INTERMIDIATE ACCOUNTING 1
INTERMEDIATE ACCOUNTING 1
Welcome to this course HBC 2201: Intermediate Accounting 1. I trust you will
find it interesting, stimulating and valuable. Accounting is the language that
pervades organizations and markets because it is used to engage and measure
commercial transactions and to determine performance. This course covers
accounting knowledge essential for effective collection, collation, classification,
quantification, assessment, analysis and communication financial information
about the economics and performance of the enterprise, and analysis and
interpretation of such information thereof. This is in line with the realization that
managers make extensive use of accounting information in their day-to-day work
and accounting information is fundamental to corporate governance in that it
provides the means of making the organization’s management accountable to
outsiders such as owners. This course is designed to enable students to
understand and acquire skills necessary in accounting for both current and
noncurrent assets of a business enterprise. This is with particular emphasis to
measurement, recognition and presentation of these assets in financial
statements as fundamental aspects of accounting.
Course Pre-requisite:
HBC 2107: Introduction to Accounting II.
Course Purpose:
To explore the mechanisms of measurement, recognition and presentation of
current and noncurrent assets in financial statements in the context of the
conceptual framework of accounting and the International Financial Reporting
Standards.
Course Objectives:
At the end of the course it is expected that the student will be able to:
1. Evaluate the conceptual framework of financial reporting in the context
of accounting for assets.
2. Apply the measurement techniques for the various current and
noncurrent assets.
, ii
3. Recognize assets into financial records.
4. Present assets in financial statements.
Course Description
The Conceptual Framework of Accounting, Accounting for Cash, Accrual Versus
Cash Accounting, Accounting for Inventory, The Historical cost Concept,
Perpetual Inventory Accounting, Periodic Inventory Accounting, Inventory
Valuation Approaches: FIFO, Weighted Average, Moving Average; Accounting for
Debtors, Recognition, Factoring, Valuation, Disposal; Accounting for Investments,
Long
Term Investments, Short Term Investments; Accounting for Leases in the Lessors,
Operating Leases, Financing Leases; Accounting for Non Current Assets,
Acquisition, Disposal, Intangible Assets, Natural Resource, Depreciation,
Amortization and Depletion, Asset Revaluation
Instruction methodology
• Lectures and tutorials ·
• Case studies ·
• Group discussions
Assessment information
The module will be assessed as follows;
• 20% of marks from two (2) assignments to be submitted online
• 20% of marks from one written CAT to be administered at JKUAT
main campus or one of the approved centers
• 60% of marks from written Examination to be administered at JKUAT
main campus or one of the approved centers
, iii
Contents
1 Conceptual framework of Accounting 1
1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1.1 Importance of the Framework of Accounting ........ 1
1.2 The Objectives of Accounting . . . . . . . . . . . . . . . . . . . . 2
1.3 Qualitative Characteristics of Financial Statements Information ..
3
1.4 The Elements of Financial Statements . . . . . . . . . . . . . . . . 7
1.4.1 The Statement of Financial Position Elements . . . . . . . . 7
1.4.2 The Income Statement Items . . . . . . . . . . . . . . . . . 8
2 Accounting for cash 15
3 Accounting for Inventory 27
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4 Accounting for accounts receivables 33
4.1 Learning Objectives: . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.3 Terms of Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.3.1 Recognition of Debtors and Accounting for Bad Debts ... 34
4.3.2 Methods of Estimating Provisions .............. 35
4.3.3 Provision for bad debts account analysis: .......... 36
4.4 Factoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.4.1 Factoring with Recourse . . . . . . . . . . . . . . . . . . . 38
4.4.2 Factoring without Recourse . . . . . . . . . . . . . . . . . . 38
4.4.3 Invoice Discounting . . . . . . . . . . . . . . . . . . . . . . 39
• Features of Invoice Discounting . . . . . . . . . . 39
4.4.4 Accounting for Bills of Exchange .............. 40
, iv
CONTENTS CONTENTS
5 Accounting for Investments 45
5.1 Learning Objectives: . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.3 Classification of Investments . . . . . . . . . . . . . . . . . . . . . 45
5.3.1 Classification of Financial Instruments . . . . . . . . . . . 46
5.3.2 Recognition of Investments . . . . . . . . . . . . . . . . . 47
5.3.3 Investment in Debt and Equity Instruments: . . . . . . . . . 49
5.3.4 Impairment of Value. . . . . . . . . . . . . . . . . . . . . . 51
• Transfers Between Categories . . . . . . . . . . . 52
6 Accounting for leases in the books of the lessor 54
6.1 Learning Objectives: . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.3 Accounting in the Books of the Lessor . . . . . . . . . . . . . . . . 54
6.3.1 Direct financing lease: .................... 54
6.3.2 Operating lease: . . . . . . . . . . . . . . . . . . . . . . . . 56
6.3.3 Sales-type lease: ....................... 57
7 Accounting for depreciation of non-current assets 60
7.1 Learning Objectives: . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.3 Depreciation, Depletion and Amortization: . . . . . . . . . . . . . . 61
8 Accounting for non-current assets 66
8.1 Learning Objectives: . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.3 Acquisition Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
8.3.1 Revaluation of Non Current Assets . . . . . . . . . . . . . . 69
8.3.2 Disposal of Non Current Assets ............... 70
INTERMEDIATE ACCOUNTING 1
Welcome to this course HBC 2201: Intermediate Accounting 1. I trust you will
find it interesting, stimulating and valuable. Accounting is the language that
pervades organizations and markets because it is used to engage and measure
commercial transactions and to determine performance. This course covers
accounting knowledge essential for effective collection, collation, classification,
quantification, assessment, analysis and communication financial information
about the economics and performance of the enterprise, and analysis and
interpretation of such information thereof. This is in line with the realization that
managers make extensive use of accounting information in their day-to-day work
and accounting information is fundamental to corporate governance in that it
provides the means of making the organization’s management accountable to
outsiders such as owners. This course is designed to enable students to
understand and acquire skills necessary in accounting for both current and
noncurrent assets of a business enterprise. This is with particular emphasis to
measurement, recognition and presentation of these assets in financial
statements as fundamental aspects of accounting.
Course Pre-requisite:
HBC 2107: Introduction to Accounting II.
Course Purpose:
To explore the mechanisms of measurement, recognition and presentation of
current and noncurrent assets in financial statements in the context of the
conceptual framework of accounting and the International Financial Reporting
Standards.
Course Objectives:
At the end of the course it is expected that the student will be able to:
1. Evaluate the conceptual framework of financial reporting in the context
of accounting for assets.
2. Apply the measurement techniques for the various current and
noncurrent assets.
, ii
3. Recognize assets into financial records.
4. Present assets in financial statements.
Course Description
The Conceptual Framework of Accounting, Accounting for Cash, Accrual Versus
Cash Accounting, Accounting for Inventory, The Historical cost Concept,
Perpetual Inventory Accounting, Periodic Inventory Accounting, Inventory
Valuation Approaches: FIFO, Weighted Average, Moving Average; Accounting for
Debtors, Recognition, Factoring, Valuation, Disposal; Accounting for Investments,
Long
Term Investments, Short Term Investments; Accounting for Leases in the Lessors,
Operating Leases, Financing Leases; Accounting for Non Current Assets,
Acquisition, Disposal, Intangible Assets, Natural Resource, Depreciation,
Amortization and Depletion, Asset Revaluation
Instruction methodology
• Lectures and tutorials ·
• Case studies ·
• Group discussions
Assessment information
The module will be assessed as follows;
• 20% of marks from two (2) assignments to be submitted online
• 20% of marks from one written CAT to be administered at JKUAT
main campus or one of the approved centers
• 60% of marks from written Examination to be administered at JKUAT
main campus or one of the approved centers
, iii
Contents
1 Conceptual framework of Accounting 1
1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1.1 Importance of the Framework of Accounting ........ 1
1.2 The Objectives of Accounting . . . . . . . . . . . . . . . . . . . . 2
1.3 Qualitative Characteristics of Financial Statements Information ..
3
1.4 The Elements of Financial Statements . . . . . . . . . . . . . . . . 7
1.4.1 The Statement of Financial Position Elements . . . . . . . . 7
1.4.2 The Income Statement Items . . . . . . . . . . . . . . . . . 8
2 Accounting for cash 15
3 Accounting for Inventory 27
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4 Accounting for accounts receivables 33
4.1 Learning Objectives: . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.3 Terms of Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.3.1 Recognition of Debtors and Accounting for Bad Debts ... 34
4.3.2 Methods of Estimating Provisions .............. 35
4.3.3 Provision for bad debts account analysis: .......... 36
4.4 Factoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.4.1 Factoring with Recourse . . . . . . . . . . . . . . . . . . . 38
4.4.2 Factoring without Recourse . . . . . . . . . . . . . . . . . . 38
4.4.3 Invoice Discounting . . . . . . . . . . . . . . . . . . . . . . 39
• Features of Invoice Discounting . . . . . . . . . . 39
4.4.4 Accounting for Bills of Exchange .............. 40
, iv
CONTENTS CONTENTS
5 Accounting for Investments 45
5.1 Learning Objectives: . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.3 Classification of Investments . . . . . . . . . . . . . . . . . . . . . 45
5.3.1 Classification of Financial Instruments . . . . . . . . . . . 46
5.3.2 Recognition of Investments . . . . . . . . . . . . . . . . . 47
5.3.3 Investment in Debt and Equity Instruments: . . . . . . . . . 49
5.3.4 Impairment of Value. . . . . . . . . . . . . . . . . . . . . . 51
• Transfers Between Categories . . . . . . . . . . . 52
6 Accounting for leases in the books of the lessor 54
6.1 Learning Objectives: . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.3 Accounting in the Books of the Lessor . . . . . . . . . . . . . . . . 54
6.3.1 Direct financing lease: .................... 54
6.3.2 Operating lease: . . . . . . . . . . . . . . . . . . . . . . . . 56
6.3.3 Sales-type lease: ....................... 57
7 Accounting for depreciation of non-current assets 60
7.1 Learning Objectives: . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.3 Depreciation, Depletion and Amortization: . . . . . . . . . . . . . . 61
8 Accounting for non-current assets 66
8.1 Learning Objectives: . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.3 Acquisition Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
8.3.1 Revaluation of Non Current Assets . . . . . . . . . . . . . . 69
8.3.2 Disposal of Non Current Assets ............... 70
