ACCN2011: Financial Accounting II Study Guide (Wits BAccSc)

This comprehensive study guide is tailored for University of the Witwatersrand (Wits) BAccSc students taking ACCN2011: Financial Accounting II, and is aligned with typical expectations for Wits ACCN2011 past exam questions, test preparation, and assignment work. It also reflects the type of content South African students search for, similar to UNISA FAC2601 study notes, CUT Financial Accounting II exam tips, and other second‑year financial accounting modules. The focus is on the core IFRS principles, calculations, formats, and exam‑style thinking that frequently appear in Wits ACCN2011 assessments.

1. Conceptual Framework and Core Financial Statements (Wits ACCN2011 Focus)

ACCN2011 builds on first‑year accounting by deepening understanding of the Conceptual Framework, recognition and measurement rules, and presentation of the primary financial statements in accordance with IFRS. Many ACCN2011 Wits test 1 questions and mid‑semester multiple‑choice sections draw directly from this area, often in a theoretical‑plus‑application format.

1.1 IFRS Conceptual Framework: Core Elements

The IASB Conceptual Framework underpins all IFRS standards taught in ACCN2011. Examiners at Wits often test this via short theory questions or by asking you to justify a treatment with reference to recognition criteria.

1.1.1 Objective of General Purpose Financial Reporting

The objective is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources.

This leads to questions like:

Which users are primary vs secondary?
Why is stewardship (accountability of management) important?
How does this objective affect recognition and disclosure?

1.1.2 Qualitative Characteristics

Fundamental qualitative characteristics:

Relevance
- Information affects users’ decisions.
- Has predictive and confirmatory value.
- Materiality is an entity‑specific aspect of relevance.
Faithful representation
- Information must be complete, neutral, and free from error.
- Substance over form is key in Wits ACCN2011 exam cases (e.g. consignment stock vs sale).

Enhancing qualitative characteristics:

Comparability
Verifiability
Timeliness
Understandability

In exam answers, explicitly naming and applying these terms earns easy theory marks.

1.1.3 Elements of Financial Statements

The Framework defines:

Asset – A present economic resource controlled by the entity as a result of past events.
Liability – A present obligation of the entity to transfer an economic resource as a result of past events.
Equity – The residual interest in the assets after deducting liabilities.
Income – Increases in assets or decreases in liabilities that increase equity (other than contributions from holders of equity claims).
Expenses – Decreases in assets or increases in liabilities that decrease equity (other than distributions to holders of equity claims).

Exam tip (Wits ACCN2011):
When asked whether something is an asset/liability, structure your answer:

Identify the item.
Apply each part of the definition (resource/obligation, present, control, future economic benefits).
Conclude explicitly (“Therefore, it meets/does not meet the definition of an asset”).

1.2 Recognition and Measurement Principles

1.2.1 Recognition Criteria

An item is recognised in the financial statements if:

It meets the definition of an element; and
It is relevant and provides faithfully represented information.

Older versions emphasised probability and reliability, but Wits ACCN2011 lectures focus on the updated framework’s emphasis on relevance and faithful representation.

Example: Legal claim (contingent liability)

If it is probable that an outflow of resources will be required, and the amount can be measured reliably → recognise a provision (IAS 37).
If it is possible but not probable → disclose as contingent liability, not recognised.
If remote → neither recognised nor disclosed.

1.2.2 Measurement Bases

Expect ACCN2011 exam questions to ask you to distinguish between different measurement bases:

Historical cost – cash or cash equivalents paid (for assets) or received (for liabilities) at original date of transaction.
Current value measures, including:
- Fair value – price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
- Value in use – present value of the cash flows expected from continuing use and disposal.
- Current cost – cost to acquire equivalent asset or settle liability currently.

You must know where they apply:

Item	Typical Standard	Common Measurement Basis
Property, plant and equipment	IAS 16	Cost or revaluation (fair value)
Investment property	IAS 40	Fair value or cost
Inventories	IAS 2	Lower of cost and net realisable value
Financial instruments	IFRS 9	Amortised cost or fair value

1.3 Structure and Content of Financial Statements (IFRS Presentation)

ACCN2011 at Wits expects you to be able to prepare and interpret:

Statement of financial position
Statement of profit or loss and other comprehensive income (SPLOCI)
Statement of changes in equity (SOCIE)
Statement of cash flows
Notes to the financial statements

1.3.1 Statement of Financial Position (IAS 1)

Key ideas:

Current vs non‑current classification:
- Current asset: expected to be realised in normal operating cycle, held for trading, expected to be realised within 12 months, or is cash/cash equivalent (unless restricted).
- Current liability: expected to be settled in normal operating cycle, held for trading, due within 12 months, or no unconditional right to defer settlement for at least 12 months.

Typical ACCN2011 exam requirement:
Given a list of trial balance items and notes, classify and prepare a statement of financial position for a Wits‑style exam question, similar in level to UNISA FAC2602 exam questions.

1.3.2 Statement of Profit or Loss and Other Comprehensive Income

Two approaches allowed:

Single statement – Profit or loss and other comprehensive income in one statement.
Two‑statement approach – Separate statement of profit or loss, followed by separate statement of OCI.

You must know:

Profit or loss includes revenue, cost of sales, distribution, admin, finance costs, tax.
Other comprehensive income (OCI) includes items like:
- Revaluation gains on PPE (IAS 16)
- Gains/losses on FVOCI financial assets (IFRS 9)
- Some actuarial gains/losses on defined benefit plans (IAS 19)

Classification by nature or function:

Nature of expense (e.g. materials, salaries, depreciation).
Function of expense (e.g. cost of sales, admin, selling expenses).

Wits ACCN2011 often uses function of expense format in exam questions.

1.3.3 Statement of Changes in Equity

SOCIE shows:

Opening balances of each equity component (share capital, retained earnings, reserves).
Total comprehensive income for the period.
Dividends declared/distributions.
Share issues or buy‑backs.
Transfers between reserves.

For ACCN2011, you must be able to:

Post profit for the year and OCI to correct equity components.
Record dividends declared (reducing retained earnings) and show them in notes.

1.3.4 Statement of Cash Flows (IAS 7) – High‑Level Overview

Though often covered more extensively in third‑year or later modules, ACCN2011 exams may test basic cash flow preparation:

Operating activities – main revenue‑producing activities.
Investing activities – acquisition/disposal of non‑current assets.
Financing activities – changes in equity and borrowings.

Wits exam questions may ask:

To prepare cash flows from operating activities using the indirect method, or
To analyse cash flow excerpts and comment on liquidity/solvency.

2. Property, Plant & Equipment, Depreciation and Impairment (IAS 16 & IAS 36)

PPE is a core topic in ACCN2011: Financial Accounting II at Wits, similar in exam importance to modules such as UNISA FAC2601 PPE questions and CUT ACC260 Financial Accounting II depreciation scenarios. You must master initial recognition, subsequent measurement, depreciation methods, revaluation model, and impairment.

2.1 Recognition and Initial Measurement of PPE

2.1.1 Recognition Criteria (IAS 16)

An item of PPE is recognised as an asset when:

It is probable that future economic benefits associated with the item will flow to the entity; and
The cost of the item can be measured reliably.

Examples: Land, buildings, machinery, vehicles, furniture, computer equipment.

Items like repairs and maintenance that simply maintain the asset’s current condition are expensed, not capitalised.

2.1.2 Components of Cost

Cost of an item of PPE includes:

Purchase price (including import duties, non‑refundable taxes, net of discounts/rebates).
Directly attributable costs to bring the asset to the location and condition necessary for it to operate as intended:
- Costs of site preparation
- Delivery and handling
- Installation and assembly
- Testing (net of proceeds from sale of items produced during testing)
- Professional fees (e.g. architects, engineers)
Initial estimate of dismantling and restoration costs (IAS 37).

Example (Wits‑style ACCN2011 question):
A machine is bought for R400 000. Transport costs R20 000. Installation R30 000. Trial run costs R15 000, with R5 000 proceeds from sale of trial goods. Annual maintenance contract of R10 000.

Capitalised cost = 400 000 + 20 000 + 30 000 + (15 000 – 5 000) = R460 000.
The maintenance contract is an expense as incurred.

2.2 Subsequent Measurement: Cost vs Revaluation Model

After initial recognition, an entity chooses:

Cost model:
- Carrying amount = Cost – Accumulated depreciation – Accumulated impairment.
Revaluation model:
- Carrying amount = Fair value at revaluation date – Subsequent depreciation.

Once chosen, the policy must be applied to an entire class of PPE (e.g. all buildings).

2.2.1 Revaluation Surplus and Deficit

Upward revaluation → Other Comprehensive Income; accumulated in revaluation surplus (equity).
Downward revaluation:
- First, reduce any existing revaluation surplus for the asset (OCI decrease).
- Any excess deficit → profit or loss.

Example:

Asset cost: R1 000 000, accumulated depreciation: R200 000. Carrying amount: R800 000.
Fair value: R1 100 000 → upward revaluation of R300 000.
Journal (simplified):
- Dr PPE R300 000
- Cr Revaluation surplus (OCI) R300 000

2.2.2 Depreciation After Revaluation

Depreciation is based on the revalued amount and remaining useful life.

If useful life is 10 years total, and the asset has already been used for 3 years, remaining life is 7 years. Depreciation per year = Revalued carrying amount ÷ remaining years.

Exam questions often test:

Depreciation before and after revaluation.
Recording revaluation surplus and transfer to retained earnings (optional) representing the realisation of surplus when asset is used.

2.3 Depreciation Methods and Calculations

Depreciation is the systematic allocation of the depreciable amount over the asset’s useful life.

Depreciable amount = Cost (or revalued amount) – Residual value.

2.3.1 Methods

Common methods tested in Wits ACCN2011:

Straight‑line method
- Depreciation = (Cost – Residual value) ÷ Useful life.
- Equal charge each year.
Diminishing balance / reducing balance method
- Depreciation = Carrying amount at start of period × fixed rate.
- Higher charges early on.
Units of production
- Depreciation per unit = (Cost – Residual value) ÷ Total expected units.
- Annual depreciation = Depreciation per unit × Units produced in period.

Example (Straight‑line, exam style):
Cost R500 000, residual value R50 000, useful life 5 years.

Depreciable amount = 450 000.
Annual depreciation = 450 000 ÷ 5 = R90 000.

2.3.2 Change in Estimate

If a useful life or residual value estimate changes, it is treated prospectively:

Compute carrying amount at date of change.
Recalculate depreciation for remaining useful life based on new estimates.

Example:
Machine cost R300 000, useful life 10 years, no residual value. After 3 years, management revises remaining life to 5 more years.

Depreciation first 3 years: 300 000 ÷ 10 = 30 000 p.a.
Carrying amount at start of year 4: 300 000 – 3 × 30 000 = 210 000.
New depreciation: 210 000 ÷ 5 = R42 000 per year from year 4 onwards.

2.4 Disposals of PPE

When PPE is disposed of:

Record depreciation up to date of disposal.
Remove cost and accumulated depreciation from the books.
Record proceeds of disposal.
Recognise profit or loss on disposal in profit or loss.

Example:
Vehicle cost R200 000, accumulated depreciation R120 000. Sold for R90 000.

Carrying amount = 200 000 – 120 000 = 80 000.
Profit on disposal = Proceeds 90 000 – Carrying amount 80 000 = R10 000.

Journal:

Dr Bank 90 000
Dr Accumulated depreciation 120 000
Cr PPE 200 000
Cr Profit on disposal 10 000

2.5 Impairment of Assets (IAS 36) – ACCN2011 Level

Impairment occurs when the carrying amount exceeds the recoverable amount.

Recoverable amount = higher of:
- Fair value less costs of disposal, and
- Value in use (present value of future cash flows).

2.5.1 Identifying Indicators of Impairment

IAS 36 requires impairment testing if there are indicators such as:

Significant decline in market value.
Adverse changes in technology, markets, legal environment.
Increases in market interest rates (discount rates).
Evidence that asset’s economic performance is worse than expected.

Exam questions often give narrative indicators and ask whether an impairment test is required.

2.5.2 Recognition and Measurement of Impairment Loss

If recoverable amount < carrying amount:

Impairment loss = carrying amount – recoverable amount.
Recognise in profit or loss, unless asset is revalued under IAS 16, in which case it first reduces any related revaluation surplus.

Example:
Carrying amount R600 000; recoverable amount R450 000.

Impairment loss = 150 000.
Journal:
- Dr Impairment loss 150 000
- Cr Accumulated impairment 150 000 (or directly reduce asset).

If the asset is part of a cash‑generating unit (CGU), more advanced allocation rules apply (ACCN2011 might test basic CGU allocation in a theory question).

3. Inventories and Revenue: IAS 2 and IFRS 15 (Wits ACCN2011 Core Topics)

Inventories and revenue are heavily tested areas in second‑year accounting across South African universities such as Wits ACCN2011, UNISA FAC2601/FAC2602, and CUT ACC260. At Wits, exam questions often mix inventory valuation with basic revenue recognition scenarios.

3.1 Inventories (IAS 2)

Inventories are assets:

Held for sale in the ordinary course of business;
In the process of production for such sale; or
In the form of materials or supplies to be consumed in production or services.

3.1.1 Measurement: Lower of Cost and Net Realisable Value

Cost includes:

Purchase cost (less discounts, plus import duties, non‑refundable taxes).
Conversion costs (direct labour + production overheads).
Other costs to bring inventory to present location and condition.

Net realisable value (NRV):

Estimated selling price in ordinary course of business;
Less estimated costs of completion;
Less estimated costs necessary to make the sale.

Inventories are measured at lower of cost and NRV.

Example:
A product has cost of R150 per unit. It can be sold for R160 per unit, but selling costs are R15 per unit.

NRV = 160 – 15 = R145.
Lower of cost & NRV = R145 → inventory is carried at R145 per unit, and a write‑down of R5 per unit recognised in profit or loss.

3.1.2 Cost Formulas: FIFO and Weighted Average

IAS 2 allows:

FIFO (First‑In, First‑Out) – items purchased first are assumed sold first.
Weighted average cost – cost per unit based on average cost of items on hand.

Example (FIFO vs Weighted Average):

Purchases:

1 Jan: 100 units @ R10
10 Jan: 200 units @ R12
20 Jan: 150 units @ R11

Total units = 450; total cost = 100×10 + 200×12 + 150×11 = 1 000 + 2 400 + 1 650 = R5 050.

Sales:

300 units sold in January.

Under FIFO:

Cost of sales =
- 100 units @ 10 = 1 000
- 200 units @ 12 = 2 400
- Total = R3 400
Closing inventory = 450 – 300 = 150 units
- Remaining from 20 Jan: 150 units @ 11 = R1 650

Under Weighted Average:

Average cost per unit = 5 050 ÷ 450 ≈ R11.22
Cost of sales = 300 × 11.22 ≈ R3 366
Closing inventory = 150 × 11.22 ≈ R1 683

ACCN2011 exam questions routinely require you to compute cost of sales and closing stock under both methods and discuss profit impact.

3.1.3 Write‑Downs and Reversals

If NRV < cost, inventory is written down to NRV.
Write‑down recognised as expense in period (cost of sales or separate line).
If circumstances change and NRV subsequently increases, previous write‑downs may be reversed (limited to original cost).

Example:

Cost: R200, NRV: R150 → write‑down of R50.
Next period NRV increases to R190 → reversal of R40 (not beyond original cost).

3.2 Revenue from Contracts with Customers (IFRS 15)

Revenue recognition is central to ACCN2011, often tested with short scenarios involving goods and basic services, aligned with typical Wits BAccSc ACCN2011 revenue problems.

3.2.1 The Five‑Step Model

IFRS 15 introduces a five‑step model:

Identify the contract with a customer.
Identify the performance obligations in the contract.
Determine the transaction price.
Allocate the transaction price to the performance obligations.
Recognise revenue when (or as) performance obligations are satisfied.

Step 1: Identify the Contract

A contract exists if:

There is approval and commitment of parties.
Rights and payment terms can be identified.
The contract has commercial substance.
It is probable the entity will collect consideration.

Step 2: Identify Performance Obligations

A performance obligation is a distinct good or service (or bundle) promised to the customer.

Separate obligations exist if the customer can benefit from the good/service on its own or together with other readily available resources and the promise is separately identifiable.

Example: Selling a machine and a separate training service might constitute two performance obligations.

Step 3: Determine the Transaction Price

Transaction price is the amount of consideration to which the entity expects to be entitled.

Consider:

Fixed vs variable consideration.
Significant financing component (if payment significantly deferred or advanced).
Non‑cash consideration.
Consideration payable to a customer (discounts, rebates).

Step 4: Allocate the Transaction Price

If multiple performance obligations, allocate on basis of relative stand‑alone selling prices.

Example:
A company sells a smartphone and 1‑year service plan for total contract price of R10 000. Stand‑alone prices:

Phone: R8 000
Service: R4 000
Total stand‑alone: 12 000.

Allocation:

Phone: 10 000 × (8 000/12 000) = R6 667
Service: 10 000 × (4 000/12 000) = R3 333

Step 5: Recognise Revenue

Point in time – Control transfers at a specific moment (e.g. sale of goods when customer takes delivery).
Over time – If one of the following applies:
- Customer simultaneously receives and consumes benefits.
- Entity’s performance creates/enhances an asset that the customer controls as created.
- Entity’s performance does not create an asset with alternative use and has enforceable right to payment.

3.3 Practical Revenue Examples for ACCN2011

3.3.1 Sale of Goods: Simple Case

A Wits ACCN2011 question may state:

Company sells inventory for R50 000, terms “FOB shipping point”. Customers have no right of return. Goods are shipped on 28 December, customer receives them 3 January.
Under FOB shipping point, risks and rewards transfer when goods leave seller’s premises → revenue in December.
Under FOB destination, revenue only when goods reach customer → revenue in January.

You must apply the transfer of control principle, not just legal title.

3.3.2 Multiple Element Arrangements

Scenario:
Entity sells equipment plus 2 years of technical support for R120 000 total. Stand‑alone selling prices: Equipment R100 000, Support R40 000.

Total stand‑alone = 140 000.

Allocation:

Equipment: 120 000 × (100 000 / 140 000) = R85 714.
Support: 120 000 × (40 000 / 140 000) = R34 286.

Recognition:

Equipment: Point in time when delivered.
Support: Over time (e.g. straight‑line over 2 years).

Examiners might ask to calculate current‑year revenue and contract liability (deferred revenue).

3.3.3 Contract Liability vs Receivable

Contract liability – entity has received consideration (or amount is due) but has not yet satisfied performance obligation → e.g. deferred revenue.
Contract asset – entity has performed but not yet an unconditional right to consideration.
Receivable – unconditional right to consideration (only passage of time required).

In ACCN2011 exam questions, often simplified to:

Amount received in advance for services next year → liability (revenue not yet earned).

4. Financial Instruments Basics: IFRS 9 & IFRS 7 (ACCN2011 Level)

While advanced financial instruments are usually covered more heavily in later Wits modules (e.g. ACCN3000 Financial Accounting III), ACCN2011: Financial Accounting II often introduces basic IFRS 9 principles: classification, amortised cost, simple investments, and basic disclosures, similar to UNISA FAC2602 financial instruments sections.

4.1 Classification and Measurement under IFRS 9

Financial assets are classified based on:

Business model for managing the assets, and
Contractual cash flow characteristics (SPPI – solely payments of principal and interest).

Primary measurement categories:

Amortised cost
Fair value through profit or loss (FVTPL)
Fair value through other comprehensive income (FVOCI)

4.1.1 Amortised Cost

Financial asset at amortised cost if:

Business model is to hold the asset to collect contractual cash flows; and
Cash flows are solely payments of principal and interest on specified dates (SPPI test).

E.g. simple loan receivable with fixed interest and principal.

Subsequent measurement uses the effective interest method.

4.1.2 Fair Value Through Profit or Loss (FVTPL)

Default category if not classified elsewhere. Includes:

Trading instruments (e.g. held for trading shares).
Derivatives.
Instruments designated as FVTPL to avoid accounting mismatch.

Changes in fair value → recognised in profit or loss.

4.1.3 Fair Value Through Other Comprehensive Income (FVOCI)

Two main types (ACCN2011 may cover basics):

Debt instruments at FVOCI – business model is both to collect contractual cash flows and sell; cash flows meet SPPI. Fair value changes go to OCI; interest income and impairments go to profit or loss.
Equity instruments at FVOCI – irrevocable election at initial recognition; fair value changes go to OCI; no recycling to profit or loss on disposal (only transfer within equity).

4.2 Effective Interest Method (Amortised Cost)

The effective interest rate (EIR) is the rate that exactly discounts estimated future cash flows to the gross carrying amount of a financial asset.

4.2.1 Basic Amortised Cost Example

Wits ACCN2011 might give:

A company purchases a bond for R95 000 (face value R100 000).
Coupon interest: 8% p.a. (on face value).
Market yield (effective rate): 10% p.a.
Term: 3 years, interest annually, principal repaid at end year 3.

Set up amortisation table:

Year 0: Carrying amount = 95 000.

Year 1:

Interest income = 95 000 × 10% = 9 500.
Cash received = 100 000 × 8% = 8 000.
Difference (1 500) increases carrying amount (discount unwinding).

New carrying amount = 95 000 + 1 500 = 96 500.

Repeat annually until carrying amount equals face value (100 000) at maturity.

4.3 Basic Impairment (Expected Credit Losses – ECL)

IFRS 9 uses expected credit loss model. At ACCN2011 level:

Recognise 12‑month ECL for financial assets that are not credit‑impaired and have not significantly deteriorated in credit risk.
Recognise lifetime ECL if credit risk has significantly increased.

Simplified training examples:

Calculate impairment = Gross carrying amount × ECL rate.

Example:
Trade receivables R200 000. Historical default experience suggests 3% ECL.
Impairment loss = 200 000 × 3% = R6 000.

Journal:

Dr Impairment loss 6 000
Cr Loss allowance (or provision for doubtful debts) 6 000

4.4 Basic Financial Liabilities

Financial liabilities are generally measured at:

Amortised cost; or
FVTPL (if held for trading or designated).

ACCN2011 might test:

Bank loan at amortised cost similar to receivable example.
Simple debenture/bond issued at discount or premium.

Example (Loan at amortised cost):
Company issues a 3‑year loan of R300 000 at a nominal interest rate of 6% p.a., market rate is 8%, resulting in proceeds of R285 000 (discount). The effective interest method is used to allocate finance cost over the term. You must:

Compute finance cost = carrying amount × effective rate.
Record difference between finance cost and cash paid as increase in loan balance.

5. Equity, Reserves, and Company Transactions (Wits ACCN2011 Application)

Equity accounting at ACCN2011: Financial Accounting II (Wits) covers share capital, share premium, retained earnings, reserves, and dividends, as well as presentation in the Statement of Changes in Equity. This area aligns with content in UNISA FAC2601 company accounting and CUT ACC260 corporate equity transactions.

5.1 Components of Equity

Equity = Share capital + Share premium (or share premium reserve) + Retained earnings + Other reserves (e.g. revaluation surplus).

5.1.1 Share Capital

Ordinary share capital – equity shares with voting rights, residual claims on profits and assets.
Preference share capital – typically has preference over ordinary shares in dividends and liquidation. May be:
- Cumulative or non‑cumulative.
- Redeemable or irreedeemable.

At ACCN2011 level, preference shares are usually treated as equity unless they have characteristics of a financial liability (IAS 32), but exam questions may simplify classification.

5.1.2 Share Premium

Share premium (also called share premium reserve) arises when shares are issued at a price above par (nominal) value.

Example:
Company issues 10 000 ordinary shares of par value R1 at issue price R5 per share.

Share capital = 10 000 × 1 = R10 000
Share premium = 10 000 × (5 – 1) = R40 000

Journal:

Dr Bank 50 000
Cr Share capital 10 000
Cr Share premium 40 000

5.2 Share Issues and Share Buy‑Backs

5.2.1 Issue of Shares for Cash

Straightforward, as per example above. Exams might ask for:

Journal entries
Effect on statement of financial position and SOCIE

5.2.2 Issue of Shares for Non‑Cash Consideration

When shares are issued in exchange for non‑cash assets (e.g. property), measure at fair value of asset or fair value of shares issued, whichever is more reliably measurable.

Example:
A piece of land (fair value R500 000) is acquired in exchange for 50 000 ordinary shares with par value R1. If there is no active market for the shares, use land’s fair value.

Journal:

Dr Land 500 000
Cr Share capital (50 000 × 1) 50 000
Cr Share premium 450 000

5.2.3 Share Buy‑Backs (Repurchase of Own Shares)

When an entity repurchases its own equity instruments:

Recognised as treasury shares and deducted from equity.
No gain or loss recognised in profit or loss on purchase, sale, or cancellation.

Example:
Company repurchases 5 000 of its own ordinary shares at R8 each (par R1).

Dr Treasury shares (equity) 40 000
Cr Bank 40 000

If later reissued above cost, any difference goes to share premium or capital reserve within equity, not to profit or loss.

5.3 Reserves: Revaluation Surplus, Retained Earnings and Other

5.3.1 Revaluation Surplus (IAS 16)

Arises when PPE is revalued upward. Presented within other components of equity.

Not distributable as dividends in many jurisdictions until realised.
Realisation can occur upon disposal or via additional depreciation on revalued portion.
Transfer from revaluation surplus to retained earnings may be made directly in equity, not through profit or loss.

Example:
If incremental depreciation due to revaluation is R20 000 per year, entity may transfer R20 000 from revaluation surplus to retained earnings annually.

5.3.2 Retained Earnings

Retained earnings = cumulative profits and losses, less dividends and transfers.

Changes in retained earnings arise from:

Profit or loss for the year (from SPLOCI).
Dividends declared.
Prior period errors corrections (IAS 8).
Changes in accounting policies (retrospective adjustments).

5.4 Dividends: Ordinary and Preference

Dividends declared after reporting date are not liabilities at year‑end (only disclosed in notes) under IAS 10. Dividends declared before reporting date are liabilities (dividends payable).

5.4.1 Ordinary Dividends

Declared out of retained earnings:

Journal when declared:

Dr Retained earnings
Cr Dividends payable

When paid:

Dr Dividends payable
Cr Bank

5.4.2 Preference Dividends

Cumulative preference shares: any unpaid dividends accumulate and must be paid before ordinary dividends.
Non‑cumulative preference shares: unpaid dividends for a year are lost.

Exam questions often ask:

To calculate and allocate total dividends between preference and ordinary shareholders.
To determine arrears on cumulative preference dividends.

Example:
Preference shares: 20 000 shares, 8% cumulative, par value R10 each. Ordinary shares: 100 000 shares. Dividends unpaid for 2 years, now total dividend of R400 000 is declared.

Preference dividend per year = 20 000 × 10 × 8% = 16 000.
Arrears: 2 years × 16 000 = 32 000.
Current year: 16 000.
Total to preference = 48 000.
Remaining for ordinary = 400 000 – 48 000 = R352 000.

5.5 Statement of Changes in Equity: Exam‑Style Example

For Wits ACCN2011, you must integrate all equity movements into a SOCIE.

Example skeleton (simplified):

Component	Share capital	Share premium	Revaluation surplus	Retained earnings	Total equity
Balance at 1 Jan	500 000	200 000	150 000	300 000	1 150 000
Profit for the year				250 000	250 000
OCI (revaluation)			50 000		50 000
Dividends				(100 000)	(100 000)
Share issue	100 000	400 000			500 000
Transfer (reval)			(10 000)	10 000
Balance at 31 Dec	600 000	600 000	190 000	460 000	1 850 000

You must be able to:

Reconcile opening and closing balances.
Show correct allocation of profit, OCI, dividends, and share transactions.

6. Exam Technique, Common Pitfalls, and Integrated Practice (Wits ACCN2011)

ACCN2011 exams at Wits typically combine computational questions, structured accounts preparation, and theory/short discussion questions. Preparation strategies are similar in style to those used in UNISA FAC2601 exam preparation and CUT ACC260 past paper practice, but tailored to Wits’s emphasis on IFRS and conceptual justification.

6.1 Typical ACCN2011 Exam Structure

While the exact format can vary by year, a typical Wits ACCN2011 exam might include:

Question 1 (30–40 marks): Full Statement of Profit or Loss, Statement of Financial Position, sometimes with a mini SOCIE. Integrates PPE, inventories, revenue, provisions, and basic tax.
Question 2 (20–25 marks): PPE and depreciation, including revaluation or disposal.
Question 3 (20–25 marks): Inventories and revenue recognition scenarios, IFRS 15 applications.
Question 4 (10–15 marks): Financial instruments basics or equity changes (dividends, share issues).
Question 5 (10–15 marks): Conceptual Framework and short theory questions.

Always confirm the current exam format from your Wits ACCN2011 course outline, but preparing for this mix positions you well.

6.2 Time Management Strategy

For a typical 3‑hour, 100‑mark paper:

Allocate ≈ 1.5–2 minutes per mark.
Plan per question:
- Q1 (40 marks): 60–70 minutes.
- Q2, Q3 (25 marks each): 35–40 minutes each.
- Q4, Q5 (10 marks each): 15 minutes each.

Tips:

Start with your strongest question (often the comprehensive financial statement question).
Leave 5–10 minutes at the end to quickly scan for missing figures, labels, or workings.

6.3 Marking and Show‑Your‑Work Principles

Wits ACCN2011 markers look for:

Clear workings (even if final answer is wrong, method marks are awarded).
Logical structure – proper headings, subtotals, and IFRS‑compliant formats.
Referencing between workings and main statements (e.g. W1, W2).
Correct presentation (e.g. gross profit, operating profit, profit before tax).

Always:

Label assumptions clearly (e.g. “Assuming straight‑line depreciation over remaining 5 years”).
Use rulers to separate major sections of financial statements.
Write neatly; illegible numbers cost marks.

6.4 Common Pitfalls in ACCN2011 Exams

6.4.1 Mixing Up Profit or Loss and OCI

Revaluation gains → OCI, not profit or loss.
Impairment losses on revalued assets → first offset OCI (if surplus available), then profit or loss.

Examiners often include small marks for correctly classifying these.

6.4.2 Forgetting Adjustments to Depreciation

Common issues:

Not adjusting depreciation after revaluation.
Ignoring partial year depreciation (e.g. asset acquired on 1 April, year‑end 31 December → 9 months).
Failing to revise depreciation when estimate changes.

Always read the date specifics carefully.

6.4.3 Inventory Errors

Using selling price instead of cost for inventory in financial statements.
Ignoring NRV adjustments.
Misapplication of FIFO vs weighted average.

Practice multiple inventory valuation questions similar to those in UNISA FAC2601 and Wits tutorial questions.

6.4.4 Revenue Recognition Timing

Recognising revenue too early when performance obligations are not satisfied.
Failing to split multi‑element contracts.
Misclassifying advance receipts as revenue instead of contract liabilities.

Always walk through the 5‑step IFRS 15 model.

6.4.5 Ignoring Presentation Requirements

Missing headings (e.g. “Statement of Financial Position for the year ended 31 December 20X1”).
Incorrect order of items (e.g. mixing current and non‑current).
Omitting comparatives (if required in the question).

Even if not heavily penalised, poor presentation makes it harder for markers to award full marks.

6.5 Integrated Study Plan for Wits ACCN2011

A practical plan over 6–8 weeks:

Weeks 1–2: Foundations and Conceptual Framework
- Review ACCN1006 / ACCN1011 material (Financial Accounting I).
- Revise Conceptual Framework, IAS 1, IAS 2 basics.
- Practice theory questions and short explanations (2–5 marks each).
Weeks 3–4: PPE and Depreciation
- Drill IAS 16: recognition, cost components, depreciation methods, revaluation.
- Do at least 10 full PPE questions (similar level to Wits tutorials and UNISA FAC2601 PPE questions).
- Summarise impairment (IAS 36) at ACCN2011 level.
Weeks 5–6: Inventories and Revenue (IAS 2, IFRS 15)
- Practice inventory valuation using FIFO and weighted average.
- Create summary notes for IFRS 15 5‑step model.
- Attempt multi‑element revenue recognition scenarios.
Weeks 7–8: Financial Instruments and Equity + Past Papers
- Revise IFRS 9 basics: classification, amortised cost, effective interest method.
- Consolidate equity transactions: share issues, dividends, reserves.
- Work through Wits ACCN2011 past exam papers under timed conditions.
- Compare with style of UNISA FAC2601/FAC2602 and CUT ACC260 questions for additional practice, focusing on those aligned with IFRS.

6.6 Answer Structure Templates

6.6.1 Theory Questions (Conceptual Framework, IFRS Principles)

Use a structured approach:

State the principle (definition or rule).
Apply to the scenario (facts given).
Conclude clearly.

Example: “Does the item meet the definition of an asset?”

State definition of asset.
Apply to each element: is there a present resource, control, future economic benefits?
Conclude: “Therefore, this item meets/does not meet the definition of an asset.”

6.6.2 Computation Questions

Identify required output (e.g. depreciation charge, carrying amount, inventory value).
List given data clearly.
Use labelled workings (W1, W2, etc.).
Present final answer with unit (e.g. “R” sign, number of units).
Cross‑reference workings in main statements.

6.7 Resources and Practice Options for Wits Students

Wits ACCN2011 course notes and tutorial questions – primary resource.
Wits Past Exam Papers – focus on the last 3–5 years to identify recurring patterns.
Comparable modules for extra practice:
- UNISA FAC2601 and FAC2602 (Financial Accounting II) questions.
- Central University of Technology (CUT) ACC260 and financial accounting II exam packs.
IFRS summaries:
- IASB‑based student summaries for IAS 1, IAS 2, IAS 16, IAS 36, IFRS 9, IFRS 15.

Consistent practice of full, integrated questions under timed conditions is the single most effective way to prepare for ACCN2011: Financial Accounting II at Wits.

By thoroughly mastering the Conceptual Framework, PPE and depreciation, inventories and revenue recognition, basic financial instruments, and equity transactions, and by practising exam‑style questions integrated across these themes, Wits BAccSc students will be well‑positioned for strong performance in ACCN2011 Financial Accounting II tests, assignments, and final exams.