WAC12 Corporate and Management Accounting

Lessons in WAC12

1. Statement of profit or loss and other comprehensive income (IAS 1)
   IAS 1 layout: revenue, cost of sales, gross profit, other income, distribution costs, administrative expenses, profit from operations, finance costs, profit bef
2. Statement of changes in equity
   One column per component of equity; profit to retained earnings, revaluation gains to revaluation reserve, dividends paid out of retained earnings; proposed fin
3. Statement of financial position for a limited company
   Non-current assets + current assets = total assets = equity + non-current liabilities + current liabilities; accruals and tax owing are current liabilities; res
4. Auditors' report, directors' report and corporate governance
   External auditors are independent, appointed by and report to shareholders, and give an opinion on whether the accounts show a true and fair view; the directors
5. Continuing and discontinued operations and exceptional items
   Separate disclosure of discontinued operations and exceptional (material, unusual) items lets users predict future profits from the continuing business and comp
6. Capital and revenue reserves
   Revenue reserves (retained earnings, general, foreign exchange) come from profits and can fund dividends; capital reserves (share premium, revaluation, capital
7. Share capital and issuing new shares
   Share capital is always recorded at nominal value; any excess goes to share premium; issued, called-up and paid-up capital may differ when shares are paid by in
8. Bonus issues and rights issues
   Bonus issue: free shares paid from reserves, no cash, equity total unchanged. Rights issue: new shares sold to existing shareholders at a discount, raising cash
9. Ordinary shares, preference shares and debentures
   Ordinary shares: votes, variable dividend, highest risk. Preference shares: fixed dividend, priority, usually no vote. Debentures: loans with fixed interest, a
10. Capital gearing and its implications
    Gearing = (debentures + long-term loans + preference shares) / total capital employed x 100; high gearing means more risk but magnifies returns to ordinary shar
11. Provisions: creation and features
    A provision is a liability of uncertain timing or amount, recognised when there is a present obligation from a past event, a probable outflow and a reliable est
12. Purchase of a business: Realisation and Sundry Shareholders accounts
    Realisation account: Dr assets at book value, Cr liabilities taken over, Cr purchase consideration; the balance is the profit or loss on realisation, transferre
13. Purchase price of a company and goodwill
    Revalue the vendor's net assets to fair value; purchase consideration = shares at market value + cash; goodwill = consideration - fair value of net assets; purc
14. Purchase of a business: Revaluation account and the purchaser's entries
    Vendor: increases in assets are credited and decreases debited to the Revaluation account, and the net gain goes to the shareholders. Purchaser: Dr assets at fa
15. Statement of financial position after a purchase or merger
    Combine at fair value, add goodwill, record new shares at nominal value plus share premium, deduct cash paid; the vendor's equity disappears; the statement must
16. Investment ratios: EPS, P/E, dividend per share, yield and cover
    EPS = (PAT - preference dividends) / ordinary shares; P/E = price / EPS; DPS = ordinary dividends / shares; yield = DPS / price x 100; cover = (PAT - preference
17. ROCE and performance ratios for companies
    ROCE = profit before interest / (issued shares + reserves + non-current liabilities) x 100. Use Unit 1 ratios too, and evaluate with comparisons, causes, limita
18. Statement of cash flows (1): cash from operating activities
    Profit from operations + depreciation + losses on disposal - profits on disposal = operating cash flow before working capital changes; adjust for inventories, r
19. Statement of cash flows (2): investing, financing and the full statement
    Investing: buying and selling non-current assets (cash proceeds, not profit). Financing: shares issued (capital + premium), loans raised or repaid, dividends pa
20. The importance of liquidity to a company
    Liquidity is the ability to pay debts when due; profit does not guarantee cash; use the statement of cash flows and liquidity ratios to judge it, and suggest sp
21. Budgeting: planning, forecasting, control and the budget process
    Budgets plan, forecast, coordinate, motivate and control; start with the principal budget factor (usually sales), then functional budgets, cash budget and maste
22. Revenue, production, purchases and inventory budgets
    Production = sales + closing inventory - opening inventory; purchases = usage + closing materials - opening materials; revenue = units x price; work backwards f
23. Trade receivables, trade payables and capital budgets
    Receivables: opening + credit sales - receipts = closing. Payables: opening + credit purchases - payments = closing. The capital budget lists capital spending a
24. The cash budget
    Cash budget: receipts and payments when the cash moves; exclude depreciation and other non-cash items; closing balance = opening balance + receipts - payments,
25. Budgeted statement of profit or loss and statement of financial position
    Budgeted profit uses accruals (all sales, depreciation included, no capital items); the budgeted statement of financial position takes closing balances from the
26. Flexible budgets
    Flex the budget to actual output: variable costs per unit x actual units, fixed costs unchanged, semi-variable split by high-low, semi-fixed at the right step;
27. Standard costing: purpose and setting up a system
    Standards are set from specifications, work study and accounting records (stores cards, invoices, payroll); attainable standards motivate best; variances betwee
28. Material and labour variances
    Price = (SP - AP) x AQ; usage = (SQ - AQ) x SP; rate = (SR - AR) x AH; efficiency = (SH - AH) x SR; SQ and SH are for actual output; label F or A.
29. Overhead variances and reconciling standard and actual cost
    Total variable overhead variance = standard variable overhead for actual output - actual; total fixed overhead variance = absorbed (OAR x actual output) - actua
30. Reasons for variances, interrelationships and management by exception
    Explain variances with specific causes; recognise interrelationships (cheap material: price F, usage and efficiency A); use management by exception to investiga
31. Net present value
    NPV = sum of (net cash flow x discount factor) - initial cost; exclude depreciation; include residual value; accept if positive.
32. Weighted average cost of capital
    WACC = sum of (value of each source x its cost) / total value; it is the discount rate for NPV and the minimum acceptable return.
33. Profitability index and internal rate of return
    PI = PV of inflows / initial investment (accept above 1, rank under capital rationing); IRR = L + NPV_L / (NPV_L - NPV_H) x (H - L) (accept if above the cost of
34. Payback and average (accounting) rate of return
    Payback: years until cumulative cash inflows equal the cost (part year = shortfall / that year's cash flow x 12). ARR = average annual profit / average investme
35. Cost behaviour: fixed, variable, semi-variable and semi-fixed costs
    Fixed costs do not change with output; variable costs change in proportion; semi-variable = fixed part + variable part; semi-fixed = steps. Profit = (price - va
36. Contribution, break-even point and margin of safety
    Contribution = price - variable cost; break-even units = fixed costs / contribution per unit; break-even revenue = fixed costs / C/S ratio; margin of safety = a
37. Break-even charts
    Revenue from the origin, total cost from the fixed-cost level; break-even where they cross; margin of safety between break-even and planned output; a wider angl
38. Marginal and absorption costing: concepts and inventory valuation
    Marginal costing: products carry variable costs only and all fixed costs are period costs. Absorption costing: products also carry fixed production overhead (vi
39. Marginal costing decisions: accepting or refusing orders
    With spare capacity, accept an order if its price exceeds variable cost (after any extra fixed costs); existing fixed costs are irrelevant; without spare capaci
40. Marginal costing decisions: make or buy, and continuing or discontinuing
    Make or buy: compare the buy price with variable cost of making plus avoidable fixed costs and opportunity costs. Discontinue only if the contribution lost is l
41. Profit statements under marginal and absorption costing
    Marginal: revenue - variable cost of sales = contribution - all fixed costs. Absorption: revenue - full cost of sales = gross profit - non-production costs. Pro
42. Limiting factors: choosing the best product mix
    Rank products by contribution per unit of the limiting factor, then allocate the scarce resource in that order until it runs out; meet any contractual minimums
43. ICT in costing and management accounting
    ICT supports budgeting (spreadsheets), invoicing, receivables, payroll and tax (software) and inventory control (EPOS). Evaluate with audit trail, financial, te
44. WAC12 exam technique
    3 hours, 200 marks: Section A two compulsory 55-mark questions, Section B three from four 30-mark questions. Formula, figures, units; own-figure rule; applied e

Next exams for WAC12

• January 2027: Wed 20 Jan 2027, morning, 3h 00m
• Summer 2027: Tue 25 May 2027, morning, 3h 00m

From Pearson's final timetables. All exam dates. Always confirm your entries with your exams officer.