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International Stream Preparing Financial Statements Part 1 Paper 1.1 Study Text Edition June 2005 AH05 –1.1 INTERNATIONAL © BPP Professional Education 2005 FOR EXAMS IN DECEMBER 2005 AND JUNE 2006 We want to help you pass. Your BPP team for Paper 1.1 Preparing Financial Statements (International Stream) Mary Maclean Katy Hibbert Janice Ross We are here to answer the technical and study queries that you have as you progress through the course. We will always reply to you promptly. E-mail us on accaqueries@bpp.com or fax us on 020 8740 2293. Alternatively call us during working hours on 020 8740 2242 or 020 8740 2245, or leave a voice message on our overnight message service. Please help us to save both you and BPP time by giving us details of which paper you are studying, which piece of material you are using, such as Study Text, Revision Kit or Passcards, and which page or question number you are looking at. Give us details of who you are and your work and home numbers. Tell us if there are any times we will not be able to reach you. If you have any course administration queries, such as amending exam submission dates, then please call 020 8740 2233. We look forward to seeing you progress through the course. Study Text Edition: June 2005 (i) PREPARING FINANCIAL STATEMENTS 1 Introduction This Home Study course will guide you through the June 2005 edition of the BPP Study Text. This June 2005 edition is for exams in December 2005 and June 2006. If your Study Text does not have that date on the back cover, please contact BPP. 2 Using the BPP Home Study (a) The Study Programme is made up of 27 Study Periods, which BPP has graded as high, medium or low priority, based upon guidance from ACCA and the examiners. Each Study Period consists of the following elements. (i) Exam Guidance This gives an introduction to each Study Period by explaining the emphasis that the examiner has placed on the topics to be covered on the basis of the pilot paper, past exams and discussions with BPP authors and tutors. (ii) Guidance through the Study Text Here you are given important instructions on how to work through the BPP Study Text. You must follow the guidance in this table for time effective study, as you will be told which areas of each chapter must be worked through in detail and which can be skimmed over. The table contains essential points, summarising the most vital areas of the Study Period. (iii) Were you awake? These are brief questions on the essential points, designed to test whether you were concentrating. You MUST get these questions right! If not you'll need to go back and study the material again. There is space for you to add your own notes as you study the Text. (iv) Common Pitfalls To help your question practice and revision, we give you guidance on the most common mistakes made by students on key areas. (v) Learning Resource Centre For further help with study and revision, we refer you to the relevant sections on BPP's i-Pass CD-ROM and BPP's i-Learn CD-ROM. Each Study Period should take about 2½ hours. There is an overview of all Study Periods, on page (v), which can be used to set up a timetable. The annotated Study Programme will become a key document in your revision phase. Study Text Edition: June 2005 (ii) (b) Some of the Study Periods are 'progress tests' which assess the work done on a limited number of Study Periods. You should mark the tests yourself using the solutions at the end of the Study Programme. (c) You also have two Course Examinations. These should be attempted at the point suggested within the Study Programme (they cover all preceding Study Periods) and sent to BPP for marking. You will receive a detailed analysis of your performance, together with suggested solutions, which should help your exam technique as well as pointing out strengths and weaknesses in your understanding. To help you plan your study time, BPP will send you separately an Exam Timetable with recommended dates for submission of the exams. Should these dates prove impractical, please feel free to amend them to suit your own planned schedule. However the date given for Course Exam 2 is the latest date by which we can guarantee to get the scripts back in time for the exams. To gain the greatest benefit from the exams, you must set aside a period of three hours during which you will have no interruptions. By submitting these exams, you will increase your chances of passing the real exams by 30%. (d) If you have any difficulty with your studies, e-mail us at accaqueries@bpp.com. Alternatively, please telephone, fax or write to the Customer Services Administrator at BPP who will pass your query to one of our authors and tutors. Please help us to save both your time and BPP time by giving us the following details about your query. • Paper name/number • Material reference and version (eg Study Text 2005, Revision Kit 2006) • Page or question number • A brief description of your query Remember to include your name, student number and a contact number if necessary. Please make your query as specific as possible. 3 BPP's i-Pass CD ROM Your home study course includes BPP's i-pass CD-Rom, which is designed to test knowledge and perfect exam technique. It enables you to attempt tests, making it an ideal revision tool. Paper 1.1 and 1.2 computer-based exams. BPP i-Pass for these two papers provides an exam-like environment with testing against the clock. Regular practice will ensure you're ready for the real thing. BPP i-Pass for 1.3 and Part 2 papers provides an opportunity to test and revise your knowledge of important syllabus areas. BPP i-Pass for Part 3 papers enable you to test and revise your knowledge - and your ability to apply this knowledge. Study Text Edition: June 2005 (iii) i-Pass queries To help us answer any BPP i-Pass queries you have quickly and effectively, please follow the steps below. (This procedure is necessary as questions appear in a different order each time the CD is used). Step 1. With the question you wish to query on-screen, push the Print Scrn (Print Screen) button on your keyboard (usually located to the right of the F12 key). This will copy the image of the question to your computer's 'clipboard'. Step 2. Start Microsoft Word. (You can do this while i-Pass is running – click on the start button, then select Microsoft word from the programs option.) Step 3. Paste the image from the clipboard into a new Word document. Do this by selecting Edit, Paste – or by using the Paste button on the Word toolbar. Step 4. Save the document with a meaningful name, eg iPass_Paper1.2_query.doc (or better still use the number referred to in Step 5 below in the document name, excluding the /s). Step 5. E-mail the document, with details of your query, to accaqueries@bpp.com . If you make contact by phone, the person dealing with your query will ask you to e-mail or post a copy of the document to them. If possible, in the detail of your query please include the reference number that appears very faintly on-screen in the white area below the 'Exit' option - for example 02/CO/0134. 4 Learning to Learn Accountancy Whether you are about to start your studies or continuing them, BPP's Learning to Learn Accountancy will help you learn efficiently and effectively. It also provides essential guidance on dealing with your exam. If you did not request this when ordering your Home Study Course you should contact Customer Services on 0845 0751 100 (UK only, local rate) or +44 (0)20 8740 2233 if calling from outside the UK. (Only one copy per student – it can be used again and again throughout your course.) 5 Revising with the BPP Home Study Course For your revision phase, your Home Study Course includes the following. (a) The BPP Practice and Revision Kit, which contains past paper questions and other useful practice questions. The Kit also contains Revision Guidance which highlights the key questions to attempt to maximise your chances of exam success. (b) The Study Programme, where the Essential Points and Common Pitfalls will serve as a reminder of the work you did in each Study Programme. (c) The BPP Passcards, which give short summaries of the content of each chapter of the Text. Revision should not start until you have completed your second course examination. Study Text Edition: June 2005 (iv) 6 Feedback The success of BPP's courses has been built on what you the students tell us. Towards the end of your course you will be sent a feedback form to complete and return. If you have any issues or ideas before you are given the form to complete, please contact the course administrator, on 0845 0751 100 (UK only, local rate) or +44(0)20 8740 2233 (overseas) or via e-mail at accaqueries@bpp.com . 7 Overview of Preparing Financial Statements The paper aims to test your ability to: • Describe the role and function of external financial reports and identify their users • Explain the accounting concepts and conventions present in generally accepted accounting principles • Record and summarise accounting data • Maintain records relating to fixed asset acquisition and disposal • Prepare basic financial statements for sole traders, partnerships, incorporated enterprises and simple groups • Appraise financial performance and the position of an organisation through the calculation and review of basic ratios • Demonstrate the skills expected in Part 1 How to use your Study Text The cornerstone of your studies is the BPP Study Text. The front pages give essential guidance on how to use the Text and vital information on study skills. Before you go any further, look at the front pages of your Study Text. They are there to help. Step 1 Read the section: Help yourself study for your ACCA exams. Read and apply the study skills section. Consider your style of learning and try to develop a personal study plan. Step 2 Look at the syllabus, to see what you're up against. Step 3 Look at the topics that have been examined in the past, in our analysis of past papers. Study Text Edition: June 2005 (v) STUDY PERIOD PLANNER Use this schedule and your exam timetable to plan the dates on which you will complete each study period. The letters 'H' ‘M’ and 'L' tell you whether the topic is high, medium or low priority. Detailed guidance and prioritisation of each study period begins on page 2. Study Period Topic Due Date 1 Introduction to accounting H 2 The accounting equation M 3 Basic financial statements H 4 Sources, records and the books of original entry M 5 & 6 Ledger accounting and double entry H 7 From trial balance to financial statements H 8 The cost of goods sold, accruals and prepayments H 9 Bad debts and allowances H 10 Accounting for inventories H 11 Non-current assets and depreciation H 12 Progress Test 1 H 13 Bank reconciliations M 14 Control accounts H 15 Correction of errors M 16 Computer applications in accounting L Study Period Topic Due Date 17 Accounting conventions and standards H 18 Incomplete records H 19 Limited liability companies H 20 Progress Test 2 H COURSE EXAM 1 A practice exam covering Study Periods 1–20. Study Period Topic Due Date 21 Partnership accounts M 22 Cash flow statements H 23 & 24 Interpretation of financial statements H 25 The IASB and financial reporting M 26 Group accounts H 27 Progress Test 3 H COURSE EXAM 2 A mock exam covering the whole syllabus. REVISION PHASE Your revision, using the questions and revision guidance in the BPP Passcards and the BPP Practice and Revision Kit, will begin when Course Exam 2 is complete. This should, at the latest, be four weeks before the final exam. Study Text Edition: June 2005 (vi) 1 APPROACHING PREPARING FINANCIAL STATEMENTS The paper develops the foundations of accounting techniques and places particular emphasis on: • The operation of financial accounting systems • Preparing simple financial statements • Understanding the main components of company accounts • Preparing a simple consolidated balance sheet The subject areas which are most frequently examined include, the preparation of final accounts, particularly limited companies, application and explanation of accounting standards and the usefulness of financial reporting. It is important that, even at this stage, you keep up to date with developments in financial reporting. The Student Accountant magazine provides a good source of articles on developments and current issues, some of which may be written by this subject’s examiner. Accounting is a practical subject and there is no real substitute for practising the skills you learn on this course. As you eventually sit an exam we have included quite a few questions in the course so that you can practice the skills utilising the method used in the exam. However, anything you do at work will also help in developing the skills which form the foundation of future papers. 50% of the marks available on this paper are for 25 multiple choice questions (MCQs) which will cover the whole syllabus. The remaining 50% of the total marks are for 5 compulsory questions. There will be an element of computation but knowledge will also be tested using discursive questions. The examiner has specifically said that candidates perform less well on these types of question so make sure you spend time practising these as well as computational questions. For the computational style questions concentrate on presentation, learn all the relevant proformas and always remember to cross reference your working to the solutions. Examination dates The cross references to the examination dates are to the ten mark compulsory questions only. You can assume that every topic has been examined via MCQs in the Pilot Paper and examinations set to date. 2 Study Period 1 Introduction to accounting Priority = High Date due: Exam Guidance This Study Period covers some basic background information to set you up in your studies, together with important knowledge for any written questions. Guidance through the Study Text These topics are covered in Chapter 1 Introduction to accounting. Section Approach Essential points 1 Purpose of accounting information Read through carefully. Definition of accounting; users of financial statements 2 The main financial statements Pay particular attention, as it is essential background information. Composition of published financial statements 3 Nature, principles and scope of accounting Work through quickly. 4 The desirable qualities of accounting information Read through carefully. Learn the desirable features of useful accounting information 5 The regulatory system Work through quickly, we will study this in detail in Chapter 24. 6 Capital and revenue expenditure Read through carefully. Difference between capital expenditure and revenue expenditure Try Questions 1 and 3 in the Exam Question Bank of your Study Text Exam focus point This chapter covers basic background knowledge. It may be examined by a MCQ or as part of a ten mark written question eg users of financial statements and their needs. . International Stream Preparing Financial Statements Part 1 Paper 1. 1 Study Text Edition June 2005 AH05 1. 1 INTERNATIONAL © BPP Professional Education 2005. depreciation H 12 Progress Test 1 H 13 Bank reconciliations M 14 Control accounts H 15 Correction of errors M 16 Computer applications in accounting L Study Period Topic Due Date 17 Accounting. course administrator, on 0845 07 51 100 (UK only, local rate) or +44(0)20 8740 2233 (overseas) or via e-mail at accaqueries@bpp.com . 7 Overview of Preparing Financial Statements The paper aims to