TÀI LIỆU ACCA MỚI NHẤT 2015 BPP f7 study text

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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

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Financial Reporting
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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
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First edition 2007
Seventh edition June 2014
ISBN 9781 4727 1081 9
(Previous ISBN 9781 4453 9649 1)

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ii

ii

Contents
Page

Introduction
Helping you to pass .......................................................................................................................................................... v
Studying F7 .................................................................................................................................................................... vii
The exam paper.............................................................................................................................................................. viii
Syllabus and study guide................................................................................................................................................. ix
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22

23

The conceptual framework....................................................................................................................................... 1
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


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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 do
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:
1.
2.
3.
4.
5.

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 3 and 4 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 do when you get onto
revision. Only by practising questions do you get a feel for what you will have to do 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 1 - MCQs
Question 2
Question 3
Question 4

Marks
40
15
15
30
100

Question 1 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 4 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


Knowledge module, the Skills module and the
Professional level are assessed.
Each subject area in the detailed study guide
included in this document is given a 1, 2, or 3
superscript, denoting intellectual level, marked
at the end of each relevant line. This gives an
indication of the intellectual depth at which an
area could be assessed within the examination.
However, while Level 1 broadly equates with the
Knowledge module, Level 2 equates to the Skills
module and Level 3 to the Professional level,
some lower level skills can continue to be
assessed as the student progresses through
each module and level. This 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 styles vary greatly
between people and organisations. This also
recognises the wide diversity of 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 and
valued by governments, regulatory authorities
and employers across all sectors. To this end,
ACCA qualifications are currently recognized on
the education frameworks in several countries.
Please refer to your national education
framework regulator for further information.
Each syllabus contains between 23 and 35 main
subject area headings depending on the nature
of the subject and how these areas have been
broken down.
GUIDE TO EXAM 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 are all
paper based three-hour papers containing a mix
of objective and longer type questions. The
Corporate and Business Law (F4) paper is a
two- hour computer based objective test
examination which is also available as a paper
based version from the December 2014
examination session.
The Professional level papers are all three-hour
paper based examinations, all containing two
sections. Section A is compulsory, but there will
be some choice offered in Section B.
For all three hour examination papers, ACCA has
introduced 15 minutes reading and planning
time.
This additional time is allowed at the beginning
of each three-hour examination to allow
candidates to read the questions and to begin
planning their answers before they start writing
in their answer books. This time should be used
to ensure that all the information and exam
requirements are properly read and understood.
During reading and planning time candidates
may only annotate their question paper. They
may not write anything in their answer booklets
until told to do so by the invigilator.

The Essentials module papers all have a Section
A containing a major case study question with
all requirements totalling 50 marks relating to
this case. Section B gives students a choice of
two from three 25-mark questions.
Section A of both the P4 and P5 Options papers
contain one 50 mark compulsory question, and
Section B will offer a choice of two from three
questions each worth 25 marks each.
Section A of each of the P6 and P7 Options
papers contains 60 compulsory marks from two
questions; Question 1 attracting 35 marks, and
Question 2 attracting 25 marks. Section B of
both these Options papers will offer a choice of
two from three questions, with each question
attracting 20 marks.
All Professional level exams contain four
professional marks.
The 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
examinable documents once a year to indicate
exactly what regulations and legislation could
potentially be assessed within identified
examination sessions.
For paper based examinations regulation issued
or legislation passed on or before 31st August
annually, will be examinable from 1st September
of the following year to 31st August of the year
after that. Please refer to the examinable

documents for the paper (where relevant) for
further information.
Regulation issued or legislation passed in
accordance with the above dates may be
examinable even if the effective date is in the
future.
The term issued or passed relates to when
regulation or legislation has been formally
approved.
The term effective relates to when regulation or
legislation must be applied to 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 of this paper candidates
should be able to:
A

Discuss and apply a conceptual and regulatory
frameworks for financial reporting

B

Account for transactions in accordance with
International accounting standards

C

Analyse and interpret financial statements

D Prepare and present financial statements for single
entities and business combinations in accordance
with International accounting standards

AIM
To develop knowledge and skills in
understanding and applying accounting
standards and the theoretical framework
in the preparation of financial statements
of entities, including groups and how to
analyse and interpret those financial
statements

The conceptual and regulatory framework for
financial reporting
(A)

Accounting for transactions in financial statements (B)

Preparation of financial statements (D)

© ACCA 2014 All rights reserved.

xii

Introduction

Analysing and
interpreting financial
statements (C)


RATIONALE
The financial reporting syllabus assumes
knowledge acquired in Paper F3, Financial
Accounting, and develops and applies this
further and in greater depth.
The syllabus begins with the conceptual
framework of accounting with reference to the
qualitative characteristics of useful information
and the fundamental bases of accounting
introduced in the Paper F3 syllabus within the
Knowledge module. It then moves into a detailed
examination of the regulatory framework of
accounting and how this informs the standard
setting process.
The main areas of the syllabus cover the
reporting of financial information for single
companies and for groups in accordance with
generally accepted accounting principles and
relevant accounting standards.
Finally, the syllabus covers the analysis and
interpretation of information from financial

reports.

© ACCA 2014 All rights reserved.
Introduction

xiii


DETAILED SYLLABUS

4. Specialised, not-for-profit, and public sector
entities

A The conceptual and regulatory framework
for financial reporting

D Preparation of financial statements

1. The need for a conceptual framework and
the characteristics of useful information

1. Preparation of single entity financial
statements

2. Recognition and measurement

2. Preparation of consolidated financial
statements including an associate

3. Specialised, not-for-profit, and public sector

entities
4. Regulatory framework
5. The concepts and principles of groups and
consolidated financial statements
B Accounting for transactions in financial
statements
1. Tangible non-current assets
2. Intangible assets
3. Impairment of assets
4. Inventory and biological assets
5. Financial instruments
6. Leasing
7. Provisions and events after the reporting
period
8. Taxation
9. Reporting financial performance
10. Revenue
11. Government grants
C Analysing and interpreting financial
statements
1. Limitations of financial statements
2. Calculation and interpretation of accounting
ratios and trends to address users' and
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 questions of two marks each.
Section B of the exam comprises two 15 mark
questions and one 30-mark question.
The 30-mark question will examine the
preparation of financial statements for either a
single entity or a group. The Section A question
and the other questions in Section B can cover
any areas of the syllabus.
An individual question may often involve
elements that relate to different subject areas of
the syllabus. For example the preparation of an
entity's financial statements could include
matters relating to several accounting
standards.
Questions may ask candidates to comment on
the appropriateness or acceptability of
management's opinion or chosen accounting
treatment. An understanding of accounting
principles and concepts and how these are
applied to practical examples will be tested.

Questions on topic areas that are also included
in Paper F3 will be examined at an appropriately
greater depth in this paper.
Candidates will be expected to have an
appreciation 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
not-for-profit and public sector entities and
those of profit oriented entities.[1]

1. The need for a conceptual framework and
the characteristics of useful information
a) Describe what is meant by a conceptual

framework of accounting.[2]
b) Discuss whether a conceptual framework is
necessary and what an alternative system
might be.[2]
c) Discuss what is meant by relevance and
faithful representation and describe the
qualities that enhance these
characteristics.[2]
d) Discuss whether faithful representation
constitutes more than compliance with
accounting standards.[1]
e) Discuss what is meant by understandability
and verifiability in relation to the provision of
financial information.[2]
f) Discuss the importance of comparability and
timeliness to users of financial statements.[2]
g) Discuss the principle of comparability in
accounting for changes its accounting
policies.[2]

a) Explain why a regulatory framework is
needed also including the advantages and
disadvantages of IFRS over a national
regulatory framework.[2]
b) Explain why accounting standards on their
own are not a complete regulatory
framework.[2]
c) Distinguish between a principles based and a
rules based framework and discuss whether
they can be complementary.[1]

d) Describe the IASB's Standard setting
process including revisions to and
interpretations of Standards.[2]
e) Explain the relationship of national standard
setters to the IASB in respect of the standard
setting process.[2]
5. The concepts and principles of groups and
consolidated financial statements

a) Define what is meant by 'recognition' in
financial statements and discuss the
recognition criteria.[2]

a) Describe the concept of a group as a single
economic unit.[2]

c) Explain the following measures and compute
amounts using: [2]
i) Historical cost
ii) Fair value/current cost
iii) Net realisable value
iv) Present value of future cash flows
d) Discuss the advantages and disadvantages
of the use of historical cost accounting.
e) Discuss whether the use of current value
accounting overcomes the problems of
historical cost accounting.[2]
f) Describe the concept of financial and
physical capital maintenance and how this
affects the determination of profits.[1]

© ACCA 2014 All rights reserved.
Introduction

4. Regulatory framework

2. Recognition and measurement

b) Apply the recognition criteria to: [2]
i) Assets and liabilities
ii) Income and expenses

xvi

b) Discuss the extent to which International
Financial Reporting Standards (IFRSs) are
relevant to specialised, not-for-profit and
public sector entities.[1]

b) Explain and apply the definition of a
subsidiary within relevant accounting
standards.[2]
c) Identify and outline using accounting
standards the circumstances in which a
group is required to prepare consolidated
financial statements as required by
applicable accounting standards and other
regulation. [2]
d) Describe the circumstances when a group
may claim exemption from the preparation
of consolidated financial statements.[2]

e) Explain why directors may not wish to
consolidate a subsidiary and when this is
permitted by accounting standards and other
applicable regulation.[2]


f) Explain the need for using coterminous year
ends and uniform accounting polices when
preparing consolidated financial
statements.[2]
g) Explain why it is necessary to eliminate intra
group transactions. [2]
h) Explain the objective of consolidated
financial statements. [2]
i) Explain why it is necessary to use fair values
for the consideration for an investment in a
subsidiary together with the fair values of a
subsidiary's identifiable assets and liabilities
when preparing consolidated financial
statements. [2]
j) Define an associate and explain the
principles and reasoning for the use of
equity accounting. [2]
B ACCOUNTING FOR TRANSACTIONS IN
FINANCIAL STATEMENTS
1. Tangible non-current assets
a) Define and compute the initial measurement
of a non-current (including a selfconstructed and borrowing costs) asset.[2]
b) Identify subsequent expenditure that may be
capitalised, distinguishing between capital

and revenue items.[2]
c) Discuss the requirements of relevant
accounting standards in relation to the
revaluation of non-current assets.[2]
d) Account for revaluation and disposal gains
and losses for non-current assets.[2]
e) Compute depreciation based on the cost and
revaluation models and on assets that have
two or more significant parts (complex
assets).[2]
f) Discuss why the treatment of investment
properties should differ from other
properties.[2]
g) Apply the requirements of relevant
accounting standards for investment
property.[2]
2. Intangible non-current assets
a) Discuss the nature and accounting treatment
of internally generated and purchased
intangibles.[2]
b) Distinguish between goodwill and other
intangible assets.[2]

c) Describe the criteria for the initial
recognition and measurement of intangible
assets.[2]
d) Describe the subsequent accounting
treatment, including the principle of
impairment tests in relation to goodwill.[2]
e) Indicate why the value of purchase

consideration for an investment may be less
than the value of the acquired identifiable net
assets and how the difference should be
accounted for.[2]
f) Describe and apply the requirements of
relevant accounting standards to research
and development expenditure.[2]
3. Impairment of assets
a) Define an impairment loss.[2]
b) Identify the circumstances that may indicate
impairments to assets.[2]
c) Describe what is meant by a cash generating
unit.[2]
d) State the basis on which impairment losses
should be allocated, and allocate an
impairment loss to the assets of a cash
generating unit.[2]
4. Inventory and biological assets
a) Describe and apply the principles of
inventory valuation.[2]
b) Apply the requirements of relevant
accounting standards for biological assets.[2]
5 Financial instruments
a) Explain the need for an accounting standard
on financial instruments.[1]
b) Define financial instruments in terms of
financial assets and financial liabilities.[1]
c) Indicate for the following categories of
financial instruments how they should be
measured and how any gains and losses

from subsequent measurement should be
treated in the financial statements: [1]
i) Amortised cost
ii) Fair value ( including option to elect to
present gains and losses on equity
instruments in other comprehensive
income) [2]
d) Distinguish between debt and equity
capital.[2]

© ACCA 2014 All rights reserved.
Introduction

xvii


e) Apply the requirements of relevant
accounting standards to the issue and
finance costs of: [2]
i) Equity

8. Taxation

ii) Redeemable preference shares and debt
instruments with no conversion rights
(principle of amortised cost)

a) Account for current taxation in accordance
with relevant accounting standards.[2]

iii) Convertible debt
6. Leasing
a) Explain why recording the legal form of a
finance lease can be misleading to users
(referring to the commercial substance of
such leases).[2]
b) Describe and apply the method of
determining a lease type (ie an operating or
finance lease).[2]
c) Discuss the effect on the financial
statements of a finance lease being
incorrectly treated as an operating lease.[2]
d) Account for assets financed by finance
leases in the records of the lessee.[2]
e) Account for operating leases in the records
of the lessee.[2]
7. Provisions and events after the reporting
period
a) Explain why an accounting standard on
provisions is necessary.[2]
b) Distinguish between legal and constructive
obligations.[2]
c) State when provisions may and may not be
made and demonstrate how they should be
accounted for.[2]
d) Explain how provisions should be
measured.[1]
e) Define contingent assets and liabilities and
describe their accounting treatment.[2]
f) Identify and account for: [2]

i) Warranties/guarantees
ii) Onerous contracts
iii) Environmental and similar provisions
iv) Provisions for future repairs or
refurbishments
g) Events after the reporting period
i) Distinguish between and account for
adjusting and non-adjusting events after
the reporting period [2]
© ACCA 2014 All rights reserved.

xviii

Introduction

ii) Identify items requiring separate
disclosure, including their accounting
treatment and required disclosures[2]

b) Explain the effect of taxable temporary
differences on accounting and taxable
profits.[2]
c) Compute and record deferred tax amounts in
the financial statements.[2]
9. Reporting financial performance
a) Discuss the importance of identifying and
reporting the results of discontinued
operations.[2]
b) Define and account for non-current assets
held for sale and discontinued operations.[2]

c) Indicate the circumstances where separate
disclosure of material items of income and
expense is required.[2]
d) Account for changes in accounting
estimates, changes in accounting policy and
correction of prior period errors.
e) Earnings per share (eps):
i) Calculate the eps in accordance with
relevant accounting standards (dealing
with bonus issues, full market value
issues and rights issues) [2]
ii) Explain the relevance of the diluted eps
and calculate the diluted eps involving
convertible debt and share options
(warrants) [2]
10. Revenue
a) Apply the principle of substance over form to
the recognition of revenue.[2]
b) Explain the importance of recording the
commercial substance rather than the legal
form of transactions – give examples where
recording the legal form of transactions may
be misleading.[2]
c) Describe the features which may indicate
that the substance of transactions differs
from their legal form.[2]
d) Apply the principle of substance over form to
the recognition and derecognition of assets
and liabilities.[2]

e) Recognise the substance of transactions in
general, and specifically account for the
following types of transaction: [2]
i) Goods sold on sale or
return/consignment inventory
ii) Sale and repurchase/leaseback
agreements
iii) Factoring of receivables
f) Define a construction contract and discuss
the role of accounting concepts in the
recognition of profit.[2]
g) Describe the acceptable methods of
determining the stage (percentage) of
completion of a contract.[2]
h) Prepare financial statement extracts for
construction contracts.[2]
11. Government grants
a) Apply the provisions of relevant accounting
standards in relation to accounting for
government grants.[2]
C ANALYSING AND INTERPRETING
FINANCIAL STATEMENTS
1. Limitations of financial statements
a) Indicate the problems of using historic
information to predict future performance
and trends.[2]
b) Discuss how financial statements may be
manipulated to produce a desired effect
(creative accounting, window dressing).[2]

c) Explain why figures in a statement of
financial position may not be representative
of average values throughout the period for
example, due to: [2]
i) Seasonal trading
ii) Major asset acquisitions near the end of
the accounting period
2 Calculation and interpretation of
accounting ratios and trends to address
users' and stakeholders' needs
a) Define and compute relevant financial
ratios.[2]
b) Explain what aspects of performance specific
ratios are intended to assess.[2]

i) An entity's previous period's financial
statements
ii) Another similar entity for the same
reporting period
iii) Industry average ratios
d) Interpret an entity's financial statements to
give advice from the perspectives of different
stakeholders.[2]
e) Discuss how the interpretation of current
value based financial statements would differ
from those using historical cost based
accounts.[1]
3. Limitations of interpretation techniques
a) Discuss the limitations in the use of ratio
analysis for assessing corporate

performance.[2]
b) Discuss the effect that changes in
accounting policies or the use of different
accounting polices between entities can have
on the ability to interpret performance.[2]
c) Indicate other information, including nonfinancial information, that may be of
relevance to the assessment of an entity's
performance.[1]
d) Compare the usefulness of cash flow
information with that of a statement of profit
or loss or a statement of profit or loss and
other comprehensive income.[2]
e) Interpret a statement of cash flows (together
with other financial information) to assess
the performance and financial position of an
entity.[2]
f) i) Explain why the trend of eps may be a
more accurate indicator of performance
than a company's profit trend and the
importance of eps as a stock market
indicator [2]
ii) Discuss the limitations of using eps as a
performance measure[3]
4. Specialised, not-for-profit and public
sector entities
a) Discuss the different approaches that may
be required when assessing the performance
of specialised, not-for-profit and public
sector organisations.[1]

c) Analyse and interpret ratios to give an
assessment of an entity's performance and
financial position in comparison with: [2]

© ACCA 2014 All rights reserved.
Introduction

xix


D PREPARATION OF FINANCIAL
STATEMENTS
1. Preparation of single entity financial
statements
a) Prepare an entity's statement of financial
position and statement of profit or loss and
other comprehensive income in accordance
with the structure prescribed within IFRS
and content drawing on accounting
treatments as identified within A, B and C.[2]
b) Prepare and explain the contents and
purpose of the statement of changes in
equity.[2]
c) Prepare a statement of cash flows for a
single entity (not a group) in accordance
with relevant accounting standards using the
direct and the indirect method .[2]
2. Preparation of consolidated financial
statements including an associate
a) Prepare a consolidated statement of financial

position for a simple group (parent and one
subsidiary and associate) dealing with pre
and post acquisition profits, non-controlling
interests and consolidated goodwill.[2]

© ACCA 2014 All rights reserved.

xx

Introduction

b) Prepare a consolidated statement of profit or
loss and consolidated statement of profit or
loss and other comprehensive income for a
simple group dealing with an acquisition in
the period and non-controlling interest.[2]
c) Explain and account for other reserves (eg.
share premium and revaluation reserves).[1]
d) Account for the effects in the financial
statements of intra-group trading.[2]
e) Account for the effects of fair value
adjustments (including their effect on
consolidated goodwill) to: [2]
i) Depreciating and non-depreciating noncurrent assets
ii) Inventory
iii) Monetary liabilities
iv) Assets and liabilities not included in the
subsidiary's own statement of financial
position, including contingent assets and
liabilities

f) Account for goodwill impairment.[2]
g) Describe and apply the required accounting
treatment of consolidated goodwill.[2]


SUMMARY OF 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)

Apply the requirements of relevant accounting standards
for biological assets.

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 where a 'true and fair' override
may apply.

B2a)

Describe the structure and objectives of the
IFRS Foundation, the International
Accounting Standards Board (IASB), the IFRS
Advisory Council (IFRS AC) and the IFRS
Interpretations Committee (IFRS IC).[2]

B9b)

Record entries relating to income tax in the
accounting records.

E1c)

Recognise how related party relationships
have the potential to mislead users.

This has been removed to clarify
that no knowledge of disclosure of
related parties is required.

Table 2 – Changes to the structure of the syllabus of F7
There have been changes to how certain outcomes are grouped into sections within the syllabus. The
outline of these changes are outlined below:


The conceptual and regulatory framework outcomes have been combined into one section. This
section, A, also now includes the concepts relating to group accounting



The outcomes relating to substance over form, revenue and construction contracts have been
grouped together in subject area B10



The outcome relating to government grants (previously grouped with the non-current assets
outcomes) has been separately classified as subject area B11 to clarify that both revenue based
and capital grants can be examined.



Preparation of financial statements of both single entities and groups are now combined within
section D

© ACCA 2014 All rights reserved.
Introduction

xxi


xxii

Introduction

The conceptual
framework

Topic list

Syllabus reference

1 Conceptual framework and GAAP

A1

2 The IASB's Conceptual Framework

A1

3 The objective of general purpose financial reporting

A1

4 Underlying assumption

A1

5 Qualitative characteristics of useful financial information

A1

6 The elements of financial statements

A2

7 Recognition of the elements of financial statements

A2

8 Measurement of the elements of financial statements

A2

9 Fair presentation and compliance with IFRS

A2

Introduction
A conceptual framework for financial reporting can be defined as an attempt to
codify existing generally accepted accounting practice (GAAP) in order to
reappraise current accounting standards and to produce new standards.
Under IFRS we have the IASB Conceptual Framework.

1


Study guide
Intellectual level
A1

The need for a conceptual framework and the characteristics of useful
information.

(a)

Describe what is meant by a conceptual framework of accounting

2

(b)

Discuss whether a conceptual framework is necessary and what an
alternative system might be

2

(c)

Discuss what is meant by relevance and faithful representation and describe
the qualities that enhance these characteristics

2

(d)

Discuss whether faithful representation constitutes more than compliance
with accounting standards

1

(e)

Discuss what is meant by understandability and verifiability in relation to the
provision of financial information

2

(f)

Discuss the importance of comparability and timeliness to users of financial
statements

2

A2

Recognition and measurement

(a)

Define what is meant by 'recognition' in financial statements and discuss
the recognition criteria

2

(b)

Apply the recognition criteria to:

2

(c)

(i)

Assets and liabilities

(ii)

Income and expenses

Explain the following measures and compute amounts using:
(i)

Historical cost

(ii)

Fair value/current cost

2

(iii) Net realisable value
(iv) Present value of future cash flows

1 Conceptual framework and GAAP
FAST FORWARD

There are advantages and disadvantages to having a conceptual framework.

1.1 The search for a conceptual framework
A conceptual framework, in the field we are concerned with, is a statement of generally accepted
theoretical principles which form the frame of reference for financial reporting.
These theoretical principles provide the basis for the development of new accounting standards and the

evaluation of those already in existence. The financial reporting process is concerned with providing
information that is useful in the business and economic decision-making process. Therefore a conceptual
framework will form the theoretical basis for determining which events should be accounted for, how
they should be measured and how they should be communicated to the user. Although it is theoretical in
nature, a conceptual framework for financial reporting has highly practical final aims.
The danger of not having a conceptual framework is demonstrated in the way some countries' standards
have developed over recent years; standards tend to be produced in a haphazard and fire-fighting
approach. Where an agreed framework exists, the standard-setting body act as an architect or designer,
rather than a fire-fighter, building accounting rules on the foundation of sound, agreed basic principles.

2

1: The conceptual framework  F7 Financial reporting