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ACCA Revision
Session:
F7 Financial
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Reporting
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(Day 2)
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Hamza Abdul Haq
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14th Nov 2017
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Overall
Days Course
AgendaPlan
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Day 1 Accounting Standards
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Tangible non-current assets (IAS 16, IAS 40, IAS 23)
Financial instruments (IFRS 9)
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Taxation (IAS 12)
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Revenue (IFRS 15)
Accounting Standards
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Day 2
Leasing (IFRS 16)
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Intangible assets (IAS 38)
Impairment of assets (IAS 36)
Non-current assets held for sale (IFRS 5)
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Government grants (IAS 20)
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Final Accounts (Triage)
Day 3 Final Accounts (Xtol, Downing)
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Day 4
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Consolidation (Dargent, Laurel)
Day 5
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Ratios (Funject, Landing)
Day 6 Mock Debrief
©ACCA
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Leases
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Leases
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Accounting
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Lease
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Year 0
Dr. Right to use
Cr. Lease liability
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Low value asset
Short term lease (< 1 year)
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Cr. Bank
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Accounting
Year 1 Rentals are recorded as an
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Dr. Finance cost expense on straight line basis.
Cr. Lease liability
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𝑇𝑜𝑡𝑎𝑙 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠
𝐸𝑥𝑝𝑒𝑛𝑠𝑒 = 𝐿𝑒𝑎𝑠𝑒 𝑡𝑒𝑟𝑚
Dr. Lease liability
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Cr. Bank
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Example 1 – Rentals in arrears
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An entity acquired a plant on lease for 4 years on 1st January 2010 with an annual
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lease rentals of $12m payable at the end of each year. Implicit rate in the lease
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was 10%. The present value of minimum lease payments was $38m.
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Repayment c/d
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Example 2 – Rentals in Advance
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An entity acquired a plant on lease for 4 years on 1st January 2010 with an annual
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lease rentals of $12m payable at the end of each year. Implicit rate in the lease
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was 10%. The present value of minimum lease payments was $38m.
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Repayment c/d
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Sale and Leaseback
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Dr. Bank
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Dr. Right to use
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Cr. Asset
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Cr. Lease Liability
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Cr. PnL (Bal. Fig.)
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𝐿𝑒𝑎𝑠𝑒 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦
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% Retained =
𝐹𝑎𝑖𝑟 𝑣𝑎𝑙𝑢𝑒
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Example 3 – Sale and leaseback
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An entity sold a plant with a carrying amount of $80m at its fair value of $100m.
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The plant had a remaining life of 10 years. On the same date the plant was leased
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back for the next 6 years with an annual rental of 12m payable in arrears. The rate
implicit in the lease is 10%.
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IAS 38
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Intangible assets
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Purchased Intangible Asset
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Intangible Asset
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Purchased
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Criteria’s
Cost can be measured reliably
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It is probable that economic benefit
associated with the asset will flow to
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the entity.
The above criteria’s are by default met
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and every purchased intangible asset is
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always capitalised
In case of any uncertainty impairment
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testing will be done.
Research Purchased is also capitalised.
©ACCA
Internally Developed Intangible Asset
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Internal
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Development
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Research Development
A b Criteria’s
Technically feasible
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Third Party Research (IFRS 15) Commercially viable
Intension & Ability to complete the
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asset either for use or to sell.
Reinstatement is not allowed
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If the development cost cannot be
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separately identified, it is expensed out.
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Amortisation & Impairment
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Life
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Finite
d u Indefinite
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Impairment test at each year end.
Reassess the life at each year end if the
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life change from indefinite to finite, it will
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treated prospectively ass a change in
accounting estimate under IAS 8.
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IAS 38
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Title of presentation - enter in the Header & Footer field ©ACCA
IAS 36 –
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Impairment of
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Assets
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Calculating Impairment
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Impairment = Carrying amount – Recoverable amount
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Recoverable amount is the higher of
Fair value less cost to sell and
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Value in use (Present value of all future cash flows)
Impairment loss shall be recognised in R.R (if any) with
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excess taken profit and loss
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Indications of Impairment
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Indications of
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Impairment
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Internal indications External Indications
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Development of intention to sale Technological advancements
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Assets to be impairment tested Annually
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1. Goodwill under Business Combination (IFRS 3)
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2. Intangible asset with indefinite useful lives
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3. Intangible asset under development
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Cash Generating Unit
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A cash generating unit is the smallest identifiable group of assets for
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which individual cash flows can be identified and measured.
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Assets which cannot be tested for impairment individually are tested
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for impairment by considering them as a part of Cash Generating Unit
Loss in a cash generating unit is allocated in the following sequence:
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Goodwill
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Obviously impaired asset
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Pro-rate amongst the remaining assets that fall under the scope of
IAS 36.
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IAS 36
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IFRS 5
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NCA Held for
sale &
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Discontinued
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operations
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Criteria’s
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Management is committed to a plan to sell the asset.
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An active program to locate a buyer exists
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Reasonable price is quoted
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Asset is immediately available for sale
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It is probable that the asset will be sold within 12 months
Management actions should not suggest that the plan will either be
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changed or be withdrawn.
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Accounting
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NCA to CA
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No depreciation will be charged
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Asset is carried at lower of
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Carrying amount before impairment
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Fair value less cost to sell
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IFRS 5
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Title of presentation - enter in the Header & Footer field ©ACCA
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IAS 20
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Government
grants
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Types of Government Grant
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Types of
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Government Grants
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Capital Grant Revenue Grant
Deferred Income
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Netting Off
Treated as other income
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Yr 0 Yr 0
Dr. Asset
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Dr. Asset
Cr. Bank Cr. Bank
Cr. Government Grant
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Yr 1
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Yr 1 Dr. Depreciation Exp.
Dr. Depreciation Exp. Cr. Asset
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Cr. Asset
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Past paper Question
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Triage - Sept 2016
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Questions or comments?
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Thank you
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