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Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition,
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SECTION A
Authors’ note to tutors
Using the text
The text is designed to provide readers with a sound introduction to accounting and finance. It
assumes no previous knowledge of these subjects and recognises that students using the text
may come from a wide variety of backgrounds. The text, therefore, tries to avoid technical
jargon and does not assume that students have a high level of numerical ability. The text has
been class-tested by students on various courses, and we have modified and refined the material
to take account of their comments. We have also taken into account the comments made by
lecturers who used the first five editions of the text.
The text aims to encourage an active approach to learning by providing activities and selfassessment questions at appropriate points in the text. This is designed to stimulate thoughts
concerning particular issues and to give the reader the opportunity to test his or her
understanding of the principles covered.
The text is supplemented by a password-controlled lecturers’ website and a student website
available to all readers.
The structure of the text allows the tutor to deliver the subject in a number of ways. It can be
used as recommended reading for a traditional course based on lectures and tutorials. There are
review questions and exercises at the end of each chapter that can be used as the basis for
tutorials. It could also provide the basis for a distance learning approach for part-time or offcampus students. For these students, the interactive nature of the text may be extremely useful
where access to a tutor is restricted. The text can also be used as the basis for an open-learning
approach for full-time campus-based students. We successfully used it in this way at the
University of Plymouth Business School. Accounting ‘surgeries’ were provided to give students
the opportunity for one-to-one help with any problems they face.
The text is appropriate for modules that are designed to be covered in 150 to 200 hours of study.
For full-time students, this will often be covered in one academic year (two semesters). For
students who are only studying a one-semester course in accounting and finance, it will be
necessary to adopt a selective approach to the chapters to be studied. The first six chapters deal
with the nature and role of financial accounting and give a good grounding in the major
financial statements. This will, however, take up much of the time available. It should,
nevertheless, be possible to select further chapters for study from the remaining chapters in the
text.
PowerPoint slides
The diagrams in the text, along with other diagrams and materials (including the new ‘bullet
point’ chapter summaries), are available as PowerPoint slides. These should help in delivering
lectures and tutorials. They can be downloaded from the lecturers’ website.
Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition,
International financial reporting standards
For accounting periods starting on or after 1 January 2005, stock exchange listed companies in
EU countries (including the UK) have had to prepare their published consolidated financial
statements in line with International Financial Reporting Standards (IFRSs), formulated by the
International Accounting Standards Board (IASB). This represented a major change for UK
listed companies because IFRSs not only superseded UK financial reporting standards, but
much of UK company law as well.
IFRSs tend to use terminology that was not in widespread use in the UK. They also tend to be
less prescriptive about formats of the financial statements than was the case under the UK
company law. During the early stages of the transition to IFRSs, it was not clear whether UK
listed companies would adopt the IASB terminology and whether they would stay with the old
companies’ acts formats. By the time of writing this new edition, however, practice had the
opportunity to show itself, as most listed companies had published at least one annual report. It
seems that, although listed companies are not following a uniform approach, a clear majority is
taking a similar approach, which we have followed in this book.
Though non-listed companies need not make the change to the IASB rules immediately, they
may do so. The question then arises as to whether non-listed businesses will follow the same
approach as their listed counterparts. We carried out a survey of a number of practitioners and
academics with a particular interest in the company’s financial reporting. The consensus view is
that non-listed companies will follow their listed counterparts and will do so fairly quickly.
This edition fully reflects the changes caused by the advent of the IASB rules, which can be
summarised as follows:
Changes in terminology
Traditional UK term IASB term
Profit and loss account Income statement
Fixed asset Non-current asset
Tangible fixed asset Property, plant and equipment
Creditors: amounts falling due within one year Current liabilities
Creditors: amounts falling due after more than one year Non-current liabilities
Debtors Receivables
Trade debtors Trade receivables
Creditors Payables
Trade creditors Trade payables
For listed companies, the published annual reports show that the IASB terms have become the
norm. We have, therefore, used IASB terms throughout and only refer to their traditional UK
equivalents when the term first arises.
Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition,
Formats
Though the IASB does not require that particular formats be used for the balance sheet and
income statement, a key standard does provide illustrative formats. These formats seem to be
widely followed for listed companies and have been adopted in the book. It has been pointed
out, however, that other approaches to layout are permitted and do exist.
No doubt the traditional terminology and formats will linger, particularly with smaller companies
and unincorporated businesses, but we believe that the financial statements that students are
likely to encounter (that is, those of larger, mainly listed, companies) will be consistent with the
approach taken in this book.
Ordering of material
The order in which topics are dealt with is clearly a matter of opinion. Our broad approach is to
try to build up students’ knowledge and understanding and to try to avoid situations where
reference needs to be made to material appearing later in the text. We have taken the view that
financial accounting is a good place to start, partly because students probably know of this
aspect of accounting and finance from their background. It tends to be discussed in the news
media. Also, we feel that this aspect is easier to deal with without any knowledge of
management accounting and finance. Within financial accounting, we have dealt with the
balance sheet and income statement, then with company accounting, then the cash flow
statement and onto financial accounting ratios. When dealing with the balance sheet and income
statement (in Chapters 2 and 3), we have made no real distinction between companies and
unincorporated businesses. This is because, we see no great difference between these, except
when there is the need to go into detail about the restrictions on withdrawals of equity, and this
is covered in Chapter 4 on company accounting. We have left cash flow statements until after
introducing companies, because these statements usually relate to companies, and the problem
areas often relate to aspects like dividends and taxation.
Double-entry bookkeeping
The text does not cover double-entry bookkeeping, in the sense of ‘T’ accounts. We have taken
the view that students can gain a sufficient grasp of both the principles and practice of
transaction recording, and their ultimate effect on the balance sheet and income statement, by
dealing with them on a ‘plus and minus’ basis. We feel that, for the target readership, the
recording process is of limited importance and that the key issues relate to the effect of
transactions on the business overall. It may be the case that students’ understanding of this
would be enhanced by a closer look at the recording process, through ‘T’ accounts, but this will
take time, which we believe could be better devoted to other topics.
We are aware that not all of our colleagues agree with us on this, and therefore, an appendix –
‘Recording financial transactions’ – is available for tutors to download. This can be slotted into
the students’ studies, perhaps immediately after dealing with the contents of Chapters 2 and 3.
This supplement is self-contained. It includes a number of activities and three Exercises.
Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition,
Practice/assessment material
The activities that have solutions immediately following them and self-assessment questions
that have solutions at the end of the text form an integral part of the text. In addition, there are
various other practice/assessment materials. At the end of each chapter, there are four review
questions. These are short, narrative questions involving recall, explanation and brief
discussion. The solutions to these are at the end of the text. At the end of all chapters, except
Chapter 1, there are five Exercises. These are questions, many involving calculations, which are
similar in nature to exam-style questions. The solutions to three of these are given at the end of
the text and are, therefore, accessible to students. Solutions to the other two are in the following
pages of this manual and are not accessible to students.
On the lecturers’ website, there are
• PowerPoint slides, as mentioned above.
• Supplementary questions, with solutions. These questions are similar to the end-of-chapter
Exercises.
• Two progress tests, with solutions. Each of these contains ten multiple-choice questions,
ten missing word questions and either two or three Exercise-style questions.
• Four seminar/discussion question, for each chapter, with outline solutions.
• A set of case studies with solutions.
• The double-entry bookkeeping appendix, referred to above
None of the material on the lecturers’ website is accessible to students.
On the student website, there are three types of material:
• A set of revision questions, similar in style to the end-of-chapter Exercises, with solutions.
• A set of multiple-choice questions (MCQs). Typically, there are ten such questions for
each chapter. These are intended to be tackled online, where they will be automatically
graded.
• A set of missing word questions (MWQs), typically ten for each chapter. These too can be
attempted and graded online.
Both the MCQs and MWQs are intended to provide students with a quick assessment of
their mastery of the material of each chapter.
The solutions to all of this material, except to the multiple choice and missing word questions,
are fully annotated in order to give the necessary feedback to students.
We intend to expand the number and scope of the practice/assessment materials on a continuing
basis.
Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition,
We hope that you and your students will find the text both accessible and interesting. We would
much appreciate any suggestions that you may have on how the text and the supplementary
material may be improved.
Peter Atrill
Eddie McLaney
August 2008
Section B
Solutions to Exercises
Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition,
Solution to Exercise 2.3 Joe Conday
Balance sheet as at 1 March
£
Bank 20,000
£
Equity 20,000
Balance sheet as at 2 March
£
Bank (20,000 − 6,000) 14,000
Fixtures and fittings 6,000
Inventories 8,000
Total assets 28,000
£
Equity 20,000
Trade payables 8,000
Total equity and liabilities 28,000
Balance sheet as at 3 March
£
Bank (14,000 + 5,000) 19,000
Fixtures and fittings 6,000
Inventories 8,000
Total assets 33,000
£
Equity 20,000
Trade payables 8,000
Borrowings 5,000
Total equity and liabilities 33,000
Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition,
Balance sheet as at 4 March
£
Bank (19,000 − 7,000 − 200) 11,800
Fixtures and fittings 6,000
Inventories 8,000
Motor car 7,000
Total assets 32,800
£
Equity (20,000 − 200) 19,800
Trade payables 8,000
Borrowings 5,000
Total equity and liabilities 32,800
Balance sheet as at 5 March
£
Bank (11,800 âˆ’ï€ 2,500) 9,300
Fixtures and fittings 6,000
Inventories 8,000
Motor car 9,000
Total assets 32,300
£
Equity (19,800 − 500) 19,300
Trade payables 8,000
Borrowings 5,000
Total equity and liabilities 32,300
Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition,
Balance sheet as at 6 March
£
Bank (9,300 + 2,000 − 1,000) 10,300
Fixtures and fittings 6,000
Inventories 8,000
Motor car 9,000
Total assets 33,300
£
Equity (19,300 + 2,000) 21,300
Trade payables 8,000
Borrowings (5,000 − 1,000) 4,000
Total equity and liabilities 33,300
Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition,
Solution to Exercise 2.5
Balance sheet as at the end of the week
Assets £
Property 145,000
Furniture and fittings 63,000
Motor van 10,000
Inventories (28,000 – 8,000 – 17,000 + 14,000) 17,000
Trade receivables (33,000 + 23,000 – 18,000) 38,000
Total assets 273,000
Claims £
Equity (203,000 + 11,000 – 8,000 + 23,000
– 17,000 + 100,000 + 10,000) 322,000
Borrowings (Bank overdraft) (43,000 – 11,000
– 18,000 – 100,000 + 13,000) (73,000)
Trade payables (23,000 + 14,000 – 13,000) 24,000
Total equity and liabilities 273,000
Since the bank balance is now positive, we can rewrite this balance sheet as:
Balance sheet as at the end of the week
Assets £
Property 145,000
Furniture and fittings 63,000
Motor van 10,000
Inventories 17,000
Trade receivables 38,000
Cash at bank 73,000
Total assets 346,000
Claims £
Equity 322,000
Trade payables 24,000
Total equity and liabilities 346,000
Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition,
Solution to Exercise 3.2 Singh Enterprises
Income statement (extract) for the year ended 31 December 2006
£
Depreciation – machinery 2,000
Balance sheet as at 31 December 2006
£
Machinery at cost 10,000
Accumulated depreciation (2,000)
8,000
Income statement (extract) for the year ended 31 December 2007
£
Depreciation – machinery (2,000 + 2,500) 4,500
Balance sheet as at 31 December 2007
£
Machinery at cost 25,000
Accumulated depreciation (4,000 + 2,500) (6,500)
18,500
Income statement (extract) for the year ended 31 December 2008
£
Depreciation – machinery 4,500
Loss on sale of machine (10,000 – 6,000 – 3000) 1,000
Balance sheet as at 31 December 2008
£
Machinery at cost 15,000
Accumulated depreciation (2 × 2,500) (5,000)
10,000
General Comments for Students on Case Study
Assignments
You may be required to undertake a case study for at least one of your assignments. A case
study tends to differ from the more traditional accounting exercise in three ways:
• Cases tend to be longer and more complex than traditional exercises. They also tend to
deal with more than one aspect of a business.
• Cases often contain information that is irrelevant and that needs to be ignored.
• There is no one single, correct solution. The proposed solution will rely on assumptions
and judgements made by the student.
In these ways, case studies reflect real life. In reality, problems are often complicated, multifaceted and you may have to separate out the relevant from the irrelevant data. Often there is no
uniquely correct solution. Thus case studies can provide an opportunity to handle much more
realistic and interesting problems than can traditional exercises.
A difficulty with case studies is that the problem to be solved is not always obvious or clear-cut.
It is therefore a good starting point to try to identify what the problem really is. You must be
able to distinguish between the causes of the problem and its symptoms. For example, a fall in
profitability may be a symptom of some underlying cause such as a poor pricing policy.
Try not to waffle. It is important to get to the point. Marks in an examination when dealing with
a case study are usually awarded for a clear and concise explanation of the problems and any
proposed solutions; long, tortuous explanations may indicate that you have not got to the heart
of the matter. Furthermore, do not include large chunks of the case study in your final report or
presentation. This, too, may suggest that you have not grasped the key issues and that you are
simply repeating rather than using the information provided.
Working in groups is sometimes an effective way to approach solving a case study. This is
because people can ‘spark off’ each other to come up with ideas that could help towards a
solution. Do not be too quick to dismiss ideas from others that do not run along lines you have
already developed, and do not be critical of ideas that come from individuals who are not seen
as the academic ‘high flyers’. Good ideas do not always come from expected sources. The more
supportive the group is towards all its members, the more likely it is to work effectively and
arrive at a feasible solution.
Sometimes an assignment involves giving a presentation. If this is the case, thought must be
given to how the solution is to be presented to make the maximum impact on the audience. This
may mean the use of overhead projector slides or even of video, depending on the
circumstances. Check with your tutor about the availability of necessary equipment.
