Only study guide for
FAC2601
FINANCIAL
ACCOUNTING
FOR COMPANIES
11245815
2020
Department of Financial Accounting
University of South Africa, Pretoria
,© 2019 University of South Africa
All rights reserved
Printed and published by the
University of South Africa
Muckleneuk, Pretoria
FAC2601/1/2020
70728399
InDesign
Shutterstock.com images used.
MNB_Style
,CONTENTS
Page
INTRODUCTION vii
LEARNING UNIT 1: INTRODUCTION TO COMPANY FINANCIAL STATEMENTS 1
1.1 INTRODUCTION 2
1.2 COMPANY BACKGROUND 3
1.3 HISTORY OF THE COMPANIES ACT (NOT EXAMINABLE) 4
1.4 ANNUAL FINANCIAL STATEMENTS 5
1.5 SHARE TRANSACTIONS 6
1.5.1 Introduction 6
1.5.2 Share capital structures 6
1.5.3 Types of shares 7
1.5.4 Issue of capitalisation shares 9
1.5.5 Rights issues and options 10
1.5.6 Underwriting of share issues 11
1.5.7 Dividends 12
LEARNING UNIT 2: THE FRAMEWORK OF ACCOUNTING 13
2.1 INTRODUCTION 14
2.2 EFFECTIVE DATE 15
2.3 SUMMARY 15
LEARNING UNIT 3: PRESENTATION OF ANNUAL FINANCIAL STATEMENTS – IAS 1 17
3.1 PURPOSE OF ANNUAL FINANCIAL STATEMENTS 19
3.2 GENERAL FEATURES 20
3.3 STRUCTURE AND CONTENT 22
3.4 STRUCTURE AND CONTENT: STATEMENT OF FINANCIAL POSITION 22
3.5 STRUCTURE AND CONTENT: STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME 27
3.6 STRUCTURE AND CONTENT: STATEMENT OF CHANGES IN EQUITY 29
3.7 STRUCTURE AND CONTENT: NOTES TO THE ANNUAL FINANCIAL STATEMENTS 30
3.8 DIVIDENDS 31
3.9 EXAMPLE: PRESENTATION OF ANNUAL FINANCIAL STATEMENTS 35
3.10 COMPREHENSIVE EXAMPLE 43
LEARNING UNIT 4: INVENTORY – IAS 2 53
4.1 NATURE OF INVENTORIES 55
4.2 MEASUREMENT OF INVENTORIES 55
4.3 COST OF INVENTORIES 55
4.3.1 Purchasing costs 56
4.3.2 Conversion costs 56
(iii) FAC2601/1/2020
, 4.4 COST ALLOCATION TECHNIQUES AND COST FORMULAS 57
4.4.1 First-in, first-out 57
4.4.2 Weighted average method 58
4.4.3 Specific identification 58
4.5 DETERMINING NET REALISABLE VALUE AND RECOGNITION AT LOWER OF
COST AND NET REALISABLE VALUE 58
4.5.1 Firm sales contracts 59
4.5.2 Raw materials 59
4.6 RECOGNITION OF EXPENSE 59
4.7 DISCLOSURE REQUIREMENTS 60
4.8 EXAMPLES 61
LEARNING UNIT 5: PROPERTY, PLANT AND EQUIPMENT – IAS 16 65
5.1 OBJECTIVE 67
5.2 BACKGROUND 67
5.3 DEFINITIONS 68
5.4 RECOGNITION 69
5.4.1 Introduction 69
5.4.2 Components and spare parts 69
5.4.3 Replacement at regular intervals 70
5.5 MEASUREMENT 70
5.5.1 Elements of cost 71
5.5.2 Subsequent measurement 73
5.6 DEPRECIATION 73
5.6.1 Allocation of cost 73
5.6.2 Useful life 75
5.6.3 Useful life of land and buildings 75
5.6.4 Depreciation methods 76
5.6.5 Accounting treatment 78
5.7 REVALUATION 80
5.7.1 Introduction 80
5.7.2 Fair value 81
5.7.3 Non-depreciable assets 81
5.7.4 Revaluation surplus 81
5.8 DERECOGNITION 82
5.9 DISCLOSURE 83
5.9.1 Requirements for the cost and revaluation models 83
5.9.2 Further disclosure requirements 84
5.9.3 Specific disclosure requirements for the revaluation model 84
5.10 COMPREHENSIVE EXAMPLES 85
LEARNING UNIT 6: INVESTMENT PROPERTY – IAS 40 93
6.1 DECISION DIAGRAM 95
6.2 OBJECTIVE 95
6.3 BACKGROUND 96
6.4 DEFINITIONS 96
(iv)
FAC2601
FINANCIAL
ACCOUNTING
FOR COMPANIES
11245815
2020
Department of Financial Accounting
University of South Africa, Pretoria
,© 2019 University of South Africa
All rights reserved
Printed and published by the
University of South Africa
Muckleneuk, Pretoria
FAC2601/1/2020
70728399
InDesign
Shutterstock.com images used.
MNB_Style
,CONTENTS
Page
INTRODUCTION vii
LEARNING UNIT 1: INTRODUCTION TO COMPANY FINANCIAL STATEMENTS 1
1.1 INTRODUCTION 2
1.2 COMPANY BACKGROUND 3
1.3 HISTORY OF THE COMPANIES ACT (NOT EXAMINABLE) 4
1.4 ANNUAL FINANCIAL STATEMENTS 5
1.5 SHARE TRANSACTIONS 6
1.5.1 Introduction 6
1.5.2 Share capital structures 6
1.5.3 Types of shares 7
1.5.4 Issue of capitalisation shares 9
1.5.5 Rights issues and options 10
1.5.6 Underwriting of share issues 11
1.5.7 Dividends 12
LEARNING UNIT 2: THE FRAMEWORK OF ACCOUNTING 13
2.1 INTRODUCTION 14
2.2 EFFECTIVE DATE 15
2.3 SUMMARY 15
LEARNING UNIT 3: PRESENTATION OF ANNUAL FINANCIAL STATEMENTS – IAS 1 17
3.1 PURPOSE OF ANNUAL FINANCIAL STATEMENTS 19
3.2 GENERAL FEATURES 20
3.3 STRUCTURE AND CONTENT 22
3.4 STRUCTURE AND CONTENT: STATEMENT OF FINANCIAL POSITION 22
3.5 STRUCTURE AND CONTENT: STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME 27
3.6 STRUCTURE AND CONTENT: STATEMENT OF CHANGES IN EQUITY 29
3.7 STRUCTURE AND CONTENT: NOTES TO THE ANNUAL FINANCIAL STATEMENTS 30
3.8 DIVIDENDS 31
3.9 EXAMPLE: PRESENTATION OF ANNUAL FINANCIAL STATEMENTS 35
3.10 COMPREHENSIVE EXAMPLE 43
LEARNING UNIT 4: INVENTORY – IAS 2 53
4.1 NATURE OF INVENTORIES 55
4.2 MEASUREMENT OF INVENTORIES 55
4.3 COST OF INVENTORIES 55
4.3.1 Purchasing costs 56
4.3.2 Conversion costs 56
(iii) FAC2601/1/2020
, 4.4 COST ALLOCATION TECHNIQUES AND COST FORMULAS 57
4.4.1 First-in, first-out 57
4.4.2 Weighted average method 58
4.4.3 Specific identification 58
4.5 DETERMINING NET REALISABLE VALUE AND RECOGNITION AT LOWER OF
COST AND NET REALISABLE VALUE 58
4.5.1 Firm sales contracts 59
4.5.2 Raw materials 59
4.6 RECOGNITION OF EXPENSE 59
4.7 DISCLOSURE REQUIREMENTS 60
4.8 EXAMPLES 61
LEARNING UNIT 5: PROPERTY, PLANT AND EQUIPMENT – IAS 16 65
5.1 OBJECTIVE 67
5.2 BACKGROUND 67
5.3 DEFINITIONS 68
5.4 RECOGNITION 69
5.4.1 Introduction 69
5.4.2 Components and spare parts 69
5.4.3 Replacement at regular intervals 70
5.5 MEASUREMENT 70
5.5.1 Elements of cost 71
5.5.2 Subsequent measurement 73
5.6 DEPRECIATION 73
5.6.1 Allocation of cost 73
5.6.2 Useful life 75
5.6.3 Useful life of land and buildings 75
5.6.4 Depreciation methods 76
5.6.5 Accounting treatment 78
5.7 REVALUATION 80
5.7.1 Introduction 80
5.7.2 Fair value 81
5.7.3 Non-depreciable assets 81
5.7.4 Revaluation surplus 81
5.8 DERECOGNITION 82
5.9 DISCLOSURE 83
5.9.1 Requirements for the cost and revaluation models 83
5.9.2 Further disclosure requirements 84
5.9.3 Specific disclosure requirements for the revaluation model 84
5.10 COMPREHENSIVE EXAMPLES 85
LEARNING UNIT 6: INVESTMENT PROPERTY – IAS 40 93
6.1 DECISION DIAGRAM 95
6.2 OBJECTIVE 95
6.3 BACKGROUND 96
6.4 DEFINITIONS 96
(iv)
