PREPARE FINANCIAL REPORTS FACILITATOR MANUAL & ASSESSMENT BSBFIA401A

Transcription

1 PREPARE FINANCIAL REPORTS FACILITATOR MANUAL & ASSESSMENT BSBFIA401A

2 Precision Group (Australia) Pty Ltd 9 Koppen Tce, Cairns, QLD, info@precisiongroup.com.au Website: BSBFIA401A Prepare Financial Reports ISBN: Copyright Notice No part of this book may be reproduced in any form or by any means, electronic or mechanical, including photocopying or recording, or by an information retrieval system without written permission from Precision Group (Australia) Pty Ltd. Legal action may be taken against any person who infringes their copyright through unauthorised copying. These terms are subject to the conditions prescribed under the Australian Copyright Act Copying for Educational Purposes The Australian Copyright Act 1968 allows 10% of this book to be copied by any educational institute for educational purposes, provided that the institute (or the body that administers it) has given a remuneration notice to the Copyright Agency Limited (CAL) under the Act. For more information, info@copyright. com.au or visit for other contact details. Disclaimer Precision Group has made a great effort to ensure that this material is free from error or omissions. However, you should conduct your own enquiries and seek professional advice before relying on any fact, statement or matter contained in this book. Precision Group (Australia) Pty Ltd is not responsible for any injury, loss or damage as a result of material included or omitted from this material. Information in this course material is current at the time of publication.

3 Table of Contents 2 Legend 3 Qualification Pathways 4 Qualification Rules 5 Introduction 7 BSBFIA401A/01 Maintain Asset Register Key Points Prepare a register of property, plant and equipment from fixed asset transactions in accordance with organisational policy and procedures Determine method of calculating depreciation in accordance with organisational requirements Maintain asset register and associated depreciation schedule in accordance with organisational policy, procedures and accounting requirements 13 True or False Quiz 15 BSBFIA401A/02 Record General Journal Entries for Balance Day Adjustments Key Points Record depreciation of non-current assets and disposal of fixed assets in accordance with organisational policy, procedures and accounting requirements Adjust expense accounts and revenue accounts for prepayments and accruals Record bad and doubtful debts in accordance with organisational policy, procedures and accounting requirements Adjust ledger accounts for inventories, if required, and transfer to final accounts 23 True or False Quiz 25 BSBFIA401A/03 Prepare Final General Ledger Accounts Key Points Enter general journal entries for balance day adjustments in general ledger system in accordance with organisational policy, procedures and accounting requirements Post revenue and expense account balances to final general ledger accounts system Prepare final general ledger accounts to reflect gross and net profits for reporting period 39 True or False Quiz 41 BSBFIA401A/04 Prepare End of Period Financial Reports Key Points Prepare revenue statement in accordance with organisational requirements to reflect operating profit for reporting period Prepare balance sheet to reflect financial position of business at end of reporting period Identify and correct, or refer errors for resolution in accordance with organisational policy and procedures 49 True or False Quiz 50 Summary 51 Bibliography 53 Assessment Pack 1

4 Use considered risk taking in your grey area...and others will follow you! Legend This symbol indicates the beginning of new content. The bold title matches the content of the competency and they will help you to find the section to reference for your assessment activities. Activity: Whenever you see this symbol, there is an activity to carry out which has been designed to help reinforce the learning about the topic and take some action. This symbol is used at the end of a section to indicate the summary key points of the previous section. This symbol is used to indicate an answer to the Candidate s questions or notes to assist the Facilitator. 2

5 Qualification Pathways There are always two choices. Two paths to take. One is easy. And its only reward is that it s easy. Source Unknown This unit of competency is provided to meet the requirements of BSB07 Business Services Training Package although it can be used in a range of different qualifications. The BSB07 Business Services Training Package does not state how a qualification is to be achieved. Rather, Registered Training Organisations are required to use the qualification rules to ensure the needs of the learner and business customer are met. This is to be achieved through the development of effective learning programs delivered in an order that meets the stated needs of nominated Candidates and business customers. 3

6 Qualification Rules You re either part of the solution or part of the problem. Eldridge Cleaver Qualification requirements include core and elective units. The unit mix is determined by specific unit of competency requirements which are stated in the qualification description. Registered Training Organisations then work with learners and business customers to select elective units relevant to the work outcome, local industry requirements and the qualification level. All vocational education qualifications must lead to a work outcome. BSB07 Business Services Training Package qualifications allow for Registered Training Organisations (RTOs) to vary programmes to meet: Specific needs of a business or group of businesses. Skill needs of a locality or a particular industry application of business skills. Maximum employability of a group of students or an individual. When packaging a qualification elective units are to be selected from an equivalent level qualification unless otherwise stated. 4

7 Introduction Whether as an individual, or as part of a group, real progress depends on entering whole-heartedly into the process and being motivated to make you a more deeply satisfied human being. Source Unknown This unit of competency is all about preparing financial reports. It is for anyone who is working, or who wants to work in business. It will help you with the skills you need to demonstrate competency for the unit BSBFIA401A Prepare Financial Reports. This is one of the units that make up the Certificates in Business. This training is broken up into four distinct sections. These are: 1. Maintain Asset Register 2. Record General Journal Entries for Balance Day Adjustments 3. Prepare Final General Ledger Accounts 4. Prepare End of Period Financial Reports At the conclusion of this training you will be asked to complete an assessment pack for this unit of competency. The information contained in the Candidate Resource will assist you to complete this task. 5

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9 PART 1: Maintain Asset Register Key Points Section 1 An asset register is used to record the purchase and disposal of all fixed assets in a business. All fixed assets should be depreciated. This involves determining which method of depreciation to use (the most common methods being reducing balance and straight line). The asset register should record all depreciation information. 7

10 Part 1: Maintain Asset Register One of the costliest aspects of doing business is the purchase and maintenance of your fixed assets. Fixed assets are any form of asset that can not be easily turned into cash. They need to be sold in order for you to turn them into a liquid asset. Often, fixed assets are referred to as property, plant and equipment, as these are the three types of asset that are most commonly fixed. Because of the expense involved in purchasing fixed assets, it is important that as a business you have procedures in place for recording their purchase, and disposal, as well as depreciation (which allows you to expense out the cost of the purchase over a number of years thus reducing your profit and subsequently tax obligations). AASB116 covers the accounting standard requirements with regard to maintaining fixed assets. In this section, we will learn about the compilation of a fixed asset register, as well as examining the concept of depreciation and the common methods used for calculating it. A fixed asset register is a system that is used to compile and hold details of each fixed asset that a business owns. These details are quite comprehensive and will include all of the following: Serial number of the asset (or an asset ID code) A description of the asset in question The date it was purchased How much it was bought for How it was paid for The depreciation method and rate used for the asset The asset s current book value The date it was sold or disposed of The reason for any such disposal or sale How much was gained from the sale of the asset. This information is critical to a business because it allows the business to: Check the presence of assets in their business, that is, are they actually there? Determine the current net book value of an asset, so that this can be added into the ledger accounts. Determine how values in the balance sheet are obtained. Determine the finance status of any asset, which is important if an asset is to be sold. An asset register may be manual or computerised. For the most part, modern businesses use a computerised system, however, you can use a card based system where every asset has a card, which is filled in with all the relevant details on it. 8

11 Part 1: Maintain Asset Register Any organisation needs to attempt to report depreciation accurately in its financial statements and books for two main reasons. The business needs to try and match its income and expenses and it needs to ensure that in the books its asset values are not overstated. Think of a car; you know that it is worth less in year 5 than it is in year 1. Depreciation is a method that is used to write off the value of fixed assets over the useful life of that asset, turning the asset s cost into a business expense. In order for depreciation to be effective, the business must ensure that it is applied consistently across its business operations and in line with general rules with regard to depreciation in terms of tax. Let s now look at two major methods that are used to depreciate fixed assets. Straight Line Depreciation This method of depreciation is the easiest to calculate and is therefore the one that you see used most often. Using this method, an organisaion will determine the salvage value (this is the value of an asset at the end of its life) of a fixed asset, subtract that from the original cost of the asset and expense the remaining value over the useful life of the asset equally each year. The amount that will be depreciated each year is calculated by: (cost of asset salvage value) / life span of asset in years Let s now look at an example: Star Industries buys a new car for $21,000 and it is expected that this car has a useful life to the organisation of 6 years. At the end of 6 years, it is expected that the car will be worth $4,000. Star will be able to depreciate the asset at a rate of $2,833 a year calculated by (21,000-17,000) / 6. The depreciation schedule for this asset would look like: Book Value - Beginning of Year Depreciation Expense Accumulated Depreciation Book Value - End of Year $21,000 $2,833 $2,833 $18,167 $18,167 $2,833 $5,666 $15,334 $15,334 $2,833 $8,499 $12,501 $12,501 $2,833 $11,322 $9,668 $9,668 $2,833 $14,655 $6,835 $6,835 $2,833 $16,998 $4,002 (Scrap Value) 9

12 Part 1: Maintain Asset Register Reducing Balance method This method of depreciation attempts to capture a higher level of depreciation in the early years of an asset s life, with lower values in later years. Cars and computers are two assets that generally lose their value faster in early years. This method of depreciation is calculated simply by multiplying the book value at the beginning of the year by a specific depreciation rate. The Australian Taxation Office produces Tax tables that list depreciation rates for specific assets, or in some cases it is common to see a rate of double the straight line rate. So, for example in our last example, depreciating an asset over 6 years gave us a depreciation rate of 17% a year using the reducing balance method we could depreciate at 34% a year, which would give us a depreciation table of: Book Value - Beginning of Year $21,000 (Original Cost) Depreciation Rate Depreciation Expense Accumulated Depreciation Book Value - End of Year 34% $7,140 $7,140 $13,860 $13,860 34% $4,712 $11,852 $9,148 $9,148 34% $3,110 $14,962 $6,038 $6,038 34% $2,052 $17,014 $3,986 Earlier in this section, we examined the asset register. Let s now look at how the register is maintained and used. The major change to any fixed asset register entry over time will concern depreciation and book value. The process of updating these values is simplified by using depreciation schedules such as those provided in Tax tables as mentioned previously. A depreciation schedule should show the book value at the beginning of each year, the rate of depreciation applied (if the method requires it, the depreciation expense, the accumulated depreciation and the book value at the end of each year. Looking at the above example, you can see that the original book value was $21,000 with $7,140 being depreciated in the first year. This means that at the start of the second year, the depreciation is applied and the book value should be $13,860 and so on. This means that you need to ensure that the book value in the asset register is changed to reflect this each year. As mentioned earlier, computerised systems simplify this process in that they will automatically calculate the book value each year for you. The next step in the process is to examine how the depreciation schedule is applied to the books. We will cover this in more detail when we look at balance day adjustments. 10

13 Part 1: Maintain Asset Register Before you can really start setting financial goals, you need to determine where you stand financially. David Bach 11

14 Part 1: Maintain Asset Register Activity One Calculate straight line depreciation on the following asset: A computer was purchased for $1,799. It will be depreciated over 3 years, with a residual value of $299. Answer to Activity One Book Value - Beginning of Year $1799 (Original Cost) Depreciation Expense Accumulated Depreciation Book Value - End of Year $500 $500 $1,299 $1,299 $500 $1000 $799 $799 $500 $1500 $299 12

15 Part 1: Maintain Asset Register Section 1 - True or False Quiz True False Plant is an example of a fixed asset. An asset register is used merely as a record of an item s purchase. It is a security measure, helps assist with asset valuation and determines the financial status of an asset. There is only one form of depreciation. There are numerous methods used to calculate depreciation. The Australian Tax Office produces depreciation tables for common assets. Depreciation only affects the asset register. It is also entered into journals and ledgers. Reducing balance captures a higher level of depreciation in the early years of an asset s life, with lower values in later years. Straight line is calculated using the following formula - (cost of asset salvage value) / useful life span of asset in years. The major change to any fixed asset register entry over time will concern depreciation and book value. Depreciation allows for the writing off of an asset s cost over its lifetime. A serial number need not be recorded in an asset register. The asset register should include a serial number (on an asset ID code). 13