ACCA F7 (INT & UK)

Course overview
Chapter 1

REGULATORY FRAMEWORK
 Regulatory Bodies

International Financial
Reporting Standards
Foundation

International
International Financial IFRS
Accounting Reporting Advisory
Standards Interpretation Council
Board Committee (IAC)
(IASB) (IFRIC)
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.

• 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% Full consolidation

Control

Associate 20 – 50% Equity accounting

Significant influence

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 Full goodwill

assets method method

Parent holding X Parent holding X

NCI fair value X NCI fair value X
(NCI % FV NT at acq) (% NCI shares x sub share
price)
Less:
Less:
FV NA @acq (X)
FV NA @acq (X)
Goodwill on 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 X
Post-acquisition profits (W5) X
Less impairment (X)
Less PURP (P = seller) (x)
X

Also:

Update W5 to include parent’s share of associates profit.

 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
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.

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).
 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
Debt instruments
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 Liability Asset

occurrence
Probable Provide* Contingent asset
(Disclose)

Possible Contingent liability Do Nothing

(Disclose)

Remote Do nothing Do nothing

Chapter 16

TAXATION
 IAS 12 Taxation

Tax charge:

Year-end estimate X

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 ROE
MARGIN

Profitability

GROSS
ASSET
PROFIT
TURNOVER
MARGIN
Chapter 20

STATEMENT OF CASH FLOW