ExPedite notes to accompany your free online Course
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ACCA Paper F7 Financial Management For exams in 2010
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ExPedite Notes ACCA F7 Financial Reporting
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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.
ExPedite Notes ACCA F7 Financial Reporting
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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. 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.
ExPedite Notes ACCA F7 Financial Reporting
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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, 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 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
ExPedite Notes ACCA F7 Financial Reporting
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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
ExPedite Notes ACCA F7 Financial Reporting
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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 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.
ExPedite Notes ACCA F7 Financial Reporting
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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
ExPedite Notes ACCA F7 Financial Reporting
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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:
ExPedite Notes ACCA F7 Financial Reporting
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Total comprehensive income - X 8 X 8 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 - X 8 X 8 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 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.
ExPedite Notes ACCA F7 Financial Reporting
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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.
ExPedite Notes ACCA F7 Financial Reporting
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