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ACCA F7 Financial reporting [INT]

Sample Study Note

For exams in DEC2014

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© Lesco Group Limited, April 2015

All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system, or transmitted, in any form or by any means, electronic,

mechanical, photocopying, recording or otherwise, without the prior written

permission of Lesco Group Limited.

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Sample Note Content:

Main study note content [Total Pages: 210] ...................................................... 4

Product Summary .............................................. Error! Bookmark not defined.

Live online note sample plan ............................... Error! Bookmark not defined.

Live online course timetable: ............................... Error! Bookmark not defined.

IAS 8 Accounting policies, changes in accounting ............................................... 8

estimates and errors ...................................................................................... 8

Please note:

This is just the sample study note extracted from the main study note in your tuition study

[This tuition study note is consistent in basic/super/gold package]. There would be more

chapters in the main study note covering the whole ACCA syllabus.

You can also take a look at the content within the main study note below:

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Main study note content [Total Pages: 210]

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Product Summary

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Live online course timetable

Timetable: [Super+Gold package-additional revision would

be agreed between tutor and student]

Live Online Revision

Live revision1 Live revision2

F5 Performance management 25th Oct 7:00a.m.-14:00 22nd Nov 6:00a.m.-13:00

F7 Financial Reporting (INT) 2nd Nov 6:00a.m.-13:00 29th Nov 6:00a.m.-13:00

F8 Audit and Assurance (INT) 18th Oct 7:00a.m.-14:00 19th Oct 7:00a.m.-14:00

F9 Financial Management 4th Oct 7:00a.m.-14:00 5th Oct 7:00a.m.-14:00

P1 Governance, Risk and

Ethics 1st Nov 6:00a.m.-13:00 30th Nov 6:00a.m.-13:00

P2 Corporate Reporting (INT) 26th Oct 7:00a.m.-14:00 9th Nov 6:00a.m.-13:00

P3 Business Analysis 11th Oct 7:00a.m.-14:00 12th Oct 7:00a.m.-14:00

P4 Advanced Financial

Management 8th Nov 6:00a.m.-13:00 23rd Nov 6:00a.m.-13:00

P5 Advanced Performance

management 15th Nov 6:00a.m.-13:00 16th Nov 6:00a.m.-13:00

P7 Advanced Audit and

Assurance (INT) 27th Sept 7:00a.m.-14:00 28th Sept 7:00a.m.-14:00

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Last minute revision

Last minute revision Tutor

F5 Performance management 28th Nov 12:00-14:00 Ian

F7 Financial Reporting (INT) 1st Dec 12:00-14:00 Steve

F8 Audit and Assurance (INT) 22nd Nov 14:30-16:30 Alan

F9 Financial Management 22nd Oct 12:00-14:00 Steve

P1 Governance, Risk and Ethics 30th Nov 13:30-15:30 Alan

P2 Corporate Reporting (INT) 16th Nov 14:00-18:00(4hrs) Kieran

P3 Business Analysis 18th Oct 14:30-16:30 Alan

P4 Advanced Financial Management 19th Nov 12:00-14:00 Steve

P5 Advanced Performance management 21st Nov 12:00-14:00 Ian Janes

P7 Advanced Audit and Assurance (INT) 23rd Nov 13:30-15:30 Alan

*Please Note: This Timetable may be subjected to future changes. Kindly check regularly for any possible updates.

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IAS 8 Accounting policies, changes in accounting

estimates and errors

If the company is going to use another accounting policy this year and find an error

relating to last year’s account then the company should adjust for this year and last

year’s financial statements.(retrospective adjusting)

if the company is going to use another accounting estimate this year and the

company should adjust for current year financial statements and future

one.(prospective adjusting)

But how to determine whether this is a change in accounting policy or estimate?

Well, if there’s a change in

Measurement basis of the figure, eg, value the inventory using FIFO but now use weighted average method; use replacement cost rather than historic cost.

Recognition basis of the figure, eg, recognize as an expense before but now for asset(eg,IAS 23 borrowing costs)

Presentation basis of the figure, eg, recognize the depreciation expense into cost

of sales now rather than in administrative expenses before.

You are going to change in the accounting policy only if:

1, a change in laws / accounting standards and you are required to do so;

2, gives a fairer presentation to the users of FS.

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And anything that is not changing the measurement, recognition or presentation of

figures are deemed to be a change in accounting estimate such as:

Allowance for receivables; Useful life/ depreciation method of the non-current assets; Warranty provision relating to return of goods from customers.

An error may happen if there’s a

Misuse of the accounting standard last year;

Fraud happended last year; Omit some figures in last year’s account.

Accounting Summary:

Changes in accounting policy this year:

Assume it happens in last year as well and of course this year happens;

Adjust for last year closing retained earnings taken into account in the changes to

be brought forward in this year’s statement of changes in equity.

Material prior period errors found:

Correct last year’s material errors;

Adjust for last year closing retained earnings taken into account in the error effect

to be brought forward in this year’s statement of changes in equity.

Changes in accounting estimate:

Use the new one to continue the calculation.

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Q Account Ltd (accounting policy and accounting estimate)

1, Account Ltd charged interest expenses incurred from the construction of tangible

non-current assets to the income statement before but now it capitalizes the

interest as an addition to the cost of tangible non-current asset as per IAS 23

borrowing costs.

2, Account Ltd depreciate the machine using the reducing balance basis method at

30% but now it use the new depreciation method over 10 years.

3, Account Ltd shows overhead expenses within cost of sales before but now it

shows under administrative expense.

4, Account Ltd has previously measured invenroty at weighted average cost but

now it uses FIFO method.

Required:

Whether the above transactions are a change in accounting policy or accounting

estimate.

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Q Martin Construction (change in accounting policy)

Martin Construction incurs significant finance costs on its financing for the construction of

supermarkets. Its chosen accounting policy to date has been expense the finance costs as

incurred. The final accounts for the year ended 31 December 2012, and the 2013 draft

accounts, reflect this policy and show the following.

2013 2012

$000 $000

Profit before interest and tax 8,700 6,200

Finance costs (2,500) (1,750)

Profit before tax 6,200 4,450

Income tax expense (1,900) (1,400)

Profit after tax 4,300 3,050

Retained earnings B/F: 26,050 23,000

The directors of Martin Construction have now decided to change the accounting policy in

2013 to 11apitalization of finance costs per IAS23. Martin Construction incurs no finance

costs other than those related to the construction of the supermarkets.

Martin Construction paid a dividend of $1m during the year ended 31 December 2013.

Required:

Show how the change in accounting policy will be reflected in the income

statement and statement of changes in equity for the year ended 31 December

2013.

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Q JJK (prior period errors)

During the year 2013 JJK Ltd discovered certain items that had been included in

inventory at 31 DEC 2012 at a value of $2.5m but they had been in fact sold before

the year end.

The income statement below for JJK for 2012 and 2013 are as follows:

2013 2012

Sales 52,100 48,300

Cost of sales (33,500) (30,200)

Gross profit 18,600 18,100

Tax expense (4,600) (4,300)

Profit after tax 14,000 13,800

The retained earnings at 1 Jan 2012 were $11.2million.

Required:

Show the 2013 income statement with comparative figures and the retained

earnings for each year.

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Q Giant (changes in accounting estimate)

Giant Ltd has an asset which was purchased for $80,000 on 1 January 2005 when

its useful life was estimated to be ten years with a residual value of $10,000. A

straight line depreciation policy was selected. On 1 January 2011 the directors

reviewed the useful life of the asset and found that it had a remaining life of eight

years.

Required:

Calculate the NBV as at 31 December 2011?