Pauline Weetman sixth edition Financial Accounting: An Introduction is aimed at first-level undergraduates on business studies degrees taking introductory financial accounting classes; first-level specialist accounting undergraduate students; introductory core accounting for MBA and postgraduate specialist Masters students (e.g finance, actuarial studies), focusing on analysis through the accounting equation and a questioning approach to problem solving; and professional courses where accounting is introduced for the first time The sixth edition retains all of the classic features that have contributed to the book’s success: clarity of expression, the focus on the accounting equation, student activities and real-life commentaries running through each chapter, and the inclusion of the Safe and Sure Annual Report as an example of a listed company Key features: • Fully up to date with International Financial Reporting Standards (IFRS) • Experience-driven conversations between two managers are included throughout, providing a practical examination of real life scenarios • New coverage on Corporate Governance • Focus on specific knowledge outcomes, with end-of-chapter self-evaluation • Questions are graded to test student understanding • New case studies containing examples from real-world companies Join over 10 million students benefiting from Pearson MyLabs An Introduction sixth edition use with Pauline Weetman sixth edition www.pearson-books.com Front cover image: © Corbis Images Some textbooks are sold packaged with a student access code card at a reduced cost If you not have an access card, you can buy access to MyAccountingLab and the eText – an online version of the book - online at www.MyAccountingLab.com CVR_WEET9253_06_SE_CVR.indd Financial Accounting Weetman This title can be supported by MyAccountingLab, an online homework and tutorial system designed to test and build your understanding MyAccountingLab provides a personalised approach, with instant feedback and numerous additional resources to support your learning Pauline Weetman BA, BSc (Econ), PhD, CA, FRSE, is Professor of Accounting at the University of Edinburgh, and has extensive experience of teaching at undergraduate and postgraduate level, with previous chairs held at Stirling, Heriot-Watt, Strathclyde and Glasgow Universities She received the Distinguished Academic Award of the British Accounting Association in 2005 She has convened the examining board of the Institute of Chartered Accountants of Scotland and was formerly Director of Research at ICAS Financial Accounting An Introduction Financial Accounting An Introduction 05/06/2013 11:26 A01_WEET9253_06_SE_FM.QXD 16/05/13 15:37 Page i FINANCIAL ACCOUNTING FINANCIAL ACCOUNTING ONLINE A wide range of supporting resources are available at: Register to create your own personal account using the access code supplied with your copy of the book*, and access the following student learning resources: l l l A dynamic eText of the book that you can search, bookmark, annotate and highlight as you please Self-assessment questions that identify your strengths before recommending a personalised study plan that points you to the resources which can help you achieve a better grade Flashcards to test your understanding of key terms *If you don’t have an access code, you can still access the resources Visit www.myaccountinglab.com for details A01_WEET9253_06_SE_FM.QXD 16/05/13 15:37 Page ii A01_WEET9253_06_SE_FM.QXD 16/05/13 15:37 Page iii Sixth Edition FINANCIAL ACCOUNTING Pauline Weetman Professor of Accounting University of Edinburgh A01_WEET9253_06_SE_FM.QXD 16/05/13 15:37 Page iv PEARSON EDUCATION LIMITED Edinburgh Gate Harlow CM20 2JE United Kingdom Tel: +44 (0)1279 623623 Fax: +44 (0)1279 431059 Web: www.pearson.com/uk First published under the Financial Times Pitman Publishing imprint in 1996 (print) Second edition 1999 (print) Third edition 2003 (print) Fourth edition 2006 (print) Fifth edition 2011 (print) Sixth edition published 2013 (print and electronic) © Pearson Education Limited 1996, 1999, 2003, 2006, 2011 (print) © Pearson Education Limited 2013 (print and electronic) The right of Pauline Weetman to be identified as author of this work has been asserted by her in accordance with the Copyright, Designs and Patents Act 1988 The print publication is protected by copyright Prior to any prohibited reproduction, storage in a retrieval system, distribution or transmission in any form or by any means, electronic, mechanical, recording or otherwise, permission should be obtained from the publisher or, where applicable, a licence permitting restricted copying in the United Kingdom should be obtained from the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS The ePublication is protected by copyright and must not be copied, reproduced, transferred, distributed, leased, licensed or publicly performed or used in any way except as specifically permitted in writing by the publishers, as allowed under the terms and conditions under which it was purchased, or as strictly permitted by applicable copyright law Any unauthorised distribution or use of this text may be a direct infringement of the author’s and the publishers’ rights and those responsible may be liable in law accordingly All trademarks used herein are the property of their respective owners The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners Contains public sector information licensed under the Open Government Licence (OGL) v1.0 www.nationalarchives.gov.uk/doc/ open-government-licence The screenshots in this book are reprinted by permission of Microsoft Corporation Pearson Education is not responsible for the content of third-party internet sites The Financial Times With a worldwide network of highly respected journalists, The Financial Times provides global business news, insightful opinion and expert analysis of business, finance and politics With over 500 journalists reporting from 50 countries worldwide, our in-depth coverage of international news is objectively reported and analysed from an independent, global perspective To find out more, visit www.ft.com/pearsonoffer ISBN: 978-0-273-78925-3 (print) 978-0-273-78958-1 (PDF) 978-0-273-778964-2 (eText) British Library Cataloguing-in-Publication Data A catalogue record for the print edition is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record for the print edition is available from the Library of Congress 10 16 15 14 13 12 Print edition typeset in 9.5/12pt Palatino by 35 Print edition printed and bound by L.E.G.O S.p.A., Italy NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION A01_WEET9253_06_SE_FM.QXD 16/05/13 15:37 Page v Contents in brief Preface to the sixth edition Guided tour of the book Publisher’s acknowledgements xv xxii xxiv FINANCIAL ACCOUNTING Part A conceptual framework: setting the scene Who needs accounting? A systematic approach to financial reporting: the accounting equation Financial statements from the accounting equation Ensuring the quality of financial statements Part Reporting the transactions of a business Accounting information for service businesses Accounting information for trading businesses Part 10 11 12 27 51 74 105 106 135 Recognition in financial statements 161 Published financial statements Non-current (fixed) assets Current assets Current liabilities Provisions and non-current (long-term) liabilities Ownership interest 162 202 240 270 289 311 Part Analysis and issues in reporting 13 Ratio analysis 14 Reporting corporate performance 15 Reporting cash flows 343 344 374 408 A01_WEET9253_06_SE_FM.QXD 16/05/13 15:37 Page vi A01_WEET9253_06_SE_FM.QXD 16/05/13 15:37 Page vii Contents Preface to the sixth edition Guided tour of the book Publisher’s acknowledgements xv xxii xxiv FINANCIAL ACCOUNTING Part A conceptual framework: setting the scene Chapter Who needs accounting? Real World Case Learning outcomes 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 Introduction The development of a conceptual framework The conceptual framework for financial reporting Types of business entity Users and their information needs General purpose or specific purpose financial statements? Stewards and agents Who needs financial statements? Summary 13 18 18 19 20 Further reading 21 Questions A Test your understanding B Application C Problem solving and evaluation Activities for study groups 21 21 22 22 23 Notes and references 24 Supplement: introduction to the terminology of business transactions Test your understanding Chapter A systematic approach to financial reporting: the accounting equation 25 26 27 Real World Case Learning outcomes 27 28 2.1 2.2 29 29 Introduction The accounting equation A01_WEET9253_06_SE_FM.QXD 16/05/13 15:37 Page viii viii Contents 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 Defining assets Examples of assets Recognition of assets Defining liabilities Examples of liabilities Recognition of liabilities Defining the ownership interest Recognition of the ownership interest Changes in the ownership interest Assurance for users of financial statements Summary 30 32 34 36 37 38 39 40 40 42 43 Further reading 45 Questions A Test your understanding B Application C Problem solving and evaluation Activities for study groups 45 45 46 46 47 Notes and references 47 Supplement: debit and credit bookkeeping 48 50 Test your understanding Chapter Financial statements from the accounting equation 51 Real World Case Learning outcomes 51 52 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 52 53 53 54 58 60 63 64 Introduction Who is in charge of the accounting system? The accounting period The statement of financial position (balance sheet) The income statement (profit and loss account) The statement of cash flows Usefulness of financial statements Summary Questions A Test your understanding B Application Activities for study groups Supplement: using the accounting equation to analyse transactions Test your understanding Chapter Ensuring the quality of financial statements 64 64 65 66 67 73 74 Real World Case Learning outcomes 74 76 4.1 4.2 4.3 4.4 76 76 81 83 Introduction Qualitative characteristics of financial statements Measurement in financial statements Views on prudence A01_WEET9253_06_SE_FM.QXD 16/05/13 15:37 Page ix Contents 4.5 4.6 4.7 Regulation of financial reporting Reviewing published financial statements Summary 85 95 100 Further reading 101 Questions A Test your understanding B Application C Problem solving and evaluation Activities for study groups 101 101 102 102 103 Notes and references 103 Part Reporting the transactions of a business Chapter Accounting information for service businesses 106 Real World Case Learning outcomes 106 107 5.1 5.2 5.3 5.4 5.5 5.6 107 108 111 115 117 120 Introduction Analysing transactions using the accounting equation Illustration of accounting for a service business A process for summarising the transactions: a spreadsheet Financial statements as a means of communication Summary Questions A Test your understanding B Application Supplement: recording transactions in ledger accounts – a service business Test your understanding Chapter Accounting information for trading businesses 120 120 121 122 134 135 Real World Case Learning outcomes 135 136 6.1 6.2 6.3 6.4 6.5 6.6 6.7 137 137 139 142 146 148 150 Introduction Goods purchased for resale Manufacturing goods for resale Illustration of accounting for a trading business A process for summarising the transactions: a spreadsheet Financial statements of M Carter, wholesaler Summary Questions A Test your understanding B Application Supplement: recording transactions in ledger accounts: a trading business Test your understanding 151 151 152 153 160 ix Z04_WEET9253_06_SE_APP2.QXD 16/05/13 9:26 Page A40 A40 Appendix II Working note Increase in borrowings £8m Assume no repayments Fruit sales plc – direct method Notes Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Cash paid for administrative and selling expenses Cash generated from operations Interest paid Taxes paid Net cash inflow from operating activities Cash flows from investing activities Purchase of vehicles Proceeds from sale of vehicles Investments acquired Interest received Net cash used in investing activities Cash flows from financing activities Proceeds from issue of share capital Proceeds from long-term borrowing Dividends paid Net cash used in financing activities Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the start of the period Cash and cash equivalents at the end of the period £m £m 318 (144) (13) 161 (19) (32) 110 (90) 20 (20) (85) 35 (31) 12 37 43 Working note Revenue in income statement £320m plus receivables at start of period £21m minus receivables at the end of the period £23m Accounts receivable – ledger account Debit Credit Balance £m £m £m Balance at start 21 21 Revenue − sales 320 341 Cash received 318 23 Working note Purchases = cost of goods sold £143m plus inventory at the end £26m less inventory at the start £20m = £149m Purchases – ledger account Balance of inventory at start Purchases of supplies Cash paid Debit Credit Balance £m £m £m 20 (20) 149 (169) 144 26 Z04_WEET9253_06_SE_APP2.QXD 16/05/13 9:26 Page A41 Solutions to numerical and technical questions in Financial Accounting Payment to suppliers = £149m plus payables at the start £13m less payables at the end £18m Accounts payable – suppliers Debit Credit Balance £m £m £m 13 (13) 149 (162) Balance of payables at start Purchases Cash paid 144 (18) A41 Z04_WEET9253_06_SE_APP2.QXD 16/05/13 9:26 Page A42 Z06_WEET9253_06_SE_IDX.QXD 16/05/13 9:27 Page I1 Index Note: Page numbers in bold indicate glossary definitions (listed first) accompanying information (financial statements) 169–71 accountancy firms G1, accountancy profession G1, accounting G1 questions on 21–4 Accounting Council (FRC) 85, 88–9 accounting equation G1, 27–47 and accruals 280 and capitalisation 331 defined 29 and dividends 327 and exchange rate changes 319, 323 financial statements from 51–73 month-end adjustments 338 national preferences 29–30 and ownership interest 314, 316, 317, 318, 319, 321, 323, 331, 332 provision for doubtful debts G8, 256–7 and provisions 297–8 questions on/solutions 45–7, A16–17 and realisation reserve 319 and rights issue 332 and service businesses 108–17 using to analyse transactions 67–73 accounting framework (IASB) 7, 8–9, 18, 167–71, 398, 402, 403 accounting information for service businesses 106–34 for trading businesses 135–60 accounting period G1, 53–4 accounting policies G1 and current assets 249–50 ITV (real case) 202–3 non-current (fixed) assets 211 non-current liabilities 295 Rexam plc (real case) 240–1 Safe and Sure Group plc A4 Scottish and Southern Energy plc (real case) 289 accounting standards G1 Accounting Standards Board (ASB) G1, 53, 86, 88, 165 and current liabilities 273 income statements 176 and inventories/stocks 245 and non-current liabilities 291–2 off-balance-sheet finance 390 and Operating and Financial Review (OFR) 376–7, 379 primary financial statements 167–8 and small and medium-sized companies 188–9 Statement of Principles 8, 167 and ‘true and fair view’ 397 see also UK Accounting Council accounts notes to G7, 169 reasons for rejection 74 accounts payable G1, 25 see also trade payables (creditors) accounts receivable G1, 25 see also trade receivables (debtors) accruals G1, 37, 39, 82 bookkeeping entries for 286–8 in cash flow statements 417 and matching concept 279–81 accumulated depreciation G1, 214 acid test G1, 351, 362 acquiree G1 acquirers G1, 183 acquisition G1, 183 goodwill on 185–7 acquisition method G1, 183 administrative expenses G1, 177 agency G1, 18 agency theory G1, 18–19 aggregate depreciation see accumulated depreciation allocate/allocation G1, 213 depreciation expenses 224–5 Alternative Investment Market (AIM) 92 Amazon (real case) 408 amortisation G1, 208 in cash flow statements 415 announcements, preliminary 189, 354 annual reports G1, 15 BAE Systems (real case) 312 Director’s report 381 finance director’s review 382–3 guidance in analysis 381–4 historical summaries and trend analysis 382 notes and accompanying information 169–71 and periodic reporting 190–1 and reporting cycle 189 reviewing financial statements in 95–100 risk reporting in 401–2 Safe and Sure Group plc A1–15 segmental information in 385–9 and share capital 325–7 see also corporate performance reporting APB (Auditing Practices Board) 93 AQI (asset quality index) 368 articles of association G1, 12 articulation G2 ASB see Accounting Standards Board assets G2, 29, 30–6 in accounting equation 29 analysing transactions 67–72, 108–17 controlled by entity 30–1, 32, 33 examples of 32–4 in financial statements 42–3, 84–5 future economic benefits 31, 32, 33, 34–5 groups of companies 184–7 non-recognition of 35–6 and ownership interest 40–1 past events 31, 32, 33 in published financial statements 171, 172, 174, 175 purchase in a foreign country 322 recognition of 34–6 reliable measurement of 35 of service businesses 105–17 statement of financial position G9, 53, 54–8 of trading businesses 138–51 see also current assets; non-current (fixed) assets associated companies G2, 187 audit G2 Audit and Assurance Council (FRC) 89 audit managers G2, Auditing Practices Board (APB) 93 auditors 92–4 responsibilities for business review 378–9 and ‘true and fair view’ 397, 398 bad debts G2, 256, 267–8 BAE Systems (real case) 311–12 balance sheet G2, 29, 53, 54–8 assets in 30–1, 32–4, 54–8, 171, 172 BT Group plc (real case) 27 format (Companies Act 2006) 198–9 information on face of (IAS 1) 197 J Sainsbury plc (real case) 51 of parent companies 184–5 see also statement of financial position Z06_WEET9253_06_SE_IDX.QXD 16/05/13 9:27 Page I2 I2 Index bank facilities G2, 301 bank loans 37, 39 bank overdrafts 37, 39, 276–7, 353 benefits/costs of financial reporting 79 bonds G2, 301 deep discount bonds G3, 303 stepped 303 bookkeeping, debit and credit 48–50, 153 see also ledger accounts brand names as assets 208 broker’s reports G2 brokers/stockbrokers G2 BT Group plc (real cases) balance sheet 27 press release 190 business combination G2, 183 business cycle G2, 32 business entity G2 types of 7, 9–13 business review G2, 376–81, 401 business transaction terminology 25–6 Cadbury Report (governance) 394–5 called up (share capital) G2, 326 capital G2 fixed capital G5 and ownership interest 41, 172–3, 175, 325 return on capital employed (ratio) 361 share capital G9, 13, 316, 325–7, 421 see also working capital capital amounts 275, 292 capital expenditure G2, 180 ratio analysis of 366 capital instruments (non-current liabilities) 304–5 capitalisation issue G2, 331 carbon emissions/carbon market 393 cash G2, 25, 410, 422 liabilities 39 recognising 247 in service businesses 109–11 and working capital 243–4 cash equivalents G2, 410, 422 cash flow 292–3 free cash flow 366–7 cash flow projections G2, 15 CEAVOP procedure (asset checking) 43 chairman G2 charge G2, 295 charitable trusts 165 chief executive G2 climate change accounting 393 close season G2 Codes and Standard Committee (CSC, FRC) 88, 89 Combined Code (corporate governance) 395 commercial paper G2, 301 communication, financial statements as means of 117–20 Companies Act (2006) G2, 11, 54 accounting measurement principles 81 balance sheet format 198–9 and business review 377 and current liabilities 273 formats of financial statements 167 income statements 176, 201 and non-current liabilities 291–2 and prospectuses 191 prudence/realisation 83 and published financial statements 166, 171, 191, 192 regulation of financial reporting 85, 86–7, 89 and small and medium-sized companies 187–8 and ‘true and fair view’ 396 Companies (Audit, Investigations and Community Enterprise) Act (2004) 87 Company Law Review 192 comparability (financial statements) G2, 79, 81, 82 completeness (financial information) G2, 78 components of equity 324 comprehensive income 312, 314, 315, 318, 321, 323–4, 328 conceptual framework of accounting G2, 7–8 Conduct Committee (FRC) 89–90 confirmatory value (financial information) 77 conservatism G2, 297 consistency (financial statements) G2, 79, 81, 82 consolidated financial statements G2, 174, 176, 182, 184–5 Safe and Sure Group plc A1–15 and segmental information 385 consolidation G3, 182 construction contracts 246, 260 contingent liabilities G3, 38, 273–4, 294 contract revenue 259–60 control G3 of assets 30–1 groups of companies 174, 182–3 nature of 183 convertible loans G3, 302 corporate governance G3, 90–1, 394–6 Corporate Governance Code 90–1, 394–5 corporate performance reporting 374–407 questions on/solutions 405–7, A37 stakeholders in 13–14, 402–3 see also annual reports; Operating and Financial Review corporate recovery department G3 The Corporate Report 7–8 corporate social responsibility G3, 391–4 corporation tax G3, 94, 177 cost(s) approximating when dates not recorded 255 of current assets 251 distribution costs 177 of financial reporting 79 of finished goods G3, 245 fixed costs G5 of goods sold G3 historical G5, 399, 400, 401 of inventories 252–5 of non-current asset G3, 206 replacement G8, 400 of sales G3, 177 coupons G3, 303, 304 credit in bookkeeping system G3, 48–50 in terms of business G3, 25 credit notes G3, 26 credit purchases G3, 25 credit sales G3 creditors G3, 25, 34 loan creditors 15 trade creditors 16 see also trade payables (creditors) critical event G3, 259 Croda International plc (real case) 106 current assets G3, 32, 240–69 in cash flow statements 417 definitions 34, 242–3 and doubtful debts 256–8, 265–8 in financial statements 172, 175, 248–51 measuring and recording 251–2 questions on/solutions 261–4, A30–1 ratio analysis of 347, 362 recognition 244–7 revenue recognition 259–60 statement of financial position 55–8, 98, 119, 149 and working capital cycle 243–4, 247, 248 see also trade receivables (debtors) current liabilities G3, 37, 270–88 accruals and matching concept 279–81 defining 272–3 information in financial statements 275–7 measurement and recording 277–9 and measuring gearing 353 in published financial statements 172 questions on/solutions 283–5, A32–3 ratio analysis of 362, 365 recognition of 273–5 risk of understatement 273 in service businesses 119 statement of financial position 98, 119 for taxation 282–3 and working capital 243, 244 current values G3, 400 value to business G10, 400 customers as users of financial accounting 16–17 Z06_WEET9253_06_SE_IDX.QXD 16/05/13 9:27 Page I3 Index customers’ collection period (ratio) G3, 352, 362 cut-off procedures G3, 278 date of incorporation 315 Debenhams Group (real case) 135 debentures G3, 39, 301 debit and credit bookkeeping 48–50, 153 see also ledger accounts debtors G3, 25, 31 deep discount bonds G3, 303 default G3, 15 deferred assets G3 deferred income G3, 299–300 bookkeeping entries for 309–10 deferred taxation G3, 282–3 DEPI (depreciation index) 368 depreciable amount G3, 213 depreciation G3 calculation of 214–16 in cash flow statements 364, 413, 415 choice of method 216–17 country-specific differences 216–17 of non-current (fixed) assets 207, 213–25, 230–9 recording 230–9 reporting in financial statements 218–25 retaining cash in the business 217–18 in service businesses 115, 125, 130–1, 132 table of depreciation expense 224–5 depreciation charge 178–80 derecognition G3, 398 difference on consolidation G3, 186–7 direct method (operating cash flow) G3, 364, 410, 411–12 illustration of 427 preparing a statement using 422–3 versus indirect method 413 Directives (EU) G4, 169 harmonisation through 166 and Operating and Financial Review (OFR) 377 and ‘present fairly’ 396 transparency 190 see also European Union (EU) directors G4, 11, 12 finance director’s review 382–3 remuneration 395–6 reports 381, A12–15 responsibilities for business review 378–9 responsibility statements 4–5, 90 and ‘true and fair view’ 397, 398 directors’ report (Rexam plc) 240 disclosed/disclosure G4 assets 34 and corporate social responsibility 392 of liabilities 38 OFR framework for 380 and risk reporting 401–2 Disclosure and Transparency Rules (FSA) 189–90 discount received G4, 25 distribution costs 177 dividend cover (ratio) G4, 348, 360 dividend per share 360 dividend yield (ratio) G4, 348–9, 360 dividends G4, 11, 14, 15, 177–8, 207, 293, 324, 329–30 in cash flow statements 420, 421–2 and investor ratios 347–9 double-entry bookkeeping 48 checking accuracy of 131–3, 159–60 see also ledger accounts doubtful debts G4, 256–8, 265–8 drawings G4, 293 DSRI (days’ sales in receivables index) 368 earnings and investor ratios 347 for ordinary shareholders G4, 170–1 per share (ratio) G4, 171, 347, 360 quality of 324 EBITDA 366 economic benefits future 31, 34–5 outflow of (liabilities) 37 effective interest rate G4, 302–3 efficient markets hypothesis G4, 354 EFRAG (European Financial Reporting Advisory Group) 86, 166 electronic publication of financial statements 192 employees and corporate social responsibility 392 investment in (Croda plc) 106 as users of financial accounting 16 and working capital cycle 248 endorsed/endorsement G4, 86, 166 Engaging Company Stewardship initiative 74–5 enterprises G4, 165 entity/entities G4 types of business entity 7, 9–13 entry price G4, 399–400 environmental issues 17, 392–4 equities analysts G4, 14 equity G4, 39, 40, 314 components of 324 equity accounting G4, 187 equity holders (shareholders) G4, 11, 177, 302, 315 return on shareholders’ equity (ratio) 349, 361 see also shareholders equity interest see ownership interest equity portfolio G4 equity shares/share capital G4, 317 error, freedom from (financial statements) 78 error detection (ledger accounts) 131–2 estimates, nature of in accounting 281 eurobond market G4 European Financial Reporting Advisory Group (EFRAG) 86, 166 European Union (EU)/European Commission and accounting systems 53 Greenhouse Gas Emissions Trading Scheme 393 IAS Regulation 86, 166 regulation of financial reporting 8, 86, 87, 92 see also Directives (EU) exchange rate changes (ownership interest) 321–3 exit value/price G4, 399–400 expenses G4, 26 depreciation 115, 224–5 in income statements 58–60 and ownership interest 41–2 of period versus cash paid 279–81 repairs as 206 external reporting G4, external users (financial statements) G4 fair value G4, 400–1 faithful presentation G4, 76, 77–8, 80, 246, 396 see also ‘present fairly’ FIFO (first in first out) pricing 254–6 finance source, change in nature of 302 financial accounting G4, accounting equation 27–47 defining accounting 6–7 stewards and agents 18–19 and types of business entity 9–13 users and information needs 13–17 financial adaptability G4, 53 Financial Conduct Authority (FCA) 92 financial gearing G4, 355 financial information G4, financial position (published financial statements) 168 financial reporting, regulation of 85–95 Financial Reporting Council (FRC) 74, 74, 81, 87–90 and Combined Code 395 and ‘present fairly’ 396 Financial Reporting Review Panel (FRRP) 89–90, 401 see also Conduct Committee (FRC) Financial Reporting Standard G5 Financial Reporting Standard for Smaller Entities (FRSSE) 188 financial risk G5, 354–5 financial scandals 95 Financial Services Authority (FSA) 91–2, 189–90 financial statements G5, 51–104 accompanying information 169 assets in 42–3 conceptual frameworks of 7–8 consolidated 174, 176, 182, 184–5, 385, A1–15 electronic publication of 192 I3 Z06_WEET9253_06_SE_IDX.QXD 16/05/13 9:27 Page I4 I4 Index financial statements (continued) and faithful presentation 76, 77–8, 80, 396 formats of 53, 55, 57, 166, 169, 171–2, 176, 198–9, 201 from accounting equation 51–73 general purpose 18, 170 in IASB system 82, 83, 165, 167–9, 171, 323, 386, 396 liabilities in 39, 42–3 as means of communication 117–20 measurement in 81–3 need for 19–20 non-current (fixed) assets 209–11, 218–25, 318–21 non-current liabilities and provisions 293–6 and ownership interest 42–3, 325–8 primary 53, 167–9, 323 ‘pro forma’ 192 published 95–100, 162–201 qualitative characteristics of 76–81 questions on/solutions 64–6, 101–4, A17–19 reporting depreciation in 218–25 segmental information in 386–9 specific purpose G9, 18 statement of recognised income and expense G9 statement of total recognised gains and losses G9, 315 subtotals in G10, 57, 58, 173, 176–7 usefulness of 63 see also income statement; published financial statements; statement of cashflows; statement of changes in equity; statement of comprehensive income; statement of financial position financial viability G5 financing activities G5, 60, 61, 62 cash flow from 178, 180, 365, 401, 421, 422, 425 finished goods inventories of 252–6 recognition of 245 fixed assets G5 see also non-current (fixed) assets fixed assets usage (ratio) G5, 350–1 fixed capital G5 fixed costs G5 floating charge G5 forecasts G5 foreign currency bank borrowings 276 and exchange rate changes (ownership interest) 321–3 formats (financial statements) G5, 53, 55, 57, 169 balance sheets 171–2, 198–9 harmonisation through Directives 166 income statements 176, 201 forward exchange contracts G5 FRC see Financial Reporting Council free cash flow 366–7 ‘free from error’ (financial statements) 78 freehold property 211 FRRP see Financial Reporting Review Panel FRSSE (Financial Reporting Standard for Smaller Entities) 188 FSA (Financial Services Authority) 91–2, 189–90 fully paid (shares) G5, 326 fund managers G5, 7, 14 future economic benefits 31 from finished goods 245 probability of 34–5 repairs and improvements 206 gearing G5, 293 impact when profits fluctuating 355, 356 operating and financial 355 ratio analysis of 347, 353–4, 363 general purpose financial statements G5, 18, 170 Global Reporting Initiative (GRI) 393 GMI (gross margin index) 368 going concern basis G5, 74–5, 81–2 goods for resale manufactured for resale 139–42 purchased for resale 137–9, 141–2 goodwill G5, 185–7 governance, corporate 90–1, 394–6 governance statements governments as users of financial accounting 17 GRI (Global Reporting Initiative) 393 gross G5 gross margin (ratio) G5, 149, 177, 350 gross profit G5, 149, 177 gross profit percentage (ratio) 361 groups of companies G5 accounting system 53 associated companies G2, 187 consolidated balance sheet 184–5 defining a group 182 income statement (profit and loss account) 185 information in financial statements 386 published financial statements 165, 166, 174, 181–7 half-yearly reports 189 Hampel Report (governance) 394–5 harmonisation through Directives 166 highlights statement (reports) G5, 381–2 historical cost accounting, limitations of 390 historical costs G5, 399, 400, 401 HM Revenue and Customs G5, 94 as agency of government 17 liabilities for taxation 282–3 liabilities to 39 and limited liability companies 11 and owners as investors 14 and partnerships 10 and sole traders 10 and understating assets 85 and working capital cycle 248 IAASB (International Auditing and Assurance Standards Board) 94 IAS (International Accounting Standard) G5, 8, 85 information on face of financial statements (IAS 1) 197, 200 on intangible assets 208 measurement in financial statements 81, 82–3 IAS Regulation 86, 166 IASB (International Accounting Standards Board) G5, 88, 167 on accruals and matching concept 279 on calculating depreciation 216 Conceptual Framework 7, 8–9, 18, 167–71, 398, 402, 403 on contingent liabilities 274–5 on current liabilities 273 on current values 400 and earnings per share 347 and fair value 400, 401 on financial statements 82, 83, 165, 167–9, 171, 323, 386, 396 and historical cost accounting 399, 401 income statements 175–6 on inventories 245 on non-current liabilities 292 and off-balance-sheet finance 391 on ownership interest 315, 318, 319, 323–4 on provisions 297 revenue defined 259 statement of cash flows 410, 413 statement of changes in equity 323–4 statement of comprehensive incomes 318, 323 IASB system G5, 30, 53, 292 IASC (International Accounting Standards Committee) 165 IFAC (International Financial Accounting Committee) 94 IFRS see International Financial Reporting Standard impairment G5, 225 impairment reviews G5, 225 impairment test G6, 187 improvements G6, 206–7 IMS (interim management statements) 190 income statement (profit and loss) G6, 53, 58–60, 96–7, 315 and annual reports 170–1 and cash flow 410 and current assets 246 Z06_WEET9253_06_SE_IDX.QXD 16/05/13 9:27 Page I5 Index income statement (profit and loss) (continued) depreciation of non-current (fixed) assets 218, 220, 221, 225, 233–4, 238 groups of companies 185 information on face of (IAS 1) 200 list of contents 201 and measuring gearing 354, 355 month-end adjustments to 338–40 and non-current liabilities 295–6, 302, 304 ownership interest 321 provision for doubtful debts 257–8 as published financial statement 167, 168, 175–8 Safe and Sure Group plc A2 in service businesses 118, 132–3 in trading businesses 149 see also profit and loss account incorporation, date of G6 indirect method (operating cash flow) G6, 364, 410, 412–13 illustration of 424–6 preparing a statement using 414–22 versus direct method 413 information overload, avoiding 191 input prices, costs when changing 253–4 insider information G6 institutional investors/shareholders G6, 14, 91 intangible G6, 205 intangible non-current (fixed) assets 174 examples of 204 recognition of 207–8 interest in cash flow statements 418, 420 on investments 177, 208–9 on loans G6, 177, 275, 292, 294, 302–3 interest rate swaps 305 interim management statements (IMS) 190 interim reports G6 see also interim management statements; periodic reporting internal reporting G6, International Accounting Standards Board see IASB (International Accounting Standards Board) International Accounting Standards Committee (IASC) 165 International Auditing and Assurance Standards Board (IAASB) 94 International Financial Accounting Committee (IFAC) 94 International Financial Reporting Standard (IFRS) G5, 86, 165, 167, 169 and ‘present fairly’ 396 for SMEs 188–9 international influences on UK accounting systems 165–7 international preferences (accounting equation) 29–30 International Standards for Auditing (ISAs) 94 inventories (stocks) G6, 25, 35 and accounting policy 249–50 average cost of 255–6 in balance sheets 175 in cash flow statements 413, 415–16 in financial statements 248, 249–50 of raw materials/finished goods 252–6 recognition of 245–6 stock holding period (ratio) G9, 351, 362 and trading businesses 140 and working capital 244 investing activities G6, 60, 61, 62 cash flow from 177, 180, 365, 414, 419, 421, 423, 425 investments in balance sheets 174 cash equivalents 410 as current assets 247 as non-current (fixed) assets 206, 208–9 investor ratios 347–9, 360 investors G6 and current assets 247–8 and limited liability companies 11 invoices G6, 278, 281 ISAs (International Standards for Auditing) 94 ITV (real case) 202–3 J Sainsbury plc (real case) 51 John Lewis Partnership (real case) 270–1 joint and several liability (partnerships) G6, 10 key performance indicators (KPIs) G6, 378 Safe and Sure Group plc 378 Tesco plc (real case) 344–5 Kyoto Protocol 393 leasing G6, 33–4, 211, 218 ledger accounts 48–50, 70 debit and credit bookkeeping 48–50, 153 entries for accruals 286–8 provision for doubtful debts 265–8 provisions/deferred income 309–10 recording non-current (fixed) assets and depreciation 230–9 service business transactions 122–34 trading business transactions 153–60 see also trial balance legal form G6 of financial statements 80 legal obligation (liabilities) 36 lenders as users of financial accounting 15 leverage G6 see also gearing liabilities G6, 29, 36–9 in accounting equation 29 analysing transactions 67–72, 108–17 in cash flow statements 418 common types of 38–9 and costs of inventories 252 defining 36–7, 272 examples of 37 in financial statements 42–3, 84 groups of companies 184–6 and non-current (fixed) assets 213, 223 outflow/transfer of economic benefits 37, 39 and ownership interest 40–10 past events 36–7, 39 present obligation 36, 39 in published financial statements 171, 172 recognition of 38 of service businesses 108–17 statement of financial position 54–8, 98 and trade creditors 16, 36 trade payables (creditors) 36, 39 of trading businesses 138–9, 141–8, 150–1 see also current liabilities; non-current liabilities licences as assets 208 LIFO (last in first out) pricing 254–6 limited liability G6, 11 limited liability companies G6, 10–11, 12, 165 accounting period 54 and ownership interest 315 limited liability partnerships (LLP) 11–12 liquidity G6, 15 in balance sheets 168 ratio analysis of 347, 351–3, 362 statement of cash flows G9, 60–3 listed companies G6, 11, 165 accounting period 54 accounting systems 53 annual reports of major 15 capital instruments of 305 Corporate Governance Code 394–5 and IAS regulation 8, 166 issue of further shares 330–2 preliminary announcements 189 listing, types of 92 listing requirements G6 Listing Rules G6, 92, 330, 395 loan covenants G6, 15 loan notes G6, 301 loan stock G6, 301 loans convertible 302 having a range of repayment dates 302 interest payable on 302–3 secured G9, 292, 293–4, 301 unsecured G10, 293–4, 301 I5 Z06_WEET9253_06_SE_IDX.QXD 16/05/13 9:27 Page I6 I6 Index London Stock Exchange regulation of 91–2 see also listed companies long-term finance/liabilities G6, 37 long-term loans 37, 39, 294 LVGI (leverage index) 368 management G6 as users of financial accounting 13, 14 management accounting G6, management performance analysis of 347, 349–51 pyramid of ratios for 355–7 Management’s Discussion and Analysis (MD&A) 381 manufacturing goods for resale 139–42 margin G7, 149 market value (investments) G7, 247, 317 marking to market G7, 247 matching concept G7, 59, 81, 299 and accruals 279–81 material/materiality (financial information) G7, 77, 78 maturity G7, 300 maturity profile of debt G7, 293 memorandum (companies) G7, 12 mergers G7 minority interest G7, 174 Morgan Crucible plc (real case) 162–3 M-score (ratios) 367–8 Supergroup (real case) 368–9 in published financial statements 172, 173, 174, 209–13 questions on/solutions 226–9, A26–30 ratio analysis of 346, 361 recognition of 207–8 revaluation of 318–21 in service businesses 115 statement of financial position 55–8, 98, 208, 210–11 in trading businesses 149 usefulness of published information 211–13 see also intangible non-current (fixed) assets; tangible non-current (fixed) assets non-current liabilities G7, 37, 289–310 and IASB system 292 information in financial statements 293–6 and measuring gearing 353 in published financial statements 172, 175 questions on/solutions 306–8, A33–4 recording and measurement 300–1 statement of financial position 98, 300, 301, 304–5 non-GAAP performance measures 191–2 non-recognition (contingent liabilities) 273–4 notes to accounts G7, 169 Safe and Sure Group plc A5–11 NASDAQ 381 national preferences (accounting equation) 29–30 net G7 net approach (deferred income) 300 net assets G7, 40 and ownership interest 314, 325 in service businesses 119–20 in trading businesses 150 net book value G7 fixed assets 214, 215, 216, 225 sale for an amount greater than 238 selling for a price not equal to 223–4 net debt G7 net profit G7, 149 net realisable value G7, 252–3 neutral/neutrality (financial information) G7, 78 nominal value (shares) G7, 305, 315, 317 non-controlling interest see minority interest non-current (fixed) assets G7, 17, 32, 202–39 in cash flow statements 419–20, 428 continuing to use 219–21 cost of 206 definitions 34, 205–7 depreciation of 207, 213–25, 230–9 disposing of 221–3, 236–8 examples of 205–6 off-balance-sheet finance G7, 273, 278, 389–91 offer for sale (shares) G7, 330 operating activities G7 cash flow from 60, 61, 62, 177, 177, 179, 365, 414, 415, 418, 419, 422, 423, 425 Operating and Financial Review (OFR) G7, 95, 177, 180, 181, 376–81 and capital expenditure 211 and corporate social responsibility 391 current assets 250 disclosure framework 380 international developments 380–1 objectives and principles 379–80 operating gearing G7, 355 operating margin (ratio) G7, 350 operating risk G7, 354–5 ordinary shares G7, 40 owners as investors 14–15 ownership of assets 31, 32–4 ownership interest G7, 29, 39–42, 311–41 in accounting equation 29 changes in 40–2 and cost of inventories 252 defining and recognition 39–40, 314 groups of companies 184–5 information in financial statements 42–3, 325–8 and non-current (fixed) assets 213, 220, 221, 222, 223 presentation of 315–23 in published financial statements 171, 172–3, 175 questions on/solutions 333–6, A34–5 in service businesses 67–72, 122, 123, 125, 126, 127, 132 statement of financial position G9, 54–8 in trading businesses 138–51, 155 see also dividends par value see nominal value parent companies G7, 181 balance sheets 184–5 information in financial statements 386 partnership deeds G7, 11 partnership law G7, 11 partnerships G7, 9–10, 14, 94, 165 drawings 293 limited liability (LLP) 11–12 and limited liability companies 12 past events assets 31, 32, 33 liabilities 36–7, 39 patents as assets 208 payment period (ratio) 352, 362 performance Debenhams Group (real case) 135 information in published financial statements 168 periodic reporting 190–1 portfolio of investments G7 of shares G7, 19 predictive value (financial information) 77 preference shares G7, 40 preliminary announcements G7, 189–90, 354 Premium/Primary company listing 92 premiums G7, 173, 300, 317, 327 prepaid expense G8, 26 prepayments G8, 26, 246–7, 258–9, 268–9 in cash flow statements 416 ‘present fairly’ G8, 396 see also faithful presentation press releases 189 BT Group plc (real case) 190 price-earnings ratio G8, 347–8, 360 price-sensitive information G8 primary financial statements G8, 53, 167–9, 323 principal sums G8, 275, 292, 301 private limited companies (Ltd) G8, 11, 13 ‘pro forma’ financial statements 192 production overhead costs G8, 253 profit and loss account G8, 53, 58–60 see also income statement Z06_WEET9253_06_SE_IDX.QXD 16/05/13 9:27 Page I7 Index profits G8, 25 adjustment for non-cash-flow items 415 financial statement of 58–9 fluctuating 355, 356 gross profits G5, 149 net profits G7, 149 from operations 177 overstatement of 84–5 retained G8 revised statement of 340 property (sale and leaseback) 389–90 prospective investors G8, 315 prospectuses G8, 191, 326, 330 provision for doubtful debts G8, 256–7 bookkeeping entries for 265–8 provisions G8, 296–8 bookkeeping entries for 309 Scottish and Southern Energy plc (real case) 290 prudence G8, 36 in financial statements 80, 83–5 and finished goods 245 and inventories 252 and provisions 297 and work in progress 246 Prudential Regulation Authority (PRA) 92 public interest 17 public limited companies (plc) G8, 11, 13 public sector bodies 13, 165 published financial statements 162–201 accounting framework 167–71 avoiding information overload 191 electronic 192 of groups of companies 165, 166, 174, 181–7 international influences on 165–7 non-current (fixed) assets in 172, 173, 174, 209–13 non-GAAP performance measures 191–2 periodic reports 191 and prospectuses 191 questions on/solutions 194–6, A26 reviewing 95–100 purchase method G8, 183 purchases G8, 352 qualified audit opinion G8 qualitative characteristics (financial statements) 76–81 quality of earnings G8, 324 quoted companies G8 ratio analysis 344–73 of company accounts (sources) 357 to explain statement of cash flows 364–7 and gearing 347, 353–4, 363 and liquidity 351–2 questions on/solutions 370–3, A35–6 systematic approach to 347–54 terminology 346–7 use/limitations of 357–8 worked example of 358–63 and working capital 352–3, 364–5 ratios combining for interpretation 367–8 evaluation by comparison 357 investor 347–9, 360 liquidity 351–2, 362 of management performance 347, 349–51, 361 pyramid of 355–7 working capital 362 raw materials inventories of 252–6 recognition of 246 recording 278 realisation G8, 83, 319, 400 realised profit/gain G8, 315 receivables see trade receivables (debtors) recognition G8, 398 of assets 34 corporate performance reporting 398 of current assets 244–7 of current liabilities 273–5 of liabilities 40 of non-current (fixed) assets 207–9 non-recognition (contingent liabilities) 273 and ownership interest 314 in published financial statements 169 and reliability 244–6, 247 reducing-balance depreciation 215–16, 217, 239 Registrar of Companies G8, 12, 13, 188 regulation of financial reporting 85–95 IASB framework 167–71 necessity of 94–5 relevance G8 of financial information 76, 77, 78 of work in progress 246 reliability G8 of financial statements 80, 81, 84 for recognition 244–6, 247 of work in progress 246 repairs and improvements 206–7 replacement cost G8, 400 reputation as asset 35 reserves G8, 175 in financial statements 172–3, 325 retained earnings 317 revaluation reserve G9, 173, 319–21, 327 residual value G8, 213, 218–19 retained earnings G8, 173, 317–18 retained profit G8 retention of title (ROT) 278 return G8 on capital employed G8, 349, 356, 361 on investments G9, 14, 354 investors’ views on 354 on shareholders’ equity G8, 349, 361 on total assets G9, 349–50 revaluation of non-current (fixed) assets 318–21 revaluation reserve G9, 173, 319–21, 327 revenue G9, 25, 259–60 and deferred income 299 income statements 58–60, 177 operating profit on sales 361 and ownership interest 41–2 recognition of 259–60 Rexam plc (real case) 240–1 rights issue G9, 331–2 risk G9, 14, 34, 354–5 of default 15 and gearing 353 investors’ views on 354–5 operating G7, 354–5 reporting of 401–2 Vodafone plc (real case) 374 Sainsbury’s (real case) 51 sales Debenhams Group (real case) 135 see also revenue; turnover sales invoices G9, 25 Scottish and Southern Energy plc (real case) 289–90 secured loans G9, 292, 293–4, 301 segmental reporting G9, 385–6 Safe and Sure Group plc 386–9 service businesses 106–34 analysing transactions 108–17 questions on/solutions 120–1, A19–21 SGAI (saes, general and administrative expenses index) 368 SGI (sales growth index) 368 share capital G9, 13, 316, 325–7, 421 share certificates G9, 315, 316 share premiums G9, 173, 317, 327 share price information (ratio analysis) 359 shareholders G9 institutional G6, 14, 91 see also equity holders (shareholders) shareholder’s funds G9 shares G9 buying and selling 316–17 buying back shares that have been issued 332 issue after incorporation 317 issue at date of incorporation 315–16 issue on Stock Exchange 330–2 and limited liability companies 11 purchase of in another company 322–3 treasury shares 332 Sharman report 82 short-term finance G9 small and medium-sized enterprises (SMEs) 187–9 sole traders G9, 9–10, 14, 165 drawings 293 and tax 94 I7 Z06_WEET9253_06_SE_IDX.QXD 16/05/13 9:27 Page I8 I8 Index solvency (balance sheets) 168 special purpose entities 390–1 specific purpose financial statements G9, 18 spreadsheet (summarising transactions) 115–17, 146–8 stakeholders (accounting information) G9, 13–14, 402–3 Standard/Secondary company listing 92 standard-setting process 402–3 statement of accounting policy (noncurrent (fixed) assets) 211 statement of cash flows G9, 53, 60–3, 408–32 Amazon (real case) 408 direct method 364, 410, 411–12, 422–3, 427 illustration of 424–7 indirect method 364, 412–13, 414–22, 424–6 interpreting information 423 linking ratios to 364–7 preparing a statement 414–23 as published financial statement 167, 178–81 questions on/solutions 428–32, A37–41 Safe and Sure Group plc A3 in service businesses 117–18 in trading businesses 148 statement of changes in equity G9, 167, 315, 323–4, 328, 332 Safe and Sure Group plc A3 statement of comprehensive income G9, 312, 315, 318, 321, 323–4, 328 Safe and Sure Group plc A2 statement of financial position (balance sheet) G9, 53, 54–8, 97–9 balancing assets and claims on assets 56 and capitalisation 331 and cash flow 411 and contingent liabilities 274 and contract revenue 259 and current assets 248–9, 259 depreciation of non-current (fixed) assets 218, 220, 221 example of presentation 56–8 and measuring gearing 353 month-end adjustments 338–40 non-current (fixed) assets 55–8, 98, 208, 210–11 and non-current liabilities 98, 300, 301, 304–5 ownership interest 321 provision for doubtful debts 256–7 as published financial statement 167, 171–5 retained earnings 317–18 rights issue 332 Safe and Sure Group plc A1 sale and leaseback of property 389–90 in service businesses 119–20, 132–3 in trading businesses 149–50, 160 and work in progress 246 see also balance sheet statement of principles G9 statement of recognised income and expense G9 statement of total recognised gains and losses G9, 315 stepped bonds G9, 303 stewardship G9, 15, 18–19, 324, 349 Stewardship Code 91 stock G9 loan stock G6, 301 see also inventories stock exchange G9, 316–17 and institutional investors 14 and limited liability companies 11 see also London Stock Exchange stock holding period G9 stock market see stock exchange Stockopedia (website) 368–9 straight-line depreciation 214–15, 217, 218 subsidiary companies G10, 181–2 substance (financial informationn) G10, 80–1 subtotals (financial statements) G10, 57, 58, 173, 176–7 Supergroup (real case) 368–9 suppliers see trade creditors (suppliers) supplier’s payment period G10 tangible non-current (fixed) assets G10, 174, 205 examples of 205 recognition of 207 statement of accounting policy 211 TATA (total accruals to total assets) 368 taxation calculating 365–6 in cash flow statements 415, 418–19 corporation tax G3, 94, 177, 281 and groups of companies 182 and historical cost accounting 399 liabilities for 282–3 provision for deferred 37, 39 recoverable 175 see also HM Revenue and Customs Tesco plc (real case) 344–5 timeliness (financial statements) G10, 79 total assets usage (ratio) G10, 350, 361 trade creditors (suppliers) G10, 16, 36, 278–9 payment period (ratio) 352, 362 and working capital 243–4, 248 trade debtors G10 trade payables (creditors) G10, 25, 36, 37, 39 analysis of transactions 69 in cash flow statements 62, 413, 417 and current liabilities 278–9 John Lewis Partnership (real case) 270–1 and working capital 243–4 see also creditors trade receivables (debtors) G10, 25, 31, 35, 175 analysis of transactions 69–70 in cash flow statements 413, 416 collection period (ratio) 352, 362 debtors G3, 25, 31 in financial statements 248–9 measurement of 256–8 recognition of 246–7 and working capital 243–4 trademarks as assets 208 trading businesses 136–60 illustration of accounting for 142–6 questions on/solutions 151–2, A22–5 trading cycles (accounting period) 53–4 transactions analysis using accounting equation 67–73 of assets 31, 67–72 of service businesses 106–34 summarising in spreadsheets 115–17, 146–8 terminology of 25–6 for trading businesses 146–8, 153–8 Transport for London (real case) 4–5 treasury shares G10, 332 trial balance 131–2, 159–60 adjustment at end of accounting period 337–41 true and fair view G10, 87, 247, 396–8 Trueblood Report turnover G10 see also revenue UK Accounting Council (FRC) 85, 88–9 UK ASB system G10 see also Accounting Standards Board UK company law 85, 86–7, 166 see also Companies Act (2006) UK Corporate Governance Code 90–1, 394–5 UK GAAP 188 UK Listing Authority (UKLA) 92, 191 UK Stock Exchange see London Stock Exchange understandability G10 of financial statements 76, 79 United States Financial Accounting Standards Board 391, 400 and IASB conceptual framework 7–8 Management’s Discussion and Analysis (MD&A) 381 New York Stock Exchange 381 unlisted (company) G10 unrealised gains/losses G10, 315 unsecured creditors G10, 16, 278 unsecured loans G10, 293–4, 301 users of financial accounting 13–17 Z06_WEET9253_06_SE_IDX.QXD 16/05/13 9:27 Page I9 Index users’ need for information current assets 247–8 current liabilities 275 non-current (fixed) assets 209 non-current liabilities 292–3 ownership interest 324–5 segmental reporting 385–6 utility companies 17 value, measurement of 398–401 value to business G10, 400 variances G10 verifiability (financial statements) 79 Vodafone plc (real case) 374 work in progress G10, 34, 245–6 workforce (non-recognition as asset) 35, 107 working capital G10, 244, 250 statement of financial position (service businesses) 119 users and information needs 15, 17 working capital cycle G10, 243–4, 248 in cash flow statements 418 and cash flows 409 ratio analysis of 352–3, 362, 364–5 writedowns/written down value BAE Systems (real case) 311 see also net book value Z-score (ratios) 367 I9 Z06_WEET9253_06_SE_IDX.QXD 16/05/13 9:27 Page I10 Z06_WEET9253_06_SE_IDX.QXD 16/05/13 9:27 Page I11 Z06_WEET9253_06_SE_IDX.QXD 16/05/13 9:27 Page I12 ... Safe and Sure Group plc, used throughout Financial Accounting II Solutions to numerical and technical questions in Financial Accounting A1 A16 Index FINANCIAL ACCOUNTING ONLINE A wide range of... Operating and financial review (OFR) and business review Other guidance in analysis Segmental information Off-balance-sheet finance Corporate social responsibility Corporate governance Meaning of... to financial reporting: the accounting equation Financial statements from the accounting equation Ensuring the quality of financial statements Part Reporting the transactions of a business Accounting