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Page 1: ACCA Paper F7 - The ExP Group of comprehensive income (comprising profit and loss statement and statement of other comprehensive income) Statement of changes in equity Statement of

Thank you for downloading this extract from our

ExPedite notes to accompany your free online “Course

in a Coffee Break”.

To download a free complete set of our ExPress notes

please visit www.theexpgroup.com.

Good luck with your F7 studies.

ACCA Paper F7

Financial Management

For exams in 2010

theexpgroup.com

Page 2: ACCA Paper F7 - The ExP Group of comprehensive income (comprising profit and loss statement and statement of other comprehensive income) Statement of changes in equity Statement of

ExPedite Notes ACCA F7 Financial Reporting

Page |2.1 © 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.

theexpgroup.com

Chapter 2

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.

Page 3: ACCA Paper F7 - The ExP Group of comprehensive income (comprising profit and loss statement and statement of other comprehensive income) Statement of changes in equity Statement of

ExPedite Notes ACCA F7 Financial Reporting

Page |2.2 © 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.

theexpgroup.com

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.

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. It’s 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.

Page 4: ACCA Paper F7 - The ExP Group of comprehensive income (comprising profit and loss statement and statement of other comprehensive income) Statement of changes in equity Statement of

ExPedite Notes ACCA F7 Financial Reporting

Page |2.3 © 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.

theexpgroup.com

Materiality and aggregation – no need to present information about immaterial

transactions, but aggregate transactions with similar characteristics instead.

Offsetting - offset as little as possible.

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).

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, it’s common to add other categories as well.

IAS 1 is not too specific in the order of each of these headings, but it’s normal to start with

the least liquid and finish with the most liquid.

ExP Group – Statement of Financial Position at 31 March 20x4

ASSETS 20x4 20x3 (Note

below)

Non-current assets

Property, plant and equipment X X

Intangible assets X X 1

Investments in associates X X

Biological assets X X 2

Page 5: ACCA Paper F7 - The ExP Group of comprehensive income (comprising profit and loss statement and statement of other comprehensive income) Statement of changes in equity Statement of

ExPedite Notes ACCA F7 Financial Reporting

Page |2.4 © 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.

theexpgroup.com

X X

Current assets

Inventories X X

Trade receivables X X

Cash and cash equivalents X X

Assets held for sale X X 3

Total assets X X

EQUITY AND LIABILITIES

Share capital X X 4

Revaluation reserve X X 5

Retained earnings X X

Other reserves X X

Non-controlling interests X X

Total equity X X

Non-current liabilities 6

Financial liabilities X X

Deferred tax X X

Provisions X X

Total non-current liabilities X X

Current liabilities

Financial liabilities X X

Page 6: ACCA Paper F7 - The ExP Group of comprehensive income (comprising profit and loss statement and statement of other comprehensive income) Statement of changes in equity Statement of

ExPedite Notes ACCA F7 Financial Reporting

Page |2.5 © 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.

theexpgroup.com

Current tax X X

Trade and other payables X X

Total current liabilities X X

Total liabilities X X

Total equity and liabilities 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 company’s reserves must be shown separately. It’s

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.

Page 7: ACCA Paper F7 - The ExP Group of comprehensive income (comprising profit and loss statement and statement of other comprehensive income) Statement of changes in equity Statement of

ExPedite Notes ACCA F7 Financial Reporting

Page |2.6 © 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.

theexpgroup.com

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* X X

Cost of sales (X) (X)

Gross profit X X

Other income X X

Share of profit of associates* X X

Distribution costs (X) (X)

Administrative expenses

Other expenses (X) (X)

Finance costs* (X) (X)

Profit before tax X X

Tax expense* (X) (X)

Profit from discontinued operations, after tax* X X

Profit for the period* X X

Other comprehensive income, net of tax: 7

Property revaluation gains X X

Other gains reported directly in equity X X

Share of associates’ other comprehensive income X X

Other comprehensive income for the period, net of X X

Page 8: ACCA Paper F7 - The ExP Group of comprehensive income (comprising profit and loss statement and statement of other comprehensive income) Statement of changes in equity Statement of

ExPedite Notes ACCA F7 Financial Reporting

Page |2.7 © 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.

theexpgroup.com

tax

Total comprehensive income for the period X X

X X

Profit for the period attributable to: X X

Non-controlling interests

Owners of the parent

X X

Total comprehensive income for the period

attributable to:

X X

Non-controlling interests X X

Owners of the parent X X

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

Revaluation

reserve

$’000

Retained

earnings

£’000

Total

equity

$’000

At 1 April 20x2 X X X X

Effect of changes in accounting

polices

- - - -

At 1 April 20x2, restated X X X X

Changes in year to 31 March 20x3:

Page 9: ACCA Paper F7 - The ExP Group of comprehensive income (comprising profit and loss statement and statement of other comprehensive income) Statement of changes in equity Statement of

ExPedite Notes ACCA F7 Financial Reporting

Page |2.8 © 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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Total comprehensive income - X8 X8 X

Dividends - - - (X)

Issue of new shares for cash X - - X

Transfers between reserves - (X) X -

At 31 March 20x3 X X X X

Changes in year to 31 March 20x4:

Total comprehensive income - X8 X8 X

Dividends - - - (X)

Issue of new shares X - - X

Bonus issue of shares X (X)

Transfers between reserves - (X) X -

At 31 March 20x4 X 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 don’t 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.

Page 10: ACCA Paper F7 - The ExP Group of comprehensive income (comprising profit and loss statement and statement of other comprehensive income) Statement of changes in equity Statement of

ExPedite Notes ACCA F7 Financial Reporting

Page |2.9 © 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.

theexpgroup.com

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.

Page 11: ACCA Paper F7 - The ExP Group of comprehensive income (comprising profit and loss statement and statement of other comprehensive income) Statement of changes in equity Statement of

ExPedite Notes ACCA F7 Financial Reporting

Page |2.10 © 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.

theexpgroup.com