Financial Statement with Steve Collings



Steve Collings

15 hrs

Good evening everyone. I’m Steve Collings and for the next 60 minutes I’m here to answer your questions on AAT’s Level 4 Financial Statements! Ask away …

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7You, Paula Rutter, Tracey Hunter and 4 others

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Neil Arnott Hi Steve – hope you have a great response like I have had the last couple of weeks – good luck!!

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Natasha Everard Hi thank you for helping with a Q & A this evening, I would like to ask what would advice would you give someone just about to start studying this module?

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Tracey Hunter Hi Steve

I’m currently struggling with financial performance. I’m thinking of putting that to the side and move on to statements.

Would you advise that I need to complete FP first or could I move on to statements

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Steve Collings I’d first of all look at the Conceptual Framework for Financial Reporting to understand what an asset, liability, income, expenses and equity are. If you’ve done another similar topic in previous AAT studies, then dust off the books for that and make sure you are absolutely comfortable with debits and credits!

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Natasha Everard Are there any extra resources that you would suggest when studying this unit?

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Steve Collings @Tracey – I’m not familiar with financial performance and I would think it would all depend on (a) how much you are struggling with FP and (b) whether you would feel more comfortable with FNST. My advice would be to look in detail at the syllabus for FNST and then make an objective decision.

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Steve Collings @Natasha. Yes, I think there are a couple of articles written by tutors on the AAT Comment site. I also wrote one about how to study for FNST! If I get chance at the end of this Q&A I’ll provide the link.

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Steve Collings http://stevecollings.co.uk/preparing-to-pass-aat-paper-fnst/

 

 

Preparing to pass AAT Paper FNST : Steve Collings

STEVECOLLINGS.CO.UK

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Natasha Everard Ive seen different books mention different IAS that need to be learnt for the exam but how much details do you need to know?

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Steve Collings @Natasha – see link above

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Paula Rutter I’ve heard level 4 is a big step up- therefore what is the best way to approach this module ?

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Paula Rutter what are the written elements on this module can u suggest how we approach these please

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Steve Collings @Natasha, this is where students fall into a trap! They try to learn FAR too much with the IFRS/IAS are concerned. Only gain a basic understanding of the standards; remember the paper is about applying the knowledge of the standards rather than demonstrating your ability to rote learn the content of them. For example, with IAS 2 ‘Inventory’ lean what constitutes cost, what constitutes net realisable value and the different methodologies of valuing inventory (FIFO, AVCO etc).

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Natasha Everard what is the best way to remember ratios? is just repeat. repeat, repeat?

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Paula Rutter any advice for learning all the ratios ?

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Steve Collings @Paula – it is advisable to break it down into manageable pieces per the syllabus. Remember you are being asked to do something a real life accountant would do i.e. calculate the numbers/financial statements and EXPLAIN those numbers to a layperson. Practice calculating the numbers and then do some narrative studying (such as describing what you have calculated). You don’t even have to do exam standard questions to do this area – you could, at first, write down what you think you have calculated and interpreted and then get your tutor to review it for you!

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Selina Hatice hi,i am currently working on this module , i am familiar with depreciations, prepayment, accruals but on the calculation of PPE on the additional info it says building is not depreciated but it gets to included for PPE why ????

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Steve Collings Re the written elements. This is a VERY IMPORTANT area of the paper because the examiner is expecting you to be able to interpret the numbers. An accountant has to be able to do this. Always stick to the requirements of the Q (don’t digress into ‘if’s, but’s and maybe’s). Calculate the numbers, write about what you have calculated and if you have to do, say, a report to a client who is potentially going to invest in 1 of 2 companies ALWAYS draw a conclusion which is backed up by reasoned argument by way of a comparison of what you’ve just calculated. This is key to the narrative parts.

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Natasha Everard Anne Louise Mitchell do you have any questions?

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Natasha Everard I read about negative equity…are you able to briefly explain this?

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Steve Collings Re the ratios – there is only one way to do this and that is to practise, practise and practise! Some students tend to focus more on those which they are comfortable with – try not to do this, and focus more on those which you struggle with! Again, keep in mind that ratio analysis is a key area of the syllabus because it can tell people all sorts of info about the accounts!

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Tracey Hunter if I was to brush over past modules for this module what are the important ones to look at?

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Steve Collings Re negative equity – when you have a negative balance sheet, it means that the company has net liabilities rather than net assets. Essentially it means that the company’s liabilities (both short and long term) exceed the assets which the company owns and the company is, therefore, technically insolvent. It’s not a good position to be in!

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Steve Collings @Tracey – definitely debits and credits because you are normally required to redraft some financial statements by way of journals and bring in additional things like the draft tax charge. Students have always found debits and credits a bit difficult in some areas, and therefore going over these will only ever do good where FNST is concerned.

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Anne Louise Mitchell Natasha Everard I’m reading through everyone else’s questions and answers at the moment smile emoticon My issue is the quantity of information to learn, but Steve Collings has already mentioned above about the trap that students fall into with the standards, in that they are trying to learn absolutely everything about it.

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Paula Rutter so in your article on AAT comment in 2012, you said we need to be able to talk about the numbers/ratios as well as calculate them – so is this just a case of practice makes perfect ? we just keep reciting them till we know them off by heart ?

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Steve Collings The key with the learning issues are to make sure you cover the entire syllabus. Students fail FNST because they focus too heavily on the IFRS/IAS to the detriment of other areas of the syllabus (or vice versa e.g. focussing too heavily on ratios to the detriment of the IFRS/IAS).

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Natasha Everard Cashflow…is there a way to remember the layout?

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Steve Collings You must be able to (a) calculate the ratios and numbers and (b) explain them. I would encourage you to not only practise them until you are perfect at calculating them, but to also understand what you are calculating and why you are calculating it. For example, you calculate liquidity ratios to help identify the ability of the company to pay off its obligations.

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Victoria Harrington-Biddle Just some fantastic tips for information retention please !

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Natasha Everard Is it worth recapping accounts prep and final accounts for sole trader and partnerships before starting Financial Statements?

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Steve Collings Re the cash flow statement – the layout is ‘operating activities’ ‘investing activities’ and ‘financing activities’. The way I used to teach students to learn this was reverse alphabetical order i.e. OIF is FIO in reverse.

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Sam Summers This post is great, I will be studying financial statements in September as my last AAT unit 😁

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Steve Collings @Natasha it can do no harm in going over those units first before starting with FNST because that is the lower level unit which is designed to lead you in to the more complex aspects of L4. Go back and recall what areas you found difficult in that unit and revise those to refresh your memory!

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Natasha Everard What made you want to become an accountant? – random question i know…but interesting smile emoticon

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Steve Collings Re info retention – I think the most important one relates to the cash flow statement when you are trying to remember when to add or deduct increases/decreases in working capital (inventory, debtors and creditors). If it is an increase in inventory then money is tied up in inventory and hence this represents an OUTFLOW so is DEDUCTED. If it is a decrease in inventory it means more inventory has been sold so is an INFLOW hence is added. Same thing with increases in receivables; this means more money is tied up in receivables as they haven’t paid as quick and hence is an OUTFLOW so is deducted; whereas if receivables have decreased it’s an INFLOW because more cash has been received so is ADDED.

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Steve Collings What made me want to become an accountant? Believe it or not I never wanted to be an accountant and hated it when I first started studying! Eventually I got to like the subject and it all started from there! No regrets now though wink emoticon

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Paula Rutter it’s taken a while to get confident with debits credits and I’m doing my sole trader exam next week – bearing this in mind how long roughly in your opinion would it take to learn FS . it sounds scary lols

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Natasha Everard This relates to level 3 studies aswell…how do your remember what apears in the profit and loss or balance sheet.?

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Steve Collings @Paula – I would very roughly estimate about 3 months to get to grips with FNST but it would all depend on how comfortable you feel about debits and credits now. If you’re happy with them then I would urge you not to be scared about FNST – it’s one of the most practical papers you will get and it’s very relevant to the workplace smile emoticon

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Paula Rutter great thank you 😊

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Steve Collings Re the P&L and balance sheet – I’d say it’s all down to what it says in the Conceptual Framework. Assets, liabilities and equity are all balance sheet items, whereas income and expenses are all P&L. I suppose you can use the various mnemonics that are kicking about such as PEARLS and DEADCLIC to help remember those.

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Jayesh Bhatt Hi stave,I have book my exam next month,but one question of FST. THAT i am struggling to for carrying PPE calculation…is because while for cashflow PPE IS PAIN..

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Selina Hatice are the answers to questions random or picked ???

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Steve Collings Also remember that in the balance sheet assets are what the company OWNS and liabilities are what the company OWES so that might help you

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Anne Louise Mitchell Are there any other texts you can recommend on the subject – aside from your IFRS for Dummies? wink emoticon I have been using Osborne books since I started with AAT and have to admit I am finding the layout a little monotonous and thought maybe a change of style may help me find my study motivation again

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Steve Collings @Jayesh – for PPE in the cash flow statement you might have to calculate the ADDITIONS to PPE in the year. This is done by taking the net book value of the PPE from last year, deducting the depreciation charges for the year, taking account of any disposals, then take the carrying value carried forward and the difference is the additions. As with anything like this Jayesh it comes down to as much practise as possible. Also, you should pick up marks for your approach to the calculation, even if your end result is wrong.

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Steve Collings @Anne – I think Osborne are one of the leading texts – but I can also recommend Clare Finch’s A Student’s Guide to IFRS – that will help supplement your studies.

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Jayesh Bhatt what amount we have to take if ppe for 2010 is 500k and investivement at cost is 40 and in 2011 600 and investment cost 40..so which amount to take to start for PPE purcahse..

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Steve Collings Is this a complete question? I have calculated that in 2010 you start with 500k, with a ‘reinvestment’ at cost of 40k, hence you carry forward 540. You then have 600k in 2011 with a further reinvestment of 40k so you have a carry forward of 640k, therefore you must have purchased an additional 100k (640k less 540k). This, of course, is in the absence of any additional info in the Q.

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Jayesh Bhatt Thanks steve I got it.. just wanted to confirm how to take addtional investment in to the account

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Steve Collings No problem – I’ve assumed you are doing the cash flow statement here, hence working out the value of additions which have been purchased during the year. These sorts of questions are usually tested using incomplete records as an approach because the examiner has the opportunity to see how your knowledge is in this area.

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Jayesh Bhatt yes…

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Jayesh Bhatt I must say this module is really testing your understanding…I am not struggle any subject yet but it really much challenging..

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Steve Collings Just remember, you are not on your own – many students struggle with it because it is the final level reporting paper, but with lots of effort it will be a comfortable paper to pass.

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Jayesh Bhatt Thanks as such this is tough because I am not working with practice….

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Natasha Everard from Selina Hatice hi,i am currently working on this module , i am familiar with depreciations, prepayment, accruals but on the calculation of PPE on the additional info it says building is not depreciated but it gets to included for PPE why ????

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Selina Hatice thanks Natasha Everard x

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Steve Collings I think this is because in the statement of financial position, all items of PPE are included at net book value on the face of the statement of financial position. Buildings are a non-current asset and hence must be included for PPE so the company correctly reports the value of its non-current assets.

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Selina Hatice thanks Steve Collings so it is some kind of rule we follow in the task ?

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Steve Collings It’s not really a rule – if you don’t include the buildings in your PPE the statement of financial position will not balance. Remember that the financial statements themselves are generated from the trial balance which includes the building so it has to be reported within the SoFP within PPE.

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Selina Hatice thanks Steve , i will get there eventually only some topics start sinking and i am doing well with green light test at the moment but too far for exam yet

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Paula Rutter how should we allocate time to each section in the exam?

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Natasha Everard from Tina Gattrell Do certain Ias come up or should we learn them all

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Steve Collings @Paula – I’m not sure if AAT still gives you time allocations, but if they do then I would suggest you carefully stick to that. You might also be guided by, say, mark allocations and hence in a 3 hour exam you would have 180 minutes, so a 20 mark question would take you 36 minutes (20 marks x 1.8 mins per mark).

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Natasha Everard any further questions?

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Steve Collings Re certain IAS/IFRS – my advice would be to learn all those that are examinable. Never, ever try to question spot! This is a recipe for exam failure.

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Tracey Hunter I think I’m all good
It’s a case of brush up on linked modules first

Thanks Natasha and Steve

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Natasha Everard Any other questions??

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Steve Collings It’s good technique to brush up on linked modules and if you go onto further chartered qualifications, you are always advised to dust off the lower level papers that underpin the knowledge required in more advanced papers smile emoticon

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Paula Rutter thank you for giving us your time
can’t wait 🙈

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Steve Collings It’s my pleasure.

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Natasha Everard If not one has any further questions i would like to thankSteve Collings for his excellent answering to all of our questions!! Thank you.

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Natasha Everard Obviously dont forget to check out his books!!

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Steve Collings No problem. Good luck to everyone studying FNST! With lots of question practise and a disciplined studying schedule, there is absolutely no reason to fail this paper smile emoticon

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Anne Louise Mitchell Thank you both of you for your time and for arranging. Definitely lots of posts to go through later to make notes on

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Natasha Everard Thank you all for attending smile emoticon

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Selina Hatice thank you both …

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Jayesh Bhatt Thanking you ..

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Steve Collings Thank you everyone for the questions! I’ll do another Q&A for you all on this subject later in the year smile emoticon

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Natasha Everard That would be excellent wink emoticon Thank you!

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Steve Collings Well – not for you all – because you’ll pass! For those progressing onto FNST smile emoticon

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Natasha Everard Thank you all smile emoticon

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Neil Arnott Fantastic session!

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