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ACCT 301 Lecture Notes - Accrual, Royal Statistical Society

Course Code
ACCT 301

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Chapter 6
Those Who Say Yes
1. The value of the assets at the start of the period is the same at the year end, thus
no depreciation is necessary.
2. The buildings are well maintained.
3. The value exceeds its cost at the year end, since it appreciates in price, and when
the asset is sold, the sales proceeds would be greater than cost.
Those Who Say No
1. Freehold buildings do not last forever!
2. The depreciation charge is a means of matching the cost of the asset with the
revenue earned over its useful life. This is called the Accruals Concept.
I have always found this topic to be hard to understand and quite tedious on my brain,
until I began writing about it. So probably, that maybe the best option for those
finding difficulty regarding FRS 3 or any of the other theoretical materials.
If we go back through our mind and reorganize the information we have regarding the
concepts behind accounting and the ASB’s brief history, we’d find that FRS 3 is the
natural step forward after the statement of principles, even if they didn’t necessarily
come in that order.
To put it simply, one of the aims of FRS’s and accounting conventions is to provide a
true and fair view of the company’s financial reports, but to the question is, to whom?
The obvious answer is simply the users of the financial information. As such, FRS 3
was developed to enable the users of financial reports to obtain information of higher
quality by concentrating on the following matters:
- Continuing, Discontinuing Operations and New Acquisitions
- Exceptional and Extraordinary Items
- Disclosures by way of notes e.g. STRGL and Historical Cost Profit/Losses
Continued, Discontinued Activities and New Acquisitions
FRS 3 requires an analysis of the P&L A/C as far as the figure of profit on ordinary
activities before interest, into 3 elements.
1. Continuing Operations, which are activities that will continue to next year.
2. Discontinuing operations, which are activities that have ceased during the year.
3. New Acquisitions, which are new activities that did not exist last year.
What do those things mean again?
Well, if we consider any kind of business during one accounting period, we might
find that the business may acquire new assets, dispose of old ones, and obviously
keep the ones it already uses for the next accounting period.
So basically, the ones it disposes of are referred to as ‘discontinuing operations’, the
ones it keeps are ‘continuing operations’ and the new acquired assets are under the
heading ‘new acquisitions’.
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