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ACCA F7 Financial reporting [INT]

Sample Study Note

For exams in DEC2014


Lesco Group Limited, April 2015
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording or otherwise, without the prior written
permission of Lesco Group Limited.

Sample Note Content:

Main study note content [Total Pages: 210] ...................................................... 4
Product Summary .............................................. Error! Bookmark not defined.
Live online note sample plan ............................... Error! Bookmark not defined.
Live online course timetable: ............................... Error! Bookmark not defined.
IAS 8 Accounting policies, changes in accounting ............................................... 8
estimates and errors ...................................................................................... 8

Please note:
This is just the sample study note extracted from the main study note in your tuition study
[This tuition study note is consistent in basic/super/gold package]. There would be more
chapters in the main study note covering the whole ACCA syllabus.
You can also take a look at the content within the main study note below:

Main study note content [Total Pages: 210]


Product Summary


Live online course timetable

Timetable: [Super+Gold package-additional revision would
be agreed between tutor and student]
Live Online Revision
Live revision1 Live revision2
F5 Performance management 25
Oct 7:00a.m.-14:00 22
Nov 6:00a.m.-13:00
F7 Financial Reporting (INT) 2
Nov 6:00a.m.-13:00 29
Nov 6:00a.m.-13:00
F8 Audit and Assurance (INT) 18
Oct 7:00a.m.-14:00 19
Oct 7:00a.m.-14:00
F9 Financial Management 4
Oct 7:00a.m.-14:00 5
Oct 7:00a.m.-14:00
P1 Governance, Risk and
Nov 6:00a.m.-13:00 30
Nov 6:00a.m.-13:00
P2 Corporate Reporting (INT) 26
Oct 7:00a.m.-14:00 9
Nov 6:00a.m.-13:00
P3 Business Analysis 11
Oct 7:00a.m.-14:00 12
Oct 7:00a.m.-14:00
P4 Advanced Financial
Nov 6:00a.m.-13:00 23
Nov 6:00a.m.-13:00
P5 Advanced Performance
Nov 6:00a.m.-13:00 16
Nov 6:00a.m.-13:00
P7 Advanced Audit and
Assurance (INT)
Sept 7:00a.m.-14:00 28
Sept 7:00a.m.-14:00

Last minute revision
Last minute revision Tutor
F5 Performance management 28
Nov 12:00-14:00 Ian
F7 Financial Reporting (INT) 1
Dec 12:00-14:00 Steve
F8 Audit and Assurance (INT) 22
Nov 14:30-16:30 Alan
F9 Financial Management 22
Oct 12:00-14:00 Steve
P1 Governance, Risk and Ethics 30
Nov 13:30-15:30 Alan
P2 Corporate Reporting (INT) 16
Nov 14:00-18:00(4hrs) Kieran
P3 Business Analysis 18
Oct 14:30-16:30 Alan
P4 Advanced Financial Management 19
Nov 12:00-14:00 Steve
P5 Advanced Performance management 21st Nov 12:00-14:00 Ian Janes
P7 Advanced Audit and Assurance (INT) 23
Nov 13:30-15:30 Alan

*Please Note: This Timetable may be subjected to future changes.
Kindly check regularly for any possible updates.

IAS 8 Accounting policies, changes in accounting
estimates and errors

If the company is going to use another accounting policy this year and find an error
relating to last years account then the company should adjust for this year and last
years financial statements.(retrospective adjusting)

if the company is going to use another accounting estimate this year and the
company should adjust for current year financial statements and future
one.(prospective adjusting)

But how to determine whether this is a change in accounting policy or estimate?
Well, if theres a change in
Measurement basis of the figure, eg, value the inventory using FIFO but now use
weighted average method; use replacement cost rather than historic cost.
Recognition basis of the figure, eg, recognize as an expense before but now for
asset(eg,IAS 23 borrowing costs)
Presentation basis of the figure, eg, recognize the depreciation expense into cost
of sales now rather than in administrative expenses before.

You are going to change in the accounting policy only if:
1, a change in laws / accounting standards and you are required to do so;
2, gives a fairer presentation to the users of FS.

And anything that is not changing the measurement, recognition or presentation of
figures are deemed to be a change in accounting estimate such as:
Allowance for receivables;
Useful life/ depreciation method of the non-current assets;
Warranty provision relating to return of goods from customers.

An error may happen if theres a
Misuse of the accounting standard last year;
Fraud happended last year;
Omit some figures in last years account.
Accounting Summary:

Changes in accounting policy this year:
Assume it happens in last year as well and of course this year happens;
Adjust for last year closing retained earnings taken into account in the changes to
be brought forward in this years statement of changes in equity.

Material prior period errors found:
Correct last years material errors;
Adjust for last year closing retained earnings taken into account in the error effect
to be brought forward in this years statement of changes in equity.

Changes in accounting estimate:
Use the new one to continue the calculation.

Q Account Ltd (accounting policy and accounting estimate)

1, Account Ltd charged interest expenses incurred from the construction of tangible
non-current assets to the income statement before but now it capitalizes the
interest as an addition to the cost of tangible non-current asset as per IAS 23
borrowing costs.

2, Account Ltd depreciate the machine using the reducing balance basis method at
30% but now it use the new depreciation method over 10 years.

3, Account Ltd shows overhead expenses within cost of sales before but now it
shows under administrative expense.

4, Account Ltd has previously measured invenroty at weighted average cost but
now it uses FIFO method.

Whether the above transactions are a change in accounting policy or accounting

Q Martin Construction (change in accounting policy)
Martin Construction incurs significant finance costs on its financing for the construction of
supermarkets. Its chosen accounting policy to date has been expense the finance costs as
incurred. The final accounts for the year ended 31 December 2012, and the 2013 draft
accounts, reflect this policy and show the following.

2013 2012
$000 $000
Profit before interest and tax 8,700 6,200
Finance costs (2,500) (1,750)
Profit before tax 6,200 4,450
Income tax expense (1,900) (1,400)
Profit after tax 4,300 3,050

Retained earnings B/F: 26,050 23,000

The directors of Martin Construction have now decided to change the accounting policy in
2013 to 11apitalization of finance costs per IAS23. Martin Construction incurs no finance
costs other than those related to the construction of the supermarkets.

Martin Construction paid a dividend of $1m during the year ended 31 December 2013.

Show how the change in accounting policy will be reflected in the income
statement and statement of changes in equity for the year ended 31 December


Q JJK (prior period errors)
During the year 2013 JJK Ltd discovered certain items that had been included in
inventory at 31 DEC 2012 at a value of $2.5m but they had been in fact sold before
the year end.

The income statement below for JJK for 2012 and 2013 are as follows:
2013 2012
Sales 52,100 48,300
Cost of sales (33,500) (30,200)
Gross profit 18,600 18,100
Tax expense (4,600) (4,300)
Profit after tax 14,000 13,800

The retained earnings at 1 Jan 2012 were $11.2million.

Show the 2013 income statement with comparative figures and the retained
earnings for each year.


Q Giant (changes in accounting estimate)

Giant Ltd has an asset which was purchased for $80,000 on 1 January 2005 when
its useful life was estimated to be ten years with a residual value of $10,000. A
straight line depreciation policy was selected. On 1 January 2011 the directors
reviewed the useful life of the asset and found that it had a remaining life of eight

Calculate the NBV as at 31 December 2011?