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Summary AAT Level 4 - Financial Statements for Limited Companies (FSLC)
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Summary notes for AAT Level 4's exam: Financial Statements for Limited Companies (FSLC) Clear and condensed notes covering each aspect of the exam which were used to pass first time.

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Document information

  • August 13, 2023
  • 39
  • 2021/2022
  • Summary

Subjects

  • fslc
  • aat
  • level 4
  • limited companies
  • gaap
  • ethical frameworks
  • sofp
  • financial position
  • financial performance
  • sopl
  • cash flow
  • socf
  • ppe
  • ias 16
  • intangible assets
  • tangible assets
  • accounting standards
  • group acc

Written for

  • AAT
  • AAT
  • AAT
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FSLC‌‌-‌‌Financial‌‌Statements‌‌for‌‌Limited‌‌Companies‌




FSLC‌‌-‌‌Financial‌‌Statements‌‌of‌‌Limited‌‌Companies‌ ‌
Chapter‌‌1‌‌-‌‌Introduction‌‌Limited‌‌Companies‌ 3‌ ‌
Uses‌‌of‌‌Financial‌‌Statements‌ 3‌ ‌
Not-for-profit‌‌Organisations‌ 3‌ ‌
Profit-making‌‌Organisations‌ 3‌ ‌
Incorporated‌‌Entities‌ 4‌ ‌
Profit‌‌or‌‌Loss‌ 4‌ ‌
Statement‌‌of‌‌Financial‌‌Position‌ 5‌ ‌
Equity‌ 6‌ ‌
Liabilities‌ 6‌ ‌
Chapter‌‌2‌‌-‌‌The‌‌Frameworks‌‌and‌‌Ethical‌‌Principles‌ 7‌ ‌
Generally‌‌Accepted‌‌Accounting‌‌Principles‌‌(GAAP)‌ 7‌ ‌
Accounting‌‌Standards‌ 7‌ ‌
National‌‌Company‌‌Law‌ 7‌ ‌
The‌‌Conceptual‌‌Framework‌ 8‌ ‌
Financial‌‌Statement‌‌Elements‌ 9‌ ‌
Ethics‌ 10‌ ‌
AAT‌‌Code‌‌of‌‌Professional‌‌Ethics‌ 10‌ ‌
Chapter‌‌3‌‌-‌‌The‌‌Statement‌‌of‌‌Financial‌‌Position‌ 11‌ ‌
IAS‌‌1‌‌-‌‌Presentation‌‌of‌‌Financial‌‌Statements‌ 11‌ ‌
Accounting‌‌Principles‌ 11‌ ‌
Statement‌‌of‌‌Financial‌‌Position‌ 12‌ ‌
Accounting‌‌Adjustments‌ 13‌ ‌
Chapter‌‌4‌‌-‌‌The‌‌Statement‌‌of‌‌Financial‌‌Performance‌ 13‌ ‌
P&L‌‌or‌‌OCI‌ 13‌ ‌
Statement‌‌of‌‌changes‌‌in‌‌equity‌ 14‌ ‌
Notes‌‌to‌‌the‌‌Financial‌‌Statements‌ 14‌ ‌
Chapter‌‌5‌‌-‌‌The‌‌Statement‌‌of‌‌Cash‌‌Flows‌ 15‌ ‌
Indirect‌‌Method‌ 15‌ ‌
Direct‌‌Method‌ 16‌ ‌
Uses‌ 17‌ ‌
Interpreting‌‌Cash‌‌Flows‌ 17‌ ‌
Chapter‌‌6‌‌-‌‌Property,‌‌Plant,‌‌and‌‌Equipment‌ 18‌ ‌
IAS‌‌16‌‌-‌‌Property,‌‌Plant,‌‌and‌‌Equipment‌ 18‌ ‌
Initial‌‌Measurement‌ 18‌ ‌
Measurement‌‌after‌‌recognition‌ 19‌ ‌
Depreciation‌ 20‌ ‌
Derecognition‌ 20‌ ‌
Note‌‌to‌‌the‌‌financial‌‌statements‌ 20‌ ‌
Chapter‌‌7‌‌-‌‌Intangible‌‌assets‌‌and‌‌inventories‌ 20‌ ‌


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, FSLC‌‌-‌‌Financial‌‌Statements‌‌for‌‌Limited‌‌Companies‌


IAS‌‌38‌‌-‌‌Intangible‌‌Assets‌ 20‌ ‌
IAS‌‌36‌‌-‌‌Impairment‌‌of‌‌Assets‌ 22‌ ‌
IAS‌‌2‌‌-‌‌Inventories‌ 22‌ ‌
Chapter‌‌8‌‌-‌‌Further‌‌Accounting‌‌Standards‌ 23‌ ‌
IAS‌‌12‌‌-‌‌Income‌‌Taxes‌ 23‌ ‌
IFRS‌‌16‌‌-‌‌Leases‌ 24‌ ‌
IAS‌‌37‌‌-‌‌Provisions,‌‌Contingent‌‌Liabilities,‌‌and‌‌Contingent‌‌Assets‌ 25‌ ‌
IAS‌‌10‌‌-‌‌Events‌‌after‌‌the‌‌reporting‌‌period‌ 26‌ ‌
IFRS‌‌15‌‌-‌‌Revenue‌ 27‌ ‌
Chapter‌‌9‌‌-‌‌Group‌‌Accounts:‌‌Consolidation‌‌of‌‌SOFP‌ 28‌ ‌
Parent’s‌‌Separate‌‌Financial‌‌Statements‌ 28‌ ‌
Group‌‌Financial‌‌Statements‌ 28‌ ‌
Pre/Post-acquisition‌‌Reserves‌ 29‌ ‌
Goodwill‌ 29‌ ‌
Non-Controlling‌‌Interests‌‌(NCI)‌ 29‌ ‌
Intra-group‌‌Adjustments‌ 30‌ ‌
Fair‌‌Value‌‌Adjustments‌ 30‌ ‌
Chapter‌‌10‌‌-‌‌Group‌‌Accounts:‌‌Further‌‌Aspects‌ 31‌ ‌
Consolidated‌‌Statement‌‌of‌‌Profit‌‌or‌‌Loss‌ 31‌ ‌
Intra-Group‌‌Adjustments‌ 31‌ ‌
Chapter‌‌11‌‌-‌‌Interpreting‌‌Financial‌‌Statements‌‌326‌ 31‌ ‌
Purpose‌‌of‌‌Interpreting‌‌Ratios‌‌in‌‌a‌‌Business‌‌Environment‌ 31‌ ‌
Ratio‌‌Analysis‌ 32‌ ‌
Profitability‌ 33‌ ‌
Liquidity‌‌Ratios‌ 33‌ ‌
Use‌‌of‌‌Resources‌ 34‌ ‌
Financial‌‌Position‌ 35‌ ‌
Assessments‌ 35‌ ‌
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2‌ ‌

, FSLC‌‌-‌‌Financial‌‌Statements‌‌for‌‌Limited‌‌Companies‌




Chapter‌‌1‌‌-‌‌Introduction‌‌Limited‌‌Companies‌ ‌

Uses‌‌of‌‌Financial‌‌Statements‌ ‌
- Inform‌‌users‌‌of‌‌the‌‌company’s‌‌financial‌‌position‌‌(SOFP)‌ ‌
- Inform‌‌users‌‌of‌‌the‌‌company’s‌‌performance‌‌(SPL)‌ ‌
- Inform‌‌users‌‌of‌‌changes‌‌in‌‌the‌‌company’s‌‌financial‌‌position‌‌(cash‌‌flow)‌ ‌
- Enable‌‌users‌‌to‌‌make‌‌economic‌‌decisions,‌‌e.g‌‌investing‌ ‌
- To‌‌assess‌‌management‌‌stewardship‌ ‌
- Stewardship‌‌=‌‌the‌‌accountability‌‌of‌‌management‌‌for‌‌the‌‌resources‌‌entrusted‌‌
to‌‌them‌‌by‌‌the‌‌owners‌‌of‌‌the‌‌entity‌ ‌

Not-for-profit‌‌Organisations‌ ‌
- Types‌ ‌
- Charities,‌‌clubs‌‌and‌‌societies‌‌=‌‌owned‌‌by‌‌member‌‌or‌‌trustees,‌‌created‌‌for‌‌a‌‌
specific‌‌non-commercial‌‌purpose‌ ‌
- Public‌‌Sector‌‌Organisations‌‌=‌‌owned‌‌by‌‌the‌‌general‌‌public‌ ‌
- Chief‌‌Characteristics‌ ‌
- Quality‌‌is‌‌more‌‌important‌‌than‌‌profit‌‌ ‌
- Efficiency‌‌of‌‌resources‌‌is‌‌important‌ ‌
- Focus‌‌is‌‌on‌‌small‌‌profits‌‌or‌‌breakeven‌ ‌
- Need‌‌to‌‌satisfy‌‌a‌‌lot‌‌of‌‌stakeholders‌ ‌
- Compare‌‌performance‌‌against‌‌budgets‌ ‌
- Use‌‌Key‌‌Performance‌‌Indicators‌‌(KPIs)‌ ‌
- Length‌‌of‌‌waiting‌‌lists‌ ‌
- Amount‌‌of‌‌aid‌‌provided‌ ‌
- Amount‌‌of‌‌donations‌‌spent‌‌on‌‌aid‌ ‌
- The‌‌Three‌‌E’s‌ ‌
- Economy‌‌=‌‌business‌‌conducted‌‌with‌‌the‌‌least‌‌expenditure‌‌of‌‌money,‌‌
manpower‌‌or‌‌other‌‌resources‌ ‌
- Efficiency‌‌=‌‌resources‌‌are‌‌used‌‌in‌‌the‌‌most‌‌advantageous‌‌way‌ ‌
- Effectiveness‌‌=‌‌policy‌‌objectives‌‌or‌‌other‌‌intended‌‌effects‌‌are‌‌achieve‌ ‌

Profit-making‌‌Organisations‌ ‌
- Types‌ ‌
- Sole-traders‌‌=‌‌owned‌‌and‌‌managed‌‌by‌‌one‌‌person‌ ‌
- Partnerships‌‌=‌‌owned‌‌and‌‌managed‌‌by‌‌two‌‌or‌‌more‌‌people‌ ‌
- Companies‌‌=‌‌a‌‌separate‌‌legal‌‌entity‌‌from‌‌its‌‌owners‌ ‌
- See‌‌previous‌‌exam‌‌notes‌‌for‌‌more‌‌information‌‌on‌‌sole-traders‌‌and‌‌partnerships‌ ‌
- Unincorporated‌‌=‌‌no‌‌legal‌‌distinction‌‌between‌‌the‌‌business‌‌and‌‌its‌‌owners‌ ‌
- The‌‌owners‌‌have‌‌unlimited‌‌liability‌ ‌
- Tax‌‌does‌‌not‌‌appear‌‌in‌‌the‌‌accounts‌‌as‌‌owners‌‌are‌‌taxed‌‌personally‌ ‌




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, FSLC‌‌-‌‌Financial‌‌Statements‌‌for‌‌Limited‌‌Companies‌



Incorporated‌‌Entities‌ ‌
- Incorporated‌‌=‌‌legal‌‌distinction‌‌between‌‌the‌‌business‌‌and‌‌its‌‌owners‌ ‌
- Enter‌‌into‌‌contracts,‌‌acquire‌‌assets‌‌and‌‌incur‌‌liabilities‌‌in‌‌its‌‌own‌‌right‌ ‌
- Owners‌‌have‌‌limited‌‌liability‌‌=‌‌can‌‌only‌‌lose‌‌the‌‌amount‌‌they‌‌invested‌ ‌
- The‌‌owners‌‌are‌‌called‌‌shareholders‌ ‌
- Types‌‌ ‌
- Public‌‌Limited‌‌Companies‌‌=‌‌may‌‌raise‌‌capital‌‌from‌‌the‌‌public‌ ‌
- Private‌‌Limited‌‌Companies‌‌=‌‌can’t‌‌invite‌‌the‌‌general‌‌public‌‌to‌‌invest‌ ‌
- Advantages‌‌ ‌
- Limited‌‌liability‌ ‌
- Easier‌‌to‌‌raise‌‌finance,‌‌more‌‌shareholders‌‌and‌‌less‌‌risky‌‌so‌‌more‌‌attractive‌ ‌
- Continues‌‌to‌‌operate‌‌even‌‌if‌‌ownership‌‌changes‌ ‌
- Taxed‌‌as‌‌separate‌‌entity,‌‌its‌‌shown‌‌in‌‌the‌‌accounts‌ ‌
- People‌ ‌
- Shareholders‌‌=‌‌classed‌‌as‌‌the‌‌owners‌‌when‌‌they‌‌invest‌‌in‌‌the‌‌business‌ ‌
- Stakeholders‌‌=‌‌those‌‌who‌‌have‌‌an‌‌interest‌‌in‌‌the‌‌business‌ ‌
- Directors‌‌=‌‌appointed‌‌to‌‌manage‌‌a‌‌company‌‌on‌‌behalf‌‌of‌‌the‌‌owners‌ ‌
- Financial‌‌Statements‌‌enable‌‌shareholders‌‌to‌‌assess‌‌the‌‌way‌‌in‌‌which‌‌the‌‌directors‌‌
are‌‌safeguarding‌‌the‌‌assets‌ ‌

Profit‌‌or‌‌Loss‌ ‌

‌ 20X2‌ ‌ 20X1‌ ‌

Revenue‌ ‌ X‌ ‌ X‌ ‌

Cost‌‌of‌‌Sales‌ ‌ (X)‌ ‌ (X)‌ ‌

Gross‌‌Profit‌ ‌ X‌ ‌ X‌ ‌

Distribution‌‌Costs‌ ‌ (X)‌ ‌ (X)‌ ‌

Administrative‌‌Expenses‌ ‌ (X)‌ ‌ (X)‌ ‌

Profit‌‌from‌‌Operations‌ ‌ X‌ ‌ X‌ ‌

Finance‌‌Costs‌ ‌ (X)‌ ‌ (X)‌ ‌

Profit‌‌Before‌‌Tax‌ ‌ X‌ ‌ X‌ ‌

Tax‌ ‌ (X)‌ ‌ (X)‌ ‌

Profit‌‌for‌‌the‌‌year‌ ‌ X‌ ‌ X‌ ‌


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