Principles of Accounts-Scheme of work-6.pdf - Ourpgs.com

O Level Principles of Accounts (7110)Unit 6: Final Accounts – Partnerships: Limited Liability CompaniesRecommended Prior KnowledgeIt is important that students are able to prepare final accounts and balance sheets for sole traders, together with appropriate adjustments before beginning this unit.ContextThis unit covers the impact of a partnership relationship on the final accounts of a business and the impact of incorporation on businesses.OutlineThe unit serves to highlight the similarities in final accounts between different types of business as well as the differences.AO Learning outcomes Suggested Teaching activities Learning resources4.1 Candidates should be able to:• explain the advantages anddisadvantages of forming apartnershipCandidates should be able to:• outline the importance andcontents of a partnershipCompare the advantages and disadvantages of sole trader andpartnership businesses in terms of ownership, control and sourcesof finance.It can be useful to take the same information about fixed andcurrent assets and current liabilities as in the last example for a soletrader and simply show the capital accounts as being different. Thistreatment of the different type of business as a development of finalaccounts rather than something completely new will help studentsconcentrate on the new information.It is important that students understand that a partnership is abusiness in which two or more individuals have invested capital andit is the business profit as a whole that is calculated. They SHOULDNOT prepare separate columnar accounts splitting sales, purchase,expenses and so on between partners. Sharing of profits or lossestakes place after net profit is calculated.Explain what is meant by a partnership agreement and what itcontains. Explain the typical matters which will be defined in apartnership agreement covering matters such as the sharing ofprofits.http://www.tutor2u.net/revision_notes_accounting.aspPast question papers available from CIE,e.g.Specimen Paper 1 Q19http://www.bized.ac.uk/stafsup/options/accounting/work07.htmwww.ourpgs.com1

AO Learning outcomes Suggested Teaching activities Learning resourcesagreement• explain the purpose of anAppropriation Account• prepare partnership Trading andProfit and Loss Accounts,Appropriation Accounts andBalance Sheets• explain the uses and differencesbetween capital and currentaccounts• draw up partners’ current andcapital accounts, both in ledgerform, as part of a Balance Sheetpresentation• show the treatment of interest oncapital, partners’ salaries, intereston partners’ loans and ondrawings4.2 Candidates should be able to:• make simple entries for theformation of a partnership viacapital contribution by eachpartner in cash and/or non-cashassets and amalgamation of twosole traders, including theA key difference between partnerships andsole traders is the use of appropriation accounts. This is the part ofthe final accounts in which profits or losses are shared betweenpartners.Explain the reasons for and against using current accounts in apartnership and the implications of both on the bookkeeping.Illustrate and provide practice for students in preparing current andcapital accounts.It is helpful for students to increase the number of transactions inthe appropriation account steadily. Initially, begin with the sharing ofprofits. Then add partners’ salaries, the interest on capital anddrawings, gradually increasing the complexity.Ensure students thoroughly understand the place of drawings andthat they do not appear in the appropriation account.Illustrate how sharing profit may not be equal because the capitalinjection may not be equal, or the commitment of one partner to abusiness may be less in terms of management than another andthis is reflected in profit share.Students should be shown the calculation of goodwill as the surplusof purchase price over net assets. They should be able to accountfor goodwill and the net assets.http://accounting10.tripod.com/content.htmhttp://www.askltd.com/askjava/partners.htmPast question papers available from CIE,e.g.Jun 2003 Paper 1 Q31Jun 2005 Paper 1 Q32Nov 2002 Paper 2 Q3http://www.accaglobal.com/publications/studentaccountant/13217?session=fffffffeffffffffc28288ca40a137f0d9a9c4f8c6ad2017d5a4837ffa10d34fPast question papers available from CIE,e.g.www.ourpgs.com2

AO Learning outcomes Suggested Teaching activities Learning resourcescalculation and recording ofNov 2003 Paper 1 Q21, 26Goodwill• make the other adjustments asdetailed under 4.1Questions will not be set on thedissolution of partnership.Explain and work through examples of goodwill and how it isincluded in accounts. Journal entries and ledgers should be fullycovered to prevent students reversing the entries. This is a commonerror in examination answers.Complete the study of partnerships by working through a full set ofpartnership final accounts and balance sheet.Students can be confused about when to use columnarcurrent/capital accounts. A consistent approach of using separatefull ledger accounts outside the balance sheet, bringing the closingbalance to the balance sheet is less confusing for students.http://www.bized.ac.uk/stafsup/options/accounting/work08.htmPast question papers available from CIE,e.g.Nov 2003 Paper 1 Q21, 26Jun 2004 Paper 2 Q5Jun 2006 Paper 2 Q54.5 Candidates should be able to:• prepare a simple limited companyappropriation account• explain the capital structure of alimited company (comprisingpreference shares capital, ordinaryshare capital and retainedprofits/profit and loss account) andhow it appears in the BalanceSheet• recognise the distinctions betweenauthorised, called-up, issued andpaid-up share capital and betweenshare capital – ordinary andpreference – and loan capital e.g.debenturesCandidates will not be required toThere are parallels with partnerships in thecase of the company appropriation account. In the case of acompany the main transactions seen in the appropriation accountare proposed and paid dividends and transfers to and fromreserves.The structure of capital in a company can be complex including notonly shares but also capital and revenue reserves. Illustrate andexplain the use of the common types of reserve and the commontypes of capital. Multiple choice questions are useful to helpstudents think through the variations.Time should be spent outlining the features and differencesbetween an ordinary share, a preference share and a debenture.Debentures are often regarded as part of ‘loan capital’ althoughloans rank as a creditor and not capital at all. It is important toemphasise this important distinction and its implications to students.It is important to clarify for students the extent of this syllabus sohttp://www.askltd.com/askjava/ltdcomps.htmPast question papers available from CIE,e.g.Nov 2003 Paper 1 Q35Jun 2003 Paper 2 Q3http://www.bized.ac.uk/dataserv/extel/notes/seq-ex.htmNov 2005 Paper 2 Q3Specimen Paper 1 Q36Specimen Paper 2 Q5http://www.bized.ac.uk/dataserv/extel/notes/ltl-th.htmhttp://www.bized.ac.uk/dataserv/extel/notes/lwww.ourpgs.com3

AO Learning outcomes Suggested Teaching activities Learning resourcesprepare a company's Profit and LossAccount or a complete Balance Sheet,to make entries to record the issue ofcapital, or to know the accountingrequirements of the Companies Acts.that they spend their course and homework time on matters ofdirect relevance.tl-ex.htmCandidates need to be aware ofcumulative and non-cumulativepreference shares. They are notrequired to have an awareness ofdeferred, founders, participating,redeemable or ‘A’ shares, rightsissues, bonus issues, share premiumor capital redemption reserve.www.ourpgs.com4