Frank Wood's A-level Accounting: GCE Year 2

625 Pages·3.48 MB·English

by  Alan Sangster

Frank Wood’s
Alan Sangster Covers all A2 units
A-LEVEL ACCOUNTING
www.booksites.net
FOURTH EDITION
Alan Sangster
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This edition of Frank Wood’s A-level Accountinghas been restructured to follow the AQA A-level A2 syllabus. The - n
entire AQA A2 syllabus is covered in Parts 1–3. Coverage of the equivalent OCR syllabus is completed in Part 4 of L k

the book. W
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Changes to the text include the coverage of partnership accounts, now in one chapter; all company accounting in
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one chapter; and standard costing and variance analysis covered in a single chapter. The book builds on a first d
course in accounting and includes coverage of the more advanced aspects of financial and management E ’s
accounting.
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As well as providing instruction and practice in the preparation of accounting information, the text stresses the need
for students to understand the business reasons behind accounting techniques. A continuing strength of the book
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is the large amount of question material. Recent past questions from the main examining bodies are included as
well as a useful guide to examination techniques at A-level.
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Key features
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➤ now gives comprehensive, detailed and thorough coverage of the AQA second-year syllabus
➤ also covers the OCR second-year syllabus O
➤ numerous worked examples, review questions and answers
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➤ contains questions from the GCE boards
➤ answers to approximately half the review questions are provided at the end of the book N
➤ answers to the remaining questions are provided in the free Solutions Manualavailable only to lecturers
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adopting the main text
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The text is in five parts:
Parts 1,2 and 3cover the AQAsyllabus. Part 4completes coverage of the OCRsyllabus. Part 5comprises four
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chapters revising topics normally covered in the first year of the A-level syllabus.
Frank Wood’s
About the authors
A-LEVEL ACCOUNTING
Alan SangsterBA, MSc, Cert TESOL, CA, is Professor of Accounting and Head of Department at the Open
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University Business School, and was previously at the Queen’s University of Belfast, the University of Aberdeen and
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the University of Strathclyde. n
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s FOURTH EDITION
Frank Woodis the world’s best-selling author of accounting textbooks. t
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GCE Year 2
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Use the online resources
for this book at
an imprint of www.booksites.net/wood www.pearson-books.com www.booksites.net/wood
FWA_A01.qxd 11/19/03 9:38 AM Page i
FRANK WOOD’S
A-LEVEL ACCOUNTING
GCE Year 2
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A Companion Website support Frank Wood’s A-Level Accounting,
fourth edition by Alan Sangster
Visit the Business Accounting 1 and 2Companion Website at
www.booksites.net/woodto find valuable teaching and learning material
relevant to this text, including:
For Students:
l Study material designed to help you improve your results
l Multiple choice questions to test your learning
l Accounting standards updates
l A fully searchable glossary
For Lecturers:
l A secure, password-protected site with teaching material
l Complete, downloadable Instructor’s Manual with information relevant to this text
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Also:This site has a syllabus manager, search functions, and email results functions.
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Chapter 1 • Elements of costing
FRANK WOOD’S
A-LEVEL ACCOUNTING
GCE Year 2
FOURTH EDITION
Alan Sangster BA, MSc, Cert TESOL, CA
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Pearson Education Limited
Edinburgh Gate
Harlow
Essex CM20 2JE
England
and Associated Companies throughout the world
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First edition published in Great Britain under the
Pitman Publishing imprint in 1994
Second edition published under the Financial Times Pitman Publishing imprint in 1998
Third edition published under the Financial Times Prentice Hall imprint in 2001
Fourth edition published 2004
© Longman Group UK Limited 1994
© Financial Times Professional Limited 1998
© Pearson Education Limited 2001, 2004
The right of Alan Sangster to be identified as author of this work has been
asserted by him in accordance with the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this publication may be reproduced, stored
in a retrieval system, or transmitted in any form or by any means, electronic,
mechanical, photocopying, recording or otherwise, without either the prior
written permission of the publisher or a licence permitting restricted copying
in the United Kingdom issued by the Copyright Licensing Agency Ltd,
90 Tottenham Court Road, London W1T 4LP.
ISBN 0 273 68532 5
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
10 9 8 7 6 5 4 3 2 1
08 07 06 05 04
Typeset in 10/12pt Garamond Book by 35
Produced by Addison Wesley Longman China Limited, Hong Kong
The publisher’s policy is to use paper manufactured from sustainable forests.
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Contents
Detailed contents vii
Preface xv
Introduction: The scope of this book 1
Part 1 FURTHER ASPECTS OF FINANCIAL ACCOUNTING
1 Incomplete records 7
2 Non-profit-oriented organisations 26
3 Partnership accounts 40
4 Valuation of assets 93
5 Types of organisations and sources of finance 120
Part 2 PUBLISHED FINANCIAL STATEMENTS OF LIMITED COMPANIES AND
ACCOUNTING STANDARDS
6 Published financial statements and requirements of user groups 131
7 Reserves, bonus issues and rights issues 189
8 Published financial statements and ratio analysis 205
9 Cash flow statements 251
10 Accounting standards 275
11 Limitations of published financial statements 295
Part 3 FURTHER ASPECTS OF ACCOUNTING FOR MANAGEMENT AND
DECISION MAKING
12 Absorption costing, marginal costing and decision making 303
13 Standard costing and variance analysis 333
14 Capital investment appraisal 372
15 Other factors affecting decision making – social accounting 395
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Contents
Part 4 MANAGEMENT ACCOUNTING PRINCIPLES AND BUDGETING
16 Elements of costing 407
17 Contract accounts 419
18 Job, batch and process costing 428
19 Budgeting and budgetary control 444
20 Cash budgets 451
21 Co-ordination of budgets 465
Part 5 SUPPLEMENTARY TOPICS
22 Break-even analysis 483
23 The accounting equation and the balance sheet 500
24 The double entry system 512
25 Accounting concepts 521
Appendix I Examination techniques 530
Appendix II Glossary 535
Appendix III Answers to review questions 545
Index 596
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Detailed contents
Preface xv
Introduction: The scope of this book 1
Part 1 FURTHER ASPECTS OF FINANCIAL ACCOUNTING
1 Incomplete records 7
1.1 Why double entry is not used 7
1.2 Profit as an increase in capital 7
1.3 Drawing up the financial statements 10
1.4 Incomplete records and missing figures 13
1.5 Where there are two missing pieces of information 14
1.6 Cash sales and purchases for cash 15
1.7 Goods stolen or lost by fire, etc. 15
2 Non-profit-oriented organisations 26
2.1 Non-profit-oriented organisations 26
2.2 Receipts and payments accounts 26
2.3 Income and expenditure accounts 27
2.4 Profit or loss for a special purpose 28
2.5 Accumulated fund 28
2.6 Drawing up income and expenditure accounts 28
2.7 Outstanding subscriptions and the prudence concept 32
2.8 Life membership 33
2.9 Donations 33
2.10 Entrance fees 33
2.11 The differences in headings 33
3 Partnership accounts 40
3.1 The need for partnerships 40
3.2 The characteristics of a partnership 41
3.3 Limited partners 41
3.4 Partnership agreements 41
3.5 An example of the distribution of profits 44
3.6 The profit and loss appropriation account 45
3.7 Capital accounts and current accounts 46
3.8 The balance sheet 48
3.9 Structural changes in the ownership of a partnership 49
3.10 Goodwill 49
3.11 Goodwill in the partnership accounts 51
3.12 Asset revaluation 58
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Detailed contents
3.13 Partnership dissolution 60
3.14 The rule in Garnerv. Murray 67
3.15 Piecemeal realisation of assets 68
4 Valuation of assets 93
Part I: Valuation of stock 93
4.1 Different valuations of stock 93
4.2 First in, first out method 94
4.3 Last in, last out method 95
4.4 Average cost method 95
4.5 Stock valuation and the calculation of profits 96
4.6 Reduction of stock valuation to net realisable value 96
4.7 Stock groups and valuation 97
4.8 Some other bases in use 98
4.9 Periodic stock valuation 99
4.10 Factors affecting the stock valuation decision 99
4.11 SSAP 9, Stocks and long-term contracts 100
4.12 The conflict of aims 101
4.13 Work in progress 101
4.14 Goods on sale or return 102
4.15 Stocktaking and the balance sheet date 102
4.16 Stock levels 103
Part II: Revaluation of assets 105
4.17 Fixed asset revaluation 105
Part III: Measurement of income and asset values 106
4.18 Measurement of income 106
4.19 Asset valuation alternatives 107
4.20 Capital maintenance 111
4.21 A worked example 112
4.22 Combinations of different values and capital maintenance concepts 112
4.23 A worked example 113
4.24 Operating capital maintenance concept 113
4.25 Problems during a period of changing price levels 114
5 Types of organisations and sources of finance 120
5.1 Types of business ownership 120
5.2 Companies 121
5.3 Long-term sources of finance 123
5.4 Other sources of finance 126
Part 2 PUBLISHED FINANCIAL STATEMENTS OF LIMITED COMPANIES AND
ACCOUNTING STANDARDS
6 Published financial statements and requirements of user groups 131
6.1 The functions of accounting 131
6.2 Company trading and profit and loss account differences 133
6.3 Company balance sheet differences 135
6.4 Users of published financial statements and their needs 137
6.5 Aspects of company financial statements for external use 140
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Detailed contents
6.6 Published financial statements 145
6.7 Published profit and loss account: Format 1 145
6.8 Published balance sheet: Format 1 153
6.9 Published balance sheets and GCE A-level examinations 156
6.10 Other statements and notes required in the annual report 157
6.11 Additional requirements introduced or amended by FRS 3 159
6.12 Small and medium-sized company reporting requirements 160
6.13 Summary financial statements 161
6.14 Other issues 161
6.15 Illustrative company financial statements: example 1 164
6.16 Illustrative company financial statements: example 2 168
7 Reserves, bonus issues and rights issues 189
7.1 Shareholders’ funds 189
7.2 The nature of reserves 189
7.3 Revenue reserves 190
7.4 General reserves 190
7.5 Capital reserves 190
7.6 Profits available for payments of dividends in cash 191
7.7 Allowable reductions of capital reserves 193
7.8 Bonus shares 193
7.9 Rights issues 196
8 Published financial statements and ratio analysis 205
Part I: Accounting ratios 206
8.1 Why use ratios? 206
8.2 How to use ratios 207
8.3 Users of ratios 207
8.4 Liquidity 208
8.5 Profitability 213
8.6 Efficiency ratios 217
8.7 Capital structure ratios 217
8.8 Shareholder ratios 221
8.9 Overtrading 222
Part II: The analysis and interpretation of accounting statements 224
8.10 Interpretation of ratios – trends and comparability 224
8.11 Sector relevance 225
8.12 Trend analysis 225
8.13 Comparisons over time 227
8.14 Comparisons with other businesses 228
8.15 Pyramid of ratios 229
8.16 Return on capital employed: company policy 230
8.17 Fixed and variable expenses 231
8.18 Summary of ratios 233
9 Cash flow statements 251
9.1 Need for cash flow statements 251
9.2 FRS 1, Cash flow statements 252
9.3 Businesses other than companies 252
9.4 Profit and liquidity not directly related 252
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