Financial statements exam - changes from sept 2011

Kitkat82

Afternoon everyone

I've just re-sat the financial statements exam and was thrown by the last question about Conceptual Framework for financial reporting that was assessable from today! Obviously I knew nothing about it until I sat the exam this morning and feel another fail coming!

If you haven't got the new books or are taking the exam again i suggest going to this website to learn this new addition.... http://www.osbornebooks.co.uk/files/ltd_co_accounts_amends_2011_1.pdf

I'm extremely peeved off that this info was not within the study material on the AAT website!!

6 weeks to wait to know I have to re-sit :-(

jenny3549

Thank you so much KitKat - I have my exam on Monday and have been learning the old stuff obviously (from both the Kaplan and the Osborne books).

It's very generous of you to let us know about the changes - I didn't have a clue!

Try not to worry too much yet - if that was the only bad question you may well have passed anyway - I'll keep my fingers crossed for you.

Kitkat82

No worries Jenny. Unfortunately is wasnt the only questi

Kitkat82

ion I struggled with :-(

I can only hope i've covered enough :-)

Good luck Monday x

Kitkat82

I do think the AAT should have put it on their website under the study info! x

jenny3549

Thanks KitKat!

I agree, I had a trawl through the AAT stuff and there is no mention whatsoever - that's pretty poor! I also rang Kaplan (my distance learning provider) who didn't have a clue what I was talking about.

You'd think that if there was a significant change in material someone would mention it before the date it becomes assessable.

anniebabe

thanks very much for posting that - I bought my book in Feb upfront and obviously this change isnt in it - will print asap.x

anniebabe

makes me wonder if there are any changes to the other units any ideas how we check? will it be on the Osborne Web site?

guinea pig

Hi KitKat,
Many thanks for that - I am starting level 4 at college on Thursday, and have borrowed my tutors book (the latest edition, new last month) as I will miss some of the class, and now find that I have learnt the wrong material!
Last year was very frustrating, as the first year of the new syllabus, the books had many errors, so I was hoping this year would be better...... it appears not!
Good luck, hope that you have passed, and once again thanks for the update.
GP

awatson86

I had mine today and also got caught out with this as I didn't know. I did ok overall but not sure if I have scraped a pass!

Also a quick question. On my statement of comprehensive income question. I had tax amount on the trial balance of £8000 at the start of the year and on the notes I had a note saying corporation tax amount for the year is £5200 and that £8000 was an over estimate for the previous year. I cant remember exactly how it was worded. So which tax amount should I use on the statement of comprehensive income?

uknitty

You would include the amount that was the actual liablity for that tax year in the financial statements which in this example would be £5200.

Depending on how the question was phrased you may need to account for an overpayment of tax as a rebate/income in the income section.

jenny3549

awatson86 wrote: »

I had mine today and also got caught out with this as I didn't know. I did ok overall but not sure if I have scraped a pass!

Also a quick question. On my statement of comprehensive income question. I had tax amount on the trial balance of £8000 at the start of the year and on the notes I had a note saying corporation tax amount for the year is £5200 and that £8000 was an over estimate for the previous year. I cant remember exactly how it was worded. So which tax amount should I use on the statement of comprehensive income?

I had the same thing - only mine was an underprovision on the TB. I added this to the figure quoted for Corp Tax on the Income Statement. Wasn't 100% sure if this was correct as had not seen that in any of the practice questions I'd done but talked myself through it and that's what I came up with since the figure for tax on the Income statement includes adjustments for over/under provisions as well as deferred tax.

On that basis, in your question I would have deducted the over provision from the figure given for corp tax.

awatson86

Yes that is what mine said too (underprovision). I hadn't come across this in any practise questions and it threw me a little. I have looked back through my text book and still can't find a questions like this?

jenny3549

awatson86 wrote: »

Yes that is what mine said too (underprovision). I hadn't come across this in any practise questions and it threw me a little. I have looked back through my text book and still can't find a questions like this?

I know, there was nothing in mine either. I suppose this is an example of needing to understand the overall thing so that you can apply any situation rather than learning certain things by rote. What did you do with the figure?

awatson86

I just used the figure quoted for the corporation tax in the notes as I was unsure what to do. There was a working box at the side which had 'tax for current year' & 'tax for prev year'. Does anyone know the correct way to do this?

awatson86

I have finally got round to booking my resit for this exam! Has anyone else in the past couple of month come across this under provision of tax question?

Steve Collings

With under provisions you would need to take a moment to think about what the original entries were in the trial balance. If the previous year's tax liability had been estimated at $7,000, the entries would have been:

DR income tax expense $7k
CR income tax liability ($7K)

If we assume that the tax provision should have been $7,500, the entries when the tax was paid would have been:

CR bank account ($7,500)
DR income tax liability $7,500

What would happen at this point is that there would be a $500 debit balance on the income tax liability account because we originally provided for $7k worth of tax, but it should have been $7,500. Therefore in our previous year our post-tax profit was actually overstated by $500. We would need to remove this $500 by doing:

CR income tax liability ($500)
DR income tax expense $500

If we estimate that our income tax liability this year is $8,000 then the statement of financial position will show an income tax liability of $8,000 in current liabilities but the statement of comprehensive income will show:

Current tax charge estimate.................................$8,000
Plus under-provision from previous year...............$500
Income tax expense per statement of CI..............$8,500

I hope this helps.

Regards
Steve

awatson86

Thank You! Much Appreciated.

goldring

Does the under/over provision of Tax fall into the range of IAS 8 Accounting policies, changes in accounting estimates and errors?
And would that be classified as a 'material mathematical mistakes'? Or oversight?
Then previous year figures corrected ? Would the changes be reflected in the currrent year?

Steve Collings

Hi Goldring

I suppose IAS 12 is the standard that this issue really relates to. IAS 8 is really only concerned with changes in accounting estimates such as changes in depreciation rates. I doubt you would be presented with a materially incorrect tax assessment in the FNST exam but in real life if this were the case (which would usually occur because of error(s)) you would go back and restate in accordance with IAS 8 principles.

All the best
Steve

dgpc

Thank you for posting this, I'v not used this before so glad i looked. I'm taking a resit next Wednesday. Not sure what the changes to the tax you mentioned is? does anyone know of any other major changes, would appreciate it?

Steve Collings

dgpc wrote: »

Thank you for posting this, I'v not used this before so glad i looked. I'm taking a resit next Wednesday. Not sure what the changes to the tax you mentioned is? does anyone know of any other major changes, would appreciate it?

Do you mean changes to tax legislation which may affect a tax paper? If so, please disregard this thread because it concerns the tax provision in the FNST exam.

If you are studying for the FNST exam you may be told within a question that the previous year's tax provision was either under or over-stated and you have to deal with this discrepancy. Now what is important to understand is that there is absolutely no overlap with the business tax paper here! If the question says "the previous year's tax provision was under-stated by £100" then all you have to do is think about the impact of the initial entries (see my posting above). Basically the prior year's tax charge has been under-stated, this means that last year's liability was understated and last year's post-tax profits were over-stated (due to the income tax expense being under-stated also) so to correct this under-statement all you do is to credit income tax liability in the statement of financial position and debit the income tax expense account in the income statement. If it was over-stated in the previous year, simply do the opposite. Also bear in mind that there may not be any adjustment to the previous year's tax charge but just be prepared to deal with it if there is!

Also, just as a point of clarification. In the FNST exam you may be presented with a trial balance prepared by your 'assistant' and you may have to make various adjustments to this trial balance (such as dealing with accruals/prepayments). In real-life such adjustments would clearly mean the initial tax provision would need changing, but for the purposes of this exam DO NOT make any adjustments to the tax provision as the paper is examining your skills in financial statements preparation - you are not being assessed on your tax knowledge, so if you are making adjustments to an initial trial balance, ignore any 'real-life' tax implications these may have! You simply provide for the amount of tax stated in the question together with any (potential) adjustments to previous year provisions.

All the best

Steve

Dipak Thanki

In my exam I had a cash flow, they do come up, so make you revise cash flows.

goldring

thanks Steve.

after reading IAS12, basic stuff. as it comes up with deferred tax which is treated as non-current liabilities, and it has something to do with depreciation, would you say deferred tax is an accounting estimate?
then if a question states tax PROVISION , which i read as an estimate, right? would it make it look like it's the deferred tax that was incorrectly calculated?
i'm just a little perplexed where it should be presented in the statement of financial position, and would you adjust the figures for the last year for comparative info,

Steve Collings wrote: »

Hi Goldring

I suppose IAS 12 is the standard that this issue really relates to. IAS 8 is really only concerned with changes in accounting estimates such as changes in depreciation rates. I doubt you would be presented with a materially incorrect tax assessment in the FNST exam but in real life if this were the case (which would usually occur because of error(s)) you would go back and restate in accordance with IAS 8 principles.

All the best
Steve

Steve Collings

Hi Goldring

I would not say deferred tax is an estimate in the sense of IAS 8. Deferred tax more a provision than anything else. I think you would have to be told in the Q whether it is the current tax estimate that was incorrectly calculated last year or if it is the deferred tax provision that is incorrect - I would not expect the examiner to be ambiguous on this point at all.

Deferred tax in the statement of financial position is always shown as a non-current liability. In terms of adjusting prior year's figures I would not do this unless the question specifically requires it. If you are presented with a situation where the previous year's tax charge was under- or over-stated, then you should class it as an immaterial error and just make the correction in the current year only. You would only ever restate the previous period if the error is material.

If you are using reputable study material you should find that what is in the text book is what is examinable so this should give you an idea as to whether (or not) such an instance is likely to be tested.

Regards
Steve

goldring

Many thanks again. Steve.

AAT Level 3

With regards to the original post. What was the question that came up in the exam. It seems that everything that was in the pdf document that was posted by someone has been in a lot of the Kaplan practise questions such as users of FS.

smithy44

e-learn

Hi

I have just been doing some final studying for my financial statements exam on Tuesday and have found some help for Conceptual Framework on the AAT website. Go into the e learning section and you will find it on there along with some other helpful information.