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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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