Award in Financial Reporting – Introduction

Award in Financial Reporting – Introduction

Module 3 of Accounting Bundle Part 1

Generic Unit description

The main objective of this unit is to provide learners with all the knowledge and skills required to prepare a set of financial statements for both partnerships and limited liability companies. This unit builds on the knowledge and skills acquired from studying Fundamentals of Intermediate Bookkeeping. Through this unit, learners will further develop their understanding of the preparation of the financial statements for other entities. This unit will enable learners to become familiar with the legal aspects of partnerships as outlined in the Companies Act, 1995. In addition, the learners will acquire skills to prepare an appropriation account as part of the final accounts as well as the partners’ capital and current accounts. Furthermore, learners will also develop the necessary skills to apply the fundamental accounting concepts and principles for the preparation and presentation of the period end financial statements of limited liability companies in according with the General Accounting Principles for Small and Medium Sized Entities (GAPSME) regulations and the Companies Act, 1995. The GAPSME is the default accounting framework for SMEs in relation to financial reporting. It should be noted that most business in Malta are small to medium and therefore adopt the GAPSME as their reporting framework. This unit will help learners get familiar with the accounting terminology as per the GAPSME. Learners will also be introduced to the elements of the financial statements including the Income Statement, Balance Sheet, Statement of Changes in Equity, Cash Flow Statement and statutory notes to the accounts.

Overall Learning Outcomes

LO1 Prepare the financial statements for a partnership.

LO2 Review the regulatory framework to produce the financial statements suitable for publication.

LO3 Comprehend the capital structure of limited liability companies and finance costs.

LO4 Prepare the financial statements for a limited liability company.

Unit Content

LO1 Prepare the financial statements for a partnership

• Define the different types of partnership as set out by the Companies Act 1995:
  • Partnership en nom collectif
  • Partnership en commandite
  • A company:
    • Public company
    • Private company
    • Exempt private company
• Explain what a partnership deed is and what the agreement contains.
• The preparation of the Partners’ income statement, clearly showing the appropriation of profits and losses amongst partners taking into consideration: o Interest on capital o Partnership salaries
  • Interest on drawings
• Recording the entries in the partners’ capital and current accounts.
• The preparation of the statement of financial position clearly showing the partners’ capital section.

LO2 Review the regulatory framework to produce the financial statements suitable for publication

• Outlining the main important sections of the GAPSME as the local’s regulatory framework
  • The objective of the GAPSME. o The applicability of the GAPSME.
  • The concepts and the pervasive principles of accounting in accordance to section 3 of the GAPSME.
• The qualitative characteristics of information in financial statements:
• Understandability
• Relevance
• Reliability
• Substance over form
• Completeness
• Comparability
• Timeliness
• Balance between benefit and cost

LO3 Comprehend the capital structure of limited liability companies and finance costs

• Identifying the differences that exist between the accounts of sole traders, partnerships and limited liability companies.
• Capital structures: o Ordinary shares. BCACC-406-2112 Page 5 MCAST Controlled and Approved Document Unauthorised copying or communication is strictly prohibited
  • Preference shares (redeemable and irredeemable)
  • Debentures (loan notes)
• Company reserves:
  • Share capital
  • Share premium
  • Revaluation reserves
  • Other reserves
  • Retained earnings
• The recording of dividends in the ledger accounts and the financial statements.
• The calculation and recording of finance costs in the ledger accounts and the financial statements.

LO4 Prepare the financial statements of a limited liability company

• The main objective of preparing the financial statements.
• The underlying assumptions used in the preparation of the financial statements according to Section 3 of the GAPSME.
• The duties and responsibilities of the company’s directors in the preparation of the financial statements.
• The main elements of the financial statements according to GAPSME.
• Financial statement preparation according to section 4 of the GAPSME:
  • Balance sheet
  • Income statement
  • Statement of changes in equity
  • Statement of cashflows (Direct Method)
  • Main disclosure requirements to be included in the financial statements