Suggested Revised BAFS Curriculum Draft as at 30 January 2013 Elective Part -- Accounting Module 2(a) Financial Accounting Topic Books of Original Entry and Types of Ledgers Explanatory Notes (original 2007) Explain the functions of books of original entry and ledgers. (ii) Record transactions in books of original entry and post to ledger accounts. Explanatory Notes (Fine-tuned as at 30 Jan 2013) Explain the functions of books of original entry and ledgers. (ii) Record transactions in books of original entry and post to ledger accounts. Remarks - Removed from Compulsory part- 1(c) (iii) Identify the major classifications in ledgers. (iii) Identify the major classifications in ledgers. Period-end Adjustments Relating Differentiate between cash accounting and accrual accounting. Differentiate between cash accounting and accrual accounting. Balancing-day is an old-fashioned term. to the Preparation of Financial Statements (ii) Distinguish between bad debts and (ii) Distinguish between bad debts and allowance for doubtful accounts. allowance for doubtful accounts. (iii) State the meaning and objectives of (iii) State the meaning and objectives of providing depreciation in accounting. providing depreciation in accounting. 12
(iv) Distinguish between capital and revenue expenditure. Students should be able to distinguish between capital and revenues expenditures before the calculation of depreciation for non-current assets. (iv) Compare the commonly used depreciation methods: straight-line, reducing-balance and depreciation based on usage; and explain the effect of depreciation charge on profits. (v) Compare the commonly used methods of depreciation: straight-line, reducing-balance and depreciation based on usage; and explain the effect of depreciation charge (including disposal) on profits. Disposal of non-current assets including trade-in is required. (vi) Apply the following to determine the value of inventory: 1. lower of cost and net realisable value; and 2. sale or return 3. weighted average cost Valuation of inventory under other cost flow assumptions (FIFO, LIFO, AVCO) are not required. Perpetual inventory system is not required. 13
(v) Prepare adjusting entries in the general (vii) Prepare adjusting entries at the close of journal, income statement and balance accounting periods and show their sheet. effects on income statements and statements of financial position (balance sheets). Financial Reporting for Different Forms of Business Prepare properly presented income statements and balance sheets for sole proprietorships, partnerships and limited Prepare properly presented income statements and statements of financial position (balance sheets) for sole Both horizontal and vertical form for preparing the financial statements are required. Ownership companies. proprietorships, partnerships and limited Financial companies. statements Accounting for partnerships (ii) Prepare appropriation accounts and current accounts for partnerships. (ii) Define goodwill and explain the factors affecting its valuation. (iii) Define goodwill and explain the factors affecting its valuation. Valuation of goodwill is not required. (iii) Prepare the necessary adjustments to (iv) Prepare the necessary adjustments to partner(s) capital and/or net assets partner(s) capital and/or net assets arising from changes in profit-sharing arising from changes in profit-sharing ratio, admission and retirement of ratio, admission and retirement of partner(s). partner(s) at the beginning or end of a financial year. (iv) Analyse the factors leading to the dissolution of a partnership. (v) Prepare the necessary accounting entries required in dissolution. (v) Prepare the necessary accounting entries required in dissolution. Piecemeal realization and the Garner v Murray rule are not required. Conversion to limited company is not required. 14
Accounting for (vi) Distinguish between authorised / (vi) Explain the nature of share capital Revaluation of non-current assets is limited companies registered and issued capital. (preference shares and ordinary shares), not required. loan capital (debentures), reserve and Calculation of impairment loss is provision. not required. (vii) Prepare journal and ledger entries (vii) Prepare journal and ledger entries Only requires knowledge of issue of relating to the issue of ordinary shares relating to the issue of ordinary shares shares at par or at a premium, and and debentures fully paid on and debentures fully paid on application issue of debentures at par. application. Oversubscription and the related refunds are required. rights and bonus (capitalization) issues of shares not required] (viii)prepare appropriation accounts and calculate the balance of retained profits curriculum for limited companies. (viii)distinguish between the nature of Subsumed under (vi) reserves and provisions. (ix) Describe the regulatory framework of accounting in Hong Kong. Control Systems Explain the need to keep ledger control Control accounts accounts for the accounts receivable and their reconciliation and accounts payable ledgers. (ii) Prepare ledger control accounts and Deleted reconcile them with respective subsidiary ledgers. 15
Control Systems (iii) Explain the functions of a bank Explain the functions of a bank Bank reconciliation reconciliation statement. reconciliation statement. statement (iv) Identify reasons for discrepancies (ii) Identify reasons for discrepancies between cash book and bank statement between cash book and bank statement balances and prepare a bank balances and prepare a bank reconciliation statement. reconciliation statement. Correction of (v) Identify the types of accounting errors (iii) Identify the types of accounting errors errors and their effects on accounting records. and their effects on accounting records. (vi) Prepare correcting entries and, where (iv) Prepare correcting entries and, where Generally Accepted appropriate, a suspense account. Explain the key assumptions underlying appropriate, a suspense account. Merged with (iii) Accounting the preparation of financial statements: Principles accrual and going concern. (ii) Describe the principal qualitative characteristics of financial statements: understandability, relevance, reliability and comparability. (iii) Explain the meaning, importance and shortcomings of the following principles and concepts: business entity, historical Explain the meaning, importance and shortcomings of the following principles and conventions: business entity, going - Suggest providing examples for substance over form in Supplementary Notes. cost, prudence, consistency, materiality, concern, historical cost, consistency, matching, objectivity, timeliness, accrual, matching, realisation, prudence, realisation, money measurement and materiality, objectivity, timeliness and substance over form (to be deleted). money measurement. (iv) Apply the relevant accounting principles (ii) Apply the relevant accounting principles and concepts in accounting situations. and concepts in accounting situations. 16
Financial Analysis Describe the following types of financial statement analysis: ratio analysis, trend analysis, horizontal analysis and vertical analysis. (ii) Calculate ratios and comment on a company s profitability, liquidity, solvency, management efficiency and return on investment: mark-up, margin, Calculate ratios and comment on a company s profitability, liquidity, solvency, management efficiency and return on investment: mark-up, margin, List the ratios covered in Compulsory Part in the Supplementary Notes: working capital/current ratio, quick/liquid inventory turnover, days sales in accounts receivable, days purchases in accounts payable, accounts receivable inventory turnover, days sales in accounts receivable, days purchases in accounts payable, accounts receivable ratio, gross profit ratio, net profit ratio and return on capital employed turnover, accounts payable turnover, turnover, accounts payable turnover, earnings per share, total assets turnover, earnings per share, total assets turnover, gearing, dividend cover and gearing, dividend cover and price-earnings ratio. price-earnings ratio. (iii) Propose remedial actions which will improve the financial performance of a company. (iv) Explain the functions and limitations of accounting ratios in financial analysis. (ii) Explain the functions and limitations of accounting ratios in financial analysis. This application is less relevant to accounting students. Incomplete Records Determine profits or losses from statement of affairs. Determine profits or losses from statement of affairs. 17
(ii) Prepare an income statement and a (ii) Prepare an income statement and a balance sheet from incomplete records. statement of financial position (balance sheet) from incomplete records. (iii) Calculate the cash and inventory value from incomplete record. This is one of the important uses of incomplete records. The scenarios include cash stolen, inventory loss, and physical stocktaking after year-end. Information and Communication Technology (ICT) Applications in Accounting Identify the major types of ICT applications in accounting. (ii) Discuss the advantages and disadvantages of using computerised accounting. (iii) Describe and appreciate the importance of an accounting information system in This part could only provide a superficial understanding to students. Students may learn ICT application in accounting in greater depth through Applied Learning. management decisions. Ethical Issues in Accounting Discuss the ethical issues involved in accounting activities. The concept of corporate (ii) Adopt positive values and attitudes in governance is difficult for S5-6 making ethical decisions. students. (iii) Explain and appreciate the significance of accounting information in corporate governance. 18
2(b) Cost Accounting Cost Classification, Concepts and Terminology Explain the general nature of cost accounting and appreciate its importance for financial decision-making. Explain the general nature of cost accounting and appreciate its importance for financial decision-making. (ii) Distinguish between direct and indirect costs, fixed and variable costs, and factory and administrative overheads. (ii) Distinguish between direct and indirect costs, fixed and variable costs, and factory and administrative overheads. Job Costing Explain the job costing system for manufacturing operations. (ii) Illustrate the allocation and apportionment of costs to a single job or product. Marginal and Absorption Costing Compare the use of marginal and absorption costing in preparing: 1. manufacturing accounts 2. income statements. Prepare income statements under marginal and absorption costing. Deleted the preparation of manufacturing account as it is more related to financial accounting than cost accounting. (ii) Compare the advantages and (ii) Compare the advantages and disadvantages of adopting marginal and disadvantages of adopting marginal and absorption costing. absorption costing. Cost Accounting for Identify the nature of various cost items Identify the nature of various cost items Decision-making and their relevance to decision-making: and their relevance to decision-making: sunk costs, incremental costs and sunk costs, incremental costs and opportunity costs. opportunity costs. 19
(ii) Apply costing concepts and techniques in business decisions e.g. hire, make or buy, accept or reject an order at a special price, retain or replace equipment, sell or process further, and eliminate or retain an unprofitable segment. (ii) Apply costing concepts and techniques in business decisions e.g. hire, make or buy, accept or reject an order at a special price, retain or replace equipment, sell or process further, and eliminate or retain an unprofitable segment. Joint product costing is not required. (iii) Conduct cost-volume-profit analysis to assess the effects of changes in costs, selling price and units sold on the breakeven point and target profit. (iii) Conduct cost-volume-profit analysis to assess the effects of changes in costs, selling price and units sold on the breakeven point and target profit. 20