ACCA F7 (INT & UK)

Course overview

Chapter 1

REGULATORY FRAMEWORK

Regulatory Bodies
International Financial
Reporting Standards
Foundation

International
Accounting
Standards
Board
(IASB)

International
Financial
Reporting
Interpretation
Committee
(IFRIC)

IFRS
Advisory
Council
(IAC)

Chapter 2

CONCEPTUAL FRAMEWORK

Conceptual Framework

Chapter 3

ACCOUNTING CONCEPTS
AND POLICIES

Accounting Concepts

IAS 8 Changes in accounting

policies, accounting estimates &
errors
Changes in accounting policies

Adjust opening balance on retained earnings

& restate comparative

Changes in accounting estimates

Change applied in current year & disclosure

note if material

Errors

Adjust opening balance on retained earnings

& restate comparative

Chapter 4

PRINCIPLES OF
CONSOLIDATION

The key principle underlying group accounts is the need to

reflect the economic substance of the relationship.

S
P is an individual legal entity
S is an individual legal entity
P controls S and therefore they form a single economic entity
the Group.

Summary
Investment

Criteria

Treatment

Subsidiary

> 50%
Control

Full consolidation

Associate

20 50%
Significant influence

Equity accounting

Investment

< 20%

IAS 32/39 / IFRS 7/9

treatment

Chapter 5

CONSOLIDATED STATEMENT
OF FINANCIAL POSITION

Basic Principle

CSFP Workings
Working:
(W1)

Group Structure

(W2)

Net Assets

(W3)

Goodwill

(W4)

Non-controlling Interests

(W5)

Group Reserves

IFRS 3 Business Combinations

Goodwill valuation

Proportion of net
assets method

Parent holding
X
NCI fair value
X
(NCI % FV NT at acq)
Less:
FV NA @acq
(X)
Goodwill on acq
X

Full goodwill
method

Parent holding
X
NCI fair value
X
(% NCI shares x sub share
price)
Less:
FV NA @acq
(X)
Goodwill on acq
X

CSFP Implications

Chapter 6

CONSOLIDATED INCOME
STATEMENT

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 from
revenue to PAT.
Adjust for NCI at the foot of the income statement.
Mid-year acquisition.

Chapter 7

ASSOCIATES

Associates Overview
An entity over which the investor has significant influence
but not control.
Significant influence:
20 50% shareholding
active management participation.

The associate is never consolidated but equity accounted

for instead.

Equity Accounting CSFP

Investment in associate
Cost of investment

Post-acquisition profits (W5)

Less impairment

(X)

Less PURP (P = seller)

(x)
X

Also:
Update W5 to include parents share of associates profit.

Equity Accounting CIS

Replace dividend income received from associate with:
Share of associates profit:

Parents % of Associate PAT

Less:
Impairment of goodwill

(X)

PURP (A = seller)

(X)
X

Chapter 8

TANGIBLE NON-CURRENT
ASSETS

IAS 16 Non-Current Assets

IAS 20 Government Grants

IAS 23 Borrowing Costs

Borrowing costs must be added to the cost of an asset, if
the 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

IAS 40 Investment Property

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

Chapter 9

INTANGIBLE ASSETS

IAS 38 Intangible Assets

An intangible asset has a value to the business but no
physical substance.

Purchased
Capitalised at cost

2 TYPES
Internally Generated
Capitalise if market value exists
(rare)
Exception:
Research & Development

Research
= expense
Development = Capitalise
(if criteria are met).

Research & Development

Recognition criteria:
Separately identifiable project
Expenditure identifiable

Commercially viable
Technically feasible
Overall profitable
Resources available to complete

Chapter 10

IMPAIRMENT OF ASSETS

IAS 36 Impairment

Indicators of Impairment

Cash Generating Units

A CGU is the smallest identifiable group of assets which
generates cash inflows independent of those of other assets.

Chapter 11

REPORTING FINANCIAL
PERFORMANCE

Chapter 12

LEASES

Finance Lease
A finance lease is one where substantially all the risks
and 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

Chapter 13

SUBSTANCE OVER FORM

Substance Over Form

Commercial substance should be shown in some
situations rather than the strict legal form of a
transaction.

Consider:

Definition of an asset

Definition of a liability

IAS 18 Revenue
Recognition occurs when it is probable that future
economic benefits will flow to the entity and when
these benefits can be reliably measured.
IAS 18 covers revenue from:
Sale of goods

Provision of services
Interest, royalties & dividends

Chapter 14

FINANCIAL ASSETS &

FINANCIAL LIABILITIES

Financial assets & liabilities

A financial instrument as defined by IAS 32 is:

any contract that gives rise to both a financial asset of
one entity and a financial liability or equity instrument
of another.

Financial Instruments

Compound Instruments

Financial Assets
Initially recognise
at fair value
through progit
and loss (FVTPL)

Subsequent
measurement

Equity
instruments

Debt instruments

FVTPL

Amortised cost

FVTPL

FVTOCI

Chapter 15

INVENTORIES &
CONSTRUCTION
CONTRACTS

IAS 2 Inventory

IAS 11 Construction Contracts

A construction contract is a contract specifically

negotiated for the construction of an asset or a
combination of asset for use by another entity.
A contract normally spans at least one
accounting period so revenue recognition needs to
be addressed.

Construction Contract Revenue

Recognition

Construction Contract Revenue

Recognition

Chapter 15

PROVISIONS, CONTINGENT
LIABILITIES & CONTINGENT
ASSETS

IAS 37 Provisions
A provision is a liability of uncertain timing or amount.
Probability of
occurrence

Liability

Asset

Probable

Provide*

Contingent asset
(Disclose)

Possible

Contingent liability
(Disclose)

Do Nothing

Remote

Do nothing

Do nothing

Chapter 16

TAXATION

IAS 12 Taxation
Tax charge:

Year-end estimate

Under/over provision

X/(X)

Deferred tax movement

X/(X)
X

Deferred tax

Chapter 18

EARNINGS PER SHARE

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

Diluted EPS
Diluted EPS deals with potential, future ordinary
shares due to a company holding:
Convertibles
Options
Warrants

Chapter 19

INTERPRETATION OF
FINANCIAL STATEMENTS

Interpretation Ratios

ROCE

OPERATING
PROFIT
MARGIN

ROE
Profitability

GROSS
PROFIT
MARGIN

ASSET
TURNOVER

Chapter 20

STATEMENT OF CASH FLOW