Accounts Preparation 2 Tip sheet

MarkTMarkT Trusted RegularPosts: 302Registered
Hi Folks,

Having seen some of the recent posts on this sub-forum, it seems that there are some people that that either miss an element from their tutor or it escapes them, from a variety of reasons.

Before I carry on here, I would like to draw your attention to the following:

A forum thread as this is not a direct replacement or substitute for the classroom element or reading of the manuals and workbooks as set out by your current learning service providers/colleges. It is meant as nothing more than a helpful tip to students who are needing maybe a different angle to help overcome a misunderstood element

Missing information

A lot of the questions work around areas within the accounting equation.

Costs of Goods Sold (COGS) for example are worked out in the form of Opening stock + purchases - closing stock = COGS

Remember that a lot of the questions are given in a form that means we work one part out and keep it to help with the next and so on. So, it is imperative that this part is mastered as otherwise, you will not succeed in getting the rest of the question correct.

There is also the issue of reconstruction of control accounts. This is relatively simple but it does mean going back and remembering where we start, for example when recreating a sales or purchase ledger control account. It is worth noting that the AAT CBA will advise you of whether or not the account has a debit or credit balance when reconstructing a VAT account - Again, they will advise you of the opening balance of a bank account - usually by filling in the starting entry and then by process of placing each of the items into the control account, we will be left with a figure that, (as long as all items are placed correctly) will give you the figure you're seeking to answer the question. Of course, if you start a sales ledger control account with a credit balance, you're going to have some problems.

Mark Ups and Margins

These two seem to bring a lot of confusion and below is a prime example as to why, so its worthwhile attributing to PGM a valid point that when dealing with a clients figures that you know which one you are working with

Mark up
cost of sales 100% £1680
Profit + 25% £420
Sales = 125% £2100

These same figures but in a different manner:

Margin
cost of sales 80% £1680
Profit 20% £420
Sales = 100% £2100

a mark up is pretty simple in working out whereas the cogs are always 100% and you simply multiply by the needed % to give a profit and add it on. Margin is slightly different and requires a method - there are plenty of ideas out there for this, I simply take the required profit % and first deduct it from 100 and then divide by 100 to give me the decimal to divide my cogs by - this then gives me the sales figure - try it above 100-20 / 100 = .8 so, £1680 / .8 = £2100

Format for Statement of Financial Position

A lot of this is just learning technique in layout.

Starting from the TB you list the non current asset(s) at cost, then the accumulated depreciation and then work out the net Non current asset balance. The next part does have minimal variations and but as long as you list assets and liabilities in their order of liquidity, you will be fine as below:

Here, I would like to credit this little tip from a forum member Yazi who posted this a few weeks back
I remember Assets like this : Sit Down Pretty Black Cat.....

Stock = Sit
SLCA = Down (Debtors)
Prepayments = Pretty
Bank = Black
Cash = Cat

These will then to be followed by
Liabilities

PLCA
Accruals
Bank (overdraft)
VAT (owing to HMRC)

The balance of net liabilities is taken from net assets and hopefully leaves a positive figure :wink:

Add this to the total non-current asset amount and you have total net assets.
After this, we must then list non-current liabilities e.g Bank Loan

Partnerships
A lot of the issues with partnerships will usually centre around the creation of a goodwill statement for when a partner retires or maybe there is a decision to increase one partners % of the profits and effectively reduce another.
So, if we are to take an example that three partners are in business and they share profits as Partner 1 50%, Partner 2 30% and partner 3 20%. Their capital account balances are: Partner 1 £80000, Partner 2 £60000 and Partner 3 £40000.

They decide to change the partnership as the third partner has decided to place more time in the business but has decided to not introduce more capital.

It is decided that the new agreement will mean that the partnership will now share profits as 45, 25 and 30% respectively.

The simplest answer is effectively that out of his capital, partner 3 is going to buy his increase of potential profit share. Also, the risk goes that he may also pay out of his capital account and next year take a bigger hit if the partnership makes a loss.

To work it out, we must create the goodwill account for this exercise Goodwill has been decided as an amount of £80000.

The goodwill must be started as a debit for Partner 1 £40000, Partner 2 £24000 and Partner 3 £16000. The double entry is then to credit these amounts to the partner’s capital accounts.
This will mean Partner 1’s account now has a balance of £120000, Partner 2’s account is £84000 and Partner 3’s is £56000.

Next we have to close the goodwill account by crediting the goodwill and debiting the capital accounts in the new ratio. Effectively credit goodwill Partner 1 £36000, Partner 2 £20000 and partner 3 £24000.
Then debiting the capital accounts leaves them looking as Partner 1 £84000, Partner 2 £64000 and partner 3 £32000.

As long as you start the goodwill account from the debit side, you should not go wrong.

This is what I’ve seen so far as the confusions on this exam, if there are other parts, please let me know and I shall help to try and explain it as best I can.

Should anyone spot anything here that looks incorrect then please by all means let me know. Also, to the best of my knowledge, the partnership example above was an example I made up and if this does appear in text somewhere, again, please let me know as I am not attributing this piece to any particular author.

Hope it helps someone :001_smile:
Chopstickamy256mhr
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Comments

  • Jo ClarkJo Clark Font Of All Knowledge Posts: 2,526Registered
    Hello Mark

    That is fantastic :)

    Even though I have passed AP2 I will read the tip sheet later.

    Thank you for your time in compiling this.

    All the best.


    JC
    ~ An investment in knowledge always pays the best interest ~
    Benjamin Franklin
  • janwaljanwal Experienced Mentor Posts: 1,189Registered
    Hi Mark

    You are amazing, this must have taken ages but is so useful. Fingers crossed for the 27th

    Jan
  • Jo ClarkJo Clark Font Of All Knowledge Posts: 2,526Registered
    Hello Jan

    Fingers and toes crossed for you!! :p

    Don't forget to subscribe to the thread (although by replying I think you are subscribed automatically)

    It can't be long till you start Level 4 now?


    JC
    ~ An investment in knowledge always pays the best interest ~
    Benjamin Franklin
  • MarkTMarkT Trusted Regular Posts: 302Registered
    Thanks ladies :001_smile:

    Good luck for the 27th Jan - you shouldn't have any problems I'd have thought :wink:
  • janwaljanwal Experienced Mentor Posts: 1,189Registered
    Hi Jo

    How's study going for you, have you started level 4. Got CMGT and CRS still to do on level 3.
    Level 4 starts in September, having a bit of a prob at mo as they don't know if the day course will run due to numbers and don't think I could manage the night one, would mean leaving home 2 days a week at 7am and gettting back @ 10.40 pm. Will have to wait and see.

    Jan
  • Jo ClarkJo Clark Font Of All Knowledge Posts: 2,526Registered
    Hello Jan

    Yes - Have the optional papers and project to complete. Financial Performance results are due in the next week or so... so fingers crossed :)

    I do hope that they run the day course for you, if not are there any other training providers that you could consider attending? I guess if it came to it, you could self study and everyone here will help and support you. I know how hard going doing evening class is as I completed foundation level, now level 2, over two evenings a week and that made for a long day not getting home till later like you mentioned.

    Anyway, best not hijack this thread any further.


    JC
    ~ An investment in knowledge always pays the best interest ~
    Benjamin Franklin
  • KaySarahKaySarah Well-Known Posts: 215Registered
    Wowie Mark - that must have taken a lot of thought & hard work! Thank you so much. I will print it out tomorrow and use it as Revision. Just passed a Mock PEAF Assess - still in class now.
    Hope you had a fab birthday.

    You really should look at tutoring - you have missed your vocation :thumbup1:
  • Mollypod88Mollypod88 Well-Known Posts: 155Registered
    Thank you so much for your help Mark!
  • ClarekayeClarekaye Trusted Regular Posts: 306Registered
    Thanks Mark this is just what I needed for Margins :thumbup:
  • Sulew17Sulew17 Well-Known Posts: 174Registered
    Thanks Mark, we don't start AP2 until mid April but I know this will be a great help. We've got AP1 on 23rd March so fingers x'd for that one!

    Su
  • MarkTMarkT Trusted Regular Posts: 302Registered
    Again,

    I am happy to have been of help. If there is something that I've missed that you need a hand on, please do not hesitate to ask :001_smile:
  • celticghirlcelticghirl Settling In Nicely Posts: 20Registered
    hello, thank you for the tips sheet, that's fantastic.

    Sitting AP2 on 13th April and have barely even studied at all yet as i have been going through the process of reapplying for my job!

    Interview on Monday, then will hopefully get a good clear run at it
  • Jo ClarkJo Clark Font Of All Knowledge Posts: 2,526Registered
    hello, thank you for the tips sheet, that's fantastic.

    Sitting AP2 on 13th April and have barely even studied at all yet as i have been going through the process of reapplying for my job!

    Interview on Monday, then will hopefully get a good clear run at it


    Good luck with the interview celticghirl

    I have just been through something similar - my current role no longer exists as they have restructured the department, however I was successful in securing a new post.

    Let us know how you get on.


    JC
    ~ An investment in knowledge always pays the best interest ~
    Benjamin Franklin
  • MarkTMarkT Trusted Regular Posts: 302Registered
    You're extremely welcome celticghirl

    And as Jo has said, please do let us know how you got on.

    I too am prepping for an interview tomorrow, so understand the pressure :001_smile:
  • Jo ClarkJo Clark Font Of All Knowledge Posts: 2,526Registered
    MarkT wrote: »
    I too am prepping for an interview tomorrow, so understand the pressure :001_smile:

    Good luck Mark, what job are you going for?
    ~ An investment in knowledge always pays the best interest ~
    Benjamin Franklin
  • MarkTMarkT Trusted Regular Posts: 302Registered
    Jo Clark wrote: »
    Good luck Mark, what job are you going for?

    Cheers Jo, I'm going for a senior AP role with a large local company - its a fingers crossed thing :001_smile:
  • Jo ClarkJo Clark Font Of All Knowledge Posts: 2,526Registered
    MarkT wrote: »
    Cheers Jo, I'm going for a senior AP role with a large local company - its a fingers crossed thing :001_smile:

    I'll have my fingers crossed for you tomorrow Mark! Let us know how it goes. I'm sure others who are looking for accountancy roles would appreciate feedback from you and also the type of questions which you are asked.
    ~ An investment in knowledge always pays the best interest ~
    Benjamin Franklin
  • paulapuddingpaulapudding New Member Posts: 13Registered
    Hiya,

    Just wanted to say Thanks for this tip sheet. I read this just before my AP2 exam last month, and found it really useful.

    Many Thanks,

    Paula
  • MarkTMarkT Trusted Regular Posts: 302Registered
    Hi Paula,

    Your first post used to say that? I am honoured :001_smile: I'm glad it helped you

    You're very welcome

    Mark
  • MarkTMarkT Trusted Regular Posts: 302Registered
    Jo Clark wrote: »
    I'll have my fingers crossed for you tomorrow Mark! Let us know how it goes. I'm sure others who are looking for accountancy roles would appreciate feedback from you and also the type of questions which you are asked.

    Its all in the air right now and seeing that we have 2 short weeks back to back at this point, I may be lucky to hear back next week, but would almost certainly find out the week after.

    Questions, well, they were more arranged around the job spec that I was given and wanted to know where I had exposure to the areas mentioned. Oddly enough, I had no competency based questions asked of me for the role and I am putting this down to the fact that I laid on heavy of my understanding of the role, explained the areas of weakness that I had and how, through being an AAT student that I was to be addressing the one weak area in the next month (VAT knowledge)

    In essence, I think that there are no hard and fast questions that come out in every interview, the strength of the CV alone got me the interview as I had shown relevant experience.

    I shall however, be submitting some more to the AAT for consideration of a blog form - watch this space :wink:
  • Mollypod88Mollypod88 Well-Known Posts: 155Registered
    AP2 re-sit passed today! woohoo! Next ... spreadsheets ....
  • Jo ClarkJo Clark Font Of All Knowledge Posts: 2,526Registered
    Congratulations Mollypod :)
    ~ An investment in knowledge always pays the best interest ~
    Benjamin Franklin
  • MarkTMarkT Trusted Regular Posts: 302Registered
    Mollypod88 wrote: »
    AP2 re-sit passed today! woohoo! Next ... spreadsheets ....

    Good on ya!! I see that you're on SPSW - good luck for the exam :001_smile:
  • mrb82mrb82 Well-Known Posts: 147Registered
    Sit Down Pretty Black Cat has helped me loads with the SFP, thank you :)
  • sscorssscors Feels At Home Posts: 72Registered
    Thanks very much Mark, is kind of you to help those of us who are struggling with AP2. Am studying it at the moment. Have found it is a short unit compared to AP1 but there is room for a lot of error if one is not careful. Hoping I pass it first time.
  • MarkTMarkT Trusted Regular Posts: 302Registered
    mrb82 wrote: »
    Sit Down Pretty Black Cat has helped me loads with the SFP, thank you :)

    You're welcome, but the thanks really should go to Yazi who gave me that neat little tip :thumbup:

    Glad that you found it useful :001_smile:
  • MarkTMarkT Trusted Regular Posts: 302Registered
    sscors wrote: »
    Thanks very much Mark, is kind of you to help those of us who are struggling with AP2. Am studying it at the moment. Have found it is a short unit compared to AP1 but there is room for a lot of error if one is not careful. Hoping I pass it first time.

    You're more than welcome, the only advice as to passing it first time really is to do the greenlight tests and take your time on the exam to read the questions and ensure that you answer them as to the best of your knowledge.

    I also might add that I find no shame in being one of the last to leave the exam room, I'm never the first out :wink:

    But, goodluck for when you sit :thumbup:
  • Netherwood26Netherwood26 Feels At Home Posts: 78Registered
    Hi Mark

    Do you have one for AP1 by any chance?

    Cheers

    Martyn
  • MarkTMarkT Trusted Regular Posts: 302Registered
    Hi Mark

    Do you have one for AP1 by any chance?

    Cheers

    Martyn

    Hi Martyn,

    I've not written one up for this, but will consider it if there is enough of a call - I'll put a thread up and see if there is, if not, then I can respond to questions if you post them :)

    Mark
  • mrb82mrb82 Well-Known Posts: 147Registered
    I failed AP2 last night :(

    Think I focused my revision too much on SFP and IS, clearly not enough on Goodwill (goodwill for a partner introduced is fine, but not looked at the goodwill account itself).

    I also messed up my reconstruction of control accounts. I got myself in a muddle with the PLCA, narrative was Purchases Day Book and I put the gross figure instead of seperate Purchases and VAT :(

    Really annoyed with myself :(

    Does anyone know what the resit exam fee is?
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