NATIONAL OPEN UNIVERISTY OF NIGERIA SCHOOL OF MANAGEMENT SCIENCES COURSE CODE: ACC 312 COURSE TITLE: INTERMEDIATE FINANCIAL ACCOUNTING II 1 INTERMEDIATE FINANCIAL ACCOUNTING II ACC312 Course Guide Course Developer/Writer: ICAN STUDY PACK Adapted by: Anthony Idialu Ehiagwina National Open University of Nigeria Course Editor: Mr. E. U. Abianga National Open University of Nigeria Programme Leader: Dr. I. D. Idrisu National Open University of Nigeria Course Coordinator: Anthony Idialu Ehiagwina National Open University of Nigeria 2 CONTENT Introduction Course Aim Course Objectives Study Units Assignments Tutor Marked Assignment Final Examination and Grading Summary 3 INTRODUCTION You are holding in your hand the course guide to ACC312 (Financial Accounting). The purpose of the course guide is to relate to you the basic structure of the course material you are expected to study as an Accounting Student in National Open University of Nigeria. Like the name ‘course guide’ implies, it is to guide you on what to expect from the course material and at the end of studying the course material. COURSE CONTENT The course content consists basically of the treatment of transactions according to the provisions of accounting standards. More specifically, the accounting standards as provided by standard setting bodies are the content of this course material such as Statement of Accounting Standards (SAS), International Accounting Standards (IAS), International Financial Reporting Standards (IFRS), and other related standards provided by standard setting bodies. COURSE AIM The aim of the course is to bring to your cognizance the conceptual and regulatory framework that provides the basis for the treatment and presentation of financial transactions. COURSE OBJECTIVES At the end of studying the course material, among other objectives, you should be able to: 1. Explain the accounting method for oil and gas, farmers, estate agencies and property companies; 2. To prepare accounts relating to solicitors, provident funds, voyage/shipment, cooperative societies. 3. Explain some of the provisions concerning issues in the Statement of Accounting Standard 18, 19, 20; 4. Explain the accounting treatment of government grants; 5. State accounting treatment of borrowed costs. 6. Explain some of the provision of International Accounting Standard (IAS) 24: Related Party Disclosures, IAS 29: Financial Reporting in Hyper Inflationary economy. 7. Redraft the financial statement, using the current purchasing power basis. COURSE MATERIAL The course material package is composed of: The Course Guide The study units Self-Assessment Exercises Tutor Marked Assignment 4 References/Further Reading THE STUDY UNITS The study units are as listed below: MODULE 1: SPECIALIZED BUSINESSES AND ACCOUNTING STANDARDS Unit 1: Accounting for Specialized Businesses 1 Unit 2: Accounting for Specialized Businesses 2 Unit 3: Generally Accepted Accounting Principles Unit 4: Development of Accounting Standards Unit 5: The International Accounting Standards Board Unit 6: Content and Application of Accounting Standards MODULE 2: ACCOUNTING FOR PETROLEUM ACTIVITIES AND FINANCIAL INSTITUTIONS Unit 1: Leases and Accounting for Investment Unit 2: Accounting in the Petroleum Industry: Upstream Activities and Accounting by Banks and Non-banks Financial Institutions Unit 3: Accounting for Insurance Business and Accounting in the Petroleum Industry: Downstream MODULE 3: FINANCIAL REPORTING 1 Unit 1: Statement of Cash flow, Accounting for Taxes and Abridged Financial Statements Unit 2: Earnings per Share, Research and Development, and Provisions, Contingent Liabilities and Contingent assets Unit 3: Segment Reporting and Telecommunication Activities MODULE 4: FINANCIAL REPORTING 2 Unit 1: Business Combinations, Interim Financial Reporting, Presentation of Financial Statements, Events after the Reporting Period and Revenue Unit 2: Accounting for Government Grants and Disclosure of Government Assistance, Borrowing Costs, Related Party Disclosures and Financial Reporting in Hyper Inflationary Economy Unit 3: Impairment Loss Unit 4: First-time Adoption of IFRS, Share Based Payment, Non-current Assets held for Sale and Discontinued Operations MODULE 5: REGULATORY FRAMEWORK Unit 1: Regulatory Framework of Financial Accounting 1 5 Unit 2: Regulatory Framework of Financial accounting 2 Unit 3: Legal and Regulatory framework of Group Accounts ASSIGNMENTS Each unit of the course has a self assessment exercise. You will be expected to attempt them as this will enable you understand the content of the unit. TUTOR MARKED ASSIGNMENT The Tutor Marked Assignments (TMAs) at the end of each unit are designed to test your understanding and application of the concepts learned. Besides the preparatory TMAs in the course material to test what has been learnt, it is important that you know that at the end of the course, you must have done your examinable TMAs as they fall due, which are marked electronically. They make up 30 percent of the total score for the course. SUMMARY It is important you know that this course material was actually adapted from ICAN study pack. This provides you the opportunity of obtaining a degree in Accounting and preparation for your professional examinations. Therefore, it is very important that you commit adequate effort to the study of the course material for maximum benefit. 6 INTERMEDIATE FINANCIAL ACCOUNTING II ACC312 Main Content Course Developer/Writer: ICAN STUDY PACK Adapted by: Anthony Idialu Ehiagwina National Open University of Nigeria Course Editor: Mr. E. U. Abianga National Open University of Nigeria Programme Leader: Dr. I. D. Idrisu National Open University of Nigeria Course Coordinator: Anthony Idialu Ehiagwina National Open University of Nigeria 7 TABLE OF CONTENT MODULE 1: SPECIALIZED BUSINESSES AND ACCOUNTING STANDARDS Unit 1: Accounting for Specialized Businesses 1 Unit 2: Accounting for Specialized Businesses 2 Unit 3: Generally Accepted Accounting Principles Unit 4: Development of Accounting Standards Unit 5: The International Accounting Standards Board Unit 6: Content and Application of Accounting Standards MODULE 2: ACCOUNTING FOR PETROLEUM ACTIVITIES AND FINANCIAL INSTITUTIONS Unit 1: Leases and Accounting for Investment Unit 2: Accounting in the Petroleum Industry: Upstream Activities and Accounting by Banks and Non-banks Financial Institutions Unit 3: Accounting for Insurance Business and Accounting in the Petroleum Industry: Downstream MODULE 3: FINANCIAL REPORTING 1 Unit 1: Statement of Cash flow, Accounting for Taxes and Abridged Financial Statements Unit 2: Earnings per Share, Research and Development, and Provisions, Contingent Liabilities and Contingent assets Unit 3: Segment Reporting and Telecommunication Activities MODULE 4: FINANCIAL REPORTING 2 Unit 1: Business Combinations, Interim Financial Reporting, Presentation of Financial Statements, Events after the Reporting Period and Revenue Unit 2: Accounting for Government Grants and Disclosure of Government Assistance, Borrowing Costs, Related Party Disclosures and Financial Reporting in Hyper Inflationary Economy Unit 3: Impairment Loss Unit 4: First-time Adoption of IFRS, Share Based Payment, Non-current Assets held for Sale and Discontinued Operations MODULE 5: REGULATORY FRAMEWORK Unit 1: Regulatory Framework of Financial Accounting 1 Unit 2: Regulatory Framework of Financial accounting 2 Unit 3: Legal and Regulatory framework of Group Accounts 8 MODULE 1: SPECIALIZED BUSINESSES AND ACCOUNTING STANDARDS Unit 1: Accounting for Specialized Businesses 1 Unit 2: Accounting for Specialized Businesses 2 Unit 3: Generally Accepted Accounting Principles Unit 4: Development of Accounting Standards Unit 5: The International Accounting Standards Board Unit 6: Content and Application of Accounting Standards UNIT 1: ACCOUNTING FOR SPECIALIZED BUSINESSES 1 CONTENT 1.0 Introduction 2.0 Objectives 3.0 Main Content 3.1 Estate Agent/Property Company’s Account 3.2 Farmer’s Account 3.3 Oil and Gas Accounting- Upstream Activities 4.0 Conclusion 5.0 Summary 6.0 Tutor Marked Assignment 7.0 References/Further Reading 1.0 INTRODUCTION In this unit, you will start with the preparation of accounting for a company. When preparing account for a company, it is common to think of companies that generally engage in the sale of goods and services, such that, the common way of presenting financial statements is used. Such accounting presentations are usually of general view. However, there are specialized businesses whose financial statements might be different from those of a general nature. The financial statements are usually a summary of all the transactions posted in the various accounts. The balances of these accounts are reported by the preparation and presentation of the financial statements. Consequently, without the various accounts, we cannot have the financial statements. Similarly, the various accounts of specialized businesses will enable the preparation and presentation of financial statements for specialized businesses. Therefore, let us consider the accounts in some of these specialized businesses 2.0 OBJECTIVES After studying this unit, you should be able to: 8. Prepare the accounts of estate agencies and property companies. 9. Prepare the accounts of Farmers. 10. Explain the accounting method for oil and gas accounting 3.0 MAIN CONTENT 9 3.1 ESTATE AGENT/PROPERTY COMPANY’S ACCOUNT Estate Agents and Property Companies prepare profit and loss account and a balance sheet as a normal trading company and in addition, prepare appropriation account. The peculiarity in its balance sheet is that freehold land held for re-sale is classified as stock under current assets. ILLUSTRATION 1 Iruland Estate Development Nigeria Plc, was registered in year 2005. It purchased freehold land at Ajah for the purpose of creating a highly developed holiday centre and retirement estate. The area of land purchased consists of 4,000 plots from which a block of 20 plots was designed as sports and entertainment arena whilst the remaining land was offered for sale at N15,000 per plot, for development of luxury bungalows. As at 30th April, 2008, the position of the company was as follows: N’000 N’000 Authorized share capital 50,000 Issued and fully paid: Ordinary shares @ N1.00 per share 27,000 9% redeemable preference shares 4,500 Unappropriated profit brought forward 9,600 41,100 7% debentures 18,000 Debentures redemption fund 6,900 66,000 N’000 Fixed Assets: 45,330 Entertainment arena including land & filling at cost (750) 44,580 Debenture redemption fund investment, at cost (market value N7,500,000) 6,900 51,480 Current Assets: N’000 Freehold land (2,000 plots unsold) at cost 12,000 Arena stocks 750 Arena debtors 130 Bank 4,520 17,400 Less: current liabilities: Trade creditors 180 Proposed ordinary dividend 2,700 2,880 Net current assets 14,520 66,000 The following transactions took place in the year ended 30th April 2008: a. On 1 July 2007, to be effective 1 May 2007, the company sold the entertainment arena to complete leisure ltd for N3 million together with arena stocks and debtors at the balance sheet figure. Cash settlement was made on 20th July 2007. b. The preference shares were redeemed on 30 June 2007, within the terms of the original issue, at a premium of 105, to be in lieu of any accrued dividend. The premium on redemption is to be written off to capital reserve. c. On 1 July 2007, the proposed ordinary dividend was paid. 10