13 Study Period 7 continued Were you awake? If you've been concentrating, you should be able to answer some key questions. What is a trial balance? Why does a trial balance balance? What type of errors are disclosed by a trial balance? What items go into the capital account? Any problems? Email (accaqueries @bpp.com) fax (020 8740 2293) or phone us (020 8740 2242/2245) Learning Resource Centre What do you want to do? How to do it! Reference Test your knowledge BPP i-Pass * Session 2: Double entry, assets and liabilities Session 7: Incomplete records and sales tax Learn interactively BPP i-Learn/BPP Virtual Campus Module 3 and 10 (VAT) Improve your study skills BPP's Learning to Learn Accountancy book * * Included within your Home Study course If you want any of these products, visit: www.bpp.com/acca Common Pitfall • Understating the importance of this chapter – it is essential reading 14 Study Period 8 The cost of goods sold, accruals and prepayments Priority = High Date due: Exam Guidance Adjustments to the trial balance for items such as inventory, accruals and prepayments feature regularly in accounts preparation questions. Guidance through the Study Text These topics are covered in Chapter 11 The cost of goods sold, accruals and prepayments. Section Approach Essential points 1 Cost of goods sold Work through carefully. Adjustments for closing inventory 2 Accruals and prepayments Pay particular attention to this , as it features in every exam. Accruals are expenses not yet paid for and so are a liability in the balance sheet Prepayments are expenses paid for a future trading period and so are an asset in the balance sheet Try Question 14 in the Exam Question Bank of your Study Text Exam focus point There are usually a number of MCQs on accruals and prepayments. 15 Study Period 8 continued Were you awake? If you've been concentrating, you should be able to answer some key questions. Inventory adjustment, accruals and prepayments are examples of which concept? Define an accrual. What is the double entry for prepayments? How do you calculate the cost of goods sold, including adjustments for opening and closing inventory? Any problems? Email (accaqueries @bpp.com) fax (020 8740 2293) or phone us (020 8740 2242/2245) Learning Resource Centre What do you want to do? How to do it! Reference Test your knowledge BPP i-Pass * Session 3: Balance sheet provisions Learn interactively BPP i-Learn/BPP Virtual Campus Module 4 Part 1 Improve your study skills BPP's Learning to Learn Accountancy book * * Included within your Home Study course If you want any of these products, visit: www.bpp.com/acca Common Pitfalls • Ignoring accruals and prepayments because the concepts are difficult – learn them now rather than later • Using the date of payment to calculate usage, it is the period to which the invoice relates that is important 16 Study Period 9 Bad debts and allowances Priority = High Examined: 6/05 Date due: Exam Guidance These topics are unlikely to be the basis for an entire question. However, they could be examined in control accounts (Study Period 14) or preparation of final accounts. Guidance through the Study Text These topics are covered in Chapter 12 Bad debts and provisions. Section Approach Essential points 1 Bad debts Pay particular attention to this, as it is normally examined. Definition of a bad debt 2 Allowances for doubtful debts Read through this very carefully. How to calculate the increase or decrease in a general allowance 3 Accounting for bad and doubtful debts Work through this carefully. Make sure you know the accounting treatments. Try Question 16 in the Exam Question Bank of your Study Text Exam focus point Calculating the movement on the allowance for receivables account is a popular MCQ, which featured in the June 2005 exam. Note that ACCA no longer refer to ‘doubtful debts’. The balance sheet account is now referred to as the “allowance for receivables”. 17 Study Period 9 continued Were you awake? If you've been concentrating, you should be able to answer some key questions. What is a bad debt? How do you account for a recovery of a debt previously written off as bad? What is the accounting treatment of a decrease in a general allowance for receivables? How do you account for a specific allowance for receivables? Any problems? Email (accaqueries @bpp.com) fax (020 8740 2293) or phone us (020 8740 2242/2245) Learning Resource Centre What do you want to do? How to do it! Reference Test your knowledge BPP i-Pass * Session 3: Balance sheet provisions Learn interactively BPP i-Learn/BPP Virtual Campus Module 4 Part 2 Improve your study skills BPP's Learning to Learn Accountancy book * * Included within your Home Study course If you want any of these products, visit: www.bpp.com/acca Common Pitfall • Calculating the general allowance on the debtors balance before dealing with bad debts and specific allowances – the order of calculation is crucial 18 Study Period 10 Accounting for inventories Priority = High Examined: 6/05 Date due: Exam Guidance You must understand the importance of inventory valuation calculations, as well as being able to use the different methods. Guidance through the Study Text These topics are covered in Chapter 13 Accounting for inventories. Section Approach Essential points 1 Accounting for opening and closing inventories Read through carefully. Learn the accounting entries for inventory 2 Counting inventories Skim read this section. 3 Valuing inventories Pay particular attention to this. Learn the different valuation methods 4 IAS 2 Inventories Read through this carefully. Learn the rule that inventory is valued at the lower of cost and NRV Try Question 17 in the Exam Question Bank of your Study Text. Exam focus point The June 2005 paper had two MCQs on inventory. 19 Study Period 10 continued Were you awake? If you've been concentrating, you should be able to answer some key questions. What are the ledger account entries for opening and closing inventory? What is the effect of the FIFO, LIFO and weighted average methods on profit? (But remember that LIFO is no longer allowed) What is the basic concept behind IAS 2? What is the difference between continuous and period end inventory counting? Any problems? Email (accaqueries @bpp.com) fax (020 8740 2293) or phone us (020 8740 2242/2245) Learning Resource Centre What do you want to do? How to do it! Reference Test your knowledge BPP i-Pass * Session 5: Inventory valuations Learn interactively BPP i-Learn/BPP Virtual Campus Module 6 Improve your study skills BPP's Learning to Learn Accountancy book * * Included within your Home Study course If you want any of these products, visit: www.bpp.com/acca Common Pitfall • Not understanding the principles behind IAS 2 – you may be asked to discuss these 20 Study Period 11 Non-current assets and depreciation Priority = High Examined: 6/05 Date due: Exam Guidance Depreciation is a key area that can form an entire question or part of an accounts preparation question. You must know and understand the basic rules of IAS 16. Discursive questions may be set, requiring the explanation of the purpose of depreciation and the factors that need to be taken into account in assessing the amount of depreciation required each year. Guidance through the Study Text These topics are covered in Chapter 14 Non-current assets and depreciation. Section Approach Essential points 1 Depreciation accounting Work through this carefully. Definition and purpose of depreciation 2 Depreciation: the mechanics Read through very carefully. Learn the different ways of calculating depreciation 3 Revaluation of non- current assets Read this carefully. Learn how to set up the revaluation reserve 4 Non-current asset disposals Pay particular attention to this. Calculation of the profit or loss on disposal 5 IAS 16 Property, plant and equipment Skim read this section. 6 The asset register Skim read this section. 7 Preparation of final accounts for a sole trader Work through this carefully. Make sure you can reproduce the answer to Question 5 Try Question 18 in the Exam Question Bank of your Study Text Exam focus point The June 2005 exam had an MCQ on property revaluation and a balance sheet preparation question requiring adjustments to non-current assets. 21 Study Period 11 continued Were you awake? If you've been concentrating, you should be able to answer some key questions. What is the definition of non-current assets? Define depreciation. What are the accounting entries for a disposal of non-current assets? How do you calculate depreciation on the straight line basis? Any problems? Email (accaqueries @bpp.com) fax (020 8740 2293) or phone us (020 8740 2242/2245) Learning Resource Centre What do you want to do? How to do it! Reference Test your knowledge BPP i-Pass * Session 3: Balance sheet provisions Learn interactively BPP i-Learn/BPP Virtual Campus Module 4 Improve your study skills BPP's Learning to Learn Accountancy book * * Included within your Home Study course If you want any of these products, visit: www.bpp.com/acca Common Pitfalls • Deducting residual value when performing the reducing balance method of depreciation. Remember, when using reducing balance depreciation ignore the residual value and the useful life. Simply apply the depreciation % rate to the NBV. • Calculating the number of months incorrectly if an asset is acquired during the year – you may need to pro-rate depreciation charges in this case 22 Study Period 12 Progress Test 1 Priority = High Date due: In order to reinforce what you have learnt in Study Periods 1 – 11, answer the following multiple choice questions without referring to your Study Text or notes. You should then revise any areas with which you had difficulty. 1 The purpose of a balance sheet is to show: A A clear and definite estimate of what a business is really worth B The amount the business could be sold for in liquidation C The amount the business could be sold for as a going concern D The assets of the business and the claims against those assets 2 A debit entry to the sales account could represent: A Cash sales B Credit sales or the correction of an error C Bad debts written off D The correction of an error or goods returned 3 Which of the following statements is incorrect? A If the trial balance does not balance an error must have been made B The closing inventory balance is included in the trial balance C Proprietors withdrawals are shown on the trial balance D The opening inventory balance is included in the trial balance . @bpp.com) fax (020 8740 22 93) or phone us (020 8740 2242/2245) Learning Resource Centre What do you want to do? How to do it! Reference Test your knowledge BPP i-Pass * Session 3: Balance sheet provisions. @bpp.com) fax (020 8740 22 93) or phone us (020 8740 2242/2245) Learning Resource Centre What do you want to do? How to do it! Reference Test your knowledge BPP i-Pass * Session 3: Balance sheet provisions. @bpp.com) fax (020 8740 22 93) or phone us (020 8740 2242/2245) Learning Resource Centre What do you want to do? How to do it! Reference Test your knowledge BPP i-Pass * Session 3: Balance sheet provisions