LS_Week1_Student

ACCT1511: AFM1B Accrual Concepts in Week 1Accrual Concepts inAccountingPeter LamQUAD 3069m@.auImportant Announcements⏹Tutorials–Must enrol via myUNSW–Revision exercises this week⏹Check WebCT Vista access–Contact IT Service DeskCourse Outline⏹Course outline –also up on WebCT Vista⏹Please read the Course Outline carefully!O1–Assessments–Administrative matters–Available resources–Staff contact detailsStaff Members (p.3) Lecturers:⏹Peter Lam (LIC) –weeks 1-5, 12⏹Leon Wong –weeks 6-11Tutors:⏹Najeeb Memon ⏹June Chan⏹Phillip Nguyen ⏹Sarah Tan⏹Qixin Li Admin Assistant:⏹Josie PangCommunication 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 onlyCourse 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 (Learningobjectives)Tutorial Questions (p.7-8)⏹Preparation Questions (p.7)–Suggested solutions are up on WebCT Vista⏹Homework Questions (p.8)–Homework preparation assessment: we willdiscuss this later–Suggested quantitative solutions on WebCTAFTER tutorial classesYour Responsibilities (p.7)⏹Must prepare for tutorials⏹Workload –at least10 hours/week per Course ⏹Attendance requirements⏹Announcements–WebCT Vista–Lectures–Email to student accountCourse 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 higherAND2.Satisfactorily complete all assessment tasksAND3.Pass the final examination (normally > 50%)⏹Pass Conceded–School Committee NOT LIC–Note: CPA/CA requirementsTwo Class Quizzes (p.9-10)⏹In week 5 and 11⏹15% each of your composite mark⏹In your enrolled tutorials onlyDetails on p910⏹Details on p.9-10⏹Further details later⏹No special consideration/supplementary quizTutorial Participation (p.10)⏹4% of your composite mark⏹Awarded for active participationHomework 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 detailsSpecial 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 forpSpecial Consideration is taken into account whenconsidering each case.⏹SC is for Final Exam only (not quizzes!)⏹If SC is accepted, supplementary examination will be offeredSpecial Considerations –Myths1.Supplementary exam will always be given if youdid not sit the Final Exam⏹NOT TRUE⏹Depends on your performance2.Marks will be scaled up if you sat the exam⏹NOT TRUE⏹Marks are NEVER scaled up due to specialconsideration⏹The ONLY form of special consideration will besupplementary exams for the FinalStudent Resources (p.16)Textbook:⏹Trotman and Gibbins⏹3rd Edition⏹Including MA supplement–Weeks 9 to 12Student 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 VistaCourse Website (p.16)⏹WebCT Vista.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 communicationusing emailOther Resources (p.17)⏹Learning and study support⏹Counselling⏹Equity and Diversity supportPlease come and see me this week–Please come and see me this week⏹School website⏹PASSLecture Topics and Assessment Schedule (p.19)⏹Week 1-2: Revision and measurements inaccounting⏹Weeks 3 –5: CFS Weeks6–7:FSA/APC Week 5: Class Quiz 1HoWe are here⏹Weeks 6 –7: FSA/APC⏹Week 8: Corporate governance and ethics⏹Week 9 –11: MA⏹Week 12: MA/Course ReviewWeek 11: Class Quiz 2omework CheckRevision Exercises…⏹Page 5 –6⏹Please start reading exercises…O2Assets & Liabilities: Definition & RecognitionDoes the item have all the essentialcharacteristics of an A (L)?O4Does the A (L ) meet both the recognition criteria?Details might appear in the annual report Separately disclosed in thenotesA (L) recognised in theentity’s balance sheetAssets: Definition⏹“An asset is a resource controlled by the entity as aresult of past events and from which future economic benefits are expected to flow to the entity” (AASBFramework, 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 recognitioncriteria (AASB Framework, paragraph 83):1It is probable that any future economic1.It is probable that any future economic benefit associated with the item will flow to the entity; and2.The item has a cost or value that can be measured with reliability.Example 1i.ii.A storage warehouse purchased for cash Essential characteristics:⏹Benefits ⏹Control iii.⏹Past transaction Recognition criteria:⏹Probable ⏹Measured reliably (a)(b)Example 2i.ii.Essential characteristics:⏹Benefits A highly specialised equipment without resale or residual valueiii.⏹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 forservices to be rendered.3.List of subscribers to an Internet service.4.CBA’s satisfied customers.5.Students enrolled in a BCom degree atUNSW.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 benefitsLiabilities: Recognition⏹Recognition –only when the item meets tworecognition criteria (AASB Framework,paragraph 83):1.It is probable that any future economicbenefit associated with the item will flow fromthe entity; and,2.The item has a cost or value that can bemeasured with reliability.Example 1A loan obtained from a bank to be repaid in 10 yearstime.Essential characteristics:⏹Present obligation Future outflow i. ii⏹Future outflowRecognition criteria:⏹Probable⏹Measured reliably (a)(b) ii.Example 2A company has signed a guarantee over a $2,000,000 loanobtained by a subsidiary company. The subsidiary is in an excellent financial position.Essential characteristics:⏹Present obligation i.⏹Future outflowRecognition criteria:⏹Probable⏹Measured reliably (a)(b) ii.Test Your UnderstandingAre 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 Liabilities1.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.O5q g5.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 waituntil the end of an entity’s life.–Reliable–Not timely–decision relevant O6Not decision relevant⏹Periodic profit–Divide the lifetime profit into periodic profit–Timely & decision relevant–But greater uncertainty & requires more judgmentIncome: Definition⏹“increases in economic benefits during the accountingperiod… that results in increases in equity, other than those relating to contributions from owners (AASBFramework, paragraph 70)… and encompasses bothrevenue and gains(AASB Framework, paragraph 74)”⏹Essential characteristics:–Increases in economic benefits–results in increases in equity–other than contributions from ownersIncome: Definition & Recognition⏹Income = Revenue (ordinary course of business)+ Gain (not ordinary course of business)⏹Recognition (AASB Framework, para 92):–Increase in future economic benefits, whetherincrease in asset or decrease in liability–Can be measured with reliabilityRevenue generating activities⏹Thinking of an idea⏹Organising a firm⏹Buying or making inventoryAdvertising a product⏹Advertising a product⏹Selling a product⏹Delivering a product⏹Billing a customer⏹Collecting cash⏹Providing warranty servicesCritical Event⏹Provision of most of the services e.g.⏹Most of the costs have been incurred (or can bemeasured) 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’ distributionsExpenses: Recognition⏹Recognition (AASB Framework, para 94):–Decrease in future economic benefits, whether decrease in asset or increase in liabilitydecrease in asset or increase in liability–Can be measured with reliabilityMatching ConceptsO7⏹Timing of recognition–Expenses recognised on direct associationbetween costs incurred and earning of specificitems of income (AASB Framework, para 95)–In same accounting period as the revenue towhich 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 valueof 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 yearsN id l lE.g. Purchase of a Notebook Computer –No residual value ⏹Cost?⏹Asset?⏹Expense?Case: Notebook –Account BalancesYear Cost Accumulated Depreciation CarryingValue (Asset )DepreciationExpense 123Notebook Manufacturer⏹Revenue or Liability? Asset or Expense?⏹Receive order⏹Receive cash paymentObtain parts from suppliers $800⏹Obtain parts from suppliers $800⏹Assemble notebook⏹Ship notebook⏹Pay courier for shipping $100⏹Pay suppliers for partsSummaryO1.Course outlineO2. Accrual accountingO3. GAAPO4. Definition and recognition ofO4Definition and recognition ofAssets/LiabilitiesO5. Methods for measuring Assets/Liabilities O6. Revenue recognition techniquesO7. Concept of Matching。