Untitled-3.indd 09/08/15 12:47 am FRANK WOOD’S BUSINESS ACCOUNTING A01_WOOD5050_13_SE_FM.indd 17/07/15 4:43 pm Frank Wood 1926–2000 A01_WOOD5050_13_SE_FM.indd 17/07/15 4:43 pm FRANK WOOD’S BUSINESS ACCOUNTING THIRTEENTH EDITION ALAN SANGSTER BA, MSc, PhD, Cert TESOL, CA Formerly authored by Frank Wood BSc (Econ), FCA A01_WOOD5050_13_SE_FM.indd 17/07/15 4:43 pm Pearson Education Limited Edinburgh Gate Harlow CM20 2JE United Kingdom Tel: +44 (0)1279 623623 Web: www.pearson.com/uk First edition published 1967 Second edition published under the Longman imprint in 1972 Third edition published 1979 Fourth edition published 1984 Fifth edition published 1989 Sixth edition published 1993 Seventh edition published 1996 Eighth edition published under the Financial Times Pitman Publishing imprint in 1999 Ninth edition published 2002 Tenth edition published 2005 Revised tenth edition published 2007 Eleventh edition published 2008 Twelfth edition published 2012 Thirteenth edition published 2016 (print and electronic) © Frank Wood 1967 © Longman Group UK Limited 1972, 1979, 1984, 1989, 1993 © Pearson Professional Limited 1996 © Financial Times Professional Limited 1999 © Pearson Education Limited 2002, 2007, 2008, 2012, 2016 (print and electronic) The rights of Alan Sangster and Frank Wood to be identified as authors of this work have been asserted by them 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 authors’ and the publisher’s rights and those responsible may be liable in law accordingly Pearson Education is not responsible for the content of third-party internet sites ISBN: 978-1-292-08505-0 (print) 978-1-292-08510-4 (PDF) 978-1-292-08507-4 (eText) 978-1-292-08508-1 (ePub) 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 9 8 7 6 5 4 3 2 1 19 18 17 16 15 Front cover image: Getty Images Print edition typeset in 9.5/11.5pt Sabon LT Pro by 71 Printed and bound by L.E.G.O S.p.A., Italy NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION A01_WOOD5050_13_SE_FM.indd 17/07/15 4:43 pm Contents Notes for teachers and lecturers Notes for students The Last Lecture Acknowledgements ix xii xx xxi part Special accounts Accounting for branches Purchases by instalments Contract accounts 29 47 part Companies 10 11 12 Limited companies: general background The issue of shares and loan notes Companies purchasing and redeeming their own shares and loan notes Limited companies taking over other businesses Taxation in company financial statements Provisions, reserves and liabilities The increase and reduction of the share capital of limited companies Accounting standards, related documents and accounting ethics The financial statements of limited companies: statements of profit or loss, related statements and notes 13 The financial statements of limited companies: statements of financial position 14 Published financial statements of limited companies: accompanying notes 15 Statements of cash flows 59 66 81 106 125 142 148 160 207 225 241 261 part Groups Group financial statements: an introduction Consolidation of statements of financial position: basic mechanics (I) Consolidation of statements of financial position: basic mechanics (II) Intercompany dealings: indebtedness and unrealised profit in inventory Consolidated financial statements: acquisition of shares in subsidiaries at different dates 21 Intra-group dividends 22 Consolidated statements of financial position: sundry matters 23 Consolidation of the financial statements of a group of companies 16 17 18 19 20 279 286 311 321 335 339 351 361 v A01_WOOD5050_13_SE_FM.indd 17/07/15 4:43 pm Contents 24 Consolidated statements of profit or loss and statements of comprehensive income 371 380 25 Business combinations: purchase method accounting 26 Standards covering subsidiaries, associates and joint arrangements 385 part Financial calculations and analysis 27 Interest, annuities and leasing 28 Accounting ratios 29 Interpretation of financial information 399 414 435 part Issues in financial reporting 30 31 32 33 34 35 36 Theories of accounting-related choice Theories of accounting practice Current cost accounting Social and environmental reporting and integrated reporting Corporate governance Public sector accounting Accounting for management control 461 473 490 506 521 526 535 part The emerging business environment of accounting 37 The supply chain and enterprise resource planning systems 38 E-commerce and accounting 39 Forensic accounting 547 554 562 part Costing 40 Elements of costing 41 Absorption and marginal costing 42 Job, batch and process costing 569 583 610 part Budgets 43 Budgeting and budgetary control 44 Cash budgets 45 Co-ordination of budgets 629 639 651 part Standard costing and variance analysis 46 Standard costing 47 Materials and labour variances 48 Overhead and sales variances 673 678 696 vi A01_WOOD5050_13_SE_FM.indd 17/07/15 4:43 pm Contents part 10 Planning, control and decision-making 49 Breakeven analysis 50 Capital expenditure appraisal 51 The balanced scorecard 715 732 750 Appendices Interest tables 757 Answers to review questions 761 Glossary 834 Index 839 Supporting resources Visit www.pearsoned.co.uk/Wood to find valuable online resources For instructors ● Complete Solutions Manual for answers within the book ● PowerPoint slides that can be downloaded and used for presentations vii A01_WOOD5050_13_SE_FM.indd 17/07/15 4:43 pm Dedication For Aparecida who thinks this is what it is not and not what it is viii A01_WOOD5050_13_SE_FM.indd 17/07/15 4:43 pm Notes for teachers and lecturers This textbook has been written so that a very thorough introduction to accounting is covered in two volumes The split into two volumes is made in recognition of the fact that many students new to accounting will find all that they require in Frank Wood’s Business Accounting This second volume completes the coverage of the financial accounting and management accounting parts of many examinations in accounting and should be suitable for anyone studying intermediate and final level financial accounting or anyone studying management accounting at introductory and intermediate levels on courses at school, college, or university; or studying for qualifications from the LCCI, Association of Accounting Technicians, the Institute of Secretaries and Administrators; or for qualifications of any of the six UK and Irish Chartered Accountancy bodies As examination syllabuses are constantly being revised, it would not make sense to be too specific as to which chapters would be needed by students taking each of the various examinations However, Financial Accounting and Financial Reporting are covered in Chapters 1–39 and Management Accounting is covered in Chapters 40–51 While management accounting has evolved to a point where changes in practice are limited, and the double entry method of bookkeeping and the fundamentals of financial accounting have long been established, the same is not true of financial reporting Far from being the neverchanging subject many perceive it to be, it is in a constant state of change The current major ongoing change, begun in 2005 and still ongoing, is the switch from domestic accounting rules to international rules Specifically, the rules that had been developed in the UK since 1970, known as Statements of Standard Accounting Practice (SSAPs) and Financial Reporting Standards (FRSs), are being phased out In their place most businesses are now using International GAAP, i.e International Financial Reporting Standards (IFRSs) and International Accounting Standards (IASs) Some small and medium-sized businesses continue to use UK standards These were consolidated and revised in 2013 and 2014 and now have simpler requirements more in keeping (in terms of length and detail, but not in substance) with those issued under International GAAP It now seems only a matter of time before all businesses will be using International GAAP A number of changes have been made in this new edition, some topics have moved within the book, some new ones have been added, and all the content has been updated Major changes include: ● The term ‘Income statement’ has been replaced throughout with, ‘Statement of profit or loss’ This is in line with the IFRS The change was requested by a number of users of the book who felt it more appropriate, not simply because it was recommended by the IASB, but because it reflected more accurately the content of the statement ● Chapter 2 has been retitled Purchases by instalments to better reflect its contents ● Chapter 11 has been renamed Accounting standards, related documents and accounting ethics It has been updated to incorporate international standards in issue in February 2015 and a new section, 11.49, Professional ethics, has been added in response to requests that students be made aware of this aspect of accountancy practice ● Chapter 12, The financial statements of limited companies: statements of profit or loss, related statements and notes, now includes a new Section 12.2 which contains what was previously in Sections 19 and 21 of Chapter 29, Accounting theory ix A01_WOOD5050_13_SE_FM.indd 17/07/15 4:43 pm Index decision-making (continued) costs needed 586 cues used 469 heuristics 469–71 individual, theories relating to 463, 469–71 process 539–40 theories 461–71 variances and 705 deferred taxation 130–6, 175, 835 deficiencies, allowances for defined benefit plans 179–80 defined contribution plans 179 deflation 483 delivery 549 demand deposits 262 elasticity of 631 deposits repayable on demand 262 depreciation 476, 573 current cost accounting 486, 496–7 hire purchase, assets bought on 32 property, plant and equipment 175, 176 provisions for 142 taxation and 126, 130–6 deprival values 479–80, 491–2 derivatives 181 direct costs 577–8 direct expenses 574, 575, 577–8 direct labour costs 574, 575, 577–8 direct materials costs 574–5, 577–8 direct method, statements of cash flow 262, 263, 265 directors corporate governance 521–5 non-executive 523 remuneration 243, 522 reports 510 reports 242–3, 508, 522 enhanced business reviews 510 greenhouse gas emissions 511 stewardship 208, 536 disclosures 166 business combinations 381 consolidated financial statements 386–7 environmental see social and environmental reporting financial instruments 180–1, 196 intangible assets 189–90 interests in other entities 198 mineral resources 196 narrative 510 property, plant and equipment 177 related parties 179 separate financial statements 386–7 social see social and environmental reporting statements of financial position 226–7 voluntary 466, 467 discontinued operations 193–4 discounting (allowing for changes in values) 475, 478, 743 discount rates 733–5 discounted cash flow (DCF) 736–8 see also annuities; interest; internal rate of return; net present values; present values discounts (reductions in price) 215 loan notes at 94 shares 67, 68–9, 837 disposal groups 194 distributable profits 63, 144, 145 distribution 548, 549 expenses 574, 575–6 distributions auditors reports and 145 in kind 145 see also dividends District Auditors 531 dividends 149–50 changing price levels and 485 cover 423 efficient market hypothesis 464 intra-group 339–44 paid, consolidated financial statements 375 pre-acquisition profits, out of 381–3 preference shares 352 proposed 227, 343–4 reserves and 143 yield 423 dominant factors 697 double column system, branch accounts 5–6 double entry, computerisation and 560 doubtful debts, allowances for 142 drivers cost 599, 550 performance 753 due care, professional 199 e-commerce 554–61, 750, 835 earnings management 442–4, 464, 465, 467, 468, 835 earnings per share (EPS) 131, 181, 423 economic interest group theory 463, 468 economic order quantity (EOQ) 635–6, 835 economic values 478, 491–2 economics 631 ED see exposure drafts Edwards, Ronald 483 efficiency ratios 421–3, 426–7 efficiency variances 687–9, 698, 702, 704 efficient contracting 462, 465 efficient market hypothesis 462, 464 efficient negotiations, agency theory 464 elasticity of demand 631 electronic commerce 554–61, 750, 835 employee benefit assets and liabilities 355 employees balanced scorecard measures and 751, 752–3 benefits 178 information on, in financial statements 506 interpersonal skills 750 management control and 538–9 motivation and standards 675 share options 192 as users of financial statements 208, 209, 506 see also labour; management engineers’ certificates see certification of work done enhanced business reviews 510 enlightened self-interest 463, 468 844 Z04_WOOD4664_13_SE_IDX.indd 844 17/07/15 5:35 pm Index Enron 444 Enterprise Governance: Getting the Balance Right, IFAC 2004: 523 enterprise resource planning (ERP) 550–2, 835 entities, separate legal 60–1 entity-specific values 176 environment, business 554–61, 750–1 environmental information 510 environmental reporting see social and environmental reporting EOQ (economic order quantity) 635–6, 835 EPS see earnings per share equity instruments 180–1 statements of changes in see statements of changes in equity statements of financial position 226 see also shares equity accounting 388–9, 835 equity-settled share-based payments 192 equity share capital 63 equivalent production 616 Ernst & Young 555 ERP (enterprise resource planning) 550–2, 835 errors 169 estimates changes in 168–9 of profits/losses 50–2 of replacement costs 477–8 sales budgets 631 uncertainty 742 see also budgeting; International Accounting Standards: IAS8 ethical branch stakeholder theory 466 ethical issues see social and environmental reporting ethics, professional 199–200 European Union company law 60 evaluation of mineral resources 194–6 see also checks and checking; performance: measurement and evaluation events after the reporting period 173–4 examinations, advice concerning xiv–xix, 418–19, 446 exchange rates 17–18 executive share options 192 exit values see net realisable values expenditure appraisal 732–49 expenditure variances 698–9, 702, 704 expenses allocation 215 classification by nature or function 214 direct 574, 575, 577–8 see also costs exploration of mineral resources 194–6 exposure drafts 161 ED Accounting for changes in the purchasing power of money 483 ED 18 Current cost accounting 484 ED 24 Current cost accounting 484 ED 35 Accounting for the effects of changing prices 484 FREDs 161 factoring 401–2 factory indirect expenses 575 fair presentation 165 fair values 106, 289, 835 impairment of assets 183 investment property 190 measurement 198 property, plant and equipment 176–7, 178 in purchase method accounting 354–6 faithful presentation 164 favourable variances 674, 678–9, 700, 704, 707, 835 FCA (Financial Conduct Authority) 522 FIFO (first in, first out method of inventory valuation) 476, 610, 612, 685 final accounts see financial statements finance budgets revealing need for 639, 642 costs 574, 575–6 finance leases 40, 408–9, 836 financial accounting deficiencies 536–7 e-commerce 557 management accounting and 569–70 purposes and uses 535–6, 537 financial advisers 208 financial assets 227 financial capital maintenance 168, 487 financial concept of capital 167 Financial Conduct Authority (FCA) 522 financial control, public sector 528 financial instruments 180–1, 190, 196, 198, 354 financial investments see investments financial liabilities 180–1 financial perspective, balanced scorecards 751–2 financial position statements see statements of financial position Financial Reporting Council (FRC) 162, 522 Financial Reporting Exposure Drafts (FRED) 161 Financial Reporting Standard for Smaller Entities (FRSSE) 161, 162 Financial Reporting Standards (FRS) 161 FRS Cash flow statements 161 FRS 100 Application of Financial Reporting Requirements 162 FRS 101 Reduced Disclosure Framework 162 FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland 162 FRS 103 Insurance contracts 162 FRSSE Financial Reporting Standard for Smaller Entities 161, 162 financial social accounting 512–13 financial statements accounting principles 228 business cycles and 47 Companies Acts see Companies Acts comparative information 172 complete set of 170–1 compromise 209 consolidated see consolidated financial statements current cost 492–501 current purchasing power 476–7 845 Z04_WOOD4664_13_SE_IDX.indd 845 17/07/15 5:35 pm Index financial statements (continued) elements 167 formats 210 Framework for the Preparation and Presentation of Financial Statements 163–8, 210, 490 goodwill 311–12 illustrations 245–51 for internal use 207–8 interpretation of see accounting ratios measurement of elements 167 medium-sized companies 231–2 notes accompanying 170–1, 214–15, 217–18, 241–51 objectives 164, 490 presentation 169–72 purpose 169–70 qualitative characteristics 164–6 recognition of elements 167 separate 385–8 small companies 231–2 summary 232 titles 172 user groups see user groups see also statements of cash flows; statements of changes in equity; statements of financial position; statements of profit or loss financing activities 263–4 first in, first out see FIFO fixed costs see costs fixed production overheads 172 flexible budgets 656, 657–8, 836 forecasting 470, 540, 569–70, 742 see also budgeting foreign branches 17–18 foreign currency conversion 17–18 foreign subsidiary cash flows 264 forensic accounting 562–6, 836 foreseeable losses 51–2 forfeited shares 74–5 formation expenses 119 formats of financial statements 210 foundation trusts, NHS 532–3 Framework for the Preparation and Presentation of Financial Statements 164–6, 490 fraud 559 FRC (Financial Reporting Council) 162, 522 FRED (Financial Reporting Exposure Drafts) 161 see also exposure drafts FRS see Financial Reporting Standards FRSSE (Financial Reporting Standard for Smaller Entities) 161, 162 full cost pricing 592–5 full costing see absorption costing future net cash flows, present values see present values GAAP (generally accepted accounting principles) 191–2, 209 Government accounting 529 International GAAP see International GAAP UK GAAP 161, 162, 387 gains from bargain purchases 107, 192, 227, 289–90, 352, 354, 381 gearing adjustments 486, 499–501 balanced scorecard measure 752 capital gearing ratios 425 debt covenants 465 general reserves 143 generally accepted accounting principles see GAAP; International GAAP GHG (greenhouse gas) emissions 511, 513 Global Online Retailing Study, The (Ernst & Young) 555 global warming 507 globalisation 555, 559 GNP (gross national product) 511 going concern 164 goods returns sent to branches share-based payments 192 in transit, branch accounts 13–16 see also products goodwill 107 allocating to cash-generating units 184–5 companies, acquisitions of 114 consolidated statements of financial position 289, 291, 298–301, 311–12, 313–15 fair values and 354 impairment 183, 184–5, 381 measurement 381 negative see gains from bargain purchases non-controlling interests and 294, 300–1 partnerships, acquisitions of 113 piecemeal acquisitions and 335–7 preference shares and 352 purchase method and 354 purchased 192 recognition 381 sole proprietors, acquisitions of 107–10 statements of financial position 227 governance, corporate 521–5, 835 government accounting 528–32 disclosure of assistance 178 grants 178 social and environmental reporting intervention 510–11 social programmes 515 Government Resources and Accounts Act 2000: 529 Greenbury Report 522 greenhouse gas (GHG) emissions 511, 513 Greenpeace 509 gross national product (GNP) 511 gross profits see profits groups equity accounting for 390–2 intercompany dealings 321–6, 352–3 intra-group dividends 339–44 nature 283 statements of profit or loss within 281 vertical 361–6 see also associates; consolidated financial statements; subsidiaries growth and learning perspective 751, 752–3 guarantee companies 60 846 Z04_WOOD4664_13_SE_IDX.indd 846 17/07/15 5:35 pm Index Hampel Report 522–3 head offices, branch accounts 10–13 held for sale, subsidiaries 388 Her Majesty’s Revenue and Customs see HM Revenue and Customs heuristics 469–71, 836 Hicks, John 475, 480 Higgs Report on reviewing the Role and Effectiveness of Non-executive Directors 523 hire purchase 29–46, 401, 405, 836 historical costs 476, 490–1 adjusted 476–7 alternatives to 491–501 capital maintenance 481 financial accounting 572–3 financial statements 483 see also present values; valuation historical values 490–505 HM Revenue and Customs (HMRC) 125, 126, 128, 129, 208, 209 holding companies 281, 836 see also parents holding gains 485–6, 487 human relations issues see employees human resource accounting 513 Hyde guidelines 484 hyperinflation 488, 180 IAS see International Accounting Standards IASB (International Accounting Standards Board) 40, 163 IASC (International Accounting Standards Committee) 163 IASG (Inflation Accounting Steering Group) 484 ICAEW see Institute of Chartered Accountants in England and Wales ICAI (Institute of Chartered Accountants in Ireland) 484, 564 ICAS (Institute of Chartered Accountants of Scotland) 484 ideal standards 675, 836 identity, legal 60–1 IFAC (International Federation of Accountants) 199, 523 IFRS see International Financial Reporting Standards IIRC (International Integrated Reporting Committee) 516 impairment assets 182–5, 188 goodwill 381 losses 176 Implementing Integrated Supply Chain Management for Competitive Advantage (American Institute of Management Accountants) 550 income 480 measurement 474–6 smoothing 443, 836 see also profits income tax companies 128–9, 133–6 IAS 12: 175 on loan notes 128–9 partnerships 128 sole proprietors 127–8 incorporation 116–19 indices, price see price indices indirect costs 578 indirect expenses 574, 575 indirect labour costs 574, 575 indirect manufacturing costs 574, 575–6 indirect method of consolidation 363–6 statements of cash flows 262–3, 264–5 individuals, theories relating to 463, 468 inductive approach to theory 474 inflation 399, 483, 491 accounting to reflect 491–501 hyperinflation 488 reserves and 143 Inflation Accounting Steering Group (IASG) 484 information 569–70, 577 availability heuristic 470 balanced scorecard and 753, 755 constraints on 165 cost of obtaining, and cost/benefit issues 165, 166, 571 definition 414 environmental 510 financial, interpretation 435–45 management information 542 non-financial 510 purpose 571 quantification 542 on solvency 420 supply chain management and 550 users of see user groups information systems environmental issues and 514 ERP systems 550–2 supply chain management and 548 quantitative methods 542 social issues and 514 see also computers and computerised systems input costs 478, 508 inputs 510 instalments purchases by 29–46 shares payable by 71–3 Institute of Chartered Accountants in England and Wales (ICAEW) 161, 484 Accounting for Stewardship in a Period of Inflation 483 forensic accounting 564 The Use of Discounting in Financial Statements 743 Institute of Chartered Accountants in Ireland (ICAI) 484, 564 Institute of Chartered Accountants of Scotland (ICAS) 484 insurance contracts 192–3 intangible assets disclosures 189–90 fair values 354 with finite useful lives 188 IAS 38: 186–90 impairment review of 183, 188 with indefinite useful lives 188 measurement after recognition 190 research and development 187, 190 retirements and disposals 188–9 847 Z04_WOOD4664_13_SE_IDX.indd 847 17/07/15 5:35 pm Index integrated method, branch inventories 7–9 integrated reporting 507, 516–17, 518 integrity 199 interest compound see compound interest cover ratios 425 hire purchase 30–1, 36 income tax 128–9 investments 402–4 loan notes 128–9, 228 opportunity cost 399 rates 400 annual percentage rates (APR) 401–2, 407–8 simple 400 sinking fund investments 94–8 see also annuities interests community interest companies (CIC) 60 economic interest group theory 463, 468 enlightened self-interest 463, 468 minority 292, 837 in other entities, disclosures 198 private interest theory 463, 468 public interest theory 463, 467 shareholders, conflicts with social considerations 508–9 see also associates; consolidated financial statements; groups; joint arrangements; subsidiaries interim financial reporting 182 internal business processes 751, 752 internal rate of return (IRR) 734–5, 736–8, 741–2 internal use, statements of profit or loss for 211–13 International Accounting Standards (IAS) 162, 163 IAS Presentation of financial statements 169–72, 194, 214, 215, 217–18, 225 IAS Inventories 172–3, 186, 191 IAS Cash flow statements 261–6 IAS Accounting policies, changes in accounting estimates and errors 168–9, 176, 188, 193, 195 IAS 10 Events after the Reporting Period 173–4 IAS 11 Construction contracts 50–3, 186 IAS 12 Income taxes 125, 130–1, 175, 186, 194, 600 IAS 16 Property, plant and equipment 170, 175–7, 190, 191, 195, 196, 217 IAS 17 Leases 40, 186, 193, 408–9 IAS 18 Revenue 50–3, 178, 193 IAS 19 Employee benefits 170, 178, 186, 193, 194, 217 IAS 20 Accounting for government grants and disclosure of government assistance 178 IAS 21 The effect of changes in foreign exchange rates 17, 170, 217 IAS 23 Borrowing costs 179 IAS 24 Related party disclosures 179, 321 IAS 26 Accounting and reporting by retirement benefit plans 179–80, 193 IAS 27 Separate financial statements 186, 281, 282–3, 326, 363, 380, 385–8, 388, 389 IAS 28 Investments in associates 186, 283, 300, 386, 387, 388–9 IAS 29 Financial reporting in hyperinflationary economies 180, 488, 490 IAS 31 Interests in joint ventures 389 IAS 32 Financial instruments: disclosure and presentation 180–1, 186, 193, 196, 352 IAS 33 Earnings per share 181 IAS 34 Interim financial reporting 182 IAS 36 Impairment of assets 182–5, 188, 195, 196 IAS 37 Provisions, contingent liabilities and contingent assets 185–6, 193, 195 IAS 38 Intangible assets 170, 186–9, 191, 193, 195, 196, 217 IAS 39 Financial instruments: recognition and measurement 170, 190, 192–3, 194, 196, 217, 300, 386 IAS 40 Investment property 190–1, 194 IAS 41 Agriculture 191, 194 see also International Financial Reporting Standards International Accounting Standards Board (IASB) 40, 163 International Accounting Standards Committee (IASC) 163 International Federation of Accountants (IFAC) 199, 523 International Financial Reporting Standards (IFRS) 163 IFRS The first-time adoption of international reporting standards 191–2 IFRS Share-based payment 192, 193 IFRS Business combinations 186, 192, 193, 290, 294, 300, 335, 354, 380–1 IFRS Insurance contracts 186, 192–3 IFRS Non-current assets held for sale and discontinued operations 186, 188, 193–4, 381, 386, 388 IFRS Exploration for and evaluation of mineral resources 186, 194–6 IFRS Financial instruments: disclosures 193, 196 IFRS Operating segments 196–8 IFRS Financial instruments 190, 198, 386 IFRS 10 Consolidated financial statements 198 IFRS 11 Joint arrangements 186, 198, 283, 386, 387 IFRS 12 Disclosure of interests in other entities 198, 389–90 IFRS 13 Fair value measurement 198 IFRS 14 Regulatory deferral accounts 199 IFRS 15 Revenue from contracts with customers 52, 199 IFRS for small and medium-sized entities 198 see also International Accounting Standards International GAAP 162, 191–2 financial statements 209, 363, 387 local authorities 530 statements of financial position 228, 229–31 statements of profit or loss 213–14 International Integrated Reporting Committee (IIRC) 516 Internet 555–6, 750 see also e-commerce interpretation of financial information 435–45 see also accounting ratios intra-group dealings 321–6, 352–3 intra-group dividends 339–44 inventories 172–3, 174 accounts receivable system, branches 6–9 branches integrated method 7–9 memoranda columns method 6–7 848 Z04_WOOD4664_13_SE_IDX.indd 848 17/07/15 5:35 pm Index checking fair values 354 levels and control of 548, 634–6 ratios and 420–1 safety 636 standard costing, records under 685 supply chain management and 547, 548 turnover 422 unrealised profits, intercompany dealings 322–3 valuation 476, 618–19, 634 see also AVCO; FIFO; LIFO investing activities 263 investment funds 390 investments 174 in associates 388–9, 392–3 companies without subsidiaries 392–3 interest 402–4 property 190–1 IRR (internal rate of return) 734–5, 736–8, 741–2 irrelevant costs 740, 836 IT systems see computers and computerised systems JIT (just-in-time) 548, 635 job costing 610–16, 836 joint arrangements 198, 386, 389, 836 joint costs 619–20 joint operations 389, 836 joint products 619, 836 joint ventures 283, 389, 836 jointly controlled entities 386, 393 journalists 208 judgement 209 just-in-time (JIT) 548, 635 Kaplan, Robert 751, 755 key factors 598 key performance indicators (KPI) 511 labour costing for 686 direct costs 574, 575, 577–8 indirect costs 574, 575 variances 686–9 see also employees land 177 fair values 354 see also property, plant and equipment LASAAC see Local Authority, Scotland, Accounts Advisory Committee last in, first out see LIFO law see legislation learning and growth perspective 751, 752–3 leases 40, 405, 407–11 legal entities, separate 60–1 legislation Companies Acts see Companies Acts Companies (Audit, Investigations and Community Enterprise) Act 2004: 63 Government Resources and Accounts Act 2000: 529 Hire Purchase Act 1964: 30 Local Government Acts 529–30 legitimacy theory 463, 466, 467, 509 lessees 40 lessors 40 leverage see gearing liabilities 142 acquisitions 381 contingent 185–6 fair values 355 financial 180–1 long-term see long-term liabilities statements of financial position 226 liability, limited and unlimited 59–60, 62–3 LIFO (last in, first out) method of inventory valuation 173, 463–4, 476, 610, 612, 685 limited companies 836 acquisitions by 106–24 acquisitions of 113–15 background 59–65 own shares, purchase and redemption of 81–92, 312 return on capital employed 417–19 see also Articles of Association; private companies; public companies; shares limited liability companies see limited companies limiting factors 598, 836 liquidity see solvency loan-creditor groups, as users of financial statements 208 loan notes 76, 836 acquisitions and 113, 115–16 convertible 98 holders 208 income tax 128–9 interest 128–9, 228 issue of 77 redemption of 92–8 see also shares Local Authority, Scotland, Accounts Advisory Committee (LASAAC) Code of Practice on Local Authority Accounting 530–1 local government accounting 529–32 Local Government Acts 529–30 location 548 London Stock Exchange 162 long-term contracts 47–56 long-term debt 355 long-term liabilities non-current assets : net worth + long - term liabilities ratios 424 losses abnormal 618, 698, 834 anticipated 51 breakeven analysis 715–31 estimation 50–2 foreseeable 51–2 impairment 176 normal 618, 698 post-acquisition 313–14 pre-incorporation 116–18, 837 realised 63 statements of see statements of profit or loss unrealised 352 loyalty 507 849 Z04_WOOD4664_13_SE_IDX.indd 849 17/07/15 5:35 pm Index mainstream corporation tax (MCT) see corporation tax maintenance costs 465 management bonuses see bonuses budgeting and 630, 655–6 control, accounting for 535–44 strategic systems 753 supply chain 547–50, 552 as users of financial statements 209 variances and 705 management accounting 569–70 e-commerce and 557 management information 542 management overheads 696–7 managerial accounting see management accounting managerial branch stakeholder theory 466–7, 509 managerial social accounting 514–15 manipulation 466 manufacturing indirect costs 574, 575–6, 583–4 organisations, costing 573–8 overheads 575 marginal costs and marginal costing 587–92, 593, 595–8, 599, 610–11, 615, 702, 836 margins of safety 718, 836 markets budgeting issues 631 efficient market hypothesis 462, 464 prices 151–2, 477 values 151–2 master budgets 651–5, 837 materiality 164, 166 materials direct costs 574–5, 577–8 purchase budgets 634 variances 679–85, 689 MCT (mainstream corporation tax) see corporation tax measurement assets after recognition 176–7 balanced scorecard measures 751, 752 fair values 198 financial instruments 190 financial statements elements 167 goodwill 381 intangible assets 187, 190 social programme 514, 515 see also performance: measurement and evaluation medium-sized companies 198, 210, 231–2, 387 memoranda columns method, branch inventories 6–7 Memoranda of Association 61–2, 837 mergers see acquisitions mineral resources 194–6 minority interests 292, 837 see also non-controlling interests mission statements 754 mix variances 705–8 monetary assets 485 monetary values 490–505 monetary working capital adjustments 486, 497–8 money capital maintenance 480–2 Monitor 532–3 monitoring costs 464, 837 mortgage debentures 76 motivation 675 multinational companies 507 multi-stage method of consolidation 363 naked loan notes 76 NAO (National Audit Office) 531, 533 narrative disclosures 510 National Audit Office (NAO) 531, 533 National Health Service accounting 532–3 National Loans Fund 528 national social income accounting 511–12 negative goodwill see gains from bargain purchases negotiations, agency theory 464 net operating profit : operating assets ratios 419 net present values (NPV) 408, 734–8, 741–3, 837 net profit after tax : sales ratios 416 net profit after tax : total assets ratio 419 net realisable values 172, 478, 481, 491–2 net worth 480 borrowing: net worth ratios 425 net worth : total assets ratios 424 non-current assets : net worth ratios 424 neutrality 165, 166 NHS accounting 532–3 no par value, shares 77, 838 nominal values, shares 83–6 non-adjusting events 174 non-bottleneck resources 635–6 non-controlling interests 837 consolidated statements of financial position 291–4, 300–1, 364–6, 372, 374 goodwill and 294, 300–1 profits and 326 non-current assets acquisitions 381 adjusting events 174 heal for sale 193–4 intra-group sales 352–3 ratios 424 statements of financial position 226 non-distributable reserves 83, 90–2 non-executive directors 523 non-financial information 510 non-profit organisations 514–15 normal losses 618, 698, 837 normative theories 462, 466, 474, 837 Norton, David 751, 755 notes to financial statements see financial statements NPV see net present values objectives balanced scorecard and 750–6 budgeting and 631, 656 compatibility 537–8 conflicts between 538 financial statements 164, 490 incompatibility 537–8 prioritisation 538 public sector organisations 527–8 supply chain management and 549 see also planning objectivity 199 850 Z04_WOOD4664_13_SE_IDX.indd 850 17/07/15 5:35 pm Index OFR (Operating and Financial Reviews) 510 onerous contracts 355 online retailing see e-commerce open market purchase loan notes redemption by 94 operating activities 262–3 Operating and Financial Reviews (OFR) 510 operating capital maintenance 482, 485–7 operating cash flows 262 operating leases 40, 408–9, 837 operating segments 196–8 operations, control of 540 opportunistic perspective 462, 464–5 opportunity costs 399 optimised production technology (OPT) 635–6 ordinary shares 63 organisations stakeholders and, relationships theories 463, 465–7 strategy 750–6 outcome measures 753 outputs 510 overabsorption 618–19, 697 overheads 578 contract accounts 48 management 696–7 manufacturing 575 recovery variances 697–705 under/overabsorption of 618–19 oversubscribed shares 70–1 overtime 686 overtrading 425–6 own shares, purchase and redemption 81–92, 312 owners’ equity, return on (ROOE) 417 P/E (price earnings) ratios 424 par, shares at 66, 69–70, 77 parents 280–1, 283, 393, 837 see also consolidated financial statements; groups Parmalat 444 partial control 298–300, 326 partnerships acquisitions of 110–13 checks on financial statements 414 income tax 128 pay 686–7, 688 see also directors: remuneration payables see creditors payback 736, 738, 741–2 payments cash, timing 640–2 e-commerce 555, 556, 558 pensions and pension schemes 179–80 performance drivers 753 measurement and evaluation 540–2, 570, 750–6 measures 753, 754 standards, budgeting and 656 performance-related bonuses 465 period costs 573–4 permanent differences 133 permissible capital payments 90–2 PHE (Public Health England) 532 physical capital maintenance 168 physical concept of capital 167 piece rates 688 planning 540 budgeting and 630–1, 656, 755–6 enterprise resource (ERP) 550–2, 835 financial 485 management accounting 569–70 planning, programming, budgeting systems (PPBS) 514–15 political costs hypothesis 463, 467 political parties 209 pools, cost 599 positive accounting theories 462–3 positive theories 462, 837 post-acquisition profits 339, 340–1 PPBS (planning, programming, budgeting systems) 514–15 post-acquisition losses 313–14 post-acquisition profits 314–15 pre-acquisition profits see profits predictive values 166 preference shares 63, 81–2, 181, 351–2 pre-incorporation profits and losses 116–19, 145, 837 premiums loan notes redeemed at 93–4 shares at 67–8, 69, 70, 86–90 present values (PV) 406, 837 of annuities 406–7, 760 of expected future net cash flows 475, 491–2, 732–43 historic values and 478, 490–505 net see net present values tables 733, 758, 760 see also discounting presentation, financial instruments 180–1 pressure groups 209, 509–10, 518 price earnings (P/E) ratios 424 price indices 476–7, 480, 481, 483, 492 prices 477 breakeven analysis and 720 changing levels, accounting for 482–8 market 151–2, 477 selling 596–8 variances 679–80, 682–4, 705 see also costs; pricing; retail price index; shares PriceWaterhouseCoopers (PwC) 516–17 pricing full cost 592–5 inflation and 485 policies 592 primary stakeholders 466–7 prime costs 575 principals, agency theory 464 principles of accounting 228 prioritising objectives 538 private companies 61, 62, 64 purchase and redemption of own shares 82, 83, 90–2 reserves 144 private interest theory 463, 468 process costing 610–12, 616–17, 619, 837 product centres 577–8 product costs 573 851 Z04_WOOD4664_13_SE_IDX.indd 851 17/07/15 5:35 pm Index production budgets 632–4 capacity utilisation 752 costs 575 equivalent 616 even levels 632–3 flow 611, 632–3 increased 722–3 lead times 752 losses in 618 supply chain management and 548 uneven 589–90, 633–4 see also variances products by-products 620, 834 complementary 631 joint 619, 836 mix 723 see also goods Professional Accountants in Business Committee of IFAC 523 professional behaviour 199 professional competence and due care 199 professional ethics 199–200 profit and loss accounts branches 12–13 see also statements of profit or loss profitability 421, 425 ratios 416–19, 426 profits absorption costing 589–92 analyses 232 attributable 51–2 branches 7–9 breakeven analysis 715–31 calculating 7–9, 474–6, 485–7, 589–92 cash flows and 643 current cost operating 498–9 defining 475, 480 distributable 63, 144, 145 estimation 50–2 gross absorption cost-based and marginal cost-based, difference between 590–2 gross profit : sales ratios 416 hire purchase and 35–6 intercompany dealings and 322–5 marginal costing 589–92 net profit after tax : sales ratios 416 net profit after tax : total assets ratio 419 post-acquisition 314–15, 339, 340–1 pre-acquisition 336–7, 340, 342–3, 381–3 pre-incorporation 116–19, 145, 837 ‘real terms’ 487 realised 63, 145, 324–5 recognition, long-term contracts 51–2 reported, comparisons of 589–90 statements of see statements of profit or loss taxation 126, 130–6 unrealised 145, 322–3, 352 project appraisal 732–49 property 174, 190–1 property, plant and equipment 170, 175–7 provisions 142, 185–6, 837 prudence 117, 165, 166 public social and environmental responsibilities awareness 509–10 as users of financial statements 209, 506 public companies 62, 64 purchase of own shares 82, 83 summary financial statements 232 see also quoted companies Public Health England (ENG) 532 public interest theory 463, 467 public sector 837 accounting 526–34 publication quoted company financial statements on websites 233 statements of profit or loss 213–14 purchase by instalments 29–46 purchase costs 172 purchase method accounting 380–4 fair values in 354–6 see also consolidated financial statements purchase of own shares 81–92, 312 purchased goodwill 192 purchasing power, specific 480–2 PV see present values PwC (PriceWaterhouseCoopers) 516–17 pyramid of ratios 440–1 qualitative variables 510 quality control 752 quality performance 507 quantitative methods in information systems 542 quantitative variables 510 quick ratios 420–1 quoted companies website publication of financial statements 233 R&D (research and development) 187, 190 ratepayers 209 rational choice theory 462, 463–4 ratios see accounting ratios raw materials, fair values 354 RC see replacement cost real capital maintenance 480–2 real earnings management 443, 444, 837 ‘real terms’ profits 487 real time assurance 560 realised profits and losses 63, 145, 324–5 receipts, cash, timing 640–2 receivables see accounts receivable recognition assets 176–7 financial instruments 190 financial statements elements 167 goodwill 381 intangible assets 190 profits, long-term contracts 51–2 revenue 199 records, public sector 528 recoverable amounts 176, 491–2 redeemable loan notes 76, 92–8 852 Z04_WOOD4664_13_SE_IDX.indd 852 17/07/15 5:35 pm Index redeemable preference shares 81–2 redemption loan notes 92–8 shares 81–92, 99–101, 244 Registrar of Companies 209–10 registration, companies 61–2 regulation, theories relating to 463, 467–8 regulatory capture 467, 837 regulatory deferral accounts 199 related party disclosures 179 relationships supply chain management 549 theories 463, 464–7 relevance 164–5, 166 see also appropriateness relevant costs 740, 837 reliability 164, 166 remuneration see directors: remuneration; pay rent-to-own see hire purchase rental agreements 405 see also leases replacement cost (RC) 477–8, 481, 491–2 reports annual see financial statements auditors 145, 242–3 directors 242–3, 508, 522 directors’ remuneration 243, 510 financial, local government 530 greenhouse gas emissions 511, 513 integrated reporting 507, 516–17, 518 strategic 508, 511, 518 sustainability 507 triple bottom line see triple bottom line repossessions 38–9 representativeness heuristics 463, 470 research and development (R&D) 187, 190 reserves accounts 142 bonus shares and 149–51 capital see capital capital redemption 83–6, 90–2, 144, 835 current cost 494–5 general 143 non-distributable 83, 90–2 revaluation 90, 144 revenue 142–3, 837 of subsidiaries 294–8, 375 transfers among, consolidated financial statements 375 see also share premiums: accounts residual costs 464, 465, 837 residual values 176 resource accounting 529, 837 retail organisations, costing 578 retail price index (RPI) 480, 481, 483 retailing, online see e-commerce retirement benefit plans 179–80 return on capital employed (ROCE) 416–19, 422, 441–2, 752 return on owners’ equity (ROOE) 417 return on share capital (ROSC) 419 return on shareholders’ funds (ROSF) 417 returns, goods revaluation CPP and 476–7 current cost accounting 494–5 model 176–7, 190 reserves 90, 144 see also fair values revenue analyses 232 recognition 199 relevant and irrelevant 740 reserves 142–3, 837 Revenue and Customs see HM Revenue and Customs rights issues 76, 151–2, 837 ROCE see return on capital employed ROOE (return on owners’ equity) 417 ROSC (return on share capital) 419 ROSF (return on shareholders’ funds) 417 RPI see retail price index rule of 78: 411 safety inventory 636 margins of 718, 836 stock 636 salaries see pay sales breakeven points 596 budgets 631, 632, 634 constant 589–90 increased 722–3 mix variances 705–8 ratios 416 supply chain management 548 variances 705–8 see also selling Sandilands Committee and Report 474, 475, 483–50 Save-As-You_Earn (SAYE) plans 192 scorecard, balanced 750–1 Scotland public sector auditing 533–4 scrip issues 149–51 sector relevance 436 securitisation vehicles 390 segmental reporting 196–8 self-interest, enlightened 463, 468 sellers, e-commerce 555, 556 selling expenses 574, 575–6 prices 596–8 see also sales semi-strong form efficient market hypothesis 464 sensitivity analysis 742–3 separate determination concept 53 separate financial statements 386–7 separate identities 60–1 service centres 578 service organisations, costing 578 service, units of 478 services, share-based payments 192 share-based payments 192 share capital alteration 148–59 return on 419 853 Z04_WOOD4664_13_SE_IDX.indd 853 17/07/15 5:35 pm Index share premiums 838 accounts 67–8, 69, 70, 86–90, 144 shared control 393 shareholders enhanced business reviews and 510 funds, return on (ROSF) 417 interests, conflicts with social considerations 508–9 non-controlling interests see non-controlling interests ratios 423–4, 427 see also earnings per share rights 279–80, 351, 352 social considerations and 508–9 as users of financial statements 208, 209, 490 shares acquisitions and 108–10, 111–15 appreciation rights 192 bonus 149–51, 834 cancellation 92 classes of 63 dealings in 64 discounts 67, 68–9, 837 dividends see dividends forfeited 74–5 issue 64, 66 liability and 62 market values 151–2 no par value 77, 838 nominal values 83–6 options 192 ordinary 63 oversubscribed 70–1 own, purchase and redemption 81–92, 312 at par 66, 69–70, 77 payable by instalments 71–3 piecemeal acquisition of subsidiaries and 335–7 preference see preference shares at premiums see share premiums prices 64 efficient market hypothesis 464 market, debt covenants linked to 465 redemption 81–92, 99–101, 244 rights issues 76, 151–2, 837 scrip issues 149–51 undersubscribed 70 see also earnings per share; loan notes; share capital; shareholders simple loan notes 76 simple interest 400 single-stage method of consolidation 363–6 sinking funds 92, 94–8, 838 small companies 161, 198, 210, 231–2, 387 see also Financial Reporting Standard for Smaller Entities social and environmental reporting audits 518 background 506–7 benefits 507–8 costs 507–8 factors leading to change 509–10 Government intervention 510–11 shareholders’ interests, conflicts with social considerations 508–9 social accounting 511–15 voluntary reports from companies 515–16 social auditing 512 social contracts 463, 465–6 social judgement theories 463 social programme measurement 514, 515 sole proprietors acquisitions 107–10 checks on financial statements 414 income tax 127–8 return on capital employed 416–17 solvency 415, 420 ratios 420–1, 426 SORP see Statements of Recommended Practice South Africa, integrated reporting 516 special interest theory 463, 468 specific purchasing power 480–2 spreadsheets 657, 734, 742 SSAP see Statements of Standard Accounting Practice staff see employees stakeholders organisations and, relationships theories 463, 465–7 primary 466–7 theory 463, 466–7, 509 standard costs and costing 673–4, 685, 697, 704, 838 variances see variances standards appropriateness 674–5 attainable 675, 834 ideal 675, 836 motivation and 675 of performance, budgeting and 656 see also accounting standards; performance: measurement and evaluation statements of capital and initial shareholdings 62 statements of cash flows 170, 261 definitions 262 examples 264–5 financing activities 263–4 foreign subsidiary cash flows 264 investing activities 263 operating activities 262–3 standard headings 261–2 statements of changes in equity 170, 171–2, 217–18, 375 statements of comprehensive income 170, 215–17, 375 statements of financial position 170, 171, 225, 838 acquisitions 107–8, 110, 111–14 bonus shares 149–51 branches 13, 15–16 calls in advance or arrear and 75–6 consolidated see consolidated financial statements contents 225–6 current cost 488 disclosures 226–7 hire purchase and 33–5 historical costs 573 illustrations 245–51 layout for internal use 228–9 medium-sized companies and 232 notes accompanying 241–51 854 Z04_WOOD4664_13_SE_IDX.indd 854 17/07/15 5:35 pm Index own shares, redemption of purchase 89 share discounts 68–9 share premiums 68 small companies and 232 statements of profit or loss 170, 207–8 formats 210–15 groups 281 historical costs 573 illustrations 245–51 for internal use 211–13 items to be presented on face of 211 medium-sized companies and 232 for publication 213–14 small companies and 232 Statements of Recommended Practice (SORP) CIPFA/LASAAC Code of Practice on Local Authority Accounting 530–1 Statements of Standard Accounting Practice (SSAP) 161 SSAP Accounting for changes in the purchasing power of money 483 SSAP 13 Accounting for research and development 161 SSAP 16 Current cost accounting 484 SSAP 25 Segmental reporting 161 statistical summaries 510 stewardship 208, 521–2, 528, 536 stock, trading see inventory stocks (shares) convertible loan 98 markets, theories relating to 462, 464 see also shares stock exchanges 64, 162 stockbrokers 208 strategic management systems 753 Strategic Reports 242, 508, 511, 518 strategy 750–1 balanced scorecard 754–5 see also objectives; planning strong form efficient market hypothesis 464 structured entities 389–90, 838 study technique xii–xix, 446 see also examinations subjectivity 491 subsidiaries 280–1, 283, 838 held for sale 388 investing companies without 392–3 partially owned 298–300, 326 piecemeal acquisition 335–7 reserves 294–8, 375 separate financial statements 385–8 statements of profit or loss 371–4 of subsidiaries 361–6 see also consolidated financial statements; groups subsidiary companies 838 substance over form 165, 166, 409 success 754 summary financial statements 232 sunk costs 740, 838 suppliers 208, 506, 548 supply chain management 547–50, 552, 838 supply chains 838 sustainability 507, 516, 518 tables annuities 405–7, 759–60 compound interest 403, 757 present value 733, 758 takeovers see acquisitions tax assets and liabilities, fair values 355 taxation 125 capital allowances see capital allowances capital projects 738–9 cash flows and 739 changing price levels and 485 checks concerning 414 corporation tax see corporation tax current 175 deferred 130–6, 175, 835 financial statements 244 income tax see income tax international issues with e-commerce 559 leases 408 value added tax 125 taxpayers 209 TBL see triple bottom line teaching methods consolidated accounts 283–4 temporary control 386 Tesco 444 theories accounting method choice 462, 463–4 accounting practice 462, 473–89 accounting-related choice 461–71 companies, relating to 462, 464 decision-making 461–71 individual decision-making, relating to 463, 469–71 individuals, relating to 463, 468 positive accounting 462–3 regulation, relating to 463, 467–8 relationships between organisations and stakeholders 463, 465–7 relationships between two parties 462, 464–5 stock markets, relating to 462, 464 time comparisons over 438–9 in examinations, management of xv–xvi, xviii–xix lead, 752 real, assurance 560 timeliness 165, 166 timing differences 130–3 Tools and Techniques for Implementing Integrated Supply Chain Management (American Institute of Management Accountants) 550 total costs 575, 715–25 trade, online see e-commerce trade unions 208, 506, 689 trading accounts branches 5, 6–9 see also statements of profit or loss trading organisations, costing 572–3 transit, items in 13–16 trend analysis 437–8 trial balances, branch accounts 16, 18 triple bottom line (TBL) 507, 508, 510, 518 true and fair view 165, 228 trusts, NHS 532–3 855 Z04_WOOD4664_13_SE_IDX.indd 855 17/07/15 5:35 pm Index Turnbull Report on Internal Control 523 turnover assets 422 inventory 422 long-term contracts 51, 52 UITF (Urgent Issues Task Force) 161 UK Corporate Governance Code 521–5 UK GAAP 161, 162, 387 UK Stewardship Code 521–2 uncertainty 742 see also estimates uncontrollable losses 618 underabsorption 618–19, 697 underdeveloped countries 509 understandability 164, 166 undersubscribed shares 70 unincorporated businesses 281 see also partnerships; sole proprietors units costs 577, 674 equivalent 616 of service 478 unlimited companies 60 unrealised profits or losses see losses; profits Urgent Issues Task Force (UITF) 161 usage variances 681–5 Use of Discounting in Financial Statements, The (ICAEW) 743 useful lives 176, 188 user groups 208–10, 474, 506, 510 validity 166 valuation alternatives 476–80 current value accounting 491–2 turnover, long-term contracts 51, 52 see also costing; inventories; revaluation; values value added tax (VAT) 125 values acquisitions 106–7 book 289 bonus shares and 150 to the business see deprival below confirmatory 166 current 490–505 deprival 479–80, 491–2 entity-specific 176 of environmental actions 508 fair see fair values historical 478, 490–505 market 151–2 meaning 475–6 predictive 166 residual 176 rights issues 151–2 of social actions 508 see also net realisable values; present values; valuation variable costs 586, 596–8, 702, 715–16, 722, 723–4 variances 657, 674, 838 adverse see adverse variances analysis 678, 679, 684–5, 689, 698–700, 838 assessing 700–1 capacity 702, 704 efficiency 687–9, 698, 702, 704 example 703–4 expenditure 698–9, 702, 704 favourable see favourable variances formulae 701–3 labour 686–9 materials 679–85, 689 mix 705–8 overhead recovery 697–705 price 679–80, 682–4 sales 705–8 usage 681–5 volume see volume variances VAT (value added tax) 125 vertical groups 361–6 vision 751, 754 see also strategy volume variances 698, 699–700, 702, 705–8 voluntary disclosures 466, 467 wages see pay weak form efficient market hypothesis 464 websites quoted company publication of financial statements 233 wealth 475, 480 Whole of Government Accounts (WGA) 529 wholesaling organisations, costing 578 work certified 48, 51–2, 838 work in progress, fair values 354 working capital 143, 425–6, 486, 497–8 World Wide Web 750 see also Internet WorldCom 444 Xerox 444 856 Z04_WOOD4664_13_SE_IDX.indd 856 17/07/15 5:35 pm Z04_WOOD4664_13_SE_IDX.indd 857 17/07/15 5:35 pm Z04_WOOD4664_13_SE_IDX.indd 858 17/07/15 5:35 pm ... 1,600 8,000 9,600 2, 000 7,600 7,600 £ 1 ,20 0 6,000 7 ,20 0 1,500 5,700 1, 728 7, 428 Sales Deficiency (difference) Gross profit b/d At selling price £ 7, 428 1 72 £ 7, 428 7,600 7, 428 1, 728 Exhibit 1.1.. .FRANK WOOD’S BUSINESS ACCOUNTING A01_WOOD5050_13_SE_FM.indd 17/07/15 4:43 pm Frank Wood 1 926 20 00 A01_WOOD5050_13_SE_FM.indd 17/07/15 4:43 pm FRANK WOOD’S BUSINESS ACCOUNTING THIRTEENTH... for the content of third-party internet sites ISBN: 978-1 -29 2-08505-0 (print) 978-1 -29 2-08510-4 (PDF) 978-1 -29 2-08507-4 (eText) 978-1 -29 2-08508-1 (ePub) British Library Cataloguing-in-Publication