F3 Financial Accounting

Exam tips

https://telegra.ph/ACCA-study-tips-F1---F4-05-25

https://t.me/finaccountingf3

🔴🔴🔴
IAS 37 (International Accounting Standard 37) addresses the accounting for provisions, contingent liabilities, and contingent assets.

Here’s a breakdown of each key component:

1. Provisions
▪️Definition: Provisions are liabilities of uncertain timing or amount, such as future legal costs or environmental cleanup obligations.
▪️Recognition Criteria: A provision should be recognized when:
✔️There is a present obligation (legal or constructive) as a result of a past event.
✔️It is probable that an outflow of resources (e.g., cash) will be required to settle the obligation.
✔️The amount of the obligation can be reliably estimated.
▪️Measurement: Provisions are measured at the best estimate of the expenditure required to settle the present obligation.

2. Contingent Liabilities
▪️Definition: Contingent liabilities are possible obligations that arise from past events and whose existence will only be confirmed by future uncertain events not wholly within the entity's control.
▪️Recognition: Contingent liabilities are not recognized in the financial statements but are disclosed if they are likely to result in an outflow of resources.
▪️Examples: Legal disputes where the outcome is uncertain.

3. Contingent Assets
▪️Definition: Contingent assets are possible assets that arise from past events, the existence of which will be confirmed only by future events not wholly within the entity's control.
▪️Recognition: Contingent assets are not recognized in the financial statements but are disclosed if an inflow of economic benefits is probable.
◾️Examples: Potential settlements from a lawsuit favoring the entity.

❗️Practical Application
🔸IAS 37 ensures that companies provide relevant information about uncertain liabilities and assets, which helps users of financial statements understand potential risks and benefits.
🔶 Provisions differ from other liabilities due to the uncertainty in timing and amount, and accurate measurement is essential for a fair representation.

🔴 IAS 37 encourages transparency in financial reporting by mandating disclosure of potential risks, making it easier for stakeholders to make informed decisions.

🛑🛑🛑

Accruals
❗️An accrued expense (or accrual) is the name we give to an amount owing for which we have not received an invoice.

For example, suppose we receive electricity bills every 3 months, at the end of March, June, September, and December. If our accounting year end occurs at the end of July, then we will owe for the electricity used in July, even though we will not receive an invoice until after the end of September.

The bookkeeper will only have entered the bills received, and it is therefore up to the accountant to make an adjustment for the amount still owed.

https://t.me/finaccountingf3

🛑 Prepayments

A prepayment is a payment in advance. For example, it is normal to pay car insurance for a whole year at the beginning of the year. If our year-end were to occur half-way through the insurance period, then we would only have actually used half of the insurance. The other half of the payment would be paid in advance, and in theory – were we to close down – would be repayable to the company. In practice, it would not be repaid because we would stay in business and use the rest of the insurance in the following period. For this reason we do not show the amount of the over- payment as an account receivable, but show it separately in the Statement of Financial Position as a prepayment.

The bookkeeper will have recorded the whole amount of the payment. However, if again we had paid for a year but only used half a year so far, then it would be wrong to show the full payment as an expense in the Statement of Profit or Loss. We will illustrate the accounting treatment for prepayments by means of an example.

❗️Biz bilan birgalikda Karyerangizni rivojlantiring!

https://t.me/finaccountingf3

🛑 The Accounting Equation
ASSETS = CAPITAL + LIABILITIES

It follows from this that:
ASSETS – LIABILITIES = CAPITAL

The term “net assets” is often used to refer to assets – liabilities, and so:
NET ASSETS = CAPITAL

Over a period of time (for example, over a year), the net assets of a business will change. Since the
above equation is true at any point in time, it also holds true that over a period of time:
INCREASE IN NET ASSETS = INCREASE IN CAPITAL

There are only three reasons why the capital of a business should change over time:
๏ More capital introduced (this will increase the capital)
๏ Profit for the period (this will increase the capital)
๏ Drawings during the period (this will reduce the capital)
Therefore, finally, over a period of time,

INCREASE IN NET ASSETS = CAPITAL INTRODUCED + PROFIT - DRAWINGS

❗️Share the link below👇

📭 https://t.me/finaccountingf3

Terminology:

๏ Asset- an economic resource controlled by the business
๏ Non-current asset- an asset the business intends to keep (longer than 12 months)
๏ Current asset- not a non-current asset (!)
๏ Inventory- an asset bought by the business intended for sale, it might be for work in progress or personal use within the company
๏ Accounts receivable- amount owed to the business by customers
๏ Prepayment- a payment made by the business in advance
๏ Capital- amount owing by the business to the proprietor (owner)
๏ Drawings (or withdrawals)- anything taken from the business by the owner
๏ Liability- amount owing by the business
๏ Current liability- a liability due within 12 months of Statement of Financial Position date
๏ Non-current liability- a liability due more than 12 months from the date of the Statement of Financial Position
๏ Accounts payable- liability due to suppliers
๏ Bank overdraft- liability due to the bank (a “negative” bank balance

Do’stlar bilan ulashing! 👇👇

https://t.me/finaccountingf3