PAPER NO. 5 FINANCIAL ACCOUNTING
UNIT DESCRIPTION
This unit covers the competencies required to maintain the financial accounts for profit and not for profit entities. Competencies include: applying the legal and conceptual framework in preparation of financial statements, accounting for assets and liabilities for different entities, using financial ratios to analyse financial statements, preparing financial statements for different entities, preparing financial statements from incomplete records and identifying concepts and techniques used in accounting for public entities.
LEARNING OUTCOMES
• Apply the legal and conceptual framework in preparation of financial statements
• Account for assets and liabilities for different entities
• Prepare financial statements for different entities
• Use financial ratios to analyse financial statements
• Prepare financial statements from incomplete records
• Identify concepts and techniques used in accounting for public entities
CONTENT:
1. Apply the legal and conceptual framework in preparation of financial statements
1.1 The legal sources of regulation
1.1.1 Accountants Act
1.2 The Professional sources of regulation
1.2.1 Local
1.2.2 International bodies
1.3 Accounting Standards:
1.3.1 International Financial Reporting Standards (IFRS)
1.3.2 International Accounting Standards (IASs)
1.3.3 International Public Sector Accounting Standards (IPSAS)
1.4 The conceptual Framework of Accounting
1.4.1 Purpose and status of the framework
1.4.2 The objective of financial Accounting
1.4.3 Accounting theory
1.4.4 Accounting concepts (Principles)
1.4.4.1 Accrual principle
1.4.4.2 Conservatism principle
1.4.4.3 Consistency principle
1.4.4.4 Cost principle
1.4.4.5 Economic entity principle
1.4.4.6 Full disclosure principle
1.4.4.7 Going concern principle
1.4.4.8 Matching principle
1.5 Qualities of useful financial Information
1.6 Users of financial information (External users)
1.6.1 Creditors
1.6.2 Investors
1.6.3 Government
1.6.4 Trading partners
1.6.5 Regulatory agencies
1.6.6 International standardisation agencies
1.6.7 Journalists
(Internal users)
1.6.8 Owners
1.6.9 Directors
1.6.10 Managers
1.6.11 Employees
1.7 Financial statements and the reporting entity
1.8 The elements of financial statements
1.8.1 Incomes
1.8.2 Expenses
1.8.3 Assets
1.8.4 Liabilities
1.8.5 Equity
1.8.6 Profits etc.
1.9 Statement of profit or loss
1.10 Statement of financial position
1.11 Recognition, measurement and derecognition of assets
1.12 Presentation and disclosure of financial statements
1.13 Sustainability accounting
1.13.1 Definition
1.13.2 Benefits and limitations
2. Account for assets and liabilities for different entities
2.1 Property, Plant and Equipment (Including revaluations)
2.2 Intangible assets
2.2.1 Software
2.2.2 Licenses
2.2.3 Copyrights
2.2.4 Goodwill
2.3 Financial assets and financial liabilities
2.3.1 Definition of financial assets and liabilities
2.3.2 Examples of financial assets and liabilities
2.3.3 Classification of financial assets and liabilities
2.4 Accrued and prepaid incomes and expenses
3. Prepare financial statements for different entities
3.1 Financial Statements of a sole trader
3.2.1 Adjustments and preparation of statement of profit or loss
3.2.2 Adjustment and preparation of statement of financial position
3.2 Financial Statements of a partnership
3.2.1 Define the partnership deed/agreement
3.2.2 Explain the contents of partnership deed/agreement
3.2.3 Adjustment and preparation of statement of profit or loss and appropriation
3.2.4 Adjustment and preparation of partners’ capital and current accounts
3.2.5 Adjustment and preparation of statement of financial position
3.2.6 Accounting treatment and presentation when there is a change in profit/loss sharing ratio, admission/retirement of a partner and dissolution of a partnership.
3.3 Financial Statements of a Company
3.3.1 Key concepts of a company (definition and calculation)
3.3.1.1 Ordinary share capital
3.3.1.2 Preference share capital
3.3.1.3 Issuing new shares by way of full market price,
3.3.1.4 Bonus issue of shares
3.3.1.5 Rights issue of shares
3.3.1.6 Reserves
3.3.1.7 Retained profits
3.3.1.8 Corporation tax
3.3.2 Adjustment and preparation of statement of profit or loss
3.3.3 Adjustment of other comprehensive incomes
3.3.4 Adjustment and preparation of Statement of financial position
3.3.5 Introduction to the statement of cash flows
3.4 Financial Statements of a manufacturing entity
3.4.1 Adjustment and preparation of manufacturing statement for production
3.4.2 Adjustment and preparation of statement of profit or loss
3.4.3 Adjustment and preparation of statement of financial position
3.5 Financial Statements of a not-for-profit entity
3.5.1 Objectives of not-for-profit entities
3.5.2 Adjustment and preparation of statement of incomes and expenditures
3.5.3 Adjustment and preparation of statement of revenue and expenditure
3.5.4 Adjustment and preparation of statement of financial position
4. Use financial ratios to analyse financial statements
4.1 The objectives of analysing financial statements
4.2 Analysing financial statements using financial ratios:
4.2.1 Liquidity
4.2.2 Profitability
4.2.3 Solvency
4.2.4 Efficiency
4.2.5 Investor/Value
4.3 Cash Flow statement
4.3.1 Definition
4.3.2 Preparation using the direct method
5. Prepare financial statements from incomplete records
5.1 Reasons for incomplete information
5.2 Preparation of financial statements with incomplete information
5.2.1 Preparation of adjusted statement of profit or loss
5.2.2 Preparation of adjusted statement of financial position
6. Identify concepts and techniques used in accounting for public entities
6.1 Definition of public sector entities
6.2 Features of public sector entities
6.3 Public sector entities compared to private sector entities
6.4 Structure of the public sector
6.4.1 National and county governments
6.4.2 State corporations, departments and agencies
6.5 Regulation and oversight
6.5.1 International Public Sector Accounting Standards Board
6.5.2 Director of Accounting Services
6.5.3 Public Finance Management (PFM) Act
6.6 National Treasury, Parliamentary Committees, Accounting Officers at national and county levels
6.7 Objectives of public sector financial statements
6.8 Objectives of International Public Sector Accounting Standards (IPSAS)
6.9 Accounting techniques in the public sector: Budgeting, Commitment and Fund accounting
Suggested Methods of Delivery
• Presentations and practical demonstrations by trainer;
• Guided learner activities and research to develop underpinning knowledge;
• Group discussions
The delivery may also be supplemented and enhanced by the following, if the opportunity allows:
• Visiting lecturer/trainer/practitioner from the accounting sector;
• Industrial visits.
Recommended Resources Tools
• Computers
• Calculators
• Accounting software
• E-mail
• Stationery
• Internet
Materials and supplies
• Digital and online instructional material
Sample Reading and Reference materials
1. Wood, F & Robinson, S. (2018). Book-Keeping and Accounts (9th edition). Harlow. Pearson Education Ltd.
2. Glautier, M., Underdown, B., & Morris, D. (2011). Accounting: Theory and Practice (8th edition.). Harlow. Pearson Education Ltd.
3. Sangster, A. & Wood, F. (2018). Frank Wood’s Business Accounting Volume 1 (14th edition.) Harlow. Pearson Education Ltd.
4. Kasneb e-learning resources (link on the Kasneb website).
5. Kasneb approved study packs.