ACCA F7

Course overview

Regulatory framework

Regulatory bodies

Conceptual framework

Conceptual framework overview

Accounting concepts and policies

Accounting concepts

IAS 8 Changes in accounting policies,

estimates and prior year errors

Changes in accounting policies

Adjust opening balance on retained earnings

& restate comparative

Changes in accounting estimates

Change applied in current year & disclosure

note if material

Errors

Adjust opening balance on retained earnings

& restate comparative

Tangible non-current assets

IAS 16 Property, plant and equipment

10

IAS 20 Government grants

11

IAS 23 Borrowing costs

Borrowing costs must be added to the cost of an asset, if
the asset is one that takes a substantial time to get ready.
Capitalise when following conditions are met:
-Expenditure being incurred
-Borrowing costs being incurred
-Activities to get the asset ready for use are in progress

12

IAS 40 Investment property

13

Intangible assets

14

IAS 38 Intangible asset overview

Purchased

2 TYPES
Internally Generated

Capitalised at cost

Capitalise only if market value exists

(rare)

Finite life
= amortise
Indefinite life = impairment review
Exception:
Research & Development
Research
= expense
Development = capitalise
(if criteria are met).

15

Research and development criteria

Recognition criteria:
Separately identifiable project
Expenditure identifiable
Commercially viable
Technically feasible
Overall profitable
Resources available to complete

16

Impairment

17

Indicators of impairment

18

Impairment overview

19

Cash generating units

Smallest identifiable group of assets which generate
cash inflows independent of other assets

20

Reporting financial performance

21

IFRS 5

22

Leases

23

Leases overview

24

Finance leases overview

Substantially all the risks and rewards of ownership passed to the lessee.
-Record NCA and finance lease liability
-Account for depreciation on NCA
-Account for finance lease depending on:
-In advance
-In arrears

25

Substance over form

26

Overview
Commercial substance should be shown in some situations rather
than the strict legal form of a transaction.
Consider:
-Definition of an asset
-Definition of a liability

27

Specific scenarios

28

IAS 18 Revenue recognition

Recognition occurs when it is probable that future economic benefits will
flow to the entity and when these benefits can be reliably measured.
IAS 18 covers revenue from:
- Sale of goods
- Provision of services
- Interest, royalties and dividends.

29

Revenue from sale of goods

30

Revenue from the provision of services

31

Financial assets and financial liabilities

32

Financial instruments
A financial instrument is:
any contract that gives rise to both a financial asset of
one entity and a financial liability or equity instrument of
another.

33

Financial instruments overview

34

Compound instruments

35

Financial assets

36

Inventories and construction contracts

37

IAS 2 Inventory

38

IAS 11 Construction contracts

A construction contract is a contract specifically
negotiated for the construction of an asset or a
combination of asset for use by another entity.
A contract normally spans at least one accounting
period so revenue recognition needs to be addressed.

39

Construction contract revenue recognition

40

Construction contract revenue recognition

41

Provisions contingent liabilities and

contingent assets

42

IAS 37 Provisions
A provision is a liability of uncertain timing or amount

43

Probability of
occurrence

Liability

Asset

Probable

Provide*

Contingent asset
(Disclose)

Possible

Contingent liability
(Disclose)

Do Nothing

Remote

Do nothing

Do nothing

Taxation

44

IAS 12 Income taxes

Tax charge
Year end estimate

Under/over provision

X/(X)

Movement in deferred tax

X/(X)

--X
---

45

Deferred tax

46

Earnings per share

47

Basic EPS
IAS 33 aims to improve the comparison of different
entities.
Basic EPS:
Profit attributable to ordinary shareholders
Weighted average ordinary shares in issue

48

49

Diluted EPS
Diluted EPS deals with potential, future ordinary shares due to a
company holding:
-Convertibles
-Options
-Warrants

50

Statement of cash flow

51

IAS 7 Statement of cash flow

52

Chapter 1 Principles of Consolidation

53

The key principle underlying group accounts is the need to reflect

the economic substance of the relationship.
P

P is an individual legal entity

S is an individual legal entity
P controls S and therefore they form a single economic entity
the Group.
54

Summary

55

Investment

Criteria

Treatment

Subsidiary

50%
Control

Full consolidation

Associate

20 50%
Significant influence

Equity accounting

Investment

< 20%

IAS 32/39 / IFRS 7/9

treatment

Consolidated statement of financial position

56

Basic Principle

57

CSFP Workings
Working:

58

(W1)

Group structure

(W2)

Net assets

(W3)

Goodwill

(W4)

Non-controlling interests

(W5)

Group retained earnings

IFRS 3 Business Combinations

59

CSFP Implications

60

Consolidated statement of profit or loss

61

Basic principle
CSPL aim show results of the group as a single entity
Add 100% of the parent to 100% of the subsidiary
Adjust for the NCI share of profit and other comprehensive income
Mid-year acquisition

62

63

Associates

64

Associates overview
Significant influence NOT control
Significant influence
-20 50% share holding
- active management participation
Associate never consolidated but equity accounting instead

65

Equity accounting CSFP

Investment in associate
Cost of investment

Post-acquisition profits (W5)

Less impairment

(X)

Less PURP (P = seller)

(x)
X

Also:
Update W5 to include parents share of associates profit.

66

Equity accounting CSPL

Replace dividend income received from associate with:
Share of associates profit:
Parents % of Associate PAT

Less:
Impairment of goodwill

(X)

PURP (A = seller)

(X)
X

67

Interpretation of financial statements

68

Ratio categories

69

Profitability ratios

70

Liquidity and efficiency ratios

71

Long-term liquidity ratios

72

Investor ratios

73