Paper F7 Reporting Financial - OpenTuition
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CONTENTS1Financial Reporting – basic concepts12The regulatory framework33Published Financial Statements74IFRS5 – Discontinued operations and assets held for sale175IAS 8216Group Accounts: An Introduction257Preparation of the Consolidated Statement of Financial Position318Group Accounts: Inter-entity Transactions459Group Accounts: Comprehensive Example5510Preparation of the Consolidated Statement of Profit or Loss and Other Comprehensive Income5711Accounting for Investments in Associates (IFRS3 Revised)6312IAS 2 Inventories6713Calculation of Construction Contract Profits6914IAS 36 Impairment of Assets7715IAS 37 Provisions, Contingent Liabilities and Contingent Assets8116IFRS 16 Leases8717IAS 23 Borrowing Costs9118IAS 12 Income Taxes9319IAS 7 (Revised): Statements of Cash Flows9920Interpretation of Accounts – Ratio Analysis10921IAS 33 Earnings Per Share11522Theoretical matters12323IAS 16 Property, Plant and Equipment12724IFRS 15 Revenue from contracts with customers12925IAS 20 Government Grants13526IAS 38 Intangible Assets13727IAS 40 Investment Properties13928IFRS 9 Financial Instruments14129Agriculture14730The Effects of Changes in Foreign Exchange Rates15131Answers to Examples15532Mini Exercises – Questions19733Mini Exercises – Answers225Visit OpenTuition.com and use our FREE Online Multiple Choice TestsOpenTuition Lecture Notes can be downloaded FREE from OpenTuition.comCopyright belongs to OpenTuition.com - please do not support piracy by downloading from other websites.Free ACCA notes t Free ACCA lectures t Free ACCA tests t Free tutor support t StudyBuddies t ACCA forums
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Paper F7Chapter 1Free lectures available for Paper F7 - click hereFINANCIAL REPORTING – BASIC CONCEPTSUnderlying assumptions accruals going concern consistency materiality off-settingE XAMPLE 1Laima has recently bought a shop called Sweet for 1 million and included the full amount in her cost of sales account.How does each of the five concepts affect the way Laima should treat the cost of 1 million?Free ACCA notes t Free ACCA lectures t Free ACCA tests t Free tutor support t StudyBuddies t ACCA forums1
2 Chapter 1Financial Reporting – basic conceptsPaper F7ACCA F7 March-June’18 ExaminationsAdvantages and disadvantages of standardisation of accounting practices provide a focal point for debate require disclosure of policies adopted encourage global discussion flexible enable meaningful comparison reduce penumbral areas of divergent possibilities pressure groups may succeed in asking for amendments allowed alternative treatments – standardisation? inappropriate treatment could result from following a standard rules take away use of skill and judgementFree ACCA notes t Free ACCA lectures t Free ACCA tests t Free tutor support t StudyBuddies t ACCA forums
Paper F7Chapter 2Free lectures available for Paper F7 - click hereTHE REGULATORY FRAMEWORKA conceptual framework framework has been developeddefined as “a constitution, a coherent system of interrelated objectives and fundamentals which can lead to consistent standardsand which prescribe the nature, function and limits of financial accounting and financial statements” generally accepted accounting practice ( gaap ) a combination of: each country’s own law international financial reporting standards stock exchange requirements but gaap does not have any statutory authority changes and evolves with changing circumstancesThe framework provides a set of principles purpose defined as assisting: IASC in development of new standards review of existing standards harmonisation of standards and procedures reduction of penumbral areas of divergent possibilities development of new standards by national accounting bodies preparers of financial statements auditors in forming audit opinions users in their interpretation of financial statementsFree ACCA notes t Free ACCA lectures t Free ACCA tests t Free tutor support t StudyBuddies t ACCA forums3
4 Chapter 2The regulatory frameworkPaper F7ACCA F7 March-June’18 ExaminationsFramework contents objectives of financial statements underlying assumptions ( accruals and going concern ) qualitative characteristics ( see next ) elements of financial statements (assets, liabilities, equity, income, expenses and capital maintenance) recognition of the elements measurement concept of capital and capital maintenance as a set of principles, it requires entities to follow the spirit of the framework it’s not a standard, so does not override any existing standard requirements nor does it define any standard for measurement or disclosure of any particular issueFree ACCA notes t Free ACCA lectures t Free ACCA tests t Free tutor support t StudyBuddies t ACCA forums
Chapter 2The regulatory frameworkPaper F7ACCA F7 March-June’18 ExaminationsFramework – qualitative characteristics understandableD12, D13 comparablepilot, J08, D12, D13 relevantpilot, D13 faithful representationD07, D13 completeD13 materialJ08, D13 substance over formJ08, J10 reliablepilot, D07 neutralD13 provableJ08, D13(you can remember framework contents. Mike says remember nine principles!)Fundamental characteristicsEnhancing characteristics(Relevant, and faithful representation)(Reliability) completeness understandability neutrality, and verifiability material accuracy comparability, and timelinessFree ACCA notes t Free ACCA lectures t Free ACCA tests t Free tutor support t StudyBuddies t ACCA forums5
6 Chapter 2The regulatory frameworkPaper F7ACCA F7 March-June’18 ExaminationsFinancial statements comprise: Statement of financial position Statement of profit or loss and other comprehensive income Statement of changes in equity Statement of cash flows Notes ( accounting policy and explanations ) some elements of the report of the executives are also auditable remuneration committee’s report report on the appropriateness of the system of internal control purpose of IAS 1 ( revised ) is to ensure greater clarity and understandability of financial statements within the financial statements there should be disclosed name of the entity date of the end of the accounting period period covered by the financial statements reporting currency degree of precision used country of incorporation and address of registered office description of the nature of operations name of parent entity and ultimate holding entity number of employees at end of period ( or average during the period )WHEN YOU FINISHED THIS CHAPTER YOU SHOULD ATTEMPT THE ONLINE F7 MCQ TESTFree ACCA notes t Free ACCA lectures t Free ACCA tests t Free tutor support t StudyBuddies t ACCA forums
Paper F7Chapter 3Free lectures available for Paper F7 - click herePUBLISHED FINANCIAL STATEMENTS proforma financial statements following IAS1 (revised)XYZ GROUPStatement of Profit or Loss and Other Comprehensive Income for the year ended 31 December, 2009(classification of expenses by function)2009 ’000RevenueXCost of sales(X)2008 ’000X(X)Gross profitOther operating incomeXXXXDistribution costsAdministrative expensesOther operating expenses(X)(X)(X)(X)(X)(X)Profit from operationsFinance costIncome from associatesX(X)XX(X)XProfit before taxIncome tax expenseProfit after taxX(X)XX(X)X2009 ’000(X)XXXX2008 ’000X(X)XXXXYZ GROUPStatement of Profit or Loss and Other Comprehensive Income for the year ended 31 December, 2009Surplus/(deficit) on revaluation of propertiesSurplus/(deficit) on revaluation of investmentsNet gains not recognised in the Statement of IncomeNet profit for the periodTotal Comprehensive IncomeFree ACCA notes t Free ACCA lectures t Free ACCA tests t Free tutor support t StudyBuddies t ACCA forums7
8 Chapter 3Published Financial StatementsPaper F7ACCA F7 March-June’18 ExaminationsXYZ GROUPStatement of Financial Position as at 31 December, 20092009 ’000ASSETSNon-current assetsGoodwillProperty, plant and equipmentOther financial assets2009 ’0002008 ’000XXXXXXXCurrent assetsInventoriesTrade and other receivablesPrepaymentsCash and cash equivalentsXXXXEQUITY AND LIABILITIESEquityIssued capitalReservesRetained earningsNon-controlling interestXXXXXXXTotal assetsXXXXXXXXXXXNon-current liabilitiesInterest bearing borrowingsDeferred taxXXXXXXCurrent liabilitiesTrade and other payablesShort term borrowingsCurrent taxCurrent portion of interest bearing borrowingsTotal equity and liabilities2008 ’000XXXXXXXXXXXFree ACCA notes t Free ACCA lectures t Free ACCA tests t Free tutor support t StudyBuddies t ACCA forumsXX
Chapter 3Published Financial StatementsPaper F7ACCA F7 March-June’18 ExaminationsStatement of Changes in Equity IAS 1 (revised) requires an entity to disclose the information in the Statement of Changes in Equity as a separate component of itsfinancial statements.XYZ GROUPStatement of Changes in Equity for the year ended 31 December, 2009Balance at 31 December, 2007Changes in accounting policiesRestated balanceSurplus on revaluation of propertiesDeficit on revaluation of investmentsNet Income and Expense not recognised in theStatement of tainedearningsNon-controllingInterestTotal 000 000 000 000 000 000XXXXXXXX(X)X(X)XX(X)XX(X)XXNet profit for the periodDividendsNon-controlling interestIssue of share capitalBalance at 31 December, 2008Deficit on revaluation of propertiesSurplus on revaluation of investmentsNet income and expense not recognised in theStatement of IncomeXXXXXX(X)XXX(X)(X)X(X)XNet profit for the periodNon-controlling interestDividendsIssue of share capitalBalance at 31 December, X)(X)X(X)XXFree ACCA notes t Free ACCA lectures t Free ACCA tests t Free tutor support t StudyBuddies t ACCA forums(X)XX9
10 Chapter 3Published Financial StatementsPaper F7ACCA F7 March-June’18 ExaminationsE XAMPLE 1B Co Statement of Profit or Loss and Other Comprehensive Income extracts for the year ended 31 December, 2009 ’000Net profit for the year421Dividend(98)Retained profit323During the year the following important events took place:(i)Properties were revalued by 105,000 increase.(ii) 200,000 of 1 share capital was issued during the year at a 25c premium(iii) A non-current asset with a carrying value of 130,000 was written down to 95,000. The impairment occurred as a result of generalprice changes. The revaluation surplus account contains 25,000 relating to this asset.(iv) Opening equity was: Issued capital400,000Share premium50,000Revaluation surplus165,000Retained earnings310,000925,000Show how the events for the year would be shown in the Statement of Changes in Equity.Notes to the financial statements as required by international financial reporting standardsFree ACCA notes t Free ACCA lectures t Free ACCA tests t Free tutor support t StudyBuddies t ACCA forums
Chapter 3Published Financial StatementsPaper F7ACCA F7 March-June’18 Examinations the notes to the financial statements should present information about the basis of preparation of the financial statements andthe accounting policies selected. They should disclose all information required by IFRS not disclosed elsewhere in the financialstatements. in addition they should disclose any additional information not disclosed on the face of the financial statements, but which isnecessary for a true and fair view. accounting policies the financial statements are prepared in accordance with and comply with IFRS. The financial statements are preparedunder the historical cost convention as modified by the revaluation of property, plant and equipment, marketable securitiesand investment properties. depreciation is calculated on the straight line basis in order to write off the cost of each asset, or the revalued amounts, totheir residual values over their estimated useful life as follows: BuildingsX%MachineryX%Office equipmentX%Inventories have been valued at the lower of cost and net realisable value. segment information profit from operationsProfit from operations is stated after charging/ (crediting):DepreciationImpairmentProfit on disposal of tangible non-current assetsGain or loss on disposal or restatement to fair value of financial instrumentsWrite-down of inventory to net realisable valueAmortisationResearch and development expenditureOperating lease rentalsStaff costsRental income from investment propertyOperating expenses from investment property generating rental incomeOperating expenses from investment property not generating rental incomeAmounts paid to the auditorsFree ACCA notes t Free ACCA lectures t Free ACCA tests t Free tutor support t StudyBuddies t ACCA forumsXX(X)(X)XXXXX(X)XXX11
12 Chapter 3Published Financial Statements Paper F7ACCA F7 March-June’18 Examinationsstaff costsWages and salariesTermination benefitsSocial security costsPension costs - defined contribution planPension costs - defined benefit planOther post retirement benefitsXXXXXXXAverage weekly number of persons employed during the year:Full timePart timeXXXNote:Average numberEither the number of employees at the end of the period or the average for the period. finance costsInterest income (if material)Interest expense- bank borrowings- finance leasesPreference dividend 8.1% paid XXXXXincome tax expenseCurrent taxUnder/(overstatement) of prior periodsDeferred tax XXX/(X)XXdividendsOrdinary- interim- final4.15c paid7.85c proposedXXXNoteShow the amount per share for each class of share distinguishing between amounts paid and proposed, (if proposed before theyear end)Free ACCA notes t Free ACCA lectures t Free ACCA tests t Free tutor support t StudyBuddies t ACCA forums
Chapter 3Published Financial Statements Paper F7ACCA F7 March-June’18 Examinationsintangible assetsDeferred DevelopmentExpenditure GoodwillTotalNet book value at 1 January, 2009AdditionsImpairment lossesAmortisationDisposalsNet book value at 31 December, 2009XX(X)(X)(X)XXX(X)(X)XXX(X)(X)(X)XAt 31 December, 2009CostAccumulated amortisation/impairment lossesNet book valueX(X)XX(X)XX(X)XAt 1 January, 2009CostAccumulated amortisation/impairment lossesNet book valueX(X)XX(X)XX(X)Xproperty, plant and equipmentLand and buildingsMachineryOffice equipmentTotalNet book value at 1 January, 2009AdditionsRevaluation surplusImpairment lossesDepreciation chargeDisposalsNet book value at 31 December, XAt 31 December, 2009Cost or valuationAccumulated depreciation/impairment lossesNet book valueX(X)XX(X)XX(X)XX(X)XAt 1 January, 2009Cost or valuationAccumulated depreciation/impairment lossesNet book valueX(X)XX(X)XX(X)XX(X)XIncluded within the net book value of plant and machinery is X in respect of assets held under finance leases (IAS 17 revised)Note The following should be disclosed separately (IAS 16 revised): any restrictions on title of property, plant and equipment pledged as security for liabilities the amount of expenditure on property, plant and equipment in the course of construction the amount of capital commitments for the acquisition of property, plant and equipmentFree ACCA notes t Free ACCA lectures t Free ACCA tests t Free tutor support t StudyBuddies t ACCA forums13
14 Chapter 3Published Financial Statements revaluations in the year (IAS 16 revised) For items of property, plant and equipment revalued disclose:- basis used to revalue the assets;the effective date of the revaluation;where an independent valuer was involved, the name and/or qualificationsthe historic cost equivalent of the above information as if the asset had not been revalued (ie if using the benchmarktreatment); andthe amount of the revaluation surplus.investment properties (IAS 40)At 1 January, 2009Additions - acquisitionAdditions - subsequent expenditureTransfersNet gain/loss from fair value adjustmentsDisposalsDepreciationImpairment lossesOther movementsAt 31 December, 2009 Paper F7ACCA F7 March-June’18 ExaminationsFair Value ModelXXXX/(X)X(X)XXCost ModelXXXX/(X)(X)(X)(X)XXAt 31 December, 2009Gross carrying amountAccumulated depreciation/ impairment lossesNet book valueX(X)XAt 1 January, 2009Gross carrying amountAccumulated depreciation/ impairment lossesNet book valueX(X)Xinventories (IAS 2 revised)MerchandiseProduction suppliesMaterialsWork in progressFinished goodsXXXXXXThe carrying amount of inventories carried at net realisable value should be disclosed separately trade and other receivablesTrade receivablesAmounts receivable from group undertakingsAmounts receivable from associates and joint venturesAmounts receivable from related partiesOther receivablesPrepaymentsXXXXXXXNon-current receivables should be disclosed separately broken down by the above categoriesFree ACCA notes t Free ACCA lectures t Free ACCA tests t Free tutor support t StudyBuddies t ACCA forums
Chapter 3Published Financial Statements Paper F7ACCA F7 March-June’18 Examinationscash and cash equivalents (IAS 7 revised)Cash in hand and balances with banksShort-term investmentsXXXCash includes cash in hand and current and other accounts with banks. Cash which is not immediately available for use, forexample, balances frozen in foreign banks by exchange restrictions, should be disclosed separately. issued share capitalNumber of sharesEquity sharesShare premiumTotal ’000 ’000 ’000At 1 January, 2009XXXXXXXXIssue of sharesAt 31 December, 2009XXXXThe total number of shares is Xm with a par value of 1 per share. All shares issued are fully paid (disclose any which are not). interest-bearing borrowings9% unsecured loan stock 20208.1% redeemable preference shares XXXfinance lease liabilitiessee separate chapter. trade and other payablesTrade payablesAmounts payable to group undertakingsAmounts payable to associates and joint venturesIncome taxSocial security and other taxesDividends payableOther payablesAccrued expensesNote Details of security given for all secured payables. Include only the current portion of instalment payables, The non-current portion is disclosed in the note for non-current liabilities.XXXXXXXXXFree ACCA notes t Free ACCA lectures t Free ACCA tests t Free tutor support t StudyBuddies t ACCA forums15
16 Chapter 3Published Financial Statements Paper F7ACCA F7 March-June’18 ExaminationsprovisionsProvision brought forward at 1 January, 2009Additional provisionsAmounts usedUnused amounts reversedProvision carried forward at 31 December, 2009XX(X)(X)XThe following should be disclosed for each class of provision: a brief description of the nature of the obligation and expected timing of outflows an indication of the uncertainties about the amount or timing of the outflows the amount of any expected reimbursementcontingent assets and contingent liabilities IAS 37(see separate chapter) events after the reporting period (IAS 10 revised)The following should be disclosed for non-adjusting events of such importance that non-disclosure would infl
Free ACCA notes t Free ACCA lectures t Free ACCA tests t Free tutor support t StudyBuddies t ACCA forums Chapter 1 Paper F7 Financial Reporting – basic concepts ACCA F7 March-June’18 Examinations 2 Advantages and disadvantages of standardisation of accounting practices provide a fo
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