes

4. Computerised Accounting System

2. User of financial statements and accounting information:

 Responsibility for financial statements

4. Main elements of financial statement

 Statement of Financial Position

 Capital and Liability

 Form of the statement of financial position

 Statement of Profit or Loss

 Form of statement of profit or loss

1. International Accounting Standard Board

 IFRS Advisory Council

 IFRS Interpretation Committee

2. International Financial Reporting Standards (IFRSs)

3. IASB’s Conceptual Framework

 Going concern concept

4. Qualitative characteristics of accounting information

 Substance over form

5. Other accounting concepts

 IAS 16: Property, Plant and Equipment

 IAS 18: Revenue

 IAS 37: Provisions, Contingent Labilities and Contingent

Chapter 4: Recording Business Transaction within Accounting and Double

1. Double Entry System

2. Books of prime entry

 Sale and Purchase Day Book

Purchase and Purchase Day Book:

 Petty Cash Book

5. Payables and receivables

6. Double entry bookkeeping

 Rule of double entry bookkeeping

 Analysis of Day Books

7. Payables and receivables ledger

9. From Trial balance to Financial Statement

Chapter 5: Bank Reconciliation

Common Method of Transaction

2. The Cash Book

Analysis of Cash Book

Chapter 6: Sale and Receivables

 Inclusive and exclusive sale tax

 Irrecoverable sale tax

Examples Cash book with Sale Tax

2. Accounting for sale tax:

Illusion of Calculation of Sale Tax:

4. Aged Receivables Analysis

With Sale Tax

Chapter 7: Purchase and Payables

Illusion of Discount received:

4. Discount Allowed and Discount Received

1. Cost of Goods Sold

 Carriage Inward and Carriage Outward

 Goods Written off

 Good Written down