MEX 1504 Financial Accounting

Course Code MEX 1504
Course Title Financial Accounting
Number of Credits 5
Year 1
Medium of Instruction Sinhala and English

This course aims to facilitate the understanding and provision of financial accounting information to the main information system of the organization. Further, the course will help to make informed judgments using financial information. The course mainly attempts to expose the students to the accounting environments, accounting process, financial statements of business entities including limited liability companies, group of companies and some selected accounting standards.

1.      To develop and maintain the financial accounting system within the information system of any organization.

2.      To impart the practical knowledge relevant to the accounting and apply the same.

3.      To obtain an understanding of conceptual and regulatory framework relevant to the financial accounting.

4.      To contribute effectively in the decision making process of the organization.

At the end of this course you should be able to;
1. Understand the nature and scope of financial accounting.
2. Obtain the theoretical knowledge and familiar with the terminology in the financial accounting.
3. Prepare the financial statements of business entities.
4. Accounting for dissolution and conversion of partnerships in to limited liability companies.
5. Prepare the financial statements of group of companies.
6. Interpret information available in financial statements.

Main Topics Sub Topics No. of Hours
1 Introduction to    accounting


1.1      The role of accounting

1.2      Accounting as an information system

1.3      Users of accounting information

1.4      Branches of accounting

1.5      Difference between financial and management    accounting

1.5      External environmental factors

1.6      Trends in financial accounting

03 hrs
2   Entity concept and  transaction


2.1         Entity concept

2.2         Accounting equation and recording    transactions in accounting equation


02 hrs
3   Accounting process


3.1           Recording transactions using double entry  system

3.2           Preparation of prime entry books

3.3           Ledger & Trial Balance

3.4           Correction of errors

3.5           Bank reconciliation statement

3.6           Control accounts


06 hrs
4   Financial statements of a sole trader


4.1            Period end adjustments

4.1.1     Opening & Closing inventory

4.1.2     Depreciation

4.1.3     Accruals and Prepayments

4.2              Manufacturing, trading profit and loss account

4.3               Income statement

4.4               Statement of Owner’s equity

4.5               Statement of financial position

4.6              Statement of cash flows

4.7              Accounting concepts

4.7.1    Entity concept

4.7.2    Accrual

4.7.3    Going concern

4.7.4    Matching periodicity

4.7.5    Historical cost

4.7.6    Money measurement

4.7.7    Prudency

4.7.8    Realization

4.7.9    Substance- over –form


06 hrs
5  Accounting for partnerships


5.1                Introduction to partnership accounts

5.1.1         Agreements for partnerships

5.1.2               Section 24 & 42 of the   Partnership   Ordinance

5.2                   Appropriation account

5.3                   Current accounts

5.4                   Capital accounts

5.5                   Statement of financial position

5.6               Change in the ownership of the partnership (either at the beginning or end of the financial year)

5.7                   Goodwill recording and revaluation

5.8                Dissolution of a partnership; en-block method

5.9               Amalgamation of partnerships, Conversion of a partnership into limited liability company


09 hrs
6  Conceptual framework for financial accounting and regulatory framework


6.1               Definitions

6.2               Objectives of having  a conceptual framework

6.3               Matters dealt  within conceptual framework

6.4               Objectives of financial statements

6.5               Qualitative characteristics of financial information (Primary and Secondary qualities)

6.6               Fundamental assumptions

6.7               Elements of financial statements (Assets,   Liabilities, Incomes, Expenses & Equity)

6.8              Recognition and measurement of elements of financial statements


02 hrs
7  Accounting for assets


7.1                  Definition of assets

7.1.1      Types of assets

7.1.2      Recognition and measurement

7.1.3           Classification of assets in to     current and non-current

7.2       Definition of inventory

7.2.1     Cost of inventory

7.2.2     Inventory cost flow assumptions (Weighted Average, FIFO and LIFO)

7.2.3     Reversal of previous inventory write-downs

7.2.4     Application of LKAS 2- Inventory

7.3            Accounting for property plant and equipment

LKAS 16 – property plant and equipment

7.3.1     Depreciation

7.3.2     useful life

7.3.3     Revaluation and impairment testing



04 hrs
8  Accounting for  liabilities 8.1             Definition of liabilities

8.2             Recognition and measurement

8.3       Accounting for liabilities LKAS 37

LKAS 37-Provisions and Contingent    liabilities (Basic understanding and applications)


02 hrs
9  Accounting for  leases


9.1               LKAS 17 – Leases ( Basic understanding and application)

9.1.1    Recording transaction in the books of   lessee


02 hrs
10  Revenue recognition and measurement 10.1Introduction

10.2Sale of goods

10.3Rendering of services

10.4Interest, royalties and dividends

02 hrs
11  Financial statement of a limited liability company


11.1           LKAS 1 – Presentation of financial  statements

11.2          LKAS 8 – Accounting policies,  Changes in accounting estimates & errors

11.3LKAS 10 – events after reporting period

11.4           Sections 49- 58 of the Companies No 07 of 2007

11.5            Application of  LKAS 7 – Statement of cash flows


12 hrs
12  Consolidated   financial statements


12.1                Rational for consolidating the financial statements of different legal entities

12.2               LKAS 27 – Consolidated & separate financial statements – simple structure having only one subsidiary

12.3                Non-controlling interest

12.4                Goodwill

12.5                Unrealized profits on trading


04 hrs
13  Accounting for  tax 13.1       Introduction

13.2       Rationale for taxation

13.3       Direct taxes and indirect taxes

13.4    Value added tax (introduction and basic  applications)

13.5    Income tax (introduction) (introduction  and basic applications)


04 hrs
14  Auditing 14.1       Regulatory requirements

14.2       Different types of audits

14.3       Audit of public sector enterprises

14.4       Audit report

14.5       Audit evidences


03 hrs
15  Accounting for non for profit organizations 15.1  Subscriptions

15.2  Income and expenditure account

15.3  Receipts and payment Account

15.4  Statement of financial position


03 hrs
16  Incomplete records 16.1  Identifying the profit for the period  (accounting   equation, Using profit margins etc)

16.2       Preparation of financial statements of using incomplete records


04 hrs
17  Contract accounts 17.1       Introduction

17.2  LKAS 11 Accounting for construction   contracts

17.3       Contract revenue

17.4       Contract costs

17.5       Recognition of contract revenue and expenses

17.6       Recognition of expected losses


02 hrs
18  Branch Accounts 18.1     Introduction

18.2     Accounting for decentralized branches


02 hrs
19  Financial statement analysis


19.1     Introduction

19.2     Calculation and interpretation of ratios

Profitability, Liquidity, Efficiency,      Gearing, Market ratios and cash flow ratios

19.3Limitations of ratios


03 hrs
Mode of Study Seminar/ Self Study
Mode of Evaluation Final examination will be conducted

1. Wijewardena, H, Financial accounting in Sri Lanka, Author publication
2. Accounting Standards (SLFRS & LKAS) latest versions. Chartered Accountants Sri Lanka
3. Sri Lanka Accounting standards
4. Benedict A & Elliott B, Practical Accounting, Pearson Education Limited