BPP House 142-144 Uxbridge Road London W12 8AA United Kingdom T 0845 075 1100 (UK) T +44 (0)20 8740 2211 (Overseas) E Learningmedia@bpp.com bpp.com/learningmedia • A user-friendly format for easy navigation • Exam focus points describing what the examining team will want you to • Regular Fast Forward summaries emphasising the key points in each chapter • Questions and quick quizzes to test your understanding • A practice question bank containing exam- standard questions with answers • A full index • All you need in one book For exams up to June 2015 Contact us In addition to ACCA examining team reviewed material you get: Study Text Paper F7 Financial Reporting This ACCA Study Text for Paper F7 Financial Reporting has been comprehensively reviewed by the ACCA examining team This review guarantees appropriate depth and breadth of content and comprehensive syllabus coverage Financial Reporting BPP Learning Media is dedicated to supporting aspiring business professionals with top-quality learning material as they study for demanding professional exams, often whilst working full time BPP Learning Media’s commitment to student success is shown by our record of quality, innovation and market leadership in paper-based and e-learning materials BPP Learning Media’s study materials are written by professionally qualified specialists who know from personal experience the importance of top-quality materials for exam success ACCA F7 ACCA approved content provider ACCA APPROVED CONTENT PROVIDER ACCA Approved Study Text Paper F7 Financial Reporting Study Text for exams up to June 2015 Free access to our Exam Success site Look inside June 2014 £32.00 ACF7ST14 (PS).indd 1-3 27/05/2014 17:41 S T U D Y PAPER F7 FINANCIAL REPORTING BPP Learning Media an ACCA Approved Learning Partner – content This means we work closely with ACCA to ensure this Study Text contains the information you need to pass your exam In this Study Text, which has been reviewed by the ACCA examination team, we: Highlight the most important elements in the syllabus and the key skills you need Signpost how each chapter links to the syllabus and the study guide Provide lots of exam focus points demonstrating what is expected of you in the exam Emphasise key points in regular fast forward summaries Test your knowledge in quick quizzes Examine your understanding in our practice question bank Reference all the important topics in our full index BPP's Practice & Revision Kit and i-Pass products also support this paper FOR EXAMS IN DECEMBER 2014 AND JUNE 2015 T E X T First edition 2007 Seventh edition June 2014 ISBN 9781 4727 1081 (Previous ISBN 9781 4453 9649 1) All our 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 BPP Learning Media Ltd e-ISBN 9781 4453 6736 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Published by We are grateful to the Association of Chartered Certified Accountants for permission to reproduce past examination questions The suggested solutions in the practice answer bank have been prepared by BPP Learning Media Ltd, unless otherwise stated BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA www.bpp.com/learningmedia Printed in the United Kingdom by RICOH UK Limited Unit Wells Place Merstham RH1 3LG Your learning materials, published by BPP Learning Media Ltd, are printed on paper obtained from traceable sustainable sources © BPP Learning Media Ltd 2014 ii ii Contents Page Introduction Helping you to pass v Studying F7 vii The exam paper viii Syllabus and study guide ix 10 11 12 13 14 15 16 17 18 19 20 21 22 23 The conceptual framework The regulatory framework 19 Presentation of published financial statements 29 Non-current assets 55 Intangible assets 79 Impairment of assets 91 Reporting financial performance 101 Introduction to groups 117 The consolidated statement of financial position 127 The consolidated statement of profit or loss and other comprehensive income 163 Accounting for associates 175 Inventories and biological assets 189 Provisions, contingent liabilities and contingent assets 201 Financial instruments 213 Revenue 229 Leasing 263 Accounting for taxation 273 Earnings per share 291 Analysing and interpreting financial statements 305 Limitations of financial statements and interpretation techniques 331 Statements of cash flows 337 Alternative models and practices 359 Specialised, not-for-profit and public sector entities 371 Practice question bank 381 Practice answer bank 413 Index 461 Review form iii A note about copyright Dear Customer What does the little © mean and why does it matter? 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But the e-products are sold on a single user licence basis: we not supply ‘unlock’ codes to people who have bought them second-hand And what about outside the UK? BPP Learning Media strives to make our materials available at prices students can afford by local printing arrangements, pricing policies and partnerships which are clearly listed on our website A tiny minority ignore this and indulge in criminal activity by illegally photocopying our material or supporting organisations that If they act illegally and unethically in one area, can you really trust them? iv Introduction Helping you to pass BPP Learning Media As ACCA's Approved Learning Partner – content, BPP Learning Media gives you the opportunity to use study materials reviewed by the ACCA examination team By incorporating the examination team's comments and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning Media Study Text provides excellent, ACCA-approved support for your studies The PER alert Before you can qualify as an ACCA member, you not only have to pass all your exams but also fulfil a three year practical experience requirement (PER) To help you to recognise areas of the syllabus that you might be able to apply in the workplace to achieve different performance objectives, we have introduced the ‘PER alert' feature You will find this feature throughout the Study Text to remind you that what you are learning to pass your ACCA exams is equally useful to the fulfilment of the PER requirement Your achievement of the PER should now be recorded in your online My Experience record Tackling studying Studying can be a daunting prospect, particularly when you have lots of other commitments The different features of the text, the purposes of which are explained fully on the Chapter features page, will help you whilst studying and improve your chances of exam success Developing exam awareness Our Texts are completely focused on helping you pass your exam Our advice on Studying F7 outlines the content of the paper, the necessary skills you are expected to be able to demonstrate and any brought forward knowledge you are expected to have Exam focus points are included within the chapters to highlight when and how specific topics were examined, or how they might be examined in the future Using the Syllabus and Study Guide You can find the syllabus and Study Guide on pages ix – xxi of this Study Text Testing what you can Testing yourself helps you develop the skills you need to pass the exam and also confirms that you can recall what you have learnt We include Questions – lots of them – both within chapters and in the Practice Question Bank, as well as Quick Quizzes at the end of each chapter to test your knowledge of the chapter content Introduction v Chapter features Each chapter contains a number of helpful features to guide you through each topic Topic list Topic list Syllabus reference Tells you what you will be studying in this chapter and the relevant section numbers, together with ACCA syllabus references Introduction Puts the chapter content in the context of the syllabus as a whole Study Guide Links the chapter content with ACCA guidance Exam Guide Highlights how examinable the chapter content is likely to be and the ways in which it could be examined Knowledge brought forward from earlier studies What you are assumed to know from previous studies/exams FAST FORWARD Summarises the content of main chapter headings, allowing you to preview and review each section easily Examples Demonstrate how to apply key knowledge and techniques Key terms Definitions of important concepts that can often earn you easy marks in exams Exam focus points Tell you when and how specific topics were examined, or how they may be examined in the future Formula to learn Formulae that are not given in the exam but which have to be learnt This is a new feature that gives you a useful indication of syllabus areas that closely relate to performance objectives in your Practical Experience Requirement (PER) vi Introduction Question Give you essential practice of techniques covered in the chapter Case Study Provide real world examples of theories and techniques Chapter Roundup A full list of the Fast Forwards included in the chapter, providing an easy source of review Quick Quiz A quick test of your knowledge of the main topics in the chapter Practice Question Bank Found at the back of the Study Text with more comprehensive chapter questions Cross referenced for easy navigation Studying F7 F7 is a demanding paper covering all the fundamentals of financial reporting It has five main sections: The conceptual framework of accounting The regulatory framework Preparation of financial statements which conform with IFRS Preparation of consolidated financial statements Analysis and interpretation of financial statements All of these areas will be tested to some degree at each sitting Sections and are the main areas of application and you must expect to have to produce consolidated and single company financial statements in your exam Some of this material you will have covered at lower level papers You should already be familiar with accounting for inventories and non-current assets and preparing simple statements of profit or loss, statements of financial position and statements of cash flows You should know the basic ratios F7 takes your financial reporting knowledge and skills up to the next level New topics are consolidated financial statements, construction contracts, biological assets, financial instruments and leases There is also coverage of the substance of transactions and the limitations of financial statements and ratios The examiner wants you to think about these issues If you had exemptions from lower level papers or feel that your knowledge of lower level financial reporting is not good enough, you may want to get a copy of the study text for FFA Financial Accounting and read through it, or at least have it to refer to You have a lot of new material to learn for F7 and basic financial accounting will be assumed knowledge The way to pass F7 is by practising lots of exam-level questions, which you will when you get onto revision Only by practising questions you get a feel for what you will have to in the exam Also, topics which you find hard to understand in the text will be much easier to grasp when you have encountered them in a few questions So don't get bogged down in any area of the text Just keep going and a lot of things you find difficult will make more sense when you see how they appear in an exam question Introduction vii The exam paper The exam is a three hour paper with twenty MCQs and three written questions All questions are compulsory Format of the paper Question - MCQs Question Question Question Marks 40 15 15 30 100 Question will be 20 two-mark questions covering all areas of the syllabus Questions 2–4 will be on preparation of financial statements – single entity, consolidated and statements of cash flows – interpretation of financial statements and other issues applying IFRS Question will feature the preparation of financial statements for either a single entity or a group viii Introduction Syllabus and Study Guide The F7 syllabus and study guides can be found below Financial Reporting (F7) December 2014 to June 2015 This syllabus and study guide is designed to help with planning study and to provide detailed information on what could be assessed in any examination session THE STRUCTURE OF THE SYLLABUS AND STUDY GUIDE Relational diagram of paper with other papers This diagram shows direct and indirect links between this paper and other papers preceding or following it Some papers are directly underpinned by other papers such as Advanced Performance Management by Performance Management These links are shown as solid line arrows Other papers only have indirect relationships with each other such as links existing between the accounting and auditing papers The links between these are shown as dotted line arrows This diagram indicates where you are expected to have underpinning knowledge and where it would be useful to review previous learning before undertaking study Overall aim of the syllabus This explains briefly the overall objective of the paper and indicates in the broadest sense the capabilities to be developed within the paper Main capabilities This paper's aim is broken down into several main capabilities which divide the syllabus and study guide into discrete sections Relational diagram of the main capabilities This diagram illustrates the flows and links between the main capabilities (sections) of the syllabus and should be used as an aid to planning teaching and learning in a structured way Syllabus rationale This is a narrative explaining how the syllabus is structured and how the main capabilities are linked The rationale also explains in further detail what the examination intends to assess and why Detailed syllabus This shows the breakdown of the main capabilities (sections) of the syllabus into subject areas This is the blueprint for the detailed study guide Approach to examining the syllabus This section briefly explains the structure of the examination and how it is assessed Study Guide This is the main document that students, learning and content providers should use as the basis of their studies, instruction and materials Examinations will be based on the detail of the study guide which comprehensively identifies what could be assessed in any examination session The study guide is a precise reflection and breakdown of the syllabus It is divided into sections based on the main capabilities identified in the syllabus These sections are divided into subject areas which relate to the sub-capabilities included in the detailed syllabus Subject areas are broken down into sub-headings which describe the detailed outcomes that could be assessed in examinations These outcomes are described using verbs indicating what exams may require students to demonstrate, and the broad intellectual level at which these may need to be demonstrated (*see intellectual levels below) INTELLECTUAL LEVELS The syllabus is designed to progressively broaden and deepen the knowledge, skills and professional values demonstrated by the student on their way through the qualification The specific capabilities within the detailed syllabuses and study guides are assessed at one of three intellectual or cognitive levels: Level 1: Knowledge and comprehension Level 2: Application and analysis Level 3: Synthesis and evaluation Very broadly, these intellectual levels relate to the three cognitive levels at which the © ACCA 2014 All rights reserved Introduction ix Notes Notes Notes Notes Notes Notes Notes Notes Notes Notes Notes Notes Notes Review Form– Paper F7 Financial Reporting (6/14) Please help us to ensure that the ACCA learning materials we produce remain as accurate and user-friendly as possible We cannot promise to answer every submission we receive, but we promise that it will be read and taken into account when we update this Study Text Name: Address: During the past six 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Yes No On the reverse of this page is space for you to write your comments about our Study Text We welcome your feedback The BPP Learning Media Range Manager of this edition can be e-mailed at: pippariley@bpp.com Please return this form to: Pippa Riley, ACCA Publishing Manager, BPP Learning Media, FREEPOST, London, W12 8AA TELL US WHAT YOU THINK Please note any further comments and suggestions/errors below For example, was the text accurate, readable, concise, user-friendly and comprehensive? [...]... CHANGES TO F7 RATIONALE FOR CHANGES ACCA periodically reviews its qualification syllabuses so that they fully meet the needs of stakeholders such as employers, students, regulatory and advisory bodies and learning providers Note of significant changes to study guide Paper F7 The main areas to be added or deleted from the syllabus from that date are shown in Table 1 and 2 below: Table 1 – Additions to F7 B4(b)... The principles of IAS 41 Agriculture have been introduced to the F7 syllabus Table 2 – Deletions to F7 There have been some minor deletions to the study guide for the exam year commencing 1 September 2014 These have been made to remove outcomes that overlap with others within F7 or with outcomes fully examined in paper F3 Ref in prior year study guide A1c) Indicate the circumstances and required disclosures... pass mark for all ACCA Qualification examination papers is 50% GUIDE TO EXAMINATION ASSESSMENT ACCA reserves the right to examine anything contained within the study guide at any examination session This includes knowledge, techniques, principles, theories, and concepts as specified For the financial accounting, audit and assurance, law and tax papers except where indicated otherwise, ACCA will publish... an entity transactions and business practices The study guide offers more detailed guidance on the depth and level at which the examinable documents will be examined The study guide should therefore be read in conjunction with the examinable documents list © ACCA 2014 All rights reserved Introduction xi Syllabus MAIN CAPABILITIES CR (P2) CL (F4) FR (F7) BA (P3) AA (F8) FA (F3) On successful completion... reflects that at each stage of study there will be a requirement to broaden, as well as deepen capabilities It is also possible that occasionally some higher level capabilities may be assessed at lower levels LEARNING HOURS AND EDUCATION RECOGNITION The ACCA qualification does not prescribe or recommend any particular number of learning hours for examinations because study and learning patterns and... personal, professional and educational circumstances in which ACCA students find themselves As a member of the International Federation of Accountants, ACCA seeks to enhance the education recognition of its qualification on both national and international education frameworks, and with educational authorities and partners globally In doing so, ACCA aims to ensure that its qualifications are recognized... of the need for specified accounting standards and why they have been issued For detailed or complex standards, candidates need to be aware of their principles and key elements © ACCA 2014 All rights reserved Introduction xv Study Guide 3 Specialised, not-for-profit and public sector entities A THE CONCEPTUAL AND REGULATORY FRAMEWORK FOR FINANCIAL REPORTING a) Distinguish between the primary aims of... STRUCTURE The structure of examinations varies within and between modules and levels The Fundamentals level examinations contain 100% compulsory questions to encourage candidates to study across the breadth of each syllabus © ACCA 2014 All rights reserved x Introduction The Knowledge module is assessed by equivalent two-hour paper based and computer based examinations The Skills module examinations F5–F9... stakeholders' needs 3 Limitations of interpretation techniques © ACCA 2014 All rights reserved xiv Introduction APPROACH TO EXAMINING THE SYLLABUS The syllabus is assessed by a three-hour paperbased examination All questions are compulsory It will contain both computational and discursive elements Some questions will adopt a scenario/case study approach Section A of the exam comprises 20 multiple choice... Framework as Chapter 4 4 1: The conceptual framework F7 Financial reporting The Conceptual Framework for Financial Reporting is currently as follows Chapter 1: The objective of general purpose financial reporting Chapter 2: The reporting entity (to be issued) Chapter 3: Qualitative characteristics of useful financial information Chapter 4: Remaining text of the 1989 Framework: Underlying assumption ... Syllabus and Study Guide The F7 syllabus and study guides can be found below Financial Reporting (F7) December 2014 to June 2015 This syllabus and study guide is designed to help with planning study. ..S T U D Y PAPER F7 FINANCIAL REPORTING BPP Learning Media an ACCA Approved Learning Partner – content This means we work closely with ACCA to ensure this Study Text contains the information... breadth of syllabus coverage, the BPP Learning Media Study Text provides excellent, ACCA- approved support for your studies The PER alert Before you can qualify as an ACCA member, you not only have