Aqa accounting unit 3 and 4 June 2016

Do you need to show the loan interest on the capital account? And where do show it on balance sheet ?
HELP!

My predictions.

Task-1 partnership capital account including g&v method
Task-2 complicated incomplete records
Task-3 extract of cash flow probably worth 8-9 marks and a qualitative question based on contingent assets and liabilities.
Task-4 schedule of non current asset
+ 80% possibility their will be question on inventory either qualitative or quantitative if qualitative then it could be either that advice the most appropriate form of inventory method where we will have to talk about avco and fifo adv and dis for both of them.

I had an A last year not bragging just saying I have done research and I may well be wrong so follow your own instincts or just learn the whole spec properly so if aqa messes up u will still be ready to smash it :d

If the the firm does not keep capital and current account seperate then yes you have to show but if the firm has seperate capital and current account then you show the interest in current account because capital account is for the permanent capital and current account is the fluctuating one.

Interest on capital goes in credit of current account

Interest on drawing goes on debit of current account

If current account is not used then just do the same on capital account

You do not include this in the balance sheet because it has already been taken care in the capital/current account however, u have to show in the appropriation account after profit for the year.

Be also vigilant aqa is very naughty to write that partner loan will incur 5% interest per year as this is a loan seperate from partner capital hence this is an expense which means u calculate the interest and show as an expense before profit for the year is calculated in income statement.

So let's say three partners ABC

B has made a loan to partnership worth 10000 at 5% per year.

Now as this is a loan seperate from his capital this is treated as a non current liability and B will make 5% interest on his loan now this interest will be added to his current account and the interest amount shown in income statement as an expense before profit for the year is calculated do not worry about the balance sheet because this already has a dual effect credit on capital and debit on income statement.

However, if the question says interest to be allowed on partner capital careful capital not loan at 6% per year.

Then you calculate the interest and do the same put that in current account.

Do not treat the interest on capital as an expense once u have calculated the profit for the year then you do partnership appropriation account where u show the partner salary interest allowed on capital interest charged on drawing and then split the profit based on their ratio.

Thank youuu soo much and good luck for the exams

When you calculate the profit from operations in the cash flow statement would you include dividends paid?

e.g Profit for the year XXX
+Taxation
+Interest
=Profit from operations

Dividens paid?

I assume you are doing 2015 past paper

CASH FLOW

profit for the year
+ dividends paid
+ interest paid
+ tax paid
= profit from operation

The reason we include dividends paid in this because we are doing a cash flow and this is the cash from operating section when you write the section that is 'cash from financing activities' there you will include

Cash flow from financing activities
-dividends paid

At the end of the day you are subtracting dividends anyways because cash has left the business and their is indeed effect on cash flow but the principle is that you are making it clear to shareholders that cash left is due to the financing activities so it shows a fair record however, if u don't show the dividends paid - in financing activities you will loose mark

So to summarise and make it easier whenever u do cash flow always think about what is happening to cash? Is cash coming in? Cash going out? Example property revalued no effect on cash because no cash has came in the business this theory will make it easier for u to understand and divide the cash flow into three sections

Cash from operating activities
Cash from investing activities
Cash from financing activities
Their is usually 2 marks for presentation and 1 mark is for the heading + 1 mark for the sub division

Thanks for the explanation but in this paper
http://web.archive.org/web/20130415130527/http://filestore.aqa.org.uk/subjects/AQA-ACCN3-W-MS-JUN10.PDF

on task 4 they have not included dividends paid in profit from operations but its shown only on Cash from financing activities section, why is it like that?

Ok you seem to have confused me too lol let me explain why is that.

Whenever profit from operation is given you always take that and then you do the usual adjustments.

However, as in the case of June 2015 the income statement wasn't given it was a balance sheet and you had to find profit from operations.

The way it was found was that u take the retained earnings from the balance sheet and then you
+tax
+ dividends
+ interest
Have a look at June 2015 task 4 you will have an idea what I am talking about this was due to the fact that when the balance sheet showed retained earning we had to find profit from operation to do the further adjustments such as depreciation increase/decrease in trade receivables/payables to find the net cash from operation.

However, if profit from operation is given as in your case you always take that the first figure and then you do adjustments to summarise dividends have not been taken from profit from operation so their is no need to add but aqa can twist the question as they did in 2015 and give u a balance sheet with retained earning as a result you will add dividends+tax+interest because dividends were taken and then the leftover was retained.

Ok had a quick look at the book this is how the concept is

If balance sheet is given and you have to draw up a cash flow statement then you will add dividends+ tax+ interest to retained earnings

If income statement is given then do not add dividend to profit for the year because dividend is not an expense so profit for the year + tax + interest which means I was wrong before that's because I assumed ur doing it from the balance sheet June 2015

Now why we add dividends to retained earning? June 2015

This is because retained earning is the left over after all the dividends are paid + those dividends were paid and for cash flow we need profit from operation- profit from operation is net profit before tax and finance costs hence we add tax + finance to find profit for the year but dividends paid were also taken from profit from the year note this only applies to balance sheet when they don't give u profit from operation and you have to find it from a balance sheet.

How would you treat an inventory loss on financial statements?

I suspect the solution to be

closing inventory - amount of lost inventory

Income statement
Expenses
Write off inventory amount

I am not confident about the treatment of this but it's just a suggestion didn't saw a single question about this from aqa where they ask you to calculate inventory loses and then prepare income statement. Again I may be wrong on this but because the closing inventory has been decreased and we can't decrease the purchases because those were actually purchased therefore to balance it we would need to add it as expenses in income statement just like bad debts however, strictly speaking I am not sure confirm with ur teacher:d

can someone quickly explain the use of bonus issue ?

bonus issues are usually issued to shareholders when the business is unable to pay dividends for that particular year, so they give out bonus shares to the existing shareholders instead to keep them happy. So the business doesn't get any extra capital by issuing these types of shares therefore to pay for them it would come out of the business's capital reserves such as revaluation reserve or share premium.

I don't think this would come up in unit 3 because its a unit 2 topic but I would learn it just in case AQA mess up so you can still smash your unit 3

I hope a big cash flow statement question comes up as I've spent ages learning the layout!