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BMAN 21020: Financial
Reporting and Accountability
Revision Advice and Preparation for
Ground Rules on Questions relating to the Exam
▪ Assessment guidance provided in this Lecture
▪ To ensure the same information is available all, no
additional information will be provided by either your
workshop leader or lecturer on an individual basis
▪ Emails cannot be answered on individual questions
relating to the assessment…..nor can we have
individual conversations with you….
…… Please: use Blackboard discussion forum for Q’s
Revision Strategy
▪ You should focus revision across the topics covered in
semester 2 and NOT on a small number of topics.
▪ The exam will comprise MCQ and written section to
allow for a full coverage of the syllabus
▪ Assessment will cover a range of Semester 2 topics, so
you need a broad understanding of the subject to do well
Approach to Revision
Sources of Revision in Order of importance
– Revision Activities
– Workshops
– Exercises set in lectures
– Homework Activities & review questions
– Core text book chapters covering lecture topics
– Wider financial press
– Academic papers
Remember this is a
very dynamic
subject. Financial
press contains
many of the issues
we discussed in
lectures. Use these
examples to
enlighten your
answers.
May 2022 Assessment
▪ 50% of your course grade (other 50% = Semester 1)
▪ Format is same as for semester 1, but with only ONE
compulsory question for the open-book section:
Semester 2 assessment:
▪ MCQ Section (1 hour, 60 marks: 1 minute per mark)
10 Questions, ranging between 2 and 8 marks 40%
▪ Open-Book EXAM (1½ hour, 60 marks: 1½ mins per mark)
Q1 (compulsory): 5 sections. Essay-style question on
interpretation, with other aspects [1,500 words] 60%
Assessment Areas from Semester 2
Interpretation
▪ Basic ratios & extensions; Trend & multivariate analysis; recasting for comparability
▪ Revise WSP 2 (Positive Accounting Theory)
Equity & Liabilities:
▪ Capital Maintenance
& Distributable Profits
▪ Capital Reconstruction
▪ Financial Instruments
▪ Company Tax
▪ Employee Benefits
Normative Theories:
▪ Changing prices
Positive Accounting Theory:
▪ How A/c-based agreements with lenders & managers can
incentivise manipulation (Thomas Cook in Workshop):
▪ E.g., debt covenants and financial instruments
▪ E.g., executive pay related to reported profit
Corporate Governance and Audit
▪ Role of: Board of Directors and external auditor
MCQ section
▪ For the first section you will have 10 MCQ questions.
Areas that may be covered include:
Equity & Liabilities:
▪ Capital Maintenance
& Distributable Profits
▪ Capital Reconstruction
▪ Financial Instruments
▪ Company Tax
▪ Employee Benefits
(pensions)
Normative Theories:
▪ Changing prices
Corporate Governance and Audit
▪ Role of:
o Board of Directors
o External auditor
MCQ section
Capital Maintenance & Distributable Profits: Topic 1 Sem 2: Lecture 1, WSP 1
▪ Financial capital maintenance [Historic Cost Accounting
– Perspective taken in historical cost accounting
▪ Purchasing power maintenance [Current Purchasing Power]
– HC adjusted for changes the purchasing power (inflation)
▪ Physical operating capital maintenance [Current Cost Accounting]
– Revaluing transactions to current costs to maintain funds for the
same level of operations
Normative Accounting Theory: Accounting for changes in prices
Text [p. 64]
Capital of £10, buys one unit of X (RPI: 100). Year 1: sells
X at year end (RPI: 140, replacement cost: £15) for £20.
Income statement
Financial Capital
Maintenance
(Nominal: HC)
Financial Capital
Maintenance
(Purchasing Power)
Physical
Capital
Maintenance
Sales 20 20 20
Cost/replacement
Profit (all paid as dividends)
(10)
10
(14)
6
(15)
5
“Retained” (relative to HC) - 4 5
Opening Capital: 10 10 10
Closing Capital: 10 14 15
All reported profit
is paid as dividends
Cash (after dividends paid) 10 14 15
SOFP
Capital Maintenance
Capital Maintenance & Distributable Profits: Topic 1 Sem 2: Lecture 1, WSP 1
Go through the workshop activities to remind you of the alternative
accounting treatments that were proposed.
Revision Area in Blackboard: Revision Qs answers after quiz answered
o Two types of MCQ possible:
o What profit is distributable whilst maintaining HCA / CPP / CCA
o Holding gains (inventory held), or loss (holding cash under CPP)
o More detailed revision activity also provided (which goes beyond
the level of exam, so is optional: not required for revision)
Normative Accounting Theory: Accounting for changes in prices
Capital Reconstruction
Key areas to revise include:
▪ Can you explain why creditors may be willing to agree to a
reduction in share capital and a restructuring of the business
that owes them money?
▪ Can you account for a capital reconstruction and
reorganisation? This will require knowledge of double entry
and the ability to use a Capital Reorganisation account as a
“stepping stone” to complete the full list of adjustments.
▪ We went through an example in the relevant workshop
Capital Reconstruction: Here’s a REVISION Q for you:
£'000 £'000
Non-current Assets (PPE) 170
Current Assets (no cash) 220
Current Liabilities
Trade Payables (220)
Bank Overdraft (50)
(270)
Net Current Liabilities (50)
Total Assets less liabilities 120
Capital and Reserves
150,000 Pref shares (£1) 200
100,000 Ord shares (£1) 100
Retained Earnings (180)
120
The following capital restructuring scheme is approved
and authorised:
i. 50,000 of the ordinary shares are to be
surrendered.
ii. The preference shares are to be surrendered and
cancelled and the holder of every 50 pref shares
pays Beta £30 cash, and gets issued :
o One 7% loan note of £50 each, and
o 20 fully paid ord. shares of £1 (redistributing
shares from [i])
iii. The freehold property to be revalued upwards by
£80,000
iv. The negative balance on retained earnings to be
written off, with any remaining balance on the
Capital reduction and reorganisation (CR&R) used to
write down equipment.
FULL Q with Test for you will be in BBD’s Revision [Sem 2] ANS available once you complete test
Capital Reconstruction
Other aspects:
What are the
challenges in
raising finance for a
company with this
SOFP?
How would the
company manage
to persuade
stakeholders to:
o Accept the
restructuring
o Be willing to
provide more
cash
Capital Reconstruction
Revision Area also includes
Quiz based on another Capital Reduction and Reorganisation
(CR&R) question, so you can see how MCQs may be raised – e.g.:
o What is the remaining balance on the CR&R account (to use to
write down an asset)
o What are the impacts on CR&R relating to some of the
proposed adjustments (e.g. steps 1 and 3 in previous slide)
Two Further Activities included in revision section.
Company Tax
Company Tax
▪ Revision [Sem 2] contains short test on accounting entries relating to tax.
Most companies have a corporation tax account and a deferred tax account;
consider their impact on the income statement. An over- or under-provision
from previous years, means income statement tax charge differs from the
closing Tax liability. Similarly, accelerated capital allowances (or other timing
differences) will also impact upon the tax charge in the year.
▪ Ensure you focus on the concepts of deferred tax: how they arise and why
we account for them as we do:
o Deferred Tax Liability
o Deferred Tax Asset
when is each recognised and why,
and how is each calculated?