Teacher Resource Bank
GCE Accounting
Other Guidance:
• ACCN2 Update on IAS
• ACCN3 Updates on IAS
(July 2012)
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Teacher Resource Bank / GCE Accounting / Other Guidance: ACCN2 Update on IAS / Version 1.2
AQA GCE Accounting specification 2120
Support for Teachers - ACCN2 and ACCN3 update on IAS
The revised Accounting specification introduced in 2007 saw the introduction of International
Accounting Standards in A2 unit ACCN3. Included in these is IAS 1 which specifies the
presentation of accounts and introduced new terminology, together with a different treatment
of proposed dividends. At the time these standards applied only to the published accounts
of publicly quoted companies and as a result were included in unit ACCN3. However, it has
become clear that many other businesses are adopting this approach and so it is felt that to
make the specification as relevant to practice as possible then this presentation should be
introduced for the AS in unit ACCN2.
The details of the changes to the presentation of limited company accounts are as follows:
Current
New
Trading and profit and loss account
Income statement
Profit and loss appropriation account
There is no appropriation account – this is
partly replaced by the statement of changes
in equity.
Proposed dividends
Only dividends that have been approved are
included in the accounts – therefore
proposed dividends are no longer shown.
Balance sheet
Balance sheet is similar but with ‘new’
terminology
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Teacher Resource Bank / GCE Accounting / Other Guidance: ACCN2 Update on IAS / Version 1.2
ACCN2:
Examples of internal limited company financial
statements
Presentation of internal financial statements of limited companies.
Candidates can be expected to be familiar with and be able to prepare:
• income statements
• statements of changes in equity
• balance sheets.
Whenever a candidate is required to prepare one of these statements they should always
provide a title. A correct title may be rewarded with Quality of Presentation marks. This will
include the business name, the title of the financial statement and the date without any
abbreviations.
Income statement
Below is a suggested layout for an income statement for a limited company. Please note
that the names of expenses and information provided could differ. Candidates could be
provided with the gross profit and asked to prepare the remainder of the income statement.
Candidates should include the following headings as they can be rewarded with quality of
presentation marks:
• cost of sales
• gross profit
• profit from operations
• profit for the year before tax
• profit for the year after tax.
The suggested layouts show the use of brackets for negative items. This is optional.
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Teacher Resource Bank / GCE Accounting / Other Guidance: ACCN2 Update on IAS / Version 1.2
Example Ltd
Income statement for the year ended 30 November 2011
£
Revenue
£
750 864
Opening inventory
40 500
Purchases
507 850
548 350
Closing inventory
(50 450)
Cost of sales
(497 900)
Gross profit
252 964
Other income
Rent receivable
20 125
Discount received
2 852
22 977
275 941
Expenses
Wages
68 652
Insurance
2 685
Rates
1 782
Electricity
2 508
Accountancy and audit
10 389
Increase in provision for doubtful debts
846
Directors’ remuneration
33 800
Depreciation
12 560
(133 222)
Profit from operations
142 719
Interest (finance costs)*
(1 200)
Profit for the year before tax
141 519
Taxation (income taxes)*
(24 000)
Profit for the year after tax
117 519
*Finance costs and income taxes are the international terms; if they are used in ACCN2 then
they will be as shown, together with the traditional term.
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Teacher Resource Bank / GCE Accounting / Other Guidance: ACCN2 Update on IAS / Version 1.2
Balance sheet
Candidates will be expected to include the following headings to gain quality of presentation
marks:
• non-current assets
• current assets
• current liabilities
• net current assets or net current liabilities
• non-current liabilities
Example Ltd
Balance Sheet (Statement of financial position) at 30 September 2011
£
Non-current assets
Cost or
Valuation
Premises
£
£
Depreciation
to date
Net Book
Value
250 000
70 000
180 000
Fittings
46 863
28 991
17 872
Motor vehicles
26 856
13 428
13 428
323 719
112 419
211 300
Current assets
Inventory
50 450
Trade receivables
25 660
Less provision for doubtful debts
(1 660)
Prepayments
24 000
3 250
Cash and cash equivalents
10 265
87 965
Current liabilities
Trade payables (Creditors)
18 650
Accruals
4 250
Taxation
24 000
(46 900)
Net current assets
41 065
252 365
Non-current liabilities
6% Debentures (2025-27)
(20 000)
NET ASSETS
232 365
Equity
Ordinary shares of £1 each
50 000
Share premium account
15 000
Revaluation reserve
30 000
Retained earnings
137 365
232 365
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Teacher Resource Bank / GCE Accounting / Other Guidance: ACCN2 Update on IAS / Version 1.2
Statement of changes in equity
The statement of changes in equity connects the opening and closing balance sheets and
shows what has happened to the equity section of the balance sheet during the year.
Example Ltd
Statement of Changes in Equity for the year ended 30 November 2011
Ordinary
shares
£
Share
premium
£
Revaluation
reserve
£
At 1 December 2010
30 000
5 000
30 000
Shares issued
20 000
10 000
Retained
earnings
£
25 323
Total
£
90 323
30 000
Profit for the year
117 939
117 939
Equity dividends
(5 897)
(5 897)
137 365
232 365
At 30 November 2011
50 000
15 000
30 000
The example given is a full statement of the changes in equity. Candidates could be asked
to prepare this or an extract, eg just showing the changes in retained earnings.
In the statement shown above, the company has made a share issue during the year at a
premium. The nominal value of the share issue is shown in the ordinary shares column and
the premium in the share premium column. The company has also made a profit of
£117 939 and paid dividends of £5897.
Please note:
(1) Only equity dividends actually paid during the accounting period are included in the
statement of changes in equity. This means that any proposed final dividend for the
year in question is not recorded and thus does not appear as a current liability on the
balance sheet. In practice, any proposed dividend would be shown as a note to the
financial statements. However, notes to financial statements will not be examined in
ACCN2.
(2)
Preference share dividends paid are recorded as part of finance costs in the income
statement. They should not be recorded in the statement of changes in equity.
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Teacher Resource Bank / GCE Accounting / Other Guidance: ACCN3 Update on IAS / Version 1.2
ACCN3:
Example financial statements for Public Limited
Companies
Candidates are not required to prepare financial statements for public companies suitable for
publication. However, they will need to interpret and use them, for example when preparing
statements of cash flows.
Candidates should be familiar with the annual reports of public companies and thus will be
aware of the variety of acceptable layouts. In the examination we will use the layouts from
ACCN2 or the summarised layout shown below.
Example plc
Income statement for the year ended 30 November 2011
£m
Revenue
60 931
Cost of Sales
(55 871)
Gross profit
5 060
Distribution costs
(480)
Administrative expenses
(1 196)
Profit from operations
3 384
Finance income
150
Finance costs
(483)
Profit before tax
3 051
Taxation
(162)
Profit for the year
2 889
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Teacher Resource Bank / GCE Accounting / Other Guidance: ACCN3 Update on IAS / Version 1.2
Example plc
Balance sheet
(Statement of financial position) at 30 November 2011
2011
£m
2010
£m
40 748
33 986
5 954
3 895
85
9 934
5 556
4 778
685
11 019
Total assets
50 682
45 005
Equity and liabilities
Equity
Share capital
Share premium
Revaluation reserve
Retained earnings
Total equity
25 000
3 000
2 500
7 614
38 114
20 000
1 500
2 500
5 525
29 525
6 000
10 000
5 888
680
6 568
4 880
600
5 480
Total liabilities
12 568
15 480
Total equity and liabilities
50 682
45 005
Non-current assets
Property, plant and equipment
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Non-current liabilities
Mortgage
Current liabilities
Trade and other payables
Tax payable
Total current liabilities
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Teacher Resource Bank / GCE Accounting / Other Guidance: ACCN3 Update on IAS / Version 1.2
A note to the accounts referring to property, plant and equipment may also be given, for
example
Property, plant and equipment
Cost
£m
At 1 December 2010
48 654
Additions
14 660
Disposals
(10 564)
At 30 November 2011
52 750
Depreciation
At 1 December 2010
14 668
Charge for the year
5 886
Disposals
(8 552)
At 30 November 2011
12 002
Net book value
At 1 December 2010
33 986
At 30 November 2011
40 748
You should be familiar with the statement of changes in equity from ACCN2.
Example plc
Statement of changes in equity for the year ended 30 November 2011
Issued share
capital
At 1 December 2010
Issue of shares
Share
premium
account
Revaluation
reserve
Retained
earnings
Total
£m
£m
£m
£m
£m
20 000
1 500
2 500
5 525
29 525
5 000
1 500
6 500
Profit for the year
2 889
2 889
Equity dividends paid in year
( 800)
( 800)
7 614
38 114
At 30 November 2011
25 000
3 000
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2 500
Teacher Resource Bank / GCE Accounting / Other Guidance: ACCN3 Update on IAS / Version 1.2
Example plc
Statement of cash flows for the year ended 30 November 2011
£m
£m
Profit from operations
3 384
Depreciation
5 886
Increase in inventories
(398)
Decrease in trade
receivables
883
Increase in trade payables
1 008
Cash from operations
10 763
Interest paid
(483)
Tax paid
(82)
Net cash from operations
10 198
Cash flows from investing activities
Purchase of non-current assets
(14 660)
Proceeds from sale of non-current assets
2 162
Net cash used in investing activities
(12 498)
Cash flow from financing activities
Proceeds from issue of share capital
6 500
Repayment of long term borrowings
(4 000)
Dividends paid
(800)
Net cash from financing activities
1 700
Net decrease in cash and cash equivalents
(600)
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
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685
85
Teacher Resource Bank / GCE Accounting / Other Guidance: ACCN3 Update on IAS / Version 1.2
The introduction of the revised IAS terminology (see Teacher Resource Bank - IAS
Terminology) affects the ratio analysis section of the specification.
There is no change to the gross profit margin and mark-up; return on capital employed; net
current asset ratio (current ratio); liquid capital (acid test ratio); gearing.
The ratios affected are:
Current terminology
New IAS terminology
Rate of stock turnover
Rate of inventory turnover
Overheads in relation to turnover
Overheads in relation to revenue
Net profit in relation to turnover (net profit
margin)
Profit in relation to revenue
Debtor collection period
Receivable days
Creditor payment period
Payable days
Note: this ratio can be calculated using profit
for the year or operating profit: either will be
rewarded provided the correct formula is
given.
It is anticipated that the use of new terminology and the presentation of accounts will also
apply to any questions set on sole trader accounts and cash budgets. However, candidates
using the traditional approach and terminology in these questions will be rewarded.
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