LS_Week1_Student
ACCT1511: AFM1B Accrual Concepts in Week 1
Accrual Concepts in
Accounting
Peter Lam
QUAD 3069
https://www.sodocs.net/doc/081215466.html,m@https://www.sodocs.net/doc/081215466.html,.au
Important Announcements
?Tutorials
–Must enrol via myUNSW
–Revision exercises this week
?Check WebCT Vista access
–Contact IT Service Desk
Course Outline
?Course outline –also up on WebCT Vista
?Please read the Course Outline carefully!
O1
–Assessments
–Administrative matters
–Available resources
–Staff contact details
Staff Members (p.3) Lecturers:
?Peter Lam (LIC) –weeks 1-5, 12?Leon Wong –weeks 6-11
Tutors:
?Najeeb Memon ?June Chan
?Phillip Nguyen ?Sarah Tan
?Qixin Li Admin Assistant:?Josie Pang
Communication with Staff (p.3)
?Staff consultation from week 2
?Note on email correspondence:
–Official Student Email ONLY
–Will ignore SMS emails, emails originating from accounts other than the student account
–Please use “subject line”
–Name and Student number
–Questions regarding admin only
Course Information
?Lecture and tutorial times (p.4)
–Be on time please!
?Please read “Course aims and outcomes” (p.5)
–Assumed knowledge from AFM1A
?Student learning outcomes (p.6)
–Links to assessments (p.9)
–Each week’s lecture notes (Learning
objectives)
Tutorial Questions (p.7-8)
?Preparation Questions (p.7)
–Suggested solutions are up on WebCT Vista
?Homework Questions (p.8)
–Homework preparation assessment: we will
discuss this later
–Suggested quantitative solutions on WebCT
AFTER tutorial classes
Your Responsibilities (p.7)
?Must prepare for tutorials
?Workload –at least10 hours/week per Course ?Attendance requirements
?Announcements
–WebCT Vista
–Lectures
–Email to student account
Course Assessment Outline (p.9)
?Class quiz 1 (15%) –Week 5 tutes
?Class quiz 2 (15%) –Week 11 tutes
?Tutorial participation (4%)
?Homework preparation (6%)
?Final examination (60%)
IMPORTANT!
In order to pass AFM1B… (p.9)
1.Achieve a composite mark of 50% or higher
AND
2.Satisfactorily complete all assessment tasks
AND
3.Pass the final examination (normally > 50%)
?Pass Conceded
–School Committee NOT LIC
–Note: CPA/CA requirements
Two Class Quizzes (p.9-10)
?In week 5 and 11
?15% each of your composite mark
?In your enrolled tutorials only
Details on p910
?Details on p.9-10
?Further details later
?No special consideration/supplementary quiz
Tutorial Participation (p.10)
?4% of your composite mark
?Awarded for active participation
Homework Preparation (p.10)
?6% of your composite mark
?Checked in your enrolled tutorial classes only ?Homework questions NOT prep questions Note:doing the“wrong”question is NOT an ?Note: doing the “wrong” question is NOT an excuse
?3 random checks and 2 marks each
?Please read p.10 for further details
Special Consideration (p.12)
?Read the instruction carefully
–MUST provide a copy to Peter
–A register of applications for Special Consideration is maintained. History of previous applications for
p
Special Consideration is taken into account when
considering each case.
?SC is for Final Exam only (not quizzes!)
?If SC is accepted, supplementary examination will be offered
Special Considerations –Myths
1.Supplementary exam will always be given if you
did not sit the Final Exam
?NOT TRUE
?Depends on your performance
2.Marks will be scaled up if you sat the exam
?NOT TRUE
?Marks are NEVER scaled up due to special
consideration
?The ONLY form of special consideration will be
supplementary exams for the Final
Student Resources (p.16)
Textbook:
?Trotman and Gibbins
?3rd Edition
?Including MA supplement
–Weeks 9 to 12
Student Resources (p.16)
?No Course Resource Kit to purchase
?All course notes, lecture materials, additional readings, tutorial questions and solutions will readings tutorial questions and solutions will be posted for downloading from WebCT Vista
Course Website (p.16)
?WebCT Vista
https://www.sodocs.net/doc/081215466.html,.au Student ID and UNIPASS
?Student ID and UNIPASS
?Contact the service desk if no access
?Check announcement regularly!
?MUST maintain your student email account!
–See information regarding communication
using email
Other Resources (p.17)
?Learning and study support
?Counselling
?Equity and Diversity support
Please come and see me this week
–Please come and see me this week
?School website
?PASS
Lecture Topics and Assessment Schedule (p.19)
?Week 1-2: Revision and measurements in
accounting
?Weeks 3 –5: CFS Weeks6–7:FSA/APC Week 5: Class Quiz 1
Ho
We are here
?Weeks 6 –7: FSA/APC
?Week 8: Corporate governance and ethics
?Week 9 –11: MA
?Week 12: MA/Course Review
Week 11: Class Quiz 2
omework Check
Revision Exercises…
?Page 5 –6
?Please start reading exercises…
O2
Assets & Liabilities: Definition & Recognition
Does the item have all the essential
characteristics of an A (L)?
O4
Does the A (L ) meet both the recognition criteria?
Details might appear in the annual report Separately disclosed in the
notes
A (L) recognised in the
entity’s balance sheet
Assets: Definition
?“An asset is a resource controlled by the entity as a
result of past events and from which future economic benefits are expected to flow to the entity” (AASB
Framework, paragraph 49)
?Essential characteristics:
–Future economic benefit (or service potential)
–Controlled by the entity
–Result of past events
?Examples?
Assets: Definition
?Non-essential characteristics:
–Acquisition at cost______________
T ibilit
–Tangibility…______________
–Exchangeability…______________
–Legal ownership…______________
Assets: Recognition
?Only when the item meets two recognition
criteria (AASB Framework, paragraph 83):
1It is probable that any future economic
1.It is probable that any future economic benefit associated with the item will flow to the entity; and
2.The item has a cost or value that can be measured with reliability.
Example 1
i.
ii.
A storage warehouse purchased for cash
Essential characteristics:
?Benefits ?Control iii.
?Past transaction Recognition criteria:
?Probable ?Measured reliably (a)
(b)
Example 2
i.
ii.
Essential characteristics:
?Benefits A highly specialised equipment without resale or residual value
iii.
?Control ?Past transaction Recognition criteria:
?Probable ?Measured reliably (a)
(b)
Test Your Understanding:
?Are these assets?
1. A box of paper clips.
2. A deposit received by a company for
services to be rendered.
3.List of subscribers to an Internet service.
4.CBA’s satisfied customers.
5.Students enrolled in a BCom degree at
UNSW.
Liabilities: Definition
?“A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits (AASB Framework, paragraph 49) benefits”(AASB Framework,paragraph49)
?Essential characteristics:
–The existence of a present obligation
–The obligation involves settlement in the future resulting in an outflow of economic benefits
Liabilities: Recognition
?Recognition –only when the item meets two
recognition criteria (AASB Framework,
paragraph 83):
1.It is probable that any future economic
benefit associated with the item will flow from
the entity; and,
2.The item has a cost or value that can be
measured with reliability.
Example 1
A loan obtained from a bank to be repaid in 10 years
time.
Essential characteristics:?Present obligation Future outflow i. ii
?Future outflow
Recognition criteria:?Probable
?Measured reliably (a)
(b) ii.
Example 2
A company has signed a guarantee over a $2,000,000 loan
obtained by a subsidiary company. The subsidiary is in an excellent financial position.
Essential characteristics:
?Present obligation i.
?Future outflow
Recognition criteria:?Probable
?Measured reliably (a)
(b) ii.
Test Your Understanding
Are these liabilities?
1.A one-million dollar loan from the Credit Union.
2.A decision to borrow one million dollars.
3.Payment of a regular quarterly bonus (not in the contract) to employees.
4.CBA’s dissatisfied customers.
5.Fixing of a faulty product after its warranty period.
Methods for Valuing Assets and Liabilities
1.Historical Cost –e.g.
2.Current or Market Value (value in exchange) –e.g.
3.Value in use (present value) –e.g.
4.Liquidation Value –e.g.O5
q g
5.Price-adjusted Historical Cost –e.g.
?Which method is reliable?
?Which method is relevant?
?Which method is neither reliable nor relevant? Determining Profit
?The only way to accurately determine profit is to wait
until the end of an entity’s life.
–Reliable
–Not timely
–decision relevant O6
Not decision relevant
?Periodic profit
–Divide the lifetime profit into periodic profit
–Timely & decision relevant
–But greater uncertainty & requires more judgment
Income: Definition
?“increases in economic benefits during the accounting
period… that results in increases in equity, other than those relating to contributions from owners (AASB
Framework, paragraph 70)… and encompasses both
revenue and gains(AASB Framework, paragraph 74)”
?Essential characteristics:
–Increases in economic benefits
–results in increases in equity
–other than contributions from owners
Income: Definition & Recognition
?Income = Revenue (ordinary course of business)
+ Gain (not ordinary course of business)
?Recognition (AASB Framework, para 92):
–Increase in future economic benefits, whether
increase in asset or decrease in liability
–Can be measured with reliability
Revenue generating activities
?Thinking of an idea
?Organising a firm
?Buying or making inventory
Advertising a product
?Advertising a product
?Selling a product
?Delivering a product
?Billing a customer
?Collecting cash
?Providing warranty services
Critical Event
?Provision of most of the services e.g.
?Most of the costs have been incurred (or can be
measured) e.g.
?Dollar amount of the revenue can be measured e.g.
?Receipt of an asset (cash or a receivable) e.g.
Revenue Recognition Options
?Point of sale or delivery
–E.g.
?During production (% of completion method)
–E.g.
?On completion of production
–E.g.
?When cash is received
–E.g.
?At some point after cash has been received
–E.g.
Expenses: Definition
?“… decreases in economic benefits during the accounting period … other than the owners’ distributions” (AASB Framework, para 70)
?Essential characteristics:
–Decreases in economic benefits
–Other than the owners’ distributions
Expenses: Recognition
?Recognition (AASB Framework, para 94):
–Decrease in future economic benefits, whether decrease in asset or increase in liability
decrease in asset or increase in liability
–Can be measured with reliability
Matching Concepts
O7?Timing of recognition
–Expenses recognised on direct association
between costs incurred and earning of specific
items of income (AASB Framework, para 95)
–In same accounting period as the revenue to
which the expenses relate.
Cost v. Asset v. Expense
?A matter of classification? A matter of timing?
?Is “Cost” and “Expense “ interchangeable?
?Cost = Amount of cash/equivalents paid or fair value
of consideration given
?Definition: Asset (capitalise) or Expense
?Recognition: Asset to Expense–e.g.?
?More in Management Accounting (Weeks 9-12)
E.g. Purchase of a Notebook Computer
?Purchase of a Notebook
–Purchase price $1,400
–Delivery charge $100
?Questions:
1.An asset?
2.Recognise on B/S?
3.Measurement?
4.Then what?
?Depreciation
–Straight line
– 3 years
N id l l
E.g. Purchase of a Notebook Computer –No residual value ?Cost?
?Asset?
?Expense?
Case: Notebook –Account Balances
Year Cost Accumulated Depreciation Carrying
Value (Asset )Depreciation
Expense 1
2
3
Notebook Manufacturer
?Revenue or Liability? Asset or Expense??Receive order
?Receive cash payment
Obtain parts from suppliers $800?Obtain parts from suppliers $800?Assemble notebook
?Ship notebook
?Pay courier for shipping $100
?Pay suppliers for parts
Summary
O1.Course outline
O2. Accrual accounting
O3. GAAP
O4. Definition and recognition of
O4Definition and recognition of
Assets/Liabilities
O5. Methods for measuring Assets/Liabilities O6. Revenue recognition techniques
O7. Concept of Matching