Exam (elaborations)

ACCN3 ACCOUNTING REVISION NOTES - PREPARING FOR EXAM - FROM A* STUDENT

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Course
A2 Unit 3 ACCN3 - Further Aspects of Financial Accounting

Institution
AQA

This is the full summary of all relevant theories/ questions from past papers and notebooks. I got A* for ACCN1, 2, 3, 4 and my classmates fully understand these too. I tried to shorten the summary as much as possible so you have the most focused information you need for the AQA exams. Informat...

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Uploaded on September 14, 2021
Number of pages 8
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Type Exam (elaborations)
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accn
accn1
accn2
accn3
accn4
accounting
aqa
a levels
alvl
alevels
sixthform
6thform

Institution
AQA
Course
A2 Unit 3 ACCN3 - Further Aspects of Financial Accounting

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A2 ACCOUNTING - A-LEVELS - REVISIONS NOTES FOR EXAM

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1. Exam (elaborations) - Accn3 accounting revision notes - preparing for exam - from a* student
2. Exam (elaborations) - Accn4 accounting - revision notes for exam - from a* student
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A. Inventory valuation:
AVCO (Average Cost) FIFO (First in First out)
𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 - values inventory on the assumption that the oldest items of
Weighted average cost =
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑖𝑡𝑒𝑚𝑠
stock are issued before the most recent items of stock
- issues stock from a total quantity
- values inventory at actual cost prices paid to purchase the
- uses an average price
stock
- More complicated AVCO calculations
- easier method to calculate than AVCO because it doesn’t
could lead to errors
require the calculation of average costs after each receipt
of inventory
To change method would be against the concept of consistency and IAS 8 unless it leads to a more true and
fair view and lead to a loss of comparability. FIFO shows a higher profit in the short term where prices are
rising and higher inventory valuation which is against the concept of prudence so it is not as likely to show a
more true and fair view. In the longer term changing methods of inventory valuation will have no effect on
profits. A change of method would be time consuming because the inventory would need to be re-valued in
the previous financial statements.

B. Source of finance:
Factors when applying for finance: purpose, amount, repayment, interest, security
Effects on cash flow and profits
From owners Capital from savings or loans from members of the family who want to help and
possibly receive some return on their investment
From profit After the initial investment has been made they cannot always be relied upon to
provide money when it is required: the owner may not have any further cash to spare
and the business may be making a loss
Limited company Dividends = (number of shares) x (price of 1 share issued) x %
ordinary shares  Permanent capital
 Directors have the choice not to pay dividends if the profits are insufficient to
warrant non-payment or they may wish to pay less than the current rate ->
affect retained earnings and cash flow
Expansion (E)  Keep ownership in the hand of shareholders unless a significant number of
Purchase of fixed existing shareholders sell their rights to the shares
assets (P)  Risk of non-payment dividends (to shareholders)
 Variable dividends -> lower risk, lower gearing
 Voting rights at AGM -> decision making -> dilute the ownership, control
 Start-up: Potential shareholder investors may not be found as the projected
profits are expected to be low for the first year of trading
 Private company: limited investors (friends, family)
Limited company No loss of control because no voting rights. Fixed dividend allows the business to plan
preference shares and forecast more accurately
Bank overdraft Short term. Fund cash flow problems, not to provide long term investment. Current
liability -> decrease current, acid test ratio -> liquidity base. Payable interest ->
decrease profits, only paid on balance outstanding -> fluctuate accordingly.
Arrangement fee – hidden expense. Possible constraint.
Bank mortgage A mortgage could be negotiated with, for example, a bank or building society.
However, this would only apply to the purchase of additional non-current assets in
the form of land and buildings. The mortgage would usually be repaid over a long
period of time such as a 25 year duration and so would represent a non-current
EP liability to the business. The property itself would provide the collateral in case of
loan default. Interest would again be paid at a fixed, variable or tracker rate and
would reduce profits. Interest rates would tend to be lower than for a bank loan. The
mortgage would again increase gearing and risk in the same way as a loan
arrangement.
Bank loan Repayments are made on a regular basis which assists with financial planning.
Security in the form of assets is required as collateral to safeguard against potential
EP default. Interest is payable at either a fixed or variable rate which reduces profit for
the business. An arrangement fee could also be charged. The loan would increase the
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, liability structure of the business which is less desirable. A business plan will need to
be produced when making a loan application.
Debenture  Substantial amount, not appropriate for working capital needs
 Fixed interest – expensive long term commitment, but interest payable will
reduce in real terms over the years
 Increase gearing and the risk of borrowing
 The business would be inappropriately matching a short term asset with a
P long term liability
 The bank may not advance a debenture loan due to cash flow problems with
the business
 Risk of non-payment of interest until repayment
 Have to pay interest even when making no profits
 Usually plc, less common for ltd
New partner This partner would have to invest a capital lump sum which would increase the long
term funding for the business, increase cash flow and worth of business. This new
partner could possibly provide new skills to the business. This would give the business
the potential to specialise and so increase future revenue earning potential. However,
the new partner would have to share the profits this could include a combination of
having a salary and being paid interest on capital. Also, the partner could take
drawings which would impact on the cash flow of the business. A partnership
agreement would need to be created but despite this, disagreements could still occur
about how the business should be managed.
Shared workload/ increase duty cover for partnership during holiday, illness/
decrease risk of unlimited liability since liability for debts is joint and several
Business angels, They would invest a lump sum of cash to the business. In return they would have a
venture capitalist stake in the business or a percentage of the ownership. They would be able to take a
share of the future profits. They would be able to support in the running of the
E business and so share their expertise and management skills. They may also be able
to provide some useful business connections such as potential customers or suppliers
C. Partnership: Cases: new partner, partner retire, new ratio, dissolution
Garner v. Murray: if partner cannot pay what they owe, the remaining partners share/pay in the ratio of
their capital account on their last balance sheet.
Dissolution: No bal c/d, b/d at end . Bal c/d = bank (capital account)
New ratio: Careful with share of profit if new ratio
No partnership agreements: interest loan 5%, no interest on drawings and capital, share equally
Note: P – current account : (x) . P should have cr bal £1 on cur acc -> Capital account : Dr: P X+1
Current account Capital account
Share of loss Bal b/d Bal b/d (negative) Bal b/d (positive)
Drawings/goods for Share of profit Revaluation (credit) Goodwill OLD
own use (Profit+ interest on Goodwill NEW Revaluation (debit)
Interest on drawings drawings – interest Realisation account(vehicle, …) Bank OF
Bal c/d on capital – salary) Loan retired person pays Dissolution- pay debts: A
Salary/commission NCA retired person took B
Interest on capital Loan Current account: disso
Loan interest Current account (loan) Capital (dissolution)
Dissolution-pay debts: A B (capital -current -loan)
Dissolution loss
Bank OF

Revaluation account Goodwill
(Decrease) (provision) x (Increase) (provision) xx Capital accounts: Capital accounts:
Capital accounts: Old ratio New ratio
(old ratio/ old partners)
A = (XX – X) x ratio x x
B = (XX-X) x ratio
2

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Exam (elaborations)

ACCN3 ACCOUNTING REVISION NOTES - PREPARING FOR EXAM - FROM A* STUDENT

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