Chapter 2 extract from our ExPedite notes for use with the current video. See www.theexpgroup.

com for full terms and conditions.

Notes
ACCA Paper F7
Financial Reporting
For exams in June 2010

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ExPedite Notes

ACCA F7 Financial Reporting

Contents
About ExPedite Notes
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. The Conceptual Framework Presentation of financial statements Substance and revenue Construction contracts Predictive Value Non-Current Assets Impairments of Assets Provisions, Contingent Liabilities and Assets Leases Financial instruments Taxation Groups Financial Statements Associates Statements of Cash Flows Interpretation of Accounts and Ratio Analysis Limitations on Ratios Deconsolidation

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2010 This material is the copyright of the ExP Group. Individuals may reproduce this material if it is for their own private use. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means, be it printed, photocopied, on electronic devices or any other means of reproduction. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. Given the nature of information presented in these materials, and given that legislation may change at any time, The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases.

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ExPedite Notes

ACCA F7 Financial Reporting

START About ExPress Notes

We are very pleased that you have downloaded a copy of our ExPress notes for this paper. We expect that you are keen to get on with the job in hand, so we will keep the introduction brief. First, we would like to draw your attention to the terms and conditions of usage. Its a condition of printing these notes that you agree to the terms and conditions of usage. These are available to view at www.theexpgroup.com. Essentially, we want to help people get through their exams. If you are a student for the ACCA exams and you are using these notes for yourself only, you will have no problems complying with our fair use policy. You will however need to get our written permission in advance if you want to use these notes as part of a training programme that you are delivering. WARNING! These notes are not designed to cover everything in the syllabus! They are designed to help you assimilate and understand the most important areas for the exam as quickly as possible. If you study from these notes only, you will not have covered everything that is in the ACCA syllabus and study guide for this paper. Components of an effective study system On ExP classroom courses, we provide people with the following learning materials: The ExPress notes for that paper The ExP recommended course notes / essential text or the ExPedite classroom course notes where we have published our own course notes for that paper The ExP recommended exam kit for that paper. In addition, we will recommend a study text / complete text from one of the ACCA official publishers, but we do not necessarily give this as part of a classroom course, as we think that it can sometimes slow people down and reduce the time that they are able to spend practising past questions.

ExP classroom course students will also have access to various online support materials, including: The unique ExP & Me e-portal, which amongst other things allows view again of the classroom course that was actually attended.

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ExPedite Notes
ExPand, our online learning tool and questions and answers database Everybody in the World has free access to ACCAs own database of past exam questions, answers, syllabus, study guide and examiners commentaries on past sittings. This can be an invaluable resource. You can find links to the most useful pages of the ACCA database that are relevant to your study on ExPand at www.theexpgroup.com.
ACCA F7 Financial Reporting

HowtogetthemostfromtheseExPressnotes
For people on a classroom course, this is how we recommend that you use the suite of learning materials that we provide. This depends where you are in terms of your exam preparation for each paper.
Your stage in study for each paper Prior to study, e.g. deciding which optional papers to take These ExPress notes ExP recommended course notes, or ExPedite notes Dont use yet ExP recommended exam kit Dont use yet ACCA online past exams

Skim through the ExPress notes to get a feel for whats in the syllabus, the size of the paper and how much it appeals to you. Work through each chapter of the ExPress notes in detail before you then work through your course notes. Dont try to feel that you have to understand everything just get an idea for what you are about to study. Dont make any annotations on the ExPress notes at this stage.

Have a quick look at the two most recent real ACCA exam papers to get a feel for examiners style. Dont use at this stage.

At the start of the learning phase

Work through in detail. Review each chapter after class at least once. Make sure that you understand each area reasonably well, but also make sure that you can recall key definitions, concepts, approaches to exam questions, mnemonics, etc.

Nobody passes an exam by what they have studied we pass exams by being efficient in being able to prove what we know. In other words, you need to have effectively input the knowledge and be effective in the output of what you know. Exam practice is key to this. Try to do at least one past exam question on the learning phase for each major chapter.

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2010 This material is the copyright of the ExP Group. Individuals may reproduce this material if it is for their own private use. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means, be it printed, photocopied, on electronic devices or any other means of reproduction. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. Given the nature of information presented in these materials, and given that legislation may change at any time, The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases.

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ExPedite Notes

Your stage in study for each paper Practice phase These ExPress notes ExP recommended course notes, or ExPedite notes Avoid reading through your notes again. Try to focus on doing past exam questions first and then go back to your course notes/ ExPress notes if theres something in an answer that you dont understand. ExP recommended exam kit This is your most important tool at this stage. You should aim to have worked through and understood at least two or three questions on each major area of the syllabus. You pass real exams by passing mock exams. Dont be tempted to fall into passive revision at this stage (e.g. reading notes or listening to CDs). Passive revision tends to be a waste of time. Dont touch it! ACCA online past exams ACCA F7 Financial Reporting

Work through the ExPress notes again, this time annotating to explain bits that you think are easy and be brave enough to cross out the bits that you are confident youll remember without reviewing them.

Download the two most recent real exam questions and answers. Read through the technical articles written by the examiner. Read through the two most recent examiners reports in detail. Read through some other older ones. Try to see if there are any recurring criticisms he or she makes. You must avoid these! Do a final review of the two most recent examiners reports for the paper you will be taking tomorrow.

The night before the real exam

Read through the ExPress notes in full. Highlight the bits that you think are important but you think you are most likely to forget.

Unless there are specific bits that you feel you must revise, avoid looking at your course notes. Give up on any areas that you still dont understand. Its too late now. Avoid looking at them in detail, especially if the notes are very big. It will scare you.

At the door of the exam room before you go in.

Read quickly through the full set of ExPress notes, focusing on areas youve highlighted, key workings, approaches to exam questions, etc.

Leave at home.

Leave at home.

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2010 This material is the copyright of the ExP Group. Individuals may reproduce this material if it is for their own private use. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means, be it printed, photocopied, on electronic devices or any other means of reproduction. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. Given the nature of information presented in these materials, and given that legislation may change at any time, The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases.

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ExPedite Notes
Our ExPress notes fit into our portfolio of materials as follows:
ACCA F7 Financial Reporting

Notes
Provide a base understanding of the most important areas of the syllabus only.

Notes
Provide a comprehensive coverage of the syllabus and accompany our face to face professional exam courses

Notes
Provide detailed coverage of particular technical areas and are used on our Professional Development and Executive Programmes.

To maximise your chances of success in the exam we recommend you visit www.theexpgroup.com where you will be able to access additional free resources to help you in your studies.

START About The ExP Group

Born with a desire to be the leading supplier of business training services, the ExP Group delivers courses through either one of its permanent centres or onsite at a variety of locations around the world. Our clients range from multinational household corporate names, through local companies to individuals furthering themselves through studying for one of the various professional exams or professional development courses.

As well as courses for ACCA and other professional qualifications, our portfolio of expertise covers all areas of financial training ranging from introductory financial awareness courses for non-financial staff to high level corporate finance and banking courses for senior executives.
Our expert team has worked with many different audiences around the world ranging from graduate recruits through to senior board level positions. Full details about us can be found at www.theexpgroup.com and for any specific enquiries please contact us at info@theexpgroup.com.

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ExPedite Notes
Chapter 2
ACCA F7 Financial Reporting

IAS 1: Presentation of Financial Statements

START The Big Picture

IAS 1 is a cornerstone accounting standard that includes: Components of financial statements Core concepts True and fair override.

It is virtually certain to be tested in the ACCA paper F7 exam.

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ExPedite Notes
Components of financial statements A full set of IFRS financial statements comprises the following primary statements (ie statements that must be shown with equal prominence as each other): Statement of financial position (previously called balance sheet) Statement of comprehensive income (comprising profit and loss statement and statement of other comprehensive income) Statement of changes in equity Statement of cash flows Comparative data for the previous year for each of the above.
ACCA F7 Financial Reporting

In addition, secondary statements are required being notes that explain the accounting policies and other significant explanations or useful drill down information. Question 2 of the F7 exam is likely to require presentation of financial statements from a trial balance with adjustments. A starting point in the exam is to be able to produce a skeleton set of which financial statements are required from memory. Its therefore necessary to memorise the formats on the following pages.

Core concepts IAS 1 includes a number of core concepts, with some overlap with the Framework document. Fair presentation fair, neutral description of transactions. Going concern entity assumed to continue trading into the foreseeable future. Accruals (matching) basis of accounting match costs with associated revenues and items to the time period incurred. Consistency of presentation present similar transactions the same way within the current year and year by year. Materiality and aggregation no need to present information about immaterial transactions, but aggregate transactions with similar characteristics instead. Offsetting - offset as little as possible.

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ExPedite Notes
Frequency of reporting normally annually but can be shorter if necessary and certain disclosures made. Comparative information comparative information must be provided and presented in such a way as to make comparison easy (eg use the same accounting policies in both years. This is further developed in IAS 8).
ACCA F7 Financial Reporting

True and fair override Paragraph 23 of IAS 1 gives details of what to do in the extremely rare circumstance when compliance with IFRS will fail to give a true and fair view. This requires full disclosure of the particulars, reason and effect of the failure to follow all extant IFRS.

Formats of financial statements The formats below give the minimum disclosures required on the face on the SOFP as required by IAS 1 paragraph 54. In practice, its common to add other categories as well. IAS 1 is not too specific in the order of each of these headings, but its normal to start with the least liquid and finish with the most liquid.

ExP Group Statement of Financial Position at 31 March 20x4

ASSETS Non-current assets Property, plant and equipment Intangible assets Investments in associates Biological assets

20x4

20x3

(Note below)

X X X X X

X X X X X 2 1

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ExPedite Notes
Current assets Inventories Trade receivables Cash and cash equivalents Assets held for sale X X X X X X X X 3
ACCA F7 Financial Reporting

Total assets

EQUITY AND LIABILITIES Share capital Revaluation reserve Retained earnings Other reserves Non-controlling interests Total equity X X X X X X X X X X X X 4 5

Non-current liabilities Financial liabilities Deferred tax Provisions Total non-current liabilities X X X X X X X X

Current liabilities Financial liabilities Current tax X X X X

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ExPedite Notes
Trade and other payables Total current liabilities Total liabilities Total equity and liabilities X X X X
ACCA F7 Financial Reporting

X X X X

Notes 1. Many companies prefer to show goodwill separately to other intangibles on the face of the SOFP. 2. This is included for completeness only. Biological assets (IAS 41) are not within the F7 syllabus. 3. These relate specifically to assets held for sale under IFRS 5. 4. There are extensive disclosure requirements relating to share capital in IAS 1, but these are rarely tested in paper F7. 5. Each component of the parent companys reserves must be shown separately. Its conventional to start with the most regulated reserves and finish with retained earnings. 6. Current liabilities are ones that are expected to be settled within 12 months of the reporting date. All other liabilities are non-current. Some (eg finance lease liabilities and loans) are likely to be split between current and non-current components.

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ExPedite Notes

ACCA F7 Financial Reporting

ExP Group Statement of Comprehensive Income for the year ended 31 March 20x4 The captions marked with * are the minimum disclosures required by paragraph 82 of IAS 1. In practice, it is common to add other captions where they would be useful to readers of the financial statements. 20x4 20x3 (Note below)

Revenue* Cost of sales Gross profit Other income Share of profit of associates* Distribution costs Administrative expenses Other expenses Finance costs* Profit before tax Tax expense* Profit from discontinued operations, after tax* Profit for the period*

X (X) X X X (X)

X (X) X X X (X)

(X) (X) X (X) X X

(X) (X) X (X) X X

Other comprehensive income, net of tax: Property revaluation gains Other gains reported directly in equity Share of associates other comprehensive income Other comprehensive income for the period, net of X X X X X X X X

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ExPedite Notes
tax Total comprehensive income for the period X X Profit for the period attributable to: Non-controlling interests Owners of the parent X Total comprehensive income for the period attributable to: Non-controlling interests Owners of the parent X X X X X X X X X X X
ACCA F7 Financial Reporting

Notes 7. These items may be presented gross of tax, with a separate tax expense then within comprehensive income.

ExP Group Statement of Changes in Equity for the year ended 31 March 20x4 Ordinary share capital $000 At 1 April 20x2 Effect of polices changes in accounting X X Revaluation Retained earnings reserve Total equity

$000 X X

000 X X

$000 X X

At 1 April 20x2, restated

Changes in year to 31 March 20x3:

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ExPedite Notes
Total comprehensive income Dividends Issue of new shares for cash Transfers between reserves At 31 March 20x3 X X X8 (X) X X8 X X
ACCA F7 Financial Reporting

X (X) X X

Changes in year to 31 March 20x4: Total comprehensive income Dividends Issue of new shares Bonus issue of shares Transfers between reserves At 31 March 20x4 X X X X8 (X) (X) X X X X X8 X (X) X

To cross-refer to the SOFP in this chapter, the statement of changes in equity would also need a column for other reserves and non-controlling interests. These are omitted only due to space constraints. Note 8: Gains on revaluation of property, plant and equipment would be shown within retained earnings. All other elements of total comprehensive income are likely to be shown as a movement on retained earnings.

Suggested approach to preparation questions (likely question 2 in the exam) Read through the question in full. If there is an adjustment that you dont understand after reading it three times, ignore it. Set up proformas for each financial statement that you are asked to produce. Use one page for each one. Cross-refer the adjustments to the relevant heading in the trial balance.

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ExPedite Notes
For each item in the trial balance that does not have a cross-reference next to it, cross it off and lift the relevant figure directly into your proforma answers. Work through the adjustments in order of which ones you find the most easy. Record your adjustments in workings and refer workings to your proforma answer. When you run out of time allocated to the question, move on! Do not expect to finish the question in full.
ACCA F7 Financial Reporting

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