Acca f7slides 2011

8/4/2019 Acca f7slides 2011

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ACCA F7 (INT & UK)

Course overview


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REGULATORY FRAMEWORK

Chapter 1


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Regulatory Bodies

International Financial

Reporting StandardsFoundation

InternationalAccountingStandards

Board

(IASB)

International

FinancialReporting

InterpretationCommittee

(IFRIC)

IFRSAdvisoryCouncil

(IAC)


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CONCEPTUAL FRAMEWORK

Chapter 2


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Conceptual Framework


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ACCOUNTING CONCEPTSAND POLICIES

Chapter 3


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Accounting Concepts


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IAS 8 Changes in accountingpolicies, accounting estimates &

errors

Changes in accounting policies Adjust opening balance on retained earning& restate comparative

Changes in accounting estimates Change applied in current year & disclosurenote if material

Errors Adjust opening balance on retained earning& restate comparative


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PRINCIPLES OFCONSOLIDATION

Chapter 4


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The key principle underlying group accounts is the need toreflect the economic substance of the relationship.

P is an individual legal entity

S is an individual legal entity

P controls S and therefore they form a single economic entitythe Group.

P

S


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Summary

Investment Criteria Treatment

Subsidiary > 50%Control

Full consolidation

Associate 20 50%Significant influence

Equity accounting

Investment < 20% IAS 32/39 / IFRS 7/9treatment


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CONSOLIDATED STATEMENTOF FINANCIAL POSITION

Chapter 5


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Basic Principle


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CSFP Workings

Working:

(W1) Group Structure

(W2) Net Assets

(W3) Goodwill

(W4) Non-controlling Interests

(W5) Group Reserves


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IFRS 3 Business Combinations

Goodwill valuation

Proportion of netassets method

Parent holding X

NCI fair value X

(NCI % FV NT at acq)

Less:

FV NA @acq (X)

Goodwill on acq X

Full goodwillmethod

Parent holding X

NCI fair value X

(% NCI shares x sub shareprice)

Less:

FV NA @acq (X)

Goodwill on acq X


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CSFP Implications


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CONSOLIDATED INCOMESTATEMENT

Chapter 6


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Basic Principle

The aim of the CIS is to show the results of the group for

an accounting period as if it were a single entity.

Add 100% of the parent to 100% of the subsidiary fromrevenue to PAT.

Adjust for NCI at the foot of the income statement.

Mid-year acquisition.


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ASSOCIATES

Chapter 7


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Associates Overview

An entity over which the investor has significant influence

but not control.

The associate is never consolidated but equity accountedfor instead.

Significant influence:

20 50% shareholding

active management participation.


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Equity Accounting CSFP

Investment in associate

Cost of investment XPost-acquisition profits (W5) X

Less impairment (X)

Less PURP (P = seller) (x)

X

Also:

Update W5 to include parents share of associates profit.


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Equity Accounting CIS

Replace dividend income received from associate with:

Share of associates profit:

Parents % of Associate PAT X

Less:

Impairment of goodwill (X)

PURP (A = seller) (X)

X


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TANGIBLE NON-CURRENTASSETS

Chapter 8


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IAS 16 Non-Current Assets


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IAS 20 Government Grants


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IAS 23 Borrowing Costs

Borrowing costs must be added to the cost of an asset, ifthe asset is one that takes a substantial time to get ready.

Capitalise when following conditions met:

Expenditure being incurred

Borrowing costs being incurred

Activities to get the asset ready for use are in progress


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IAS 40 Investment Property

Investment property is land or buildings held to earnrentals, capital gain or both.


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INTANGIBLE ASSETS

Chapter 9


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IAS 38 Intangible Assets

An intangible asset has a value to the business but no

physical substance.

2 TYPES

Purchased Internally Generated

Capitalised at cost Capitalise if market value exists(rare)

Exception:

Research & Development

Research = expense Development = Capitalise

(if criteria are met).


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Research & Development

Recognition criteria:

Separately identifiable project

Expenditure identifiable

Commercially viable

Technically feasible

Overall profitable

Resources available to complete


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IMPAIRMENT OF ASSETS

Chapter 10


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IAS 36 Impairment


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Indicators of Impairment


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Cash Generating Units

A CGU is the smallest identifiable group of assets which

generates cash inflows independent of those of other assets.


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REPORTING FINANCIALPERFORMANCE

Chapter 11


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LEASES

Chapter 12


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Finance Lease

A finance lease is one where substantially all the risksand rewards of ownership are transferred to the lessee.

Record NCA and finance lease liability.

Account for depreciation on NCA.

Account for finance lease depending on:

In advance

In arrears


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SUBSTANCE OVER FORM

Chapter 13


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Substance Over Form

Commercial substance should be shown in some

situations rather than the strict legal form of atransaction.

Consider:

Definition of an asset

Definition of a liability


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IAS 18 Revenue

Recognition occurs when it is probable that future

economic benefits will flow to the entity and whenthese benefits can be reliably measured.

IAS 18 covers revenue from:

Sale of goods

Provision of services

Interest, royalties & dividends


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Financial assets & liabilities

A financial instrument as defined by IAS 32 is:

any contract that gives rise to both a financial asset ofone entity and a financial liability or equity instrumentof another.


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Financial Instruments


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Compound Instruments


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Financial Assets

Initially recogniseat fair value

through progitand loss (FVTPL)

Subsequentmeasurement

Debt instruments

FVTPL Amortised cost

Equityinstruments

FVTPL FVTOCI


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INVENTORIES &CONSTRUCTION

CONTRACTS

Chapter 15


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IAS 2 Inventory


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IAS 11 Construction Contracts

A construction contract is a contract specificallynegotiated for the construction of an asset or acombination of asset for use by another entity.

A contract normally spans at least one

accounting period so revenue recognition needs tobe addressed.


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Construction Contract RevenueRecognition


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Construction Contract RevenueRecognition


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PROVISIONS, CONTINGENTLIABILITIES & CONTINGENT

ASSETS

Chapter 15


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IAS 37 Provisions

A provision is a liability of uncertain timing or amount.

Probability of

occurrenceLiability Asset

Probable Provide* Contingent asset(Disclose)

Possible Contingent liability(Disclose)

Do Nothing

Remote Do nothing Do nothing


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TAXATION

Chapter 16


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IAS 12 Taxation

Tax charge:

Year-end estimate X

Under/over provision X/(X)

Deferred tax movement X/(X)

X


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Deferred tax


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EARNINGS PER SHARE

Chapter 18


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Basic EPS

IAS 33 aims to improve the comparison of different

entities.

Basic EPS:

Profit attributable to ordinary shareholders

Weighted average no of shares in issue


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Diluted EPS

Diluted EPS deals with potential, future ordinary

shares due to a company holding:

Convertibles

Options

Warrants


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INTERPRETATION OFFINANCIAL STATEMENTS

Chapter 19


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Interpretation Ratios


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Profitability

ROCE

ROE

ASSETTURNOVER

GROSSPROFITMARGIN

OPERATINGPROFITMARGIN


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STATEMENT OF CASH FLOW

Chapter 20


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