Download Free Acca,Ca Materials from www.accoutancywalls.com S T U D Y PAPER F7 FINANCIAL REPORTING BPP Learning Media is an ACCA Approved Content Provider 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 product also supports this paper FOR EXAMS IN SEPTEMBER 2017, DECEMBER 2017, MARCH 2018 AND JUNE 2018 Download Free Acca,Ca Materials from www.accoutancywalls.com T E X T Download Free Acca,Ca Materials from www.accoutancywalls.com First edition 2007 Tenth edition January 2017 A note about copyright ISBN 9781 5097 0853 (Previous ISBN 9781 4727 4424 1) Dear Customer e-ISBN 9781 5097 0983 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library What does the little © mean and why does it matter? 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Learning Media Ltd 2017 ii ii Download Free Acca,Ca Materials from www.accoutancywalls.com Download Free Acca,Ca Materials from www.accoutancywalls.com Contents Page Introduction Helping you to pass v Studying F7 vii The exam paper viii 10 11 12 13 14 15 16 17 18 19 20 21 22 23 The conceptual framework The regulatory framework 19 Tangible non-current assets 31 Intangible assets 57 Impairment of assets 71 Revenue 83 Introduction to groups 109 The consolidated statement of financial position 119 The consolidated statement of profit or loss and other comprehensive income 155 Accounting for associates 173 Financial instruments 187 Leasing 207 Provisions and events after the reporting period 221 Inventories and biological assets 237 Taxation 251 Presentation of published financial statements 271 Reporting financial performance 297 Earnings per share 317 Calculation and interpretation of accounting ratios and trends 333 Limitations of financial statements and interpretation techniques 365 Statements of cash flows 373 Accounting for inflation 395 Specialised, not-for-profit and public sector entities 407 Practice question bank 417 Practice answer bank 453 Bibliography 505 Index 509 Review form Contents Download Free Acca,Ca Materials from www.accoutancywalls.com iii Download Free Acca,Ca Materials from www.accoutancywalls.com iv Introduction Download Free Acca,Ca Materials from www.accoutancywalls.com Download Free Acca,Ca Materials from www.accoutancywalls.com Helping you to pass BPP Learning Media – ACCA Approved Content Provider As an ACCA Approved Content Provider, 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 Study 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 Study 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 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 Download Free Acca,Ca Materials from www.accoutancywalls.com v Download Free Acca,Ca Materials from www.accoutancywalls.com 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 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 Gives you a useful indication of syllabus areas that closely relate to performance objectives in your Practical Experience Requirement (PER) Question vi Give you essential practice of techniques covered in the chapter 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 Introduction Download Free Acca,Ca Materials from www.accoutancywalls.com Download Free Acca,Ca Materials from www.accoutancywalls.com 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, long-term contracts, biological assets, financial instruments, leases and foreign currency There is also coverage of creative accounting and the limitations of financial statements and ratios The new leasing standard, IFRS 16, is examinable from the September 2017 sitting 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 F3/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 Study 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 Study 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 Download Free Acca,Ca Materials from www.accoutancywalls.com vii Download Free Acca,Ca Materials from www.accoutancywalls.com The exam paper Computer-based exams ACCA have commenced the launch of computer-based exams (CBEs) for F5–F9 They have been piloting computer-based exams in limited markets since September 2016 with the aim of rolling out into all markets internationally over a five-year period Paper-based examinations will be run in parallel while the CBEs are phased in and BPP materials have been designed to support you, whichever exam option you choose Exam duration The Skills module examinations F5–F9 contain a mix of objective and longer type questions with a duration of hours for 100 marks For paper-based exams there are an extra 15 minutes to reflect the manual effort required As ACCA increase their offering of F5–F9 session CBEs, they will be introducing seeded content to guarantee all exams are equivalent and fair When the seeded content is introduced, students will be given more time to complete the exams – increasing to hours and 20 minutes to take into account the inclusion of additional seeded content For more information on these changes and when they will be implemented, please visit the ACCA website http://www.accaglobal.com/uk/en/student/changes-to-exams/f5-f9-session-cbe.html Format of the exam The exam format is the same irrespective of the mode of delivery and will comprise three exam sections: Section Style of question type Description Proportion of exam, % A Objective test (OT) 15 questions marks 30 B Objective test (OT) case questions 10 marks 30 Each question will contain sub-parts each worth marks C Constructed Response (Long questions) questions 20 marks Total 40 100 Section A and B questions will be selected from the entire syllabus The paper version of these objective test questions contain multiple choice only and the computer-based version will contain a variety The responses to each question or sub-part in the case of OT cases are marked automatically as either correct or incorrect by computer The 10 mark Section B question can come from any part of the syllabus The 20 mark Section C questions will mainly focus on the following syllabus areas but a minority of marks can be drawn from any other area of the syllabus: Analysing and interpreting the financial statements of single entities and groups (syllabus area C) Preparation of financial statements (syllabus area D) The responses to these questions are human marked viii Introduction Download Free Acca,Ca Materials from www.accoutancywalls.com Download Free Acca,Ca Materials from www.accoutancywalls.com Syllabus and study guide The complete F7 syllabus and study guide can be found by visiting the exam resource finder on the ACCA website: www.accaglobal.com/uk/en/student/exam-support-resources.html Introduction Download Free Acca,Ca Materials from www.accoutancywalls.com ix Download Free Acca,Ca Materials from www.accoutancywalls.com x Introduction Download Free Acca,Ca Materials from www.accoutancywalls.com Download Free Acca,Ca Materials from www.accoutancywalls.com 504 Download Free Acca,Ca Materials from www.accoutancywalls.com Download Free Acca,Ca Materials from www.accoutancywalls.com Bibliography Davies, M., Paterson, R., Wilson, A., Ernst & Young (1997) UK GAAP 5th edition – Generally Accepted Accounting Practice in the United Kingdom IFRS Foundation (2016) IFRS [Online] Available at: http://eifrs.ifrs.org [Accessed 2016] International Accounting Standards Board (1989) Framework for the Preparation and Presentation of Financial Statements [Online] Available from: http://eifrs.ifrs.org [Accessed 2016] International Accounting Standards Board (2010) Conceptual Framework for Financial Reporting [Online] Available from: http://eifrs.ifrs.org [Accessed 2016] International Accounting Standards Board (2011) Presentation of Items of Other Comprehensive Income [Online] Available from: http://eifrs.ifrs.org [Accessed 2016] International Accounting Standards Board (2014) Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41) [Online] Available from: http://eifrs.ifrs.org [Accessed 2016] International Federation of Accountants (IFAC) (2013) Public Sector Conceptual Framework Phase [Online] Available from: www.ifac.org/publications-resources [Accessed 2016] International Public Sector Accounting Standards Board (2013) Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities [Online] Available from: www.ipsasb.org/publications-resources [Accessed 2016] International Public Sector Accounting Standards Board (2016) Handbook of International Public Sector Accounting Pronouncements [Online] Available from: www.ipsasb.org/publications-resources [Accessed 2016] Bibliography Download Free Acca,Ca Materials from www.accoutancywalls.com 505 Download Free Acca,Ca Materials from www.accoutancywalls.com 506 Bibliography Download Free Acca,Ca Materials from www.accoutancywalls.com Download Free Acca,Ca Materials from www.accoutancywalls.com Index 507 Download Free Acca,Ca Materials from www.accoutancywalls.com Download Free Acca,Ca Materials from www.accoutancywalls.com 508 Download Free Acca,Ca Materials from www.accoutancywalls.com Download Free Acca,Ca Materials from www.accoutancywalls.com Note Key Terms and their page references are given in bold Accelerated depreciation, 259 Accounting policies, 298, 368 Accounting profit, 252 Accounts payable payment period, 348 Accounts receivable collection period, 346 Accruals basis, Accrued expenses, 256 Accrued income, 256 Accumulated depreciation, 261 Acid test ratio, 345 Adjusting, 232 Advantages and disadvantages of CPP accounting, 401 Advantages and disadvantages of current cost accounting, 403 Advantages of cash flow accounting, 391 Advantages of historical cost accounting, 396 Agricultural activity, 243 Agricultural produce, 243, 246 Amortisation period, 63 Amortised cost, 199 Asset, 11 Asset turnover, 338 Assets held for sale, 304 Associate, 111, 174 Associate's losses, 180 Basic EPS, 319 Benefits of cash flow information, 375 Bill-and-hold arrangements, 94 Biological assets, 243, 244 Biological transformation, 243 Bonus issue, 322 Borrowing costs, 50, 51 Business model test, 196 Calculating ratios, 335 Capital, 398 Capital employed, 337 Capital gearing ratio, 341 Capital maintenance, 398, 401 Capitalisation/bonus issue, 322 Carrying amount, 33, 47, 72, 243 Cash, 375 Cash and cash equivalents, 375 Cash cycle, 345 Cash equivalents, 375 Cash flow ratio, 344 Cash flows, 375 Cash flows from operating activities, 377 Cash-generating unit, 74, 75, 304 CCA profits, 402 Change in accounting estimate, 298, 301 Changes in accounting policies, 300 Changes in accounting policy, 368 Changes in equity, 287 Characteristics of Not-for-profit entities, 410 Classification of financial assets, 195 Classification of financial liabilities, 198 Closing rate, 309 Comparability, Complex assets, 38 Component of an entity, 307 Components of cost, 34 Compound financial instruments, 191 Conceptual Framework for Financial Reporting, 2, Consolidated financial statements, 113 Consolidated statement of profit or loss, 156 Consolidated statement of profit or loss and other comprehensive income, 163, 166 Constraints on useful information, 10 Constructive obligation, 223 Contingent asset, 228 Contingent consideration, 132 Contingent liability, 150, 228 Contract, 85 Contract asset, 85 Contract liability, 86 Contract with a call option, 92 Contract with a put option, 92 Contracts where performance obligations are satisfied over time, 96 Contractual cash flow test, 196 Control, 111 Conversion, 310 Cost, 33, 47 Cost model, 35, 49 Costs of disposal, 305 Creative accounting, 367 Current asset, 277 Current cost, 15 Current cost accounting (CCA), 401 Current IFRSs, 24 Current liability, 277 Current purchasing power (CPP) accounting, 399, 400 Current ratio, 345 Current tax, 252 Current value accounting, 397 Customer, 86 Index Download Free Acca,Ca Materials from www.accoutancywalls.com 509 Download Free Acca,Ca Materials from www.accoutancywalls.com Debt and gearing ratios, 340 Debt ratio, 340 Debt/equity ratio, 342 Decommissioning, 226 Deductible temporary differences, 255, 257, 260 Deferred consideration, 133 Deferred tax, 254 Deferred tax assets, 254, 255, 259, 261, 262 Deferred tax liabilities, 254, 255, 258, 259, 260 Depreciable amount, 42 Depreciable assets, 41 Depreciation, 37, 41, 257 Deprival value, 401 Derecognition, 39 Development costs, 257, 259 Diluted EPS, 325 Dilutive potential ordinary shares, 328 Direct method, 378 Disadvantages of historical cost accounting, 396 Disclosure of financial instruments, 194 Discontinued operation, 307 Discounting, 263 Disposal group, 304 Dividend cover, 351 Dividend per share and dividend cover, 351 Dividend yield, 351 Dividends, 282 Dividends paid by a subsidiary, 126 Due process, 23 Earnings per share, 318, 351 Economic value (EV), 402 Effective interest method, 199 Effective interest rate, 199 Efficiency ratios, 346 Elements of financial statements, 10 Entity specific value, 33 Environmental contamination, 226 Equal to its tax base, 256 Equity, 11 Equity instrument, 189, 318 Equity method, 174, 175 Events occurring after the reporting period, 232 Exchange difference, 309, 312 Exchange rate, 309 Exclusion of a subsidiary from consolidation, 113 Exemption from preparing group accounts, 113 Expected value, 224 Expenses, 12 Fair presentation, 16 Fair value, 33, 47, 102, 146, 189, 239, 243, 305 510 Fair value adjustment, 146, 147 Fair value model, 48 Fair value through profit or loss, 199 Faithful representation, Financial asset, 189 Financial asset or liability at fair value through profit or loss, 199 Financial capital maintenance, 398 Financial concept of capital, 398 Financial instrument, 188, 189, 318 Financial liability, 189 Financing activities, 375, 377 Fixed production overheads, 240 Foreign currency, 309 Forgivable loans, 102 Framework, 84 Functional currency, 309 Future economic benefit, 11, 33 Future operating losses, 225 GAAP, Gain on a bargain purchase, 132 Gains, 13 Gearing ratio, 341 General price inflation, 400 Going concern, 8, 232 Goodwill, 65, 66, 146 Goodwill and pre-acquisition profits, 127 Goodwill arising on consolidation, 126 Government, 102 Government assistance, 102 Government grants, 101, 102 Grants related to assets, 102 Grants related to income, 102 Gross profit margin, 339 Group, 111 Group of biological assets, 243 Harvest, 243 Historical cost, 15 Historical vs current cost, 340 IAS Presentation of financial statements, 272 IAS Inventories, 238 IAS Statement of cash flows, 374 IAS Accounting policies, changes in accounting, 298 IAS 10 Events after the reporting period, 232 IAS 12 Income taxes, 252 IAS 16 Property, plant and equipment, 32 IAS 20 Accounting for government grants and disclosure of government assistance, 101 IAS 23 Borrowing costs, 50 IAS 27 Separate financial statements, 114 Index Download Free Acca,Ca Materials from www.accoutancywalls.com Download Free Acca,Ca Materials from www.accoutancywalls.com IAS 28 Investments in associates and joint ventures, 174, 185 IAS 32 Financial instruments: presentation, 189 IAS 33 Earnings per share, 318 IAS 36 Impairment of assets, 72 IAS 37 Provisions, contingent liabilities and contingent assets, 222 IAS 40 Investment property, 46 IAS 41 Agriculture, 242 IFRS Business combinations, 66 IFRS Non-current assets held for sale and discontinued operations, 232, 304 IFRS Financial instruments, 189, 194 IFRS 10 Consolidated financial statements, 113 IFRS 13 Fair values, 149 IFRS 15 Revenue from contracts with customers, 85 IFRS 16, 208 IFRS Interpretations Committee, 25 Impairment, 72 Impairment loss, 33, 77 Impairment of goodwill, 131 Implications of high or low gearing, 342 Impracticable, 299 Income, 12, 85 Indirect method, 378 Intangible asset, 58 Interest cover, 343 Interest rate implicit in the lease, 209 Interest received, 259 Interest revenue, 257 Internally generated goodwill, 59 Internally generated intangible assets, 60 International Public Sector Accounting Standards, 409 International Public Sector Accounting Standards Board, 409 Interpretation of statements of cash flows, 387 Intra-group dividends, 158 Intra-group sales of non-current assets, 141 Intra-group trading, 136, 158 Inventories, 239 Inventories and short-term WIP, 238 Inventory turnover period, 347 Investing activities, 375, 376 Investment property, 47 Investments in associates, 112 Lease, 209 Lease incentives, 210 Lease payments, 209 Lease term, 210 Lessees, 213, 216 Lessee's incremental borrowing rate, 210 Leverage, 341 Liabilities and equity, 191 Liability, 11, 223, 256 Limitations of ratio analysis, 368, 369 Liquidity, 340, 344, 345 Loan, 258 Loan payable, 256 Long-term solvency, 340 Losses, 13 Low value leases, 209 Major repairs, 226 Material, 298 Materiality, Measurement, 15 Measurement of financial instruments, 198 Measurement of intangible assets, 61 Measurement of provisions, 224 Monetary items, 309 Net profit margin, 339 Net realisable value, 239, 241 Net realisable value (NRV), 261, 402 Net replacement cost (NRC), 402 Non-adjusting, 232 Non-controlling interest, 115, 124 Non-controlling interest at fair value, 129 Non-current assets, 277 Notes to the financial statements, 288 Not-for-profit and public sector entities, 408 Obligation, 11 Onerous contract, 225 Operating activities, 375, 376 Operating cycle, 277 Options, 327 Options, warrants and their equivalents, 318 Ordinary shares, 318 Overhauls, 38 Owner-occupied property, 47 P/E ratio, 351 Parent, 111 Part cancellation, 122 PBIT, profit before interest and tax, 336 Performance obligation, 86 Performance obligation satisfied over time, 90 Performance obligations satisfied at a point in time, 90 Permanent and temporary differences, 257 Permanent differences, 257 Physical capital maintenance, 398 Physical concept of capital, 398 Potential ordinary share, 318 Index Download Free Acca,Ca Materials from www.accoutancywalls.com 511 Download Free Acca,Ca Materials from www.accoutancywalls.com Power, 111 Pre-acquisition profits, 143, 159 Prepaid expenses, 258 Present value, 15 Presentation currency, 309 Price/Earnings (P/E) ratio, 351 Primary profitability ratio, 338 Principles-based system, 20 Prior period errors, 298, 302 Problems of historical cost information, 366 Profit, 398 Profit analysis, 339 Profit before interest and tax, 336 Profit margin, 338 Property, plant and equipment, 33 Prospective application, 299 Provision, 12, 223 Public sector entities, 408 Purchased goodwill, 66 Qualifying asset, 51 Quick ratio, 345 Ratio analysis, 334 Realisable value, 15 Receivable, 85 Recognition, 13, 33 Recognition criteria, 260 Recover or settle the carrying amount, 254 Recoverable amount, 73, 261, 305 Relationships between profit and cash, 387 Relevance, Reporting period, 273 Research and development (R&D) costs, 60, 261 Residual value, 33, 42 Restructuring, 226 Restructuring and future losses, 149 Retirement benefit costs, 261 Retrospective application, 299 Retrospective restatement, 299 Return on capital employed (ROCE), 336, 337 Return on equity (ROE), 338 Revaluation model, 35 Revaluation surplus, 36 Revalued assets, 259 Revenue, 85 Right-of-use asset, 209 Rights issue, 322 ROCE, 337 ROE, 338 Rules-based system, 20 512 Sale and leaseback transactions, 216 Sale of goods revenue, 257 Secondary ratios, 338 Self insurance, 226 Settlement value, 15 Share exchange, 133 Share split/reverse share split, 322 Short-term lease, 208, 210 Short-term solvency, 344 Significant influence, 111, 174 Specific price inflation, 400 Spot exchange rate, 309 Stand-alone selling price, 86 Statement of financial position, 273 Statement of profit or loss and other comprehensive income, 278 Subsidiary, 111 Substance over form, Sufficient future taxable profits, 262 Tax base, 255, 257 Tax expense, 252 Tax payments, 258 Taxable profit, 257 Taxable profit (tax loss), 252 Taxable temporary differences, 255, 257, 258 Temporary differences, 255, 257 Timeliness, Timing differences, 259, 260 Transaction price, 86 Translation, 311 Underlying asset, 209 Understandability, 10 Unguaranteed residual value, 210 Unrealised profit, 136 Unwinding of the discount, 225 Upstream and downstream transactions, 180 Useful life, 41, 63 Users and their information needs, Value in use, 73, 305 Value to the business (deprival value), 401 Variable lease payments, 210 Variable production overheads, 240 Verifiability, Warranties, 226 Warrants or options, 318 Working capital, 277 Index Download Free Acca,Ca Materials from www.accoutancywalls.com Download Free Acca,Ca Materials from www.accoutancywalls.com Notes Download Free Acca,Ca Materials from www.accoutancywalls.com Download Free Acca,Ca Materials from www.accoutancywalls.com Notes Download Free Acca,Ca Materials from www.accoutancywalls.com Download Free Acca,Ca Materials from www.accoutancywalls.com Notes Download Free Acca,Ca Materials from www.accoutancywalls.com Download Free Acca,Ca Materials from www.accoutancywalls.com Notes Download Free Acca,Ca Materials from www.accoutancywalls.com Download Free Acca,Ca Materials from www.accoutancywalls.com Review Form – Paper F7 (Financial Reporting) (01/17) Please help us to ensure that the ACCA learning materials we produce remain as accurate and 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Conceptual Framework: para 4 .18) F7 Financial Reporting 1: The conceptual framework Download Free Acca, Ca Materials from www.accoutancywalls.com 11 Download Free Acca, Ca Materials from www.accoutancywalls.com... Question Bank Number Level 18 Marks Time 10 20 mins 1: The conceptual framework F7 Financial Reporting Download Free Acca, Ca Materials from www.accoutancywalls.com Download Free Acca, Ca Materials from