Free ACCA Paper F7 Course notes

218 Pages·2011·1.13 MB·English

Paper
FinAnciAl reporting
F7
(INTERNATIONAL)
ACCA QuAlifiCAtion
Course notes
June 2011 examinations
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F1 Accountant in Business
F2 Management Accounting
F3 Finanticial Accounting
F4 Corporate & Business Law
F5 Performance Management
F6 Taxation (UK)
F7 Financial Reporting
F8 Audit and Assurance
F9 Financial Management
P1 Governance, Risk & Ethics
P2 Corporate Reporting
P3 Business Analysis
P4 Advanced Financial Management
P5 Advanced Performance Management
P6 Advanced Taxation (UK)
P7 Advanced Audit & Assurance
The besT Things
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Paper F7
June 2011 Examinations
Paper F7
Contents
1 Financial Reporting – basic concepts 1
2 The regulatory framework 5
3 Published Financial Statements 9
4 IFRS5 – Discontinued operations and assets held for sale 19
5 IAS 8 23
6 Group Accounts: An Introduction 27
7 Preparation of the Consolidated Statement of Financial Position 33
8 Group Accounts: Inter-entity Transactions 47
9 Group Accounts: Comprehensive Example 55
10 Preparation of the Consolidated Statement of Comprehensive Income 57
11 Accounting for Investments in Associates (IFRS3 Revised) 63
12 IAS 2 Inventories 67
13 IAS 11 Construction Contracts 69
14 IAS 36 Impairment of Assets 77
15 IAS 37 Provisions, Contingent Liabilities and Contingent Assets 81
16 IAS 17 Leases 87
17 IAS 23 Borrowing Costs 93
18 IAS 12 Income Taxes 95
19 IAS 7 (Revised): Statements of Cash Flows 101
20 Interpretation of Accounts – Ratio Analysis 111
21 IAS 33 Earnings Per Share 117
22 Theoretical matters 125
23 IAS 16 Property, Plant and Equipment 129
24 IAS 18 Revenue 131
25 IAS 20 Government Grants 133
26 IAS 38 Intangible Assets 135
27 IAS 40 Investment Properties 137
28 IAS 32 IAS 39 139
Answers to Examples 149
Mini Exercises – Questions 191
Mini Exercises – Answers 203
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Paper F7 1
June 2011 Examinations
Chapter 1
FinanCial RepoRting – basiC ConCepts
Underlying assumptions
•
accruals
•
going concern
•
consistency
•
materiality
•
off-setting
example 1
Laima 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?
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2 Chapter 1 Paper F7
Financial Reporting – basic concepts June 2011 Examinations
Advantages 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 judgement
A conceptual framework
•
framework has been developed
defined as “a constitution, a coherent system of interrelated objectives and fundamentals which can lead to consistent standards
and 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 circumstances
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Chapter 1 Paper F7 3
Financial Reporting – basic concepts June 2011 Examinations
The 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 statements
Framework 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 issue
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4 Chapter 1 Paper F7
Financial Reporting – basic concepts June 2011 Examinations
Framework – qualitative characteristics
•
understandable
•
comparable
•
relevant
•
faithful representation
•
complete
•
material
•
substance over form
•
reliable
•
neutral
•
prudent
(you can remember framework contents. Mike says remember nine principles!)
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Paper F7 5
June 2011 Examinations
Chapter 2
The regulaTory framework
•
IFRS produced by the profession ( IASC )
•
identify required accounting treatment for items within financial statements
•
sometimes with allowed alternatives
•
reduce penumbral areas of divergent possibilities
•
apply whenever financial statements intend showing a true and fair view
•
non-compliance must be explained
•
IASC has three formal objectives
• to develop, in the public interest, a single set of high quality, understandable and enforceable global financial reporting
standards that require high quality, transparent and comparable information in financial statements and other financial
reporting to help global investors and other users make informed and meaningful economic decisions.
• to promote the use and strict application of those standards; and
• to bring about consistency of national and international financial reporting standards.
example 1
What are the advantages and disadvantages of international harmonisation of financial reporting standards?
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6 Chapter 2 Paper F7
The regulatory framework June 2011 Examinations
The structure of the IASB
Monitoring Board
Approve and Oversee Trustees
IFRS FOUNDATION
22 TRUSTEES Appoint, Oversee, Raise Funds
BOARD 16 (maximum 3 part-time
Set technical agenda. Approve Standards,
Exposure Drafts and Interpretations
IFRS ADVISORY COUNCIL IFRS INTERPRETATIONS COMMITTEE
Approx: 40 members 14 members
Working Groups For Major
Key
Agenda Projects
Appoints
Reports to
Advises
•
standard setting process
Consultative group (views)
Steering committee (discuss)
Board (accept)
Steering committee Statement of principles (issued)
Exposure draft (issued)
Comments from 3rd parties
¾ Board approval
IFRS

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