# 116 Accounting A2 Level Textbook Series Theory and Practice Book

## Accounting A Level Theory And Practice Book

The globalized frame work of Cambridge International Advanced Level, in practice over 125 countries, has led to the introduction of an international format and layout for all its syllabuses. With a thorough discussion of the basic double entry principles for the beginners, the ‘A2 Accounting – Theory & Practice’ is also useful for those who have some knowledge.

The strengths and weaknesses of accounting practices are reinforced by a set of Review Questions at the end of each chapter, enabling the students to put, what is learnt, into practice. These Questions have been developed by the author and are not taken from past exam papers and Accounting A2 Level Theory and Practice Books.

This book is completely revised and updated to fully comply with the new CIE Advanced Level Accounting syllabus for 2016-18. Five new chapters have been included in the book in view of the new syllabus.

These topics include ’Auditing and stewardship of limited companies’, ‘Consignment Accounting, Joint Ventures’, ‘Activity based costing’ and ‘Computerized accounts’.

In addition, topics like ‘manufacturing accounts’, ‘non-profit organization have been shifted from ‘AS Accounting – theory and practice’ to this book. New material on overhead costing is also added to the topic ‘standard costing’. As syllabus contents relating to topics like ‘ratios’ and ‘Accounting standards’ have been reduced in new syllabus so these topics have been rewritten accordingly. Solutions to odd numbered questions are given in the appendix at the end of the book.

In addition solutions to even numbered questions are available in a separate manual. Teachers using “A2 Accounting - Theory & Practice” as a text book, may get the manual by applying officially on a school letterhead. Providing the students with a solid foundation in the “Why” as well as the “How” of accounting concepts, the emphasis is put on understanding rather than mere cramming.

A brief list of learning objectives at the beginning of each chapter will assist the readers to determine the things they should understand while going through the chapter.

Hence, checking back may help them to identify weak areas which still need thorough review. Constructive criticism and suggestions to make the subsequent editions more useful would be appreciated and thankfully acknowledged.

**TABLE OF CONTENTS  
****PREFACE** **CHAPTER 1  
CHANGES IN PARTNERSHIPS  
1.1 Admission of a new partner  
1.2 Retirement or Death of an Existing Partner  
**1.2.1 Final Settlement of Retired or Deceased Partner's Capital  
**1.3 Changes in Profit-Sharing Arrangements  
1.4 Apportionment of Profits  
1.5 Adjustments for Goodwill  
**1.5.1 Factors Affecting the Value of Goodwill  
1.5.2 Types of Goodwill  
1.5.3 Valuation of Inherent Goodwill  
1.5.4 Why is goodwill accounted for in a partnership?  
1.5.5 Accounting Treatment of Goodwill  
1.5.6 Why is Goodwill written off immediately?  
**1.6 Revaluation of Assets and Liabilities  
**1.6.1 Opening of a Revaluation Account  
1.6.2 Profit or Loss on Revaluation  
1.6.3 Revaluation of Non-Current Assets with Accumulated Depreciation 1.6.4 Values to Remain Unaltered in Books  
**1.7 CAPITAL IN PROFIT AND LOSS-SHARING RATIOS REVIEW QUESTIONS  
**

**CHAPTER 2 BUSINESS MERGERS  
2.1 Merger of Businesses  
2.2 Reasons (Advantages) of Mergers  
2.3 Disadvantages of Mergers  
2.4 Accounting Treatment of Merger of Businesses  
**2.4.1 Valuation of Goodwill  
2.4.2 Revaluation of Assets and Liabilities  
2.4.3 Adjustments to Capital Accounts  
2.4.4 Statement of Financial Position After the Merger  
2.4.5 Evaluating Business Performance Post-Merger  
**REVIEW QUESTIONS  
**

**CHAPTER 3 DISSOLUTION AND SALE OF PARTNERSHIPS  
3.1 Reasons for Dissolving a Business  
3.2 Realisation Account  
3.3 Accounting Treatment on Dissolution  
**3.3.1 Assets on Dissolution  
3.3.2 Goodwill on Dissolution  
3.3.3 Liabilities on Dissolution  
3.3.4 Expenses on Dissolution  
3.3.5 Profit (loss) on Realisation Account  
3.3.6 Partners'Loans Accounts on Dissolution  
3.3.7 Current Account Balances on Dissolution  
3.3.8 Cash or Bank Balance on Dissolution  
3.3.9 Partners' Capital Accounts on Dissolution  
**3.4 DIFFERENCE BETWEEN DISSOLUTION AND SALE OF BUSINESS  
3.5 Accounting Procedure on Sale of Business  
REVIEW QUESTIONS  
**

**CHAPTER 4 BUSINESS ACQUISITIONS  
4.1 REA50NS FOR PURCHASE OF BUSINESS  
4.2 Advantages of Acquisitions  
4.3 Disadvantages of Acquisitions  
4.4 Goodwill  
**4.4.1 Why does Goodwill arise?  
**4.5 Internally Developed Goodwill  
4.6 Negative Goodwill  
4.7 Difference between the Purchase of a Business and the purchase of assets  
4.8 Components of purchase consideration  
**4.8.1 Assets Taken Over  
4.8.2 Liabilities Taken Over  
**4.9 Dissolution Expenses  
4.10 Purchase of a Sole Trader Business by a Company  
4.11 Purchase of a Partnership's Business by a Company  
4.12 Entries to Record the Purchase of Business  
4.13 Cash and Bank Balances of Partnerships on Purchase  
4.14 Return on Investment  
REVIEW QUESTIONS**

**CHAPTER 5 LIMITED COMPANIES - SHARES & DEBENTURES 5.1 THE NEED FOR COMPANIES  
5.2 CAPITAL FOR A COMPANY  
**5.2.1 Ordinary Shares  
**5.3 Prices of a Share  
**5.3.1 Face Value  
5.3.2 Issue Price  
5.3.3 Book Value  
5.3.4 Market Value  
**5.4 Selling Shares to the General Public  
**5.4.1 Issue of Shares at Par  
5.4.2 Issue of Shares at Premium (at a price more than face value)  
**5.5 Rights Issue  
**5.5.1 Advantages of Rights Issue  
5.5.2 Disadvantages of Rights Issue  
5.5.3 Advantages of Rights Issue for Shareholders  
**5.6 Reserves  
**5.6.1 Capital Reserves  
5.6.2 Revenue Reserves  
**5.7 BonusorScrip Issue  
**5.7.1 Reasons for Bonus Issue  
5.7.2 Effect on Earnings per Share (EPS)  
5.7.3 Advantages of Bonus Issue  
5.7.4 Disadvantages of Bonus Issue  
**5.8 Difference between Rights and Bonus issue  
5.9 Debentures  
5.10 Issue of Loans and Debentures  
REVIEW QUESTIONS  
**

**CHAPTER 6 LIMITED COMPANIED-FINANCIAL STATEMENTS  
6.1 Financial Statements of Limited Companies  
6.2 Published Accounts of Limited Companies  
**6.2.1 Role of IAS 1 in Preparation of Accounts  
6.2.2 Accounting Concepts Applied in Preparation of Accounts  
6.2.3 Structure and Content of Financial Statements  
6.2.4 Reporting Period  
**6.3 Statement of profit or loss  
6.4 Statement of Financial Position  
6.5 Statement of Changes in Equity  
**6.5.1 Dividends on Ordinary Shares  
6.5.2 Transfer to General Reserve  
**6.6 Why Company Accounts are Published?  
6.7 Limitations of Published Company Accounts  
6.8 Non-Current Assets Schedule  
**6.8.1 Components of a Non-Current Assets Schedule  
**6.9 Directors' Report  
REVIEW QUESTIONS**

**CHAPTER 7 STATEMENT OF CASH FLOWS  
7.1 Classifications of Cash Flows - An example  
7.2 Cash and Cash Equivalents  
**7.2.1 Cash  
7.2.2 Cash Equivalents  
7.2.3 Bank Overdrafts  
**7.3 Preparation of a Statement of Cash Flows  
7.4 Cash Flow from Operating Activities  
**7.4.1 Importance of Cash Flow from Operating Activities  
**7.5 Calculation of Cash Flow from Operating Activities  
**7.5.1 Cash from Operating Activities in Direct Method  
7.5.2 Cash from Operating Activities in Indirect Method  
**7.6 Calculation of Profit from Operations  
7.7 Investing Activities  
7.8 Financing Activities  
7.9 Cash Flow at a Glance  
7.10 Uses of a Statement of Cash Flows  
7.11 Limitations of a Statement of Cash Flows  
7.12 Users of Statement of Cash Flows  
7.13 Disclosure of Non-Cash Activities  
REVIEW QUESTIONS**

**CHAPTER 8 INTERNATIONAL ACCOUNTING STANDARDS  
8.1 IAS 1: Presentation of Financial Statements  
8.2 IAS 2: Inventories  
**8.2.1 Inventory Valuation  
8.2.2 Inventory Valuation Methods  
**8.3 IAS 7: STATEMENT OF CASH FLOWS  
8.4 IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors  
**8.4.1 Accounting Policies  
8.4.2 Accounting Principles  
8.4.3 Accounting Bases  
8.4.4 Consistency of Accounting Policies  
8.4.5 Prior Period Errors  
**8.5 IAS 10: Events after the Reporting Period  
**8.5.1 Adjusting Events  
8.5.2 Non-Adjusting Events  
**8.6 IAS 16: Property, Plant, and Equipment  
**8.6.1 Recognition of the Assets  
8.6.2 Measurement of the Assets  
8.6.3 Depreciation  
8.6.4 Disclosure in the financial statements  
**8.7 IAS 36: IMPAIRMENT OF ASSETS  
**8.7.1 Impairment Loss  
8.7.2 Carrying Value  
8.7.3 Recoverable Value  
8.7.4 Cash Generating Unit  
8.7.5 Indications of Impairment  
**8.8 IAS 37: PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS  
**8.8.1 Provision  
8.8.2 Difference between Provisions and Reserves  
8.8.3 Contingent Liability  
8.8.4 Contingent Asset  
**8.9 IAS 38: INTANGIBLE ASSETS  
**8.9.1 Research and Development Costs  
8.9.2 Recognition of Intangible Assets  
8.9.3 Initial Measurement of Intangible Assets  
8.9.4 Subsequent Measurement of Intangible Assets  
**REVIEW QUESTIONS  
**

**CHAPTER 9 AUDITING AND STEWARDSHIP  
9.1 Stewardship  
9.2 Role of Directors as Stewards  
9.3 Purpose of an end of year Audit  
9.4 Who needs an end-of-year Audit?  
9.5 Internal and External Audit  
**9.5.1 Difference between Internal and External Audit  
**9.6 Advantag es and D isadvantages of Au dit  
9.7 Role of Auditors  
9.8 Auditors' Report  
**9.8.1 Unqualified Opinion (Unqualified Audit Report)  
9.8.2 Qualified Opinion (Qualified Audit Report)  
9.8.3 Adverse Opinion (Adverse Audit Report)  
**9.9 What is not expected from Auditors  
9.10 True and Fair View  
9.11 Directors' Report  
9.12 Difference Between the Duties of Directors and Auditors**

**CHAPTER 10 ACCOUNTING RATIOS  
10.1 Financial Ratios  
10.2 Analysis of Ratios  
**10.2.1 Comparing One Year with Another {Trend or Inter-Year Analysis) 10.2.2 Comparing one Business with another Business (Inter-firm Comparison)  
**10.3 Demonstration of Ratios  
10.4 Ratios in Advanced Level Syllabus  
**10.4.1 Working Capital Cycle  
10.4.2 Net Working Assets to Sales (revenue)  
10.4.3 Earnings per Share  
10.4.4 Price-Earnings (P/E) ratio  
10.4.5 Dividend per Share  
10.4.6 Dividend yield ratio  
10.4.7 Dividend Cover  
10.4.8 Interest Cover  
10.4.9 Gearing  
**10.5 Uses of Ratio Analysis  
10.6 LIMITATIONS OF RATIO ANALYSIS  
10.7 Users of Financial Ratios  
REVIEW QUESTIONS**

**CHAPTER 11 CLUBS AND SOCIETIES  
11.1 Comparison between profit and Non-Profit making Organisations  
11.2 Incomes and Expenses of Clubs and Societies  
**11.2.1 Incomes of Clubs and Societies  
11.2.2 Expenses of Clubs and Societies  
**11.3 Some Peculiar Terms of Clubs and Societies  
**11.3.1 Life Subscription  
11.3.2 Legacy  
11.3.3 Gift  
11.3.4 Grants and Donations  
**11.4 Accounting by Clubs and Societies  
**11.4.1 Receipts and Payments Account  
11.4.2 Income and Expenditure Account  
11.4.3 Differences between Receipts and Payment A/c & Income and Expenditure A/c  
11.4.4 Statement to Calculate Profit or Loss  
11.4.5 Income and Expenses on Same Head  
**11.5 Calculation of Incomes/Expenses to be shown in Income and Expenditure Account  
**11.5.1 Accounting for Subscriptions  
**11.6 Preparation of Financial Statements  
REVIEW QUESTIONS**

**CHAPTER 12 MANUFACTURING BUSINESSES  
12.1 The Prime Cost Section  
**12.1.1 Raw Materials Cost  
12.1.2 Direct Labour Cost  
12.1.3 Other Direct Expenses  
**12.2 Factory (Indirect) Overheads  
12.3 Purpose of Manufacturing Accounts  
12.4 Statement of Profit or Loss  
12.5 Statement of Financial Position  
12.6 Factory (Manufacturing) Profit  
**12.6.1 Benefits of Transferring Goods at Production Cost plus Factory Profit.  
12.6.2 Drawbacks of Transferring Goods at Market Price  
12.6.3 Accounting Treatment of Factory Profit  
**12.7 Provision for Unrealised Profit  
REVIEW QUESTIONS**

**CHAPTER 13 COMPUTERISED ACCOUNTING SYSTEMS  
13.1 Manual Accounting  
**13.1.1 Challenges Faced in Manual Accounting  
**13.2 The Advent of Computerised Accounting  
13.3 Use of Computerised Accounting Systems in Recording Financial Transactions  
13.4 The Advantages and Disadvantages of Introducing a Computerised Accounting System  
**13.4.1 The Advantages/Uses of Introducing a Computerised Accounting System  
13.4.2 Disadvantages/Limitations of Introducing a Computerised Accounting System  
**13.5 Differences between Manual and Computerised Accounting Systems  
13.6 Security of Data in Computerised Accounts  
13.7 Transferring Business Accounts to a Computerised Accounting System  
13.8 Potential Risks and Threats to Data Integrity  
13.9 INTEGRALITY OF DATA DURING TRANSFER TO AND IN COMPUTERISED ACCOUNTS**

**CHAPTER 14 ETHICAL CONSIDERATIONS  
14.1 Ethics Relating to the Practice of Accounting  
14.2 Professional ethics  
14.3 What is Ethical?  
14.4 Fundamental Ethical Principles  
14.5 The Problems of Poor Ethics in Accounting  
14.6 The Ethical Impact of Accountants and Auditors on Business  
14.7 The Ethical Impact of Accountants and Auditors on Stakeholders  
14.8 Social implications of decision-making  
14.9 Ethical Conflict  
REVIEW QUESTIONS**

**CHAPTER 15 BUDGETING AND BUDGETARY CONTROL  
15.1 Difference between Budgets and Budgetary Control  
15.2 Difference between Standard Costs and Budgets  
15.3 Advantages of Preparing Budgets from Standard Costs 15.4 Advantages of budgetary Control system  
15.5 Limitations of Budgetary Control System  
15.6 Advantages and Disadvantages of Preparing Budgets Using Spreadsheets  
15.7 Effects of Limiting Budget Factors on the Preparation of Budgets  
15.8 Behavioural Aspects of Budgetary Control System  
15.9 Sales Budget  
15.10 Production  
Budget 15.11 Purchases Budget  
**15.11.1 Purchase Budget for Manufacturing Firms  
15.11.2 Purchase Budget for Trading Firms  
**15.12 Direct Labour Budget  
15.13 Trade Receivables Budget  
15.14 Trade Payables Budget  
15.15 Cash Budget  
**15.15.1 Uses of a Cash Budget  
15.15.2 Actions to Avoid Cash Shortages  
**15.16 Master Budget  
**15.16.1 Budgeted Statement of profit or loss  
15.16.2 Budgeted Statement of Financial Position  
**15.17 Fixed Budget  
15.18 Flexible Budget  
**15.18.1 Steps for preparing a flexible budget  
**15.19 Benefits of a flexible budget over a fixed Budget  
15.20 The Significance of Non-Financial Factors in Budgeting  
REVIEW QUESTIONS**

**CHAPTER 16 INVESTMENT APPRAISAL  
16.1 Reasons for Making Capital Investment Decisions  
16.2 Methods for Capital Investment Appraisal  
16.3 Accounting Rate of Return  
**16.3.1 Advantages of Accounting Rate of Return  
16.3.2 Disadvantages of Accounting Rate of Return  
**16.4 Payback Period  
**16.4.1 Payback Period with Even Cash Flows  
16.4.2 Payback Period with Uneven Cash Flows  
16.4.3 Advantages of Payback  
16.4.4 Disadvantages of Payback  
**16.5 Time Value of Money  
16.6 Compound Interest  
16.7 Present Value  
16.8 Cost of Capital  
16.9 Net Present Value  
**16.9.1 Selection of Project  
16.9.2 Advantages of Net Present Value  
16.9.3 Disadvantages of Net Present Value  
**16.10 Internal Rate of Return  
**16.10.1 Which Rate is Better?  
16.10.2 Calculation of IRR  
16.10.3 Advantages of Internal Rate of Return  
16.10.4 Disadvantages of Internal Rate of Return  
**16.11 NPVAND IRR: WHICH IS BETTER?  
16.12 Why is NPV preferred?  
16.13 Sunk Cost  
16.14 Relevant Costs  
16.15 NON-FlNANCIAL FACTORS INVOLVED IN CAPITAL INVESTMENT DECISIONS  
16.16 Present Value Table  
REVIEW QUESTIONS**

**CHAPTER 17 ACTIVITY BASED COSTING  
17.1 Traditional Costing in Early Business Models  
**17.1.1 Overhead Allocation in Conventional Costing  
17.1.2 Limitations of Conventional Costing  
17.1.3 Impact of Automation on Cost Allocation  
**17.2 Introduction of Activity-Based Costing (ABC)  
**17.2.1 Principles and Methodology of ABC  
**17.3 Costing Issues in Conventional Costing  
17.4 Application of Activity Based Costing  
17.5 Difference between Conventional and Activity Based Costing  
17.6 Terms Frequently Used in Activity Based Costing  
**17.6.1 Activity  
17.6.2 Cost Drivers  
**17.7 Hierarchy of Activities  
**17.7.1 Unit (output) Level Activities  
17.7.2 Batch Level Activities  
17.7.3 Product (Product Sustaining) Level Activities  
17.7.4 Facility (Facility Sustaining) Level Costs  
17.7.5 Customer-Level Activities  
**17.8 Examples of Cost Drivers  
17.9 Uses of Activity Based Costing  
17.10 Limitations of Activity Based Costing  
17.11 Steps for Implementing Activity Based Costing  
17.12 Role of Activity Based costing in the Non-manufacturing sector  
REVIEW QUESTIONS**

**CHAPTER 18 STANDARD COSTING  
18.1 Standard Costing System  
18.2 Advantag es of Standard Costing  
18.3 Limitations of Standard Costing  
18.4 Setting Standard Costs  
18.5 Variance Analysis  
18.6 Total 'Direct Mate rial Cost Variance'  
**18.6.1 Material Price Variance  
18.6.2 Material Usage Variance  
18.6.3 Symbols Used for Calculating Direct Material Variances  
18.6.4 Typical Causes of Material Variances  
**18.7 Total direct Labour Cost Variance  
**18.7.1 Labour Rate Variance  
18.7.2 Labour Efficiency Variance  
18.7.3 Symbols Used for Calculating Direct Labour Variances  
18.7.4 Typical Causes of Labour Variances  
**18.8 Total Fixed Overhead Variance  
**18.8.1 Fixed overhead expenditure (spending) variance  
18.8.2 Fixed Overhead Volume Variance  
18.8.3 Fixed Overhead Efficiency Variance  
18.8.4 Fixed Overhead Capacity Variance  
18.8.5 Typical Causes of Fixed Overhead Variances  
**18.9 Sales Variances  
**18.9.1 Sales Price Variance  
18.9.2 Sales Volume Variances  
18.9.3 Typical Causes of Sales Variances  
**18.10 Fixed Budget  
18.11 Flexible Budget  
**18.11.1 Steps for preparing a flexible budget  
18.11.2 Benefits of a flexible budget over a fixed Budget  
**18.12 Reconciliation of Budgeted and Actual Data  
**18.12.1 Reconciliation of Budgeted and Actual Costs  
18.12.2 Reconciliation of Budgeted and Actual Profits  
**REVIEW QUESTIONS  
**

**SOLUTIONS TO ODD NUMBERED** **QUESTIONS**

**KEY TO EVEN NUMBERED QUESTIONS**

**INDEX**

## Details

- **Price:** 1750.0 PKR
- **Vendor:** Read & Write
- **Tags:** A Level, A Level Accounting, Accounting, group-commerce

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- 116 Accounting A2 Level Textbook Series Theory and Practice Book
- 116 Accounting A2 Level Textbook Series Theory and Practice Book

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> Updated: 2026-10-09