AM01 Syllabus (2016): Accounting

AM SYLLABUS (2016)
AM01

ACCOUNTING

SYLLABUS

AM01 Syllabus (2016): Accounting

Accounting AM01
Syllabus

(Available in September)
Paper I (3 hrs) + Paper II (3 hrs)

Introduction
The syllabus builds on the topics set for the SEC Examination in accounting and seeks to develop the
students financial literacy, presentation and evaluative skills in the broad areas of Financial and
Management Accounting.
Candidates are expected to demonstrate a sound knowledge of basic accounting appropriate for an
understanding of the areas covered by the syllabus contents.
Candidates are expected to base their answers on local legislation and International Financial
Reporting Standards.
The Examination
Two papers of three (3) hours each are set.
Paper 1 examines Financial Accounting and Paper 2 examines Cost and Management Accounting.
Each paper carries 50% of the global mark.
Paper 1 shall consist of three sections (100 marks).
Section A: COMPULSORY short answer theoretical questions, which are spread over a number
of topics, carrying 3 to a maximum of 4 marks each. Questions might include a simple analysis
and evaluation of information from given data. This section carries 22 marks.
Section B: One COMPULSORY question involving the preparation of final accounts (including
Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Financial
Position) from a given trial balance with adjustments of a sole trader OR limited liability
company for Internal use or for Publication (excluding notes to the financial statements). Final
accounts may refer to either a retailer or a manufacturer. This section carries 26 marks.
Section C: 4 practical questions to choose 2, which may include extension questions of a
theoretical nature. Each question in this section carries 26 marks. This section carries 52 marks.
Paper 2 shall consist of section A and section B (100 marks).
Section A: COMPULSORY short answer theoretical questions carrying 3 to a maximum of 4
marks each. Questions might include a simple analysis and evaluation of information from given
data. This section carries 22 marks.
Section B: 5 practical questions to choose 3, which may include extension questions of a
theoretical nature. Each question in this section carries 26 marks. This section carries 78 marks.
Both papers shall include approximately an overall of 30% of the marks as short theoretical questions
as follows:
Paper 1: Section A and Section C
Paper 2: Section A and Section B.
Questions of an entirely essay type nature shall NOT be set.
Noiseless and non-programmable calculators are permitted. CANDIDATES ARE ADVISED TO
SHOW WORKINGS.

AM01 Syllabus (2016): Accounting

FINANCIAL
ACCOUNTING

Notes for Guidance PAPER 1

Introduction

The role of the Accountant as a financial accountant, a cost and

management accountant and an auditor.

QUESTIONS INVOLVING AMALGAMATIONS, TAKEOVERS OR CONVERSIONS

OF ANY FORM OF BUSINESS UNIT ARE NOT EXAMINABLE.

Conceptual Accounting framework limited to :

a basic understanding of the purposes of the Conceptual
Framework;
objectives of financial statements;
users of accounting and their information needs;
a basic understanding of the qualitative characteristics of
financial statements limited to: Relevance, Materiality and
Faithful Presentation .
Candidates are required to demonstrate knowledge and understanding
of the following accounting concepts:
Accruals, Going Concern, Materiality, Prudence, Consistency,
Realisation, Cost, Dual Concept, Money Measurement and Business
Entity.
Students must have
knowledge of the
following:

accruals and prepayments of expenses and revenues;

irrecoverable debts; bad debts recovered; allowance for
doubtful debts (both specific and general)
cash discounts and trade discounts;
the VAT account, comprising VAT on sales, purchases,
expenses and non-current assets (VAT on vehicles is not
refundable). An understanding of the business as a tax
collector on behalf of the VAT Department.
the treatment of goods sold on a sale-or-return basis,
excluding goods received on a purchase-or-return basis;
books of prime entry;
Control Accounts: Preparation of Trade Receivables Control
Account and Trade Payables Control Account.
The benefits of control accounts and reconciliation of control
accounts with payables and receivables lists are NOT
examinable.

Depreciation and
Disposal of NonCurrent Assets

Accounting treatment: the straight-line, reducing balance

and revaluation methods of depreciation ONLY.
The suitability of depreciation method and change in the
useful life of non-current assets.
Causes of depreciation;
Purpose of providing for depreciation and the underlying
concepts.
Amortisation of other intangible assets (goodwill and
development costs).
Refer to appendix for notes referring to IAS 16 and IAS 36.
The NonCurrent Asset Schedule is NOT examinable

Sole Trader

Final Accounts

Manufacturing
Accounts

Final accounts. The manufacturing profit and the allowance for

unrealised profit on inventory of finished goods. The reason for
maintaining an allowance for unrealised profit.

AM01 Syllabus (2016): Accounting

Types of errors and

their correction

Different types of errors;

Correction of errors through the journal;
The suspense account;
The statement of corrected net profit.
Corrected Final Accounts : Income Statement and Statement
of Financial Position

Incomplete Records

The preparation of final accounts from incomplete records;

calculation of capital;
Mark-up and Margin;
calculation of inventory lost in fire or by theft, for insurance
claims;
calculation of a commission on net profit after charging
commission.

Non-Profit making
organisations

Company Accounting

The preparation of final accounts, including treatment and

understanding of :
calculation of accumulated fund;
ordinary memberships;
life memberships;
subscriptions written off;
donations (questions should clearly identify the nature of a
donation; whether it is of a capital or a revenue nature);
surplus/deficit arising from trading and other activities.
The difference between Receipts and Payments and Income and
Expenditure. Reason for the difference in the treatment of ordinary
subscriptions and life membership fees.
Joining fees and Government Grants are NOT examinable.

The Capital Structure

of COMPANIES

A basic understanding of the Memorandum of Association

and Articles of Association required for company formation.
The difference between limited and unlimited liability.
The difference between a public and a private company.
Understanding the different terms concerning capital
structure:
o Equity;
o Authorised and issued share capital;
o Ordinary shares, redeemable preference shares and
debentures;
o Capital and revenue reserves; how the following
reserves are created and utilised: retained earnings,
general reserve, share premium; revaluation reserve
and capital redemption reserve;
o Nominal and market value of shares;
o Provisions and reserves.

The procedure and accounting treatment of :

a public issue;
a bonus issue;
a rights issue;
redemption of redeemable preference shares.
The following are NOT examinable:
Issue of shares by installments and forfeiture of shares;
Issue of debentures and convertible loan stock;
Purchase back of own shares

AM01 Syllabus (2016): Accounting

Preparation of
Financial statements
of COMPANIES

Preparation of Financial Statements for Internal use :

Income Statement/Statement of Comprehensive Income
(including adjustments for revaluation ONLY);
Statement of Changes in Equity;
Statement of Financial Position.
Preparation of Published Financial Statements:
Income Statement/Statement of Comprehensive Income
(including adjustments for revaluation ONLY);
Statement of Changes in Equity;
Statement of Financial Position.
(see Appendix 1 for suggested format)
Accompanying notes to the Financial statements, Directors Report
and Audit Report are NOT examinable.
(Refer to Appendix ll for content of International Accounting
Standards which students are to be familiar with.)

Interpretation of
Accounts and
Preparation of
Reports
Statement of Cash
Flow

Interpretation by means of ratio analysis assisting the appraisal of shortterm and long-term solvency, profitability and efficiency.
(Refer to appendix lll for the list of ratios.)

COST AND
MANAGEMENT
ACCOUNTING
Introduction

Inventory (stock)
valuation

The cost of labour

Preparation of the Statement of Cash Flow using the Indirect

Method Only as per IAS 7.
Evaluating the difference between profitability and the cash
position of a business.
Benefits of preparing The Statement of Cash Flow.

Notes for Guidance PAPER 2

the purpose of management accounting;

the role of the management accountant;
the difference between financial and
accounting.

management

Valuing inventory using the FIFO and AVCO perpetual

methods;
An understanding of why different inventory valuation
methods produce different calculations of profit;
Reference to IAS 2 vis--vis the costs comprising
inventory;
Inventory control: calculation and significance of economic
order quantity, minimum and maximum inventory levels
and the reorder level.
The calculation of the LIFO method of inventory valuation is NOT
examinable.

Calculation of labour cost using the following methods of

remuneration: time rate and overtime, piecework, and
guaranteed piecework, (excluding differential piecework) and
bonus on time saved, involving individual schemes ONLY.
Calculation and interpretation of labour turnover and labour
recovery rates.

AM01 Syllabus (2016): Accounting

Overheads

Job costing

Process costing

Cost Behaviour and

Break-Even analysis

The characteristics and treatment of overhead expenses

allocation, apportionment and absorption overheads.
Calculation of overhead recovery rates: direct labour hour rate;
machine hour rate; direct labour cost percentage rate; cost per
unit rate.
Treatment of reciprocal services of service department using
the elimination method ONLY.
Calculation of over and under-absorption of overheads.
The repeated distribution method and the blanket rate are NOT
examinable.

Characteristics of process costing;

The preparation of process cost accounts;
Accounting for normal losses, abnormal losses and abnormal
gains.
The closing work in progress, the concept of equivalent production and
joint products and by-products are NOT examinable.

Marginal and
Absorption costing

Characteristics of job costing;

Estimating the cost of a job.

Types of costs: fixed costs, variable costs, semi-variable

costs, relevant costs, irrelevant costs, product costs, period
costs, direct costs and indirect costs.
Cost classification by function: production and nonproduction costs.
The Hi-Low Method
An understanding and calculation of contribution.
Calculation of the break-even point, margin of safety and
the contribution/sales ratio.
Break-Even analysis including the traditional BEP chart
ONLY.
Comparison of marginal costing and absorption costing
(excluding under and over absorption of overheads);
Reconciliation of both profits.

Decision making

Make or buy decisions;

Dropping a product;
One limiting factor;
Accepting special orders
Questions on this topic can involve ONLY ONE decision-making
situation from the above.

Budgeting

Functional budgets for: inventories; sales; purchases;

debtors (trade receivables), creditors (trade payables),
production and cash.
The Master Budget: The Budgeted Income Statement and
the Budgeted Statement of Financial Position.
Flexible Budgeting;
Budgetary Control
Questions shall be set for a maximum of FOUR months only so as to
highlight the understanding of the process of preparing budgets over
repeated numerical calculations.

AM01 Syllabus (2016): Accounting

Standard Costing and

Variance Analysis

The purpose of standard costing;

Calculation and understanding of variance analysis of the
following:
Material-price and quantity variances;
Labour-rate and efficiency variances;
Variable
overhead-expenditure
and
efficiency
variances;
Fixed overhead- expenditure and volume variances;
Sales price and volume variances;
Reconciliation of budgeted with actual profit.
Calculation of variances shall be based on the absorption costing
method only. Variances utilising the marginal costing system are
NOT examinable.

Social Accounting

A basic understanding of the purpose, benefits, limitations

and applications of social accounting and social auditing.
A basic understanding of Corporate Social Responsibility
(CSR) of firms towards employees, the community at large
and the environment.
Question set shall be of a theoretical nature ONLY.

Reading List
Financial Accounting
Izhar, R. & Hontoir J.
Accounting, costings and management. (Oxford University Press 2nd Ed.) ISBN 0-19-832823-0
Finch, C.
A Students Guide to IFRS (2nd Ed.) (Kaplan) ISBN 978-1-84710-708-4
Randall, H.
Accounting (3rd Ed.) ISBN 1858051622
Wood, F.
A Level Accounting ISBN 0273 602608 (Pitman)
Cost and Management Accounting
Caruana, J. & Abela, M.
Cost and Management Accounting for A Level ISBN: 9789993286769
Hussey, J. & Hussey, R.
Cost and Management Accounting (2nd Ed.) ISBN-0-333-69407-4
Lucey, T.
Costing (6th Ed.) ISBN 0-8264-5510-7
Mearns, I.
Fundamentals of Cost and Management Accounting ISBN 0273 027514 (Pitman)
Pace, A. & Xuereb, J.
Cost and Management Accounting - Principles and Practice ISBN 978-99957-0-219-9

AM01 Syllabus (2016): Accounting

APPENDIX I - Suggested format for Published Accounts based on IAS 1

Statement of Comprehensive Income for the year ended .

Revenue

Cost of sales

(X)

Gross profit

Other income

X
X

Distribution costs

Administrative expenses

Other expenses

Finance costs

Profit before tax

(X)
X

Income tax expense

(X)

Profit for the year

Revaluation gain

Total comprehensive income

A Statement of Changes in equity is also to be compiled

AM01 Syllabus (2016): Accounting

Statement of Financial Position as at .

Assets
Non-current assets
Property

Plant and equipment

Motor Vehicles
Furniture and Fittings
Goodwill

X
X
X
X

Development costs

Investments

X
X

Current assets
Inventories

Trade receivables (net)

Other receivables

Cash and Bank

X
X
X

Total assets
EQUITY AND LIABILITIES

Total equity
Non-current liabilities
Debentures

Loans

Redeemable preference shares

Total non-current liabilities

Current liabilities
Trade payables
Other payables

X
X

Total current liabilities

Total liabilities

Total equity and liabilities

AM01 Syllabus (2016): Accounting

APPENDIX ll - International Accounting Standards

IAS 1 Presentation of Financial Statements

Awareness of the fact that according to IAS 1, a complete set of financial statements
comprises the following:
o Statement of financial position (balance sheet);
o Statement of comprehensive income (income statement);
o Statement of changes in equity;
o Statement of cash flows;
o Explanatory notes (not examinable).
The purpose of each statement.
Refer to Published Accounts (Presentation of Financial Statements) topic in syllabus.

IAS 2 Accounting for Inventories

The measurement of inventory at the lower of cost and net realisable value including the
ability to calculate NRV.
The inventory methods accepted by IAS 2 i.e. FIFO and AVCO.
IAS 7 Statement of Cash Flows

Refer to Statements of Cash Flow topic in syllabus.

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Treatment of:
o changes in accounting estimates (i.e. change in useful life of a non-current asset,
only)
o material errors.
Accounting policies and any changes therein are not examinable.

IAS 16 Property Plant and Equipment

The accounting treatment of depreciation
o Cost Model
o Revaluation Model
Refer to Depreciation topic in syllabus.
Basic understanding and accounting treatment of impairment of Property, only.
IAS 36

Impairment
Accounting treatment of Impairment
Impairment of Goodwill
Impairment of Development costs

IAS 37 Provisions, Contingent Liabilities and Contingent Assets

Basic understanding of the difference between a provision and a contingent liability and their
accounting treatment.
IAS 38 Intangible Assets
Research and Development Costs:
o Basic knowledge of the difference between Research Costs and Development Costs.
o Accounting treatment of Development Costs (including impairment) and Research
Costs.
Goodwill:
o Definition of Goodwill.
o Difference between Purchased and Non-Purchased Goodwill.
o Accounting treatment of Purchased Goodwill and its impairment.

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AM01 Syllabus (2016): Accounting

APPENDIX III - Suggested Accounting Ratios

Gross Profit margin
Mark up
Net Profit margin

Gross Profit
Net Sales

100

Gross Profit
Cost of Sales

100

PBIT
Net Sales

100

100

100

100

Or

Net Profit
Net Sales

ROCE

PBIT
Capital Employed

Utilisation of capital employed

Net Sales
Capital Employed

Current ratio
(Working Capital ratio)

Current Assets
Current Liabilities

Quick (Acid Test) ratio

Current Assets - Inventory

Current Liabilities

Inventory Turnover

Cost of Sales
Average Inventory

Collection period of receivables

Trade Receivables
Credit Sales

365

Payment period of payables

Trade Payables
Credit Purchases*

365

Gearing

Non-Current Liabilities
Capital Employed

100

Interest Cover

PBIT
Fixed annual charges

EPS

Net Profit after tax

No of ordinary shares

*If purchases are not given and cannot be calculated, Cost of Sales may be used.

N.B.

Capital Employed = Issued Ordinary Shares + Reserves + Non-Current Liabilities

Alternative acceptable methods of calculating the above ratios are allowable.

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