LAKSAMANA COLLEGE OF BUSINESS

Programme Title: BTEC Level 3 Diploma In Business

Unit Title: Unit 6 – Financial Accounting

Assessment Title: The impact of legislation and regulatory framework on

business accounts

Assignment Number: 1

LCB Student Number: LCB/4551

Student Name: Aedi Ariif bin Haji Zullizam

 TABLE OF CONTENT

Pages

Task 1 (P1) ………………………………………………………………………………. 3-4

Task 2 (P2) ………………………………………………………………………………. 8-9

Merit 1 ………………………………………………………………………………. 5-6

Distinction 1 ………………………………………………………………………………. 7

Bibliography ………………………………………………………………………………. 10

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Task 1

P1 Describe how legislation and accounting concepts affect an organisation’s

accounting policies

The Partnership Agreement content includes such basic details as the name and place of the firm,
the intent of the undertaking, and the date of commencement (Weygandt, Kimmel and Kieso,
2015). The contents are 1. The capital to be invested by every partner; 2. The percentage of the
gains (or losses) to be shared; 3. The interest rate, if any, to be charged on capital before the
shared income; 4. The interest rate, if any, to be paid on partners' drawings; 5. Wages to be given
to the partners (Sangster and Wood, 2015).; 6. Procedures for partner retirement or extension;
and 7. Rights and obligations of living partners when a partner die (Weygandt, Kimmel and
Kieso, 2015).
 
However, where there is no express or implicit partnership arrangement, section 24 of
Partnership Act 1890 shall control the situations (Sangster and Wood, 2015).
 
Sangster and Wood (2015) listed out the contents of Section 24 of Partnership Act 1890:
1. Profits and losses shall be paid equally
2. No interest shall be permitted on capital
3. No interest shall be charged on drawings
4. Wages shall not be allowed
5. If a partner places an amount of money in a company above the investments which he or she
has agreed to invest, the partner shall have the right to interest at a rate of 5% per annum on this
advance.
 
Based on the Kylie and Miley’s financial statement, they have their own agreement. This is
because, at the statement of profit or loss, there is interest in drawings where Kylie paid $100
and Miley paid $110. Also, they are given salaries which are an equal amount. Besides that, they

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have also interest on their capital. The profits are shared between the two of them by 60: 40 per
cent, where Kylie gets 60% of the profit and Miley get 40%.
Since they share their profits and drawings this goes to a sperate current account.
 
The accounting concept is going-concern, dual aspects concept, business entity concept, historic
cost concept and time interval concept.
 
Firstly, under the going concern concept, the financial statements will be prepared on the
presumption that the company will maintain operating for the near future. In other words, it is
presumed that there is no purpose, or need, of selling the business' non-current assets (Atrill and
McLaney, 2018).

Secondly, the concepts on dual aspects state that each payment has two sides, both of which
would impact the financial condition statement. (Sangster and Wood, 2015). For example,
buying a computer for cash would result in a gain in one asset (computer) and a reduction in
another (cash) (Atrill and McLaney, 2018).

Thirdly, the business entity concept is viewed as very separate and distinct between the company
and its owner(s). For this reason, owners are viewed as claimants in respect of their investment
against their own company (Sangster and Wood, 2015).
The fourth accounting concepts will be the historical cost concept, the value of assets listed on
the financial position statement will be based on their historical cost. For example, acquisition
expense. (Atrill and McLaney, 2018)
 
Lastly, the financial statements under the time interval concept are published within a normal
span of one year. Organizations issuing additional annual financial statements identify the others
as 'interim statements.’ (Sangster and Wood, 2015).

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Merit 1

M1 Compare the final accounts of two organisations explaining the similarities and
differences

According to Dyson (2010), the structure of the income statement and balance sheet of a
partnership is in fact no different from that of the sole trader organizations. Therefore, both
Charlie’s Enterprise and Kylie and Miley’s is somewhat similar.

A sole trader is a person who can go into business by himself with either selling products or
providing a service, whereas a partnership is defined as a business own by two or more people
(Weetman, 2013). The similarities in the income statement of Charlie’s Enterprise, and Kylie and
Miley is that the beginning at the top of the income statement, there is five concepts which is the
term of revenue/sales, cost of goods sold, gross profit, gross profti and both of them have net
profit.

The differences in the income statement of each organization is that, the partnership income
statement have an account called ‘profit and loss appropriation amount’ (Black and Al-Kilani,
2013). Therefore, Kylie and Miley’s income statement have an appropriation account, where
there is an interest on drawings, which is to prevent the partners from taking out cash
unnecessarily (Sangster and Wood, 2015). And in partnership business, they share their salaries
depending on the roles or obligation they did, one party have contributed more (Sangster and
Wood, 2015). Therefore, Kylie and Miley have a partnership income.

An interest on capital is also exist in the partnership income statement, this interest is viewed as a
loss as per the profit-sharing ratio before measuring the profits and their distribution among the
partners (Sangster and Wood, 2015). Lastly, the profits in Charlie’s enterprise goes to the owner,
however for Kylie and Miley as they are a partnership business, they have to share their profits
together (Weetman. 2013).

Furthermore, the similarity between both Charlie's Enterprises and Kylie and Miley's balance
sheet is that they have the same account of assets, liabilities, the main difference being the equity
section (Davies and Crawford, 2011). In the equity section, the capital in Charlie’s Enterprises

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balance sheet is only up to one account, which is for himself (Stittle and Wearing, 2008),
however, in Kylie and Miley’s balance sheet, they have a separate two accounts, one for Kylie
and other is for Miley.

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Distinction 1

D1 Justify the application of accounting conventions and regulations to ensure that the
financial statements meet their users’ needs

The prudence convention provides that care should be implemented when writing financial
statements. This can be used to promote a tendency against financial strength understatement:
that is, asset and profit understatement and liabilities overstatement (Atrill and McLaney, 2018).

Materiality information is material if its omission or error may affect users' economic decisions.
This should be 'material' all that exists in a financial accounting statement (Sangster and Wood,
2015).

Consistency convention is for that entity, the calculation and analysis of the financial impact of
similar transactions and other activities must be performed consistently within an organization
and over time, and uniformly for a specific entity (Sangster and Wood, 2015).

According to Alexander and Nobes (2016), shareholders use the financial statements because
they want to know if their investments should be purchased, kept, or sold and also the risks of
them purchasing their investment. Shareholders often have an interest in detail for evaluating the
entity's ability to pay them a return (known as a dividend).

Employees need financial statement information for the stability and the productivity of their
company. Furthermore, they must know the will of their employers to pay their wages and
pensions (Black and Al-Kilani, 2013).

Suppliers need the financial statement information because they need to know if they should
keep supplying to the company and whether or not to supply on credit. Therefore, it will include
an evaluation of the company’s capacity to pay for delivered goods and services at the due dates
(Atrill and McLaney, 2018).

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Task 2

P2 Explain how a limited company’s financial statements are influenced by the legal
and regulatory framework

In the statement of profit or loss, there are five concepts. Firstly, there is the term of
revenue/sales is used to characterize the products or services revenue (Weetman, 2013).
Secondly, the cost of sale is the cumulative cost of the supplies, labour and overheads that are
directly connected to selling earnings which are also known as the cost of goods sold. The third
concept is gross profit also known as the gross margin is constantly tracked by others who make
use of the financial statements to assess the company's activities (Weetman, 2013). The fourth
concept is the expenses which the sale costs of the products/services (Ainsworth and Deines,
2019). And the last concept in the statement of profit or loss is net profit which is gross profit
minus expenses (Ainsworth and Deines, 2019).

In the statement of financial position, there are also five concepts, there two types of assets; non-
current and current assets. Non- current assets is defined as an asset that are meant to help the
company produce revenue over a long period. While, current assets is defined as products which
the company expects to have in just a short period of time (Stittle and Wearing, 2008). Current
liabilities are just sums due in the short term for payment, whereas non-current liabilities is
constituted longer-term liabilities due to the sums owed which did not follow the current
liabilities criteria and lastly, owners equity is defined as proprietors funds into the business
(Davies and Crawford, 2011).

In the Companies Act 2006, they will specify formats for the delivering statement of financial
position and statement of profit and loss of a corporation or any other entities by the means of
Statutory Instrument, only if they do not comply with the IAS Legislation. Furthermore, in the
balance sheet, they will recommend methods of the assets and liabilities, assuming that normally
will be reported at their expense at the date of purchase. Thirdly, the financial statement needs to
be true and fair view according to UK legislation. The company account must be prepared by the
directors as he is responsible for it (Weetman, 2013).

There are so many types of the regulatory framework, in the UK, they use their own accounting
standards which is the Financial Reporting Council (FRC). The IASB establishes the

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international accounting rules which make up the core of the regulatory framework on the
international level (Britton and Waterston, 2011).

The financial statements are also influenced by the accounting concepts and conventions such as
going-concern, dual aspects concept, business entity concept, historic cost concept and time
interval concept. The conventions are prudence convention, consistency convention, and
materiality convention (Sangster and Wood, 2015).

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Bibliography:

Ainsworth, P. and Deines, D. (2019). Introduction to Accounting: An Integrated Approach.

8th ed. [ebook] Wiley. Retrieved from:
https://www.perlego.com/book/991863/introduction-to-accounting

Alexander, D. and Nobes, C. (2016). Financial Accounting 6th Edition: An International

Introduction. 6th ed. [ebook] Pearson Education Limited. Retrieved from:
https://www.perlego.com/book/812262/financial-accounting-6th-edition

Atrill, P. and McLaney, E. (2018). Financial Accounting. An Introduction.(9th ed.). Pearson

Education Limited. Harlow: Pearson Education Limited.

Black, G. and Al-Kilani, M. (2013). Accounting and Finance for Business. [ebook] Pearson
Education Limited. Retrieved from:
https://www.perlego.com/book/811540/accounting-and-finance-for-business

Britton, A. and Waterston, C. (2011). Financial Accounting. 5th ed. [ebook] Pearson
Education,

Davies, T. and Crawford, I. (2011). Business Accounting and Finance. [ebook] Pearson
Education Limited. Retrieved from: https://www.perlego.com/book/810996/business-
accounting-and-finance

Dyson, J. R. (2010). Accounting for Non-accounting Students. (8th ed.). Harlow: Pearson
Education.

Limited. Retrieved from: https://www.perlego.com/book/810801/financial-accounting

Sangster, A. (2015). Frank Wood’s Business Accounting 1. (13th ed.). Harlow: Pearson
Education.

Stittle, J. and Wearing, R. (2008). Financial Accounting. [ebook] SAGE Publications.

Retrieved from: https://www.perlego.com/book/396285/financial-accounting

Weetman, P. (2013). Financial Accounting (6th ed.). United Kingdom: Pearson.

Weygandt, J. J., Kimmel, P. D. and Kieso, D. E. (2015). Accounting Principles. (12th ed.).
USA: John Wiley & Sons, Inc.

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