ACCA f3 financial accounting study text 2016 2017

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Financial Accounting

Foundations in Accountancy FFA / ACCA Paper F3
Financial Accounting
This Interactive Text for Foundations in Accountancy

FFA Financial Accounting and ACCA Paper F3
Financial Accounting has been comprehensively
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Foundations in Accountancy
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Foundations in
Accountancy
FFA
ACCA
Paper F3
Financial
Accounting
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Accountancy qualification. This means we work closely with ACCA to ensure this

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FOR EXAMS FROM 1 SEPTEMBER 2016 TO 31 AUGUST 2017

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F3/FFA FINANCIAL ACCOUNTING

First edition March 2011
Fifth edition January 2016

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CONTENTS

Contents
Page

Introduction
Helping you to pass ...................................................................................................................... v
Chapter features ........................................................................................................................... vi
Studying F3/FFA.......................................................................................................................... vii
The Computer Based Examination ............................................................................................... xxiii
Tackling Multiple Choice Questions.............................................................................................. xxiv

Part A The context and purpose of financial reporting
1
2

Introduction to accounting ..................................................................................................... 3
The regulatory framework .................................................................................................... 19

Part B The qualitative characteristics of financial information
3

The qualitative characteristics of financial information............................................................. 31

Part C The use of double entry and accounting systems
4
5
6

Sources, records and books of prime entry ............................................................................. 45
Ledger accounts and double entry......................................................................................... 59
From trial balance to financial statements.............................................................................. 89

Part D Recording transactions and events

7
8
9
10
11
12
13

Inventory ......................................................................................................................... 107
Tangible non-current assets ............................................................................................... 133
Intangible non-current assets.............................................................................................. 169
Accruals and prepayments ................................................................................................. 181
Provisions and contingencies.............................................................................................. 195
Irrecoverable debts and allowances..................................................................................... 207
Sales tax.......................................................................................................................... 223

Part E Preparing a trial balance
14
15
16

Control accounts............................................................................................................... 235
Bank reconciliations .......................................................................................................... 257
Correction of errors ........................................................................................................... 271

Part F Preparing basic financial statements
17
18
19
20

21
22

Incomplete records............................................................................................................ 287
Preparation of financial statements for sole traders ............................................................... 311
Introduction to company accounting.................................................................................... 323
Preparation of financial statements for companies ................................................................ 341
Events after the reporting period ......................................................................................... 369
Statements of cash flows ................................................................................................... 375

Part G Preparing simple consolidated financial statements
23
24
25

Introduction to consolidated financial statements.................................................................. 397
The consolidated statement of financial position ................................................................... 411
The consolidated statement of profit or loss ......................................................................... 437

Part H Interpretation of financial statements
26

Interpretation of financial statements................................................................................... 451

Practice question bank ......................................................................................................................... 479
Practice answer bank ........................................................................................................................... 505
Index ..................................................................................................................................................... 517
Review form

iii

F3/FFA FINANCIAL ACCOUNTING

iv


INTRODUCTION

Helping you to pass
BPP Learning Media – ACCA Approved Content Provider
As an ACCA Approved Content Provider, BPP Learning Media gives you the opportunity to use study
materials reviewed by the ACCA examination team. By incorporating the examination team's comments
and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning Media
Interactive Text provides excellent, ACCA-approved support for your studies.

The PER alert!
To become a Certified Accounting Technician or qualify as an ACCA member, you have to not only pass
all your exams but also fulfil a practical experience requirement (PER). To help you to recognise areas
of the syllabus that you might be able to apply in the workplace to achieve different performance
objectives, we have introduced the 'PER alert' feature. You will find this feature throughout the
Interactive Text to remind you that what you are learning in order to pass your Foundations in
Accountancy and ACCA exams is equally useful to the fulfilment of the PER requirement.
Your achievement of the PER should be recorded in your online My Experience record.

Tackling studying
Studying can be a daunting prospect, particularly when you have lots of other commitments. The
different features of the Interactive Text, the purposes of which are explained fully on the Chapter
features page, will help you whilst studying and improve your chances of exam success.

Developing exam awareness
Our Interactive Texts are completely focused on helping you pass your exam.
Our advice on Studying F3/FFA outlines the content of the paper and the recommended approach to
studying.
Exam focus points are included within the chapters to highlight when and how specific topics might be
examined.

Using the Syllabus and Study Guide
You can find the syllabus and study guide on page ix – xxii of this Interactive Text.

Testing what you can do
Testing yourself helps you develop the skills you need to pass the exam and also confirms that you can
recall what you have learnt.
We include Questions – lots of them – both within chapters and in the Practice Question Bank, as well
as Quick Quizzes at the end of each chapter to test your knowledge of the chapter content.

v


F3/FFA FINANCIAL ACCOUNTING

Chapter features
Each chapter contains a number of helpful features to guide you through each topic.
Topic list

Tells you what you will be studying in this chapter and the
relevant section numbers, together with the ACCA syllabus
references.

Introduction

Puts the chapter content in the context of the syllabus as a
whole.

Study Guide

Links the chapter content with ACCA guidance.

Fast Forward

Demonstrates how to apply key knowledge and techniques.

EXAMPLE

vi

Summarises the content of main chapter headings,
allowing you to preview and review each section easily.

Key Term

Definitions of important concepts that can often earn you
easy marks in exams.

Exam Focus
Point

Tells you how specific topics may be examined.

Formula

Formulae which have to be learnt.

PER Alert

This feature gives you a useful indication of syllabus areas
that closely relate to performance objectives in your
Practical Experience Requirement (PER).

Question

Gives you essential practice of techniques covered in the
chapter.

Chapter Roundup

A full list of the Fast Forwards included in the chapter,
providing an easy source of review.

Quick Quiz

A quick test of your knowledge of the main topics in the
chapter.

Practice Question Bank

Found at the back of the Interactive Text with more examstyle chapter questions. Cross referenced for easy
navigation.

INTRODUCTION

Studying F3/FFA
How to Use this Interactive Text
Aim of this Interactive Text
To provide the knowledge and practice to help you succeed in the examination for Paper F3/FFA
Financial Accounting.

To pass the examination you need a thorough understanding in all areas covered by the syllabus and
teaching guide.

Recommended approach
(a)

To pass you need to be able to answer questions on everything specified by the syllabus and
teaching guide. Read the Interactive Text very carefully and do not skip any of it.

(b)

Learning is an active process. Do all the questions as you work through the Interactive Text so
you can be sure you really understand what you have read.

(c)

After you have covered the material in the Interactive Text, work through the Practice Question
Bank, checking your answers carefully against the Practice Answer Bank.

(d)

Before you take the exam, check that you still remember the material using the following quick

revision plan.
(i)

Read through the chapter topic list at the beginning of each chapter. Are there any gaps
in your knowledge? If so, study the section again.

(ii)

Read and learn the key terms.

(iii)

Look at the exam focus points. These show the ways in which topics might be examined.

(iv)

Read the chapter roundups, which are a summary of the fast forwards in each chapter.

(v)

Do the quick quizzes again. If you know what you're doing, they shouldn't take long.

This approach is only a suggestion. You or your college may well adapt it to suit your needs.
Remember this is a practical course.
(a)

Try to relate the material to your experience in the workplace or any other work experience you
may have had.

(b)

Try to make as many links as you can to other papers at the Introductory and Intermediate levels.

For practice and revision use BPP Learning Media's Practice & Revision Kit and Passcards.

vii


F3/FFA FINANCIAL ACCOUNTING

What F3/FFA is about
Paper F3/FFA aims to develop your knowledge and understanding of the underlying principles, concepts
and regulations relating to financial accounting. You will need to demonstrate technical proficiency in the
use of double entry techniques, including the preparation of basic financial statements for incorporated
and unincorporated entities, as well as simple consolidated financial statements for group incorporated
entities. You also need to be able to conduct a basic interpretation of financial statements. If you plan to
progress through the ACCA qualification, the skills you learn at F3 will be built on in Papers F7 and P2.

Approach to examining the syllabus
Paper F3/FFA is a two-hour paper. It can be taken as a written paper or a computer based examination.
The questions in the computer based examination are objective test questions – multiple choice, number
entry and multiple response. (See page xxiii for frequently asked questions about computer based
examinations.)
Both the written and computer based examinations are structured as follows.
Section A
Section B

35 compulsory objective test questions of two marks each
2 compulsory multi-task questions of fifteen marks each

Number of marks
70
30
100

Multi-task questions are a series of short questions relating to one scenario. These short questions can
take a number of formats, eg drop down lists, multiple choice, number entry and multiple response.
In paper exams, multi-task questions will require longer answers and workings need to be shown to
ensure that an error is only penalised once.

viii


INTRODUCTION

Syllabus and Study Guide

ix


F3/FFA FINANCIAL ACCOUNTING

x


INTRODUCTION

xi

F3/FFA FINANCIAL ACCOUNTING

xii


INTRODUCTION

xiii


F3/FFA FINANCIAL ACCOUNTING

xiv


INTRODUCTION

xv


F3/FFA FINANCIAL ACCOUNTING

xvi


INTRODUCTION

xvii

F3/FFA FINANCIAL ACCOUNTING

xviii


INTRODUCTION

xix


F3/FFA FINANCIAL ACCOUNTING

xx


INTRODUCTION

xxi


F3/FFA FINANCIAL ACCOUNTING

xxii


INTRODUCTION

The Computer Based Examination
Computer based examinations (CBEs) are available for the first seven Foundations in Accountancy
papers (not papers FAU, FTX or FFM) and ACCA papers F1, F2 and F3, in addition to the conventional

paper based examination.
CBEs must be taken at an ACCA CBE Licensed Centre.

How does CBE work?


Questions are displayed on a monitor.



Candidates enter their answer directly onto the computer.



Candidates have two hours to complete the examination.



When the candidate has completed their examination, the final percentage score is calculated
and displayed on screen.



Candidates are provided with a Provisional Result Notification showing their results before leaving
the examination room.



The CBE Licensed Centre uploads the results to the ACCA (as proof of the candidate's
performance) within 72 hours.



Candidates can check their exam status on the ACCA website by logging into myACCA.

Benefits


Flexibility, as a CBE can be sat at any time.



Resits can also be taken at any time and there is no restriction on the number of times a
candidate can sit a CBE.



Instant feedback is provided, as the computer displays the results at the end of the CBE.



Results are notified to ACCA within 72 hours.

CBE question types


Multiple choice – choose one answer from four options



Multiple response – select more than one response by clicking the appropriate tick boxes



Multiple response matching – select a response to a number of related statements by choosing
one option from a number of drop-down menus



Number entry – key in a numerical response to a question



Multiple task questions – a series of short questions related to one scenario. Question formats
could include number entry, drop-down lists, multiple choice, multiple response and hotspot

For more information on CBEs, visit the ACCA website.
www.accaglobal.com/en/student/Exams/Computer-based-exams.html

xxiii