FINANCIAL REPORTING INTERNATIONAL Paper F7 OpenTuition Course Notes can be downloaded FREE from www.OpenTuition.com Copyright belongs to OpenTuition.com - please do not support piracy by downloading from other websites. Visit opentuition.com for the latest updates, watch free video lectures and get free tutors’ support on the forums ACCA QuAlifiCAtion Course notes December 2013 examinations For the latest free course notes, free lectures and forum support please visit opentuition.com/acca The besT Things in life are free FREE ACCA RESOURCES BY PAPER (free course notes / lectures / revision lectures / tests / ashcards and more - on line on http://opentuition.com/acca/) F1 Accountant in Business / FAB Foundations in Accountancy F2 Management Accounting / FMA Foundations in Accountancy F3 Financial Accounting / FFA Foundations in Accountancy F4 Corporate & Business Law (English & Global) 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 P7 Advanced Audit & Assurance To fully benefit from these notes do not forget to watch free ACCA Lectures on OpenTuition.com website Paper F7 December 2013 Examinations 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 57 10 Preparation of the Consolidated Statement of Prot or Loss and Other Comprehensive Income 59 11 Accounting for Investments in Associates (IFRS3 Revised) 65 12 IAS 2 Inventories 69 13 IAS 11 Construction Contracts 71 14 IAS 36 Impairment of Assets 79 15 IAS 37 Provisions, Contingent Liabilities and Contingent Assets 83 16 IAS 17 Leases 89 17 IAS 23 Borrowing Costs 97 18 IAS 12 Income Taxes 99 19 IAS 7 (Revised): Statements of Cash Flows 105 20 Interpretation of Accounts – Ratio Analysis 115 21 IAS 33 Earnings Per Share 121 22 Theoretical matters 129 23 IAS 16 Property, Plant and Equipment 133 24 IAS 18 Revenue 135 25 IAS 20 Government Grants 137 26 IAS 38 Intangible Assets 139 27 IAS 40 Investment Properties 141 28 IFRS 9 Financial Instruments 143 Answers to Examples 149 Mini Exercises – Questions 189 Mini Exercises – Answers 203 Practice Questions 217 Practice Answers 229 OpenTuition Course Notes can be downloaded FREE from www.OpenTuition.com Copyright belongs to OpenTuition.com - please do not support piracy by downloading from other websites. Visit opentuition.com for the latest updates, watch free video lectures and get free tutors’ support on the forums Paper F7 December 2013 Examinations 1 Paper F7 Free lectures available for Paper F7 - click here Chapter 1 FINANCIAL REPORTING  BASIC CONCEPTS Underlying assumptions • accruals • going concern • consistency • materiality • o-setting Ex amplE 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 ve concepts aect the way Laima should treat the cost of $1 million? Chapter 1 Paper F7 Financial Reporting – basic concepts December 2013 Examinations 2 Advantages and disadvantages of standardisation of accounting practices • provide a focal point for debate • require disclosure of policies adopted • encourage global discussion • exible • 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 dened 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 nancial accounting and nancial statements” • generally accepted accounting practice ( gaap ) • a combination of: • each country’s own law • international nancial reporting standards • stock exchange requirements • but gaap does not have any statutory authority • changes and evolves with changing circumstances 3Chapter 1 Paper F7 Financial Reporting – basic concepts December 2013 Examinations The framework • provides a set of principles • purpose dened 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 nancial statements • auditors in forming audit opinions • users in their interpretation of nancial statements Framework contents • objectives of nancial statements • underlying assumptions ( accruals and going concern ) • qualitative characteristics ( see next ) • elements of nancial 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 dene any standard for measurement or disclosure of any particular issue Chapter 1 Paper F7 Financial Reporting – basic concepts December 2013 Examinations 4 Framework – qualitative characteristics • understandable D12 • comparable pilot, J08, D12 • relevant pilot • faithful representation D07 • complete • material J08 • substance over form J08, J10 • reliable pilot, D07 • neutral • prudent J08 (you can remember framework contents. Mike says remember nine principles!) 5 Paper F7 Free lectures available for Paper F7 - click here Chapter 2 THE REGULATORY FRAMEWORK 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 Approx: 40 members IFRS INTERPRETATIONS COMMITTEE 14 members Working Groups For Major Agenda Projects Appoints Reports to Advises Key • standard setting process Statement of principles Exposure draft ¾ Board approval IFRS Consultative group Steering committee Board Steering committee (views) (discuss) (accept) Comments from 3 rd parties (issued) (issued) Chapter 2 Paper F7 The regulatory framework December 2013 Examinations 6 IFAC • international federation of accountants • mission: The mission of IFAC is “the development and enhancement of the profession to enable it to provide services of consistently high quality in the public interest” • it is a non-prot, non-governmental and non-political international organisation of accountancy bodies. • over 3 million members world-wide • one representative from each member body on the assembly • the assembly elects a council for two terms of 6 months • council supervises the IFAC work programme • work programme includes technical sub-committees on • international audit practices • ethics • education and training • nancial accounting • management accounting [...]... during the period ) 7 8 Chapter 2 The regulatory framework Paper F7 December 2013 Examinations  Paper F7 Chapter 3 Free lectures available for Paper F7 - click here Published Financial Statements • proforma financial statements following IAS1 (revised) XYZ GROUP Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December, 2009 (classification of expenses by function) 2009... . the period ) Chapter 2 Paper F7 The regulatory framework December 2013 Examinations 8 9 Paper F7 Free lectures available for Paper F7 - click here Chapter. from these notes do not forget to watch free ACCA Lectures on OpenTuition. com website Paper F7 December 2013 Examinations Contents 1 Financial Reporting