This study guide provides comprehensive, exam-oriented notes for ACCN102: Accounting 1B in the BCom in Accounting at the University of KwaZulu-Natal (UKZN). It is aligned with typical first-year financial accounting syllabi at South African universities and reflects the depth and style expected in UKZN tests, assignments, and exams. Use it alongside your prescribed textbook, UKZN ACCN102 tutorial letters, and past papers for maximum benefit.
1. Course Overview and Core Conceptual Framework
ACCN102: Accounting 1B builds on the foundations from ACCN101 (Accounting 1A). The focus typically shifts from basic double entry and introductory financial statements toward more complex transactions, additional IFRS topics, and deeper interpretation of financial statements, with emphasis on International Financial Reporting Standards (IFRS) as adopted in South Africa.
1.1 Position of ACCN102 in the UKZN BCom (Accounting) Curriculum
In the UKZN BCom in Accounting degree, ACCN102 normally appears in the first academic year, often in the second semester, after students have completed:
- ACCN101: Accounting 1A (or equivalent introductory module)
- Introductory modules in Business Management, Economics, and Quantitative Methods
ACCN102 acts as a bridge between foundation-level financial accounting and more advanced second-year modules such as:
- ACCN201 / 202 (Intermediate Accounting)
- ACCN203 (Management Accounting)
The grounding gained here is essential for later modules that align with SAICA and SAIPA competency frameworks.
1.2 High-Level Learning Outcomes
By the end of ACCN102, you should be able to:
- Apply the conceptual framework (asset, liability, equity, income, and expense definitions) to more complex transactions.
- Record and adjust accounting transactions using the double-entry system for:
- Non-current assets (property, plant, equipment, and intangibles)
- Inventory and cost of sales
- Provisions and contingencies
- Accruals and prepayments
- Bad debts and allowances
- Prepare financial statements (statement of profit or loss and other comprehensive income, statement of financial position, and cash flow information basics) for:
- Sole traders
- Partnerships (often introduced in 1B)
- Small companies (basic understanding)
- Interpret and analyse financial statements using basic ratio analysis.
- Demonstrate awareness of IFRS for SMEs vs Full IFRS as applied in South Africa, including the role of the Companies Act and SAICA guidelines.
UKZN examiners typically expect you not only to perform calculations but also to justify treatments and explain concepts clearly in writing.
1.3 The Accounting Equation and Conceptual Framework: A Quick Reboot
Although you should know this from ACCN101, ACCN102 questions often embed conceptual framework issues within more complex topics.
Core accounting equation:
Assets = Equity + Liabilities
Where:
- Assets: Resources controlled by the entity from which future economic benefits are expected.
- Liabilities: Present obligations arising from past events, settlement of which is expected to result in an outflow of resources.
- Equity: Residual interest in the assets after deducting liabilities.
Expanded equity for a profit-oriented entity:
Equity = Capital (or Share Capital) + Retained Earnings – Drawings (or Dividends)
IFRS-based element definitions (simplified):
- Income: Increases in economic benefits during the period that result in increases in equity, other than contributions from equity participants.
- Expenses: Decreases in economic benefits during the period that result in decreases in equity, other than distributions to equity participants.
Understanding these is critical when dealing with provisions, impairment, and revaluation of assets, topics often examined in Accounting 1B.
1.4 Key Qualitative Characteristics and Concepts Revisited
Exams may test your understanding of basic conceptual framework principles within applied questions:
- Relevance: Information must influence users’ decisions (often via predictive and confirmatory value).
- Faithful representation: Complete, neutral, free from error.
- Accrual basis: Recognise income and expenses when earned/incurred, not when cash is received/paid.
- Going concern: Assume the business will continue for the foreseeable future.
- Consistency: Use the same methods from period to period unless change is justified.
- Materiality: Information is material if omission or misstatement could influence users’ decisions.
Example exam-style conceptual question:
"Explain whether a provision for staff bonuses at year-end should be recognised and justify with reference to the definition of a liability and the accrual basis of accounting."
A high-quality answer uses:
- Liability definitions
- Criteria for recognition (probable outflow, reliable estimate)
- Accrual basis (matching expenses to periods in which employees rendered services).
1.5 Typical ACCN102 Assessment Structure at UKZN
While exact formats vary by year, a common pattern is:
- Coursework:
- Class tests (often 2–3 per semester)
- Tutorials (compulsory and marked)
- Assignments and online quizzes
- Final exam:
- Usually a 2- or 3-hour paper
- Often contributes 50–60% of the final mark (check your specific course outline)
- Mix of:
- Long-format preparation questions (financial statements)
- Journal entries and ledger accounts
- Short theoretical/definition questions
- Interpretation and ratio analysis questions
Time management example:
If the final paper is 100 marks in 3 hours:
- You have 1.8 minutes per mark.
- A 30-mark financial statements question might require about 55 minutes, including review.
Build exam technique by simulating full papers under timed conditions using past UKZN ACCN102 exam papers.
2. Non-Current Assets: Property, Plant & Equipment and Intangibles
Non-current assets are a central focus in ACCN102. UKZN exam papers frequently include detailed PPE and intangible assets questions that test calculation and explanation skills.
2.1 Recognition and Measurement of Property, Plant and Equipment (PPE)
PPE definition (IAS 16):
Tangible items that:
- Are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and
- Are expected to be used during more than one period.
Initial recognition conditions:
- Probable future economic benefits will flow to the entity; and
- Cost can be measured reliably.
Initial measurement:
PPE is initially measured at cost, which includes:
- Purchase price (incl. import duties, non-refundable taxes)
- Directly attributable costs (e.g. delivery, installation, site preparation, professional fees)
- Estimated costs of dismantling and restoring the site (if a present obligation exists)
Example:
A UKZN-based small logistics business, DurbaTrans (Pty) Ltd, buys a delivery truck:
- List price: R350 000
- Trade discount: 5% (R17 500)
- Transport to Durban: R10 000
- Registration fees (once-off, necessary to bring to use): R3 000
- Annual license fee for year 1: R4 000
- Signage/branding: R6 000
Cost of truck:
- Net purchase price: R350 000 – R17 500 = R332 500
- Transport: +R10 000
- Registration: +R3 000
- Signage: +R6 000
- Annual license (recurring expense): excluded from cost
Total capitalised cost = R332 500 + R10 000 + R3 000 + R6 000 = R351 500
This capitalised amount is then depreciated over the truck’s useful life.
2.2 Depreciation: Methods and Calculations
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.
Depreciable amount = Cost – Residual value
Common methods covered in ACCN102:
- Straight-line (SL) method
- Diminishing balance (reducing balance) method
- Units of production (less common in 1B, but may appear conceptually)
2.2.1 Straight-Line Depreciation
Formula:
Annual depreciation = (Cost – Residual value) ÷ Useful life (in years)
Example:
Cost of machinery: R120 000
Residual value: R20 000
Useful life: 5 years
Depreciable amount = R120 000 – R20 000 = R100 000
Annual depreciation = R100 000 ÷ 5 = R20 000 per year
Journal entry (year-end):
- Dr Depreciation Expense R20 000
- Cr Accumulated Depreciation – Machinery R20 000
2.2.2 Diminishing Balance (Reducing Balance)
Assets are depreciated at a fixed percentage of their carrying amount at the beginning of each year.
Formula:
Depreciation for year = Opening carrying amount × Depreciation rate
Example:
Cost of equipment: R200 000
Depreciation rate: 20% per annum (RB)
No residual value assumed for simplicity.
Year 1:
- Carrying amount at start: R200 000
- Depreciation: R200 000 × 20% = R40 000
- Carrying amount at end: R160 000
Year 2:
- Carrying amount at start: R160 000
- Depreciation: R160 000 × 20% = R32 000
- Carrying amount at end: R128 000
Exams often ask you to prepare a PPE note showing movements:
| Year | Cost (R) | Accumulated Depreciation (R) | Carrying Amount (R) |
|---|---|---|---|
| 0 | 200 000 | 0 | 200 000 |
| 1 | 200 000 | 40 000 | 160 000 |
| 2 | 200 000 | 72 000 | 128 000 |
2.3 Revaluation Model vs Cost Model
After initial recognition, PPE is measured under either:
-
Cost model:
- Cost – Accumulated depreciation – Accumulated impairment.
-
Revaluation model:
- Fair value at date of revaluation – subsequent accumulated depreciation – accumulated impairment.
Revaluation model is allowed only if fair value can be measured reliably.
Exam focus points:
- Gains on revaluation (upwards) usually go to other comprehensive income (OCI) and accumulate in revaluation surplus (equity).
- Losses on revaluation (downwards) first reduce any existing revaluation surplus for that asset; excess is recognised in profit or loss.
Example (upward revaluation):
Land at cost: R500 000 (no depreciation)
Fair value at year-end: R650 000
Revaluation surplus = R150 000
Journal entry:
- Dr Land R150 000
- Cr Revaluation Surplus (Equity – OCI) R150 000
Example (downward revaluation with prior surplus):
Carrying amount (revalued): R650 000
New fair value: R580 000
Decrease: R70 000
If revaluation surplus balance for this land is R150 000:
- Dr Revaluation Surplus R70 000
- Cr Land R70 000
No impact on profit or loss because the decrease is within existing surplus.
2.4 Disposal of Property, Plant and Equipment
Disposals are a standard ACCN102 exam area.
Steps to record disposal:
- Remove cost of asset from PPE account.
- Remove accumulated depreciation relating to the disposed asset.
- Record proceeds from sale (if any).
- Recognise profit or loss on disposal in profit or loss.
Example:
Equipment at cost: R150 000
Accumulated depreciation: R90 000
Carrying amount: R60 000
Sold for cash: R65 000
Profit on disposal = Proceeds (R65 000) – Carrying amount (R60 000) = R5 000
Journal entries:
-
Remove asset and accumulated depreciation:
- Dr Accumulated Depreciation – Equipment R90 000
- Cr Equipment R150 000
- (Balancing figure is R60 000, included in entry 2)
-
Record sale and profit:
- Dr Bank R65 000
- Cr Profit on Disposal of Equipment R5 000
- Cr Equipment (carrying amount) R60 000
Alternatively, some solutions use a disposal account, but the final profit or loss figure is the same.
2.5 Intangible Assets (IAS 38)
Intangible assets are non-monetary assets without physical substance. Common examples in first-year courses:
- Patents
- Trademarks
- Computer software
- Licenses
Recognition criteria:
- Probable future economic benefits
- Cost can be measured reliably
- Either:
- Separately identifiable (sold, transferred, licensed), or
- Arises from legal or contractual rights
Internally generated goodwill is not recognised as an asset in the financial statements. Purchased goodwill in business combinations is an advanced topic (usually second-year and above).
Research vs Development:
- Research phase: Original and planned investigation – expensed as incurred.
- Development phase: Application of research – may be capitalised if strict criteria are met (technical feasibility, intention and ability to use/sell, probable future benefits, reliable measurement).
In many ACCN102 syllabi, you only need to know that research is expensed; development may be capitalised if conditions are met, but detailed criteria are covered in later modules.
Amortisation:
Intangibles with finite useful lives are amortised over their useful lives, similar to depreciation.
Example:
Cost of patent: R100 000
Useful life: 10 years
Residual value: R0
Amortisation per year = R10 000
Journal entry:
- Dr Amortisation Expense – Patent R10 000
- Cr Accumulated Amortisation – Patent R10 000
Intangibles with indefinite useful lives (e.g. some trademarks) are not amortised but tested annually for impairment.
2.6 Impairment of Non-Current Assets
An asset is impaired when its carrying amount exceeds its recoverable amount (higher of fair value less costs of disposal and value in use).
In Accounting 1B, you usually see simplified impairment scenarios:
Example:
Equipment:
- Cost: R300 000
- Accumulated depreciation: R80 000
- Carrying amount: R220 000
- Recoverable amount (given): R190 000
Impairment loss = R220 000 – R190 000 = R30 000
Journal entry:
- Dr Impairment Loss (Expense) R30 000
- Cr Accumulated Impairment – Equipment R30 000
Future depreciation is calculated based on the new carrying amount.
3. Working Capital: Inventory, Trade Receivables, and Payables
Working capital management topics often feature in ACCN102 because they connect theoretical knowledge to real-world small business operations common in South Africa.
3.1 Inventory (IAS 2): Costing and Valuation
Inventory includes assets:
- Held for sale in the ordinary course of business
- In the process of production for such sale
- In the form of materials or supplies to be consumed in production/process
Measurement:
Inventory is measured at the lower of:
- Cost, and
- Net realisable value (NRV)
Cost includes:
- Purchase cost (less discounts, plus import duties and transport)
- Conversion costs (labour, production overheads)
- Other costs to bring inventory to its present condition and location
NRV = Estimated selling price – Estimated costs of completion – Selling costs.
3.1.1 Cost Formulas: FIFO, Weighted Average
Most ACCN102 courses (including UKZN) emphasise:
- FIFO (First-In, First-Out)
- Weighted Average Cost
FIFO example:
Opening inventory: 100 units @ R10 each = R1 000
Purchases:
- 200 units @ R12 each = R2 400
- 150 units @ R13 each = R1 950
Total units available: 450 units
Total cost: R1 000 + R2 400 + R1 950 = R5 350
Sales during the period: 300 units.
Under FIFO, earliest purchases are sold first.
- Cost of sales:
- 100 units @ R10 = R1 000
- 200 units @ R12 = R2 400
Total COS = R3 400
Closing inventory:
- 150 remaining units (from last purchase) @ R13 = R1 950
Weighted average example (periodic):
Total cost: R5 350
Total units: 450
Average cost per unit = R5 350 ÷ 450 = R11.89 (rounded)
- COS: 300 units × R11.89 = R3 567
- Closing inventory: 150 units × R11.89 = R1 783.50 (approx.)
Exams test not only the calculations but also understanding that method choice affects COS and profit.
3.1.2 Lower of Cost and NRV
Example:
Item A:
- Cost per unit: R50
- NRV per unit: R45
- Quantity: 100 units
Item B:
- Cost per unit: R20
- NRV per unit: R25
- Quantity: 50 units
Inventory must be valued item-by-item:
- Item A: Lower of cost (R50) and NRV (R45) → R45 × 100 = R4 500
- Item B: Lower of cost (R20) and NRV (R25) → R20 × 50 = R1 000
Total inventory value = R4 500 + R1 000 = R5 500
Total write-down = (Original total cost: R50×100 + R20×50 = R5 000 + R1 000 = R6 000) – R5 500 = R500
Journal entry:
- Dr Inventory Write-Down Expense R500
- Cr Inventory R500
3.2 Trade Receivables: Bad Debts and Allowances
Trade receivables (debtors) are usually reported net of an allowance for credit losses (allowance for doubtful debts).
3.2.1 Bad Debts (Irrecoverable Debts)
A bad debt is a specific receivable that is no longer collectible.
Example:
Customer Zulu Traders owes R5 000, and is declared insolvent. Entire amount is written off.
Journal entry:
- Dr Bad Debts Expense R5 000
- Cr Trade Receivables – Zulu Traders R5 000
This reduces receivables and recognises an expense.
3.2.2 Allowance for Doubtful Debts
Rather than waiting for debts to become irrecoverable, an entity estimates the amount that may not be collected and recognises an allowance.
Allowance can be:
- Specific: relating to identified high-risk debtors; or
- General: based on % of total receivables or ageing analysis.
Example:
Year-end:
- Trade receivables: R120 000
- Existing allowance: R3 000 (credit balance)
- Policy: Allowance should be 5% of receivables
Required allowance: 5% × R120 000 = R6 000
Increase in allowance: R6 000 – R3 000 = R3 000
Journal entry:
- Dr Allowance for Credit Losses Expense R3 000
- Cr Allowance for Doubtful Debts R3 000
If existing allowance had been R7 000, then required allowance is R6 000; you would reduce allowance:
- Dr Allowance for Doubtful Debts R1 000
- Cr Allowance for Credit Losses Expense R1 000
Exam answers must show final allowance balance in the statement of financial position and the expense/credit in profit or loss.
3.3 Trade Payables and Accrued Liabilities
Trade payables (creditors) arise when the entity buys goods or services on credit.
Example:
Purchased goods on credit from KZN Supplies for R15 000:
- Dr Inventory (or Purchases) R15 000
- Cr Trade Payables – KZN Supplies R15 000
Later, cash settlement with discount:
- Amount due: R15 000
- Discount received: 5% = R750
- Amount paid: R14 250
Journal entry:
- Dr Trade Payables – KZN Supplies R15 000
- Cr Bank R14 250
- Cr Discount Received (Other income) R750
Accrued liabilities (accruals) occur when expenses have been incurred but not yet paid by period-end.
Example – Accrued wages:
Weekly wages R10 000; payday is Friday, year-end is Wednesday (3 days). Accrual needed:
Daily wage = R10 000 ÷ 5 = R2 000
Accrual for 3 days = R6 000
Journal entry at year-end:
- Dr Wages Expense R6 000
- Cr Accrued Wages (Current liability) R6 000
3.4 Provisions and Contingent Liabilities (IAS 37)
Provision: A liability of uncertain timing or amount.
Conditions for recognition:
- Present obligation (legal or constructive) as a result of a past event
- Probable outflow of resources (more likely than not)
- Reliable estimate of the amount can be made
Example – Provision for warranties:
Durban Electronics sells televisions with a one-year warranty. Past experience suggests 3% of sales will require repair at an average cost of R500 per unit. Sales for the year: 2 000 units.
Expected warranty claims = 2 000 × 3% = 60 units
Estimated cost = 60 × R500 = R30 000
Journal entry:
- Dr Warranty Expense R30 000
- Cr Provision for Warranties R30 000
When an actual claim arises:
- Dr Provision for Warranties R1 200
- Cr Spare Parts / Bank R1 200
(Assuming R1 200 cost for that repair)
Contingent liabilities are:
- Possible obligations depending on uncertain future events; or
- Present obligations where outflow is not probable or amount cannot be measured reliably.
These are not recognised, only disclosed in notes if material.
Exam questions often ask you to distinguish between a provision and a contingent liability, with marks for referring to IAS 37 criteria.
4. Financial Statements: Preparation and Presentation
This section is crucial for ACCN102, as high-mark questions usually involve preparing or adjusting full sets of financial statements for sole traders or simple companies.
4.1 Statement of Profit or Loss and Other Comprehensive Income
For first-year level, focus is on:
- Calculating gross profit (Sales – Cost of sales)
- Determining operating profit (Gross profit – Operating expenses + Other income)
- Calculating profit for the year after finance costs and tax (if given).
Basic layout (single-step simplified):
XYZ Traders
Statement of Profit or Loss and Other Comprehensive Income
for the year ended 31 December 20X4
| R | |
|---|---|
| Revenue | xxx |
| Cost of sales | (xxx) |
| Gross profit | xxx |
| Other income | xxx |
| Operating expenses | (xxx) |
| Operating profit | xxx |
| Finance costs | (xxx) |
| Profit before tax | xxx |
| Income tax expense | (xxx) |
| Profit for the year | xxx |
Other comprehensive income items (e.g. revaluation gains) rarely appear in full depth in Accounting 1B at UKZN, but you should recognise that revaluation surplus is part of OCI, not regular profit.
4.2 Statement of Financial Position
Also known as the balance sheet, classified into non-current and current categories.
Typical structure:
ABC Enterprises
Statement of Financial Position
as at 31 December 20X4
| R | |
|---|---|
| Assets | |
| Non-current assets | |
| Property, plant & equipment | xxx |
| Intangible assets | xxx |
| Current assets | |
| Inventory | xxx |
| Trade receivables | xxx |
| Bank and cash | xxx |
| Total assets | xxx |
| Equity and liabilities | |
| Equity | |
| Capital / Share capital | xxx |
| Retained earnings | xxx |
| Total equity | xxx |
| Non-current liabilities | |
| Long-term loans | xxx |
| Provisions (long-term) | xxx |
| Current liabilities | |
| Trade payables | xxx |
| Accrued expenses | xxx |
| Bank overdraft | xxx |
| Current portion of long-term loans | xxx |
| Total liabilities | xxx |
| Total equity and liabilities | xxx |
Marks are often awarded for correct classification, so practise categorising each item accurately.
4.3 Adjustments and Closing Entries
ACCN102 exam questions often present a trial balance plus additional information (adjustments). Common adjustments include:
- Inventory at year-end
- Depreciation
- Accruals and prepayments
- Bad debts and allowance for doubtful debts
- Provision for warranties or other provisions
- Interest on loans
- Owner’s drawings and capital injections
4.3.1 Inventory Adjustment
In periodic inventory systems:
- Opening inventory appears in trial balance
- Closing inventory appears in adjustment information
Example:
- Opening inventory: R40 000
- Purchases: R160 000
- Sales: R300 000
- Closing inventory: R50 000
Cost of sales = Opening inventory + Purchases – Closing inventory
= 40 000 + 160 000 – 50 000 = R150 000
Journal entry for closing inventory (if not already recorded):
- Dr Inventory R50 000
- Cr Cost of Sales R50 000
4.3.2 Accruals and Prepayments
Prepaid expense: Payment made this year for services covering part of next year.
Example: Insurance paid R12 000 on 1 October for 12 months. Year-end is 31 December.
Months covered: Oct, Nov, Dec = 3 months in current year; 9 months are prepaid.
Expense this year = (R12 000 ÷ 12) × 3 = R3 000
Prepaid (asset) = R12 000 – R3 000 = R9 000
If full payment was recorded as expense:
- Dr Prepaid Insurance R9 000
- Cr Insurance Expense R9 000
Accrued income: Earned but not yet received by year-end.
Example: Interest of R2 000 earned but not yet received.
- Dr Accrued Income (Current asset) R2 000
- Cr Interest Income R2 000
4.3.3 Comprehensive Example: Mini-Sole Trader Question
Trial balance of KZN Stationery as at 31 December 20X4 (extract):
| Account | Dr (R) | Cr (R) |
|---|---|---|
| Capital | 150 000 | |
| Drawings | 20 000 | |
| Sales | 260 000 | |
| Purchases | 160 000 | |
| Inventory (01/01/20X4) | 30 000 | |
| Wages | 40 000 | |
| Rent expense | 24 000 | |
| Trade receivables | 50 000 | |
| Trade payables | 35 000 | |
| Bank | 35 000 | |
| Furniture and fittings (cost) | 60 000 | |
| Accumulated depn – furniture | 15 000 | |
| Totals | 419 000 | 460 000 |
Adjustments:
- Closing inventory: R40 000
- Depreciate furniture at 10% per annum on cost
- Wages outstanding at year-end: R5 000
- Create allowance for doubtful debts of 4% of trade receivables
Step 1: Depreciation
Furniture cost: R60 000
Depreciation = 10% × R60 000 = R6 000
- Dr Depreciation Expense – Furniture R6 000
- Cr Accumulated Depreciation – Furniture R6 000
Step 2: Wages accrual
- Dr Wages Expense R5 000
- Cr Accrued Wages R5 000
Total wages in profit or loss: R40 000 + R5 000 = R45 000
Step 3: Allowance for doubtful debts
Trade receivables: R50 000
Required allowance: 4% × R50 000 = R2 000
Assume no existing allowance in trial balance.
- Dr Allowance for Credit Losses Expense R2 000
- Cr Allowance for Doubtful Debts R2 000
Step 4: Inventory and cost of sales
Cost of sales = Opening inventory + Purchases – Closing inventory
= 30 000 + 160 000 – 40 000 = R150 000
Statement of Profit or Loss (simplified):
Revenue (sales) = 260 000
Cost of sales = 150 000
Gross profit = 110 000
Less expenses:
- Wages (incl. accrual) = 45 000
- Rent expense = 24 000
- Depreciation – furniture = 6 000
- Allowance for credit losses expense = 2 000
Total expenses = 77 000
Profit for the year = 110 000 – 77 000 = R33 000
Statement of Financial Position (extract):
Assets:
- Non-current:
- Furniture: cost 60 000 – accumulated depn (15 000 + 6 000) = 60 000 – 21 000 = 39 000
- Current:
- Inventory: 40 000
- Trade receivables: 50 000 – allowance 2 000 = 48 000
- Bank: 35 000
Total assets = 39 000 + 40 000 + 48 000 + 35 000 = 162 000
Equity and liabilities:
-
Equity:
- Capital: 150 000
- Add: Profit: 33 000
- Less: Drawings: (20 000)
- Closing equity: 163 000
-
Current liabilities:
- Trade payables: 35 000
- Accrued wages: 5 000
Total liabilities = 40 000
Total equity and liabilities: 163 000 + 40 000 = 203 000
The totals clearly do not balance with the computed assets (162 000), which indicates this is only an extract; in an exam you must ensure all accounts are included and recheck calculations. This example illustrates the process rather than full balancing.
4.4 Introduction to Statement of Cash Flows (High-Level)
Although a full cash flow statement is often covered more deeply in second-year modules, ACCN102 frequently introduces:
- Difference between cash and profit
- Basic classification: operating, investing, and financing activities.
Examples of classification:
- Cash received from customers – Operating
- Cash paid to suppliers – Operating
- Purchase of machinery – Investing
- Proceeds from sale of equipment – Investing
- Issue of shares – Financing
- Payment of dividends – Financing
Exam questions may give a set of transactions and ask you to classify each cash flow correctly.
5. Partnerships, Basic Company Accounting, and Ratio Analysis
The final cluster of topics often found in UKZN’s ACCN102 includes partnership accounts, introductory company accounting, and basic financial statement analysis.
5.1 Partnership Accounting Basics
A partnership is an association of two or more persons running a business with a view to profit. Partnership topics often emphasise:
- Partners’ capital and current accounts
- Profit or loss appropriation
- Admission or retirement of partners
- Changes in profit-sharing ratios
5.1.1 Capital and Current Accounts
Partners may have:
- Fixed capital accounts: Capital remains unchanged except for permanent changes. Day-to-day movements (e.g. drawings, interest on capital, share of profits) go through current accounts.
- Fluctuating capital accounts: All changes go through a single capital account.
ACCN102 typically uses fixed capital plus current accounts.
Example:
Partnership of Lindiwe and Musa:
- Capital:
- Lindiwe: R100 000
- Musa: R80 000
- Profit-sharing ratio: 3:2
Current accounts at start of year:
- Lindiwe: R10 000 (credit)
- Musa: R5 000 (debit)
During year:
- Drawings:
- Lindiwe: R15 000
- Musa: R12 000
- Interest on capital: 10% p.a.
- Salary to Lindiwe: R20 000
- Profit for the year (before appropriations): R90 000
Step 1: Appropriation account
Calculate interest on capital:
- Lindiwe: 10% × 100 000 = 10 000
- Musa: 10% × 80 000 = 8 000
Total interest: 18 000
Salary: Lindiwe R20 000
Profit before appropriations: 90 000
Appropriation account:
| R | R | |
|---|---|---|
| Profit for the year | 90 000 | |
| Less: Interest on capital | 18 000 | |
| Less: Salary – Lindiwe | 20 000 | |
| Remaining profit | 52 000 |
Now distribute remaining profit in ratio 3:2.
Total units = 3 + 2 = 5
- Lindiwe: (3/5) × 52 000 = 31 200
- Musa: (2/5) × 52 000 = 20 800
Step 2: Update current accounts
Current accounts:
Lindiwe:
Opening balance (credit): 10 000
Add: Interest on capital: 10 000
Add: Salary: 20 000
Add: Share of remaining profit: 31 200
Less: Drawings: (15 000)
Closing current account (credit): 10 000 + 10 000 + 20 000 + 31 200 – 15 000 = R56 200
Musa:
Opening balance (debit): (5 000)
Add: Drawings: (12 000)
Add: Interest on capital: 8 000
Add: Share of remaining profit: 20 800
Net: –5 000 – 12 000 + 8 000 + 20 800
= –17 000 + 28 800
= R11 800 credit
Thus, closing balances:
- Lindiwe current: Cr R56 200
- Musa current: Cr R11 800
Capital accounts remain unchanged at R100 000 and R80 000 respectively.
5.1.2 Admission of a New Partner (Overview)
A new partner typically brings in:
- Additional capital (cash or assets)
- Possibly goodwill arrangements
- A change in profit-sharing ratio
Basic exam tasks:
- Record the new partner’s capital contribution.
- Adjust existing partners’ capital if goodwill is recognised.
Example (simplified):
Partnership: A & B share profit 1:1.
Capital: A R60 000; B R40 000.
C is admitted and brings R50 000. New ratio: A:B:C = 2:2:1.
Question might ask for journal entries to record capital and re-arranged balances; detailed goodwill treatment is often reserved for later courses, but check your UKZN ACCN102 syllabus for depth required.
5.2 Introductory Company Accounting
At first-year level, students are usually introduced to:
- Share capital (ordinary shares)
- Basic dividends (interim and final)
- Very basic understanding of reserves and retained earnings
5.2.1 Share Capital
Share capital represents owners’ contributions to a company.
Example:
UkznTech Ltd issues 10 000 ordinary shares at R5 each:
- Dr Bank R50 000
- Cr Share Capital R50 000
If shares are issued at a premium (above par value), the premium goes to share premium (if the syllabus uses par value; many modern syllabi use only stated capital).
Example:
Issue 5 000 shares at R8 each, par value R5:
- Proceeds: 5 000 × 8 = R40 000
- Share capital (par): 5 000 × 5 = R25 000
- Share premium: R15 000
Journal:
- Dr Bank R40 000
- Cr Share Capital R25 000
- Cr Share Premium R15 000
5.2.2 Dividends
Dividends are distributions of profits to shareholders.
- Interim dividend: Declared and paid during the year
- Final dividend: Declared at year-end, often payable later
Example:
Interim dividend declared and paid of R6 000:
- Dr Retained Earnings / Dividends Declared R6 000
- Cr Bank R6 000
Final dividend declared but not yet paid:
-
Amount: R10 000
-
Dr Retained Earnings / Dividends Declared R10 000
-
Cr Dividends Payable (Current liability) R10 000
Only dividends declared reduce retained earnings and appear as distributions in the statement of changes in equity; they do not appear as expenses in profit or loss.
5.3 Basic Ratio Analysis and Interpretation
Examiners often expect you to calculate and interpret a set of common ratios.
5.3.1 Profitability Ratios
- Gross profit margin
Gross profit margin = (Gross profit ÷ Revenue) × 100
- Net profit margin
Net profit margin = (Profit for the year ÷ Revenue) × 100
- Return on assets (ROA)
ROA = (Profit before interest and tax ÷ Average total assets) × 100
- Return on equity (ROE)
ROE = (Profit after tax ÷ Average equity) × 100
Example:
From the income statement of JHB Retailers:
- Revenue: R500 000
- Cost of sales: R300 000
- Operating expenses: R120 000
- Finance costs: R10 000
- Income tax: R14 000
Profit before tax: 500 000 – 300 000 – 120 000 – 10 000 = 70 000
Profit for the year: 70 000 – 14 000 = 56 000
Gross profit = 200 000
Gross profit margin = (200 000 ÷ 500 000) × 100 = 40%
Net profit margin = (56 000 ÷ 500 000) × 100 = 11.2%
Interpretation:
A 40% gross margin suggests solid pricing/production; 11.2% net margin indicates significant operating and finance costs.
5.3.2 Liquidity Ratios
- Current ratio
Current ratio = Current assets ÷ Current liabilities
- Quick ratio (acid-test)
Quick ratio = (Current assets – Inventory) ÷ Current liabilities
Example:
From XYZ Ltd’s statement of financial position:
- Inventory: R80 000
- Trade receivables: R60 000
- Bank: R20 000
- Current portion of loan: R30 000
- Trade payables: R50 000
Current assets = 80 000 + 60 000 + 20 000 = 160 000
Current liabilities = 30 000 + 50 000 = 80 000
Current ratio = 160 000 ÷ 80 000 = 2:1
Quick assets = 160 000 – 80 000 = 80 000
Quick ratio = 80 000 ÷ 80 000 = 1:1
Interpretation:
A current ratio of 2:1 and quick ratio of 1:1 usually indicates comfortable liquidity.
5.3.3 Efficiency Ratios
- Inventory turnover
Inventory turnover = Cost of sales ÷ Average inventory
- Receivables collection period (days)
Collection period = (Average trade receivables ÷ Credit sales) × 365
- Payables payment period (days)
Payment period = (Average trade payables ÷ Credit purchases) × 365
Example:
- Opening inventory: R70 000
- Closing inventory: R90 000
- Cost of sales: R420 000
Average inventory = (70 000 + 90 000)/2 = 80 000
Inventory turnover = 420 000 ÷ 80 000 = 5.25 times
Days in inventory = 365 ÷ 5.25 ≈ 69.5 days
Interpretation:
On average, inventory sits for about 70 days before being sold. This may be high or low depending on industry (fast-moving consumer goods vs durable goods).
5.3.4 Exam-Style Ratio Analysis Question
Scenario:
KZN Retail Ltd has shown the following summary:
- Revenue: R600 000
- Cost of sales: R360 000
- Operating expenses: R180 000
- Finance costs: R12 000
- Tax: R9 600
- Total assets at start of year: R400 000
- Total assets at end of year: R460 000
- Equity at start: R250 000
- Equity at end: R280 000
Requirements (typical ACCN102 exam):
-
Calculate:
- Gross profit margin
- Net profit margin
- ROA
- ROE
-
Comment briefly on profitability trends (if given comparative figures).
Solution:
Gross profit = 600 000 – 360 000 = 240 000
Profit before tax = 240 000 – 180 000 – 12 000 = 48 000
Profit after tax = 48 000 – 9 600 = 38 400
- Gross margin = (240 000 ÷ 600 000) × 100 = 40%
- Net margin = (38 400 ÷ 600 000) × 100 = 6.4%
Average total assets = (400 000 + 460 000)/2 = 430 000
ROA = (Profit before interest and tax ÷ Average assets) × 100
= (48 000 + 12 000) ÷ 430 000 × 100
= 60 000 ÷ 430 000 × 100 ≈ 13.95%
Average equity = (250 000 + 280 000)/2 = 265 000
ROE = (38 400 ÷ 265 000) × 100 ≈ 14.49%
Interpretation:
KZN Retail Ltd generates around 6.4% net profit per rand of sales, and returns about 14.5% on shareholders’ equity, which may be considered satisfactory depending on required return.
5.4 Exam Strategy and UKZN-Specific Study Tips for ACCN102
Although this guide is content-focused, success in ACCN102 at UKZN also depends on exam technique and consistent practice.
5.4.1 Aligning with UKZN BCom (Accounting) Expectations
- Use UKZN ACCN102 tutorial letters and course outlines to verify topics and weightings.
- Study past exam papers from the UKZN library or online platforms (such as the UKZN Moodle/learning platform).
- Observe how frequently:
- PPE and depreciation are tested
- Partnerships appear
- Ratio analysis and interpretation questions are included
Typically, a major exam question will involve preparation of a full set of financial statements (worth 30–40 marks), with smaller 10–15 mark questions covering:
- Journal entries for PPE and intangibles
- Adjustments (provisions, accruals, inventory)
- Partnership appropriation accounts
- Ratio calculations and short written interpretations
5.4.2 Study Techniques That Work Well for ACCN102
-
Active practice over passive reading
- Work through full-length problems under time pressure.
- Redo tutorial questions without looking at solutions.
-
Error log
- Keep a notebook of mistakes: misclassification, wrong side of entries, missing adjustments.
- Revise your “most common errors” before tests.
-
Concept + procedure pairing
For each topic (e.g. provisions), summarise:
- Conceptual rule: IAS 37 recognition criteria.
- Procedural steps: How to calculate provision, journal entries, statement presentation.
-
Peer discussion
- Explain complex topics (e.g. revaluation vs impairment) to a classmate.
- Teaching others exposes gaps in your understanding.
-
Calculator fluency
- Practice with your approved calculator (same one you’ll use in the exam).
- Be comfortable with basic %, fractions, and rounding.
5.4.3 Common Pitfalls in ACCN102 Exams
-
Not reading adjustment details carefully
- Missing time fractions (e.g. “bought on 1 October, financial year-end 31 December”).
- Ignoring whether amounts are inclusive or exclusive of VAT (if VAT is examined).
-
Confusing accruals and prepayments
- Remember: Accrued expenses increase liability and expense.
- Prepaid expenses increase asset and reduce expense.
-
Mixing up provisions and accruals
- Provisions: uncertain amount, often estimated.
- Accruals: amounts are more certain (e.g. wages for specific days).
-
Ignoring presentation requirements
- Losing marks for incorrect headings, missing subtotals (e.g. Gross profit, Operating profit).
- Forgetting to show negative balances correctly (e.g. bank overdraft as a current liability).
-
Ratio analysis: calculating correctly but failing to interpret
- Many questions allocate half the marks for interpretation.
- Always comment on trend, comparison, and possible causes (e.g. increase in expenses, change in pricing).
This ACCN102: Accounting 1B Study Guide for UKZN BCom in Accounting concentrates on the core examinable areas that students at the University of KwaZulu-Natal typically face. It must be supplemented with:
- Your prescribed textbook (often an IFRS-based South African text),
- Lecture notes,
- ACCN102 tutorial questions, and
- Recent UKZN past exam papers.
Consistent problem practice, combined with a strong grasp of the conceptual framework and IFRS principles outlined here, will place you in a strong position to succeed in UKZN’s ACCN102 exams and to progress confidently into second-year accounting modules.
