DFS - Unit 11 Questions

WyleCoyote

Good Evening Everyone,

this is the first time that I have used this forum. So hello to you all...:thumbup:

Anyway, I am doing distance learning with FTC Kaplan. Unfortunately, I have been unable to get hold of my tutor. So I wonder if anyone can assist with the following questions on this unit?:001_smile:

Notes to the accounts - Is there a methodology to this? I can never seem to remember what notes to consider or even if there is any order to this? My study book doesn't seem to explain this too well. I understand why we need the notes, I am just left stumped when attempting the questions.

Cost of Sales - to date I have been used to preparing sole trader and partnership accounts. Therefore items such as depreciation gets charged as an expense in the P&L. However, in drafting FS for ltd companies, depreciation gets charged against the COS. Why is this?

Shares/shareholders - Are preference shareholders owners of the business as with ordinary shareholders? I understand that the dividend rates are fixed and that they continue to get paid even if the business begins to struggle. So, is this ownership represented in the share capital of the business? and thus should this be shown in the statement of changes in equity? I attempted a question in my workbook, but the answer only displays the ordinary shares in the changes of equity whilst including the dividends paid for preference shares.

I realise that this is quite detailed(esp. @ this time of the night... Ha ha), so any pointers would be much appreciated.



Runs like mad:001_tongue:

WyleCoyote...

Bluewednesday

Welcome

Notes to the accounts tend to run in order of the profit and loss and balance sheet so you would have a fixed asset note before a detailed debtor note. It is practice that helps you decide which notes are required.

Not all limited comany's put their depreciation in cost of sales, none of our clients do so the exercise you have mentioned must have stated that depreciation is a cost of sale. It's not usual (in my experience) but it is perfectly valid to do so if it makes a better representation of the gross profit.

Preference shares are in substance a liability as they meet the framework definition of a liability so are accounted for as debt rather than equity. Interest is fixed and they have no further right to a share in profits unlike ordinary shareholders.

Hope this has helped but please feel free to shout for further clarification.

peugeot

Just to add to Bluewednesday - a common error is to class dividends paid on preference shares as dividends and take them to the statement of changes in equity. They should be classed as interest rather than dividends.

Kind regards
Steve

WyleCoyote

Hi,

Thanks for the comments 'Peugeot' and 'Bluewednesday'. To me they make a little more sense. Have a great weekend.

R:-)

peugeot

No worries. Whereabouts in Bolton are you - I live in Bolton!

WyleCoyote

Hi Peugot,

i live down the road from the old fred dibner place. What about you?

R:-)

peugeot

I know that area.

I'm in Morris Green.