ACCA financial reporting paper f7 BPP study program for f7

High Priority Examined: Pilot Paper Step 1 Exam Guidance This could form part of question 4 or 5, as in the pilot paper.. High Priority Examined: Pilot Paper Step 1 Exam Guidance Thi

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Financial Reporting (UK) Fundamentals Level – Paper F7 Study Text Edition

June 2008

AH08 – F7 (UK)

For exams in December 2008 and June 2009

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Introduction

Welcome to the ACCA Home Study programme for Paper F7 Financial Reporting (UK) This programme provides a

step by step guide through your study thus enabling you to study more effectively

This programme will guide you through the June 2008 edition of the BPP Study Text Make sure your Study Text has

this date on the cover – if it does not, please contact BPP

BPP's '3 steps to success'

This Home Study Programme follows BPP’s ‘3 steps to success’:

Work through the syllabus using the detailed study periods and the personal study planner This step starts on page 1

Use questions from the BPP Practice and Revision Kit to test your knowledge and exam technique See page 37 for details of Step 2

A full mock exam that is marked by the BPP Professional Education marking team You can also think about enrolling on a BPP revision course to supplement your Home Study programme See page 39 for details of this step

Supporting you all the way

BPP prides itself on the level of support it offers to Home Study students There are various ways in which we can

help

Technical and study support

The principal author for this paper is Mary Maclean If you have any difficulty with your studies, you can get in touch

with Mary or one of her team by emailing accaqueries@bpp.com Alternatively, please telephone (0845 0751 100 for UK-based students or + 44 (0)20 8740 2338 from outside the UK) You can fax your query to + 44 (0)20 8740 2293

or write to the Home Study Administrators at

BPP Professional Education

ACCA Home Study

BPP House

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• Paper name/number

• Material reference and version (eg Study Text 2008, Practice and Revision Kit 2009)

• Page or question number

• A brief description of your query

Remember to include your name, student number and a contact number if necessary

Please make your query as specific as possible

2 Start Microsoft Word (You can do this while i-Pass is running – click on the start button, then select Microsoft Word from the programs option.)

3 Paste the image from the clipboard into a new Word document Do this by selecting Edit, Paste – or by using the Paste button on the Word toolbar

4 Save the document with a meaningful name, eg iPass_PaperF7_query.doc

5 E-mail the document, with details of your query, to accaqueries@bpp.com If you make contact by phone, you will be asked to e-mail or post a copy of the document

Course administration support

If you have any course administration issues, such as amending exam submission dates, then please call BPP

Professional Education on 0845 0751 100 (UK only, local rate) or + 44 (0)20 8740 2338 if calling from outside the UK Study Guidance on MP3s and Learning to Learn Accountancy

Listen to BPP tutor guidance on your computer or MP3 player by downloading MP3 files from

www.bpp.com/acca/homestudy/mp3s

Whether you are about to start your studies or continuing them, BPP's Learning to Learn Accountancy will help you

learn efficiently and effectively It also provides essential guidance on dealing with your exam If you would like to obtain a copy e-mail accaqueries@bpp.com with your details

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Using the Home Study Programme

This Home Study Programme is made up of 24 Study Periods (see page 3) Each Study Period consists of the

following elements

Guidance through the Study Text

This provides you with important instructions on

how to work through the BPP Study Text You

must follow the guidance in this table for time

efficient study, as you will be told which areas of

each chapter must be worked through in detail

and which can be skimmed over It contains key

points, summarising the most vital areas of the

Study Period Try any examples in the Study

Text as you go along.

Exam Guidance

This gives an introduction to each Study Period

by explaining the emphasis that the examiner has

placed on the topics to be covered on the basis

of the pilot paper, past exams and discussions

with BPP

Introduction to the session

Here you are introduced to the subject and the

main issues that you should understand when

you have finished your study You are also

directed to the relevant BPP Learn Online or

i-Learn module Tips for using Learn Online

can be found at www.bpp.com/acca/learnonline

and selecting FAQs

The Big Picture

Revisit the Big Picture as directed to see how what you have studied fits into the overall

Question Practice

Once you have studied the subject you are ready

to test your understanding and application skills Use the Quick Quizzes, i-Pass and Study

Text Question Bank questions as directed

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Re-You will find a detailed Personal Study Planner on page 3 of this Home Study programme This will help you plan the

dates on which you will complete each study period and when to submit your course exams

Progress Tests

Some of the Study Periods are 'Progress Tests' which you can use to assess

the work you have done on a limited number of Study Periods You should

mark the tests yourself using the solutions at the end of this Study Programme

Course Exams

You are required to submit two course exams which are incorporated into the

Learn stage of your studies (see Personal Study Planner) You should send

these exams to BPP Professional Education for marking You will receive a

detailed analysis of your performance, together with suggested solutions,

which should help to improve your exam technique as well as pointing out

strengths and weaknesses in your understanding This feedback will be

invaluable leading up to the 'Practise and Revise' and 'Final Rehearsal' steps

in your study

Exam Timetable

To help you plan your study time, you will receive separately an

Exam Timetable with recommended dates for submission of course exams Should these dates prove impractical, please feel free to amend them to suit your own planned schedule To gain the greatest benefit from the exams you must set aside a period of three hours and fifteen minutes during which you will have no interruptions

BPP's i-Pass CD Rom

Your Home Study Course includes BPP's i-Pass CD-Rom It enables you to attempt tests, making it an ideal practice and revision tool

i-Pass has two modes (or three for F1, F2 and F3) The first one is 'Test as you learn' This allows you to test yourself

on the areas that you are studying at the time or a combination of different areas Use the sliders to choose the number of questions to do to fit the time you have available

The second mode provides exam practice by creating an exam containing questions selected at random from those

within 'Test as you learn' for you to answer or, if appropriate to your paper, exam scenarios for you to attempt Papers examined by Computer Based Exam (F1, F2 and F3) include a third mode, 'Final mock exam'

The Final mock exam contains questions not included within 'Test as you learn' Attempt this to check you're ready for

the real thing

Each mode gives you comprehensive feedback on the questions and your performance

BPP's 'Big Picture'

The 'Big Picture' diagrams provide you with an overview of the subject and build up a framework containing the key

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Use this schedule and your exam timetable to plan the dates on which you will complete each Study Period The letters

'H' and 'M' tell you whether the topic is high or medium priority

Detailed guidance and prioritisation of each Study Period begins on page 6

13 Stocks and long-term contracts

H

14 Provisions, contingent liabilities and

H

18 Accounting for taxation

H

19 Earnings per share H

20 Analysing and interpreting financial statements

H

21 Limitations of financial statements and interpretation techniques

M

22 Statements of cash flows

H

23 Alternative models and practices/ Not-for profit entities

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Financial Reporting (F7)

Conceptual framework Regulatory framework

Financial statements Analysing and interpreting

financial statements

Business combinations

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This is a broad syllabus dealing with all aspects of financial reporting The format of the exam allows the examiner to test a large part of the syllabus at each sitting, and he will do so He wants this paper to act as a good basis for your later studies in Paper 8

The two main areas are preparation of financial statements for single companies and for groups After looking at the conceptual and regulatory frameworks within which financial statements are prepared, we go on to deal with the profit and loss account and balance sheet formats and the application of financial reporting standards dealing with fixed

assets, leases, provisions, tax and long-term contracts The cash flow statement is another important topic 25% of the exam is on group accounts, which appears under the ‘Business combinations’ section of the Big Picture Diagram You have to be able to prepare a consolidated balance sheet and profit and loss account and deal correctly with an

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High Priority

Examined: Pilot Paper

Step 1 Exam Guidance

This could form part of question 4 or 5, as in the pilot paper

Step 5 The Big Picture

This session is reflected in the Conceptual framework part of

the 'Big Picture' diagram

Step 2 Introduction to the session

This chapter deals with the ASB Statement which is the

conceptual underpinning to FRSs

This is covered in i-Learn module ‘Framework for financial

statements’

Step 4 Question Practice

When you have finished the chapter do the Quick Quiz If you have any problems, make sure you go back and re-read the chapter section

i-Pass module 'The conceptual and regulatory frameworks' Try question 1 in the Question Bank of the Study text

Step 3 Guidance through the Study Text

The Statement will be referred to throughout the text and you should become familiar with its provisions and understand their

relevance to financial reporting

Make sure you know:

• The elements of financial statements

• The qualitative characteristics of financial statements

The conceptual framework

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Medium Priority

Examined:

This will not be a major topic for your exam but could appear as

part of questions 4 or 5

This session is reflected in the Regulatory framework part of

This section deals with the role and structure of the ASB and the

standard-setting process

See i-Learn module ‘Framework for financial statements’

i-Pass module 'The conceptual and regulatory frameworks' Study Text Question Bank – Questions 2 and 3

This Chapter gives you the background to the formulation of accounting standards Make sure you know:

• The difference between 'principles-based' and 'rules-based' systems of regulation

• The role of the ASB

• The standard-setting process

The regulatory framework

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High Priority

This chapter is vital and its contents will be tested in Questions

1 and 2

This session is reflected in the Financial statements part of the

'Big Picture' diagram

In this chapter we introduce the formats and requirements for

published financial statements

This is covered in i-Learn module ‘Framework for financial

statements’

i-Pass module 'Published accounts and reporting performance' Study Text Question Bank – Question 4

This is an important chapter You must know:

• The balance sheet and profit and loss account formats

• Items to be disclosed on the face of the balance sheet/ profit and loss account

You will have plenty of opportunity to practice using these formats as you go through the study text

Presentation of published financial statements

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High Priority

Fixed assets are an important exam topic You may get a whole

question on this and it will certainly feature in Question 2, as in

the pilot paper

This session deals with tangible fixed assets and related topics

such as investment property and government grants

This is covered in i-Learn module ‘Fixed assets’

i-Pass module 'Fixed assets'

Study Text Question Bank – Question 6

The most important part of this chapter is the coverage of FRS 15 Much of the treatment of fixed assets and depreciation should be revision from earlier papers Government grants and investment properties may appear in the accounts preparation question

The key areas are:

• Cost of a fixed asset

• Revaluation and depreciation following revaluation

• Disposals

Fixed assets

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High Priority

Intangible assets were regularly examined under the old syllabus

and could appear in any of the paper

This session deals with intangible assets, including goodwill

The major topic here is the criteria for recognition of an intangible asset You must be able to apply the provisions of FRS 10 to brands, trademarks, patents and similar assets and apply SSAP 13 on research and development costs

Intangible assets

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High Priority

Examined:

Impairment is most likely to be tested as part of Questions 1 or

2 It was tested as a whole question under the old syllabus in

December 2005

This session deals with impairment of assets and the

requirements of FRS11

This is not a particularly complex topic and the issues you must pay particular attention to in Chapter 6 are:

• Definition of impairment How to recognise that impairment has taken place

• Cash generating units

• Allocation of an impairment loss

Impairment of assets

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High Priority

Examined:

This is important material for Question 2 in your exam It could

also appear in Questions 4 or 5

This sessions deals with FRS 3, which is an important standard

for accounts preparation

This is covered in i-Learn module ‘Accounting standards’

i-Pass module 'Published accounts and reporting performance' Study Text Question Bank – Question 5

There are a lot of important issues covered in this chapter You must be able to deal with:

• Discontinued operations, and

• Prior period adjustments

You must be able to produce the FRS 3 statements:

• Statement of total recognised gains and losses

• Reconciliation of movements in shareholders' funds

Reporting financial performance

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Medium Priority

The material in this chapter will not be tested as a topic, but is

important background for the consolidation question The pilot

paper consolidation question tested students' understanding of

what constituted a subsidiary

This session is reflected in the Business combinations part of

In this session we introduce group accounts and look at the

structure of a group

This is covered in i-Learn module ‘Introduction to groups’

i-Pass module 'Group accounts'

The important issues here are:

• Definition of a subsidiary – based on 'control'

• Exclusion of a subsidiary from consolidation under FRS 2

• Related parties – the examiner has stated that the related parties issue will be examined in the context of groups

Introduction to groups

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High Priority

Your exam will have a consolidation question It could be a

balance sheet, an income statement or possibly both The pilot

paper has a consolidated balance sheet

This session covers the consolidated balance sheet and all the

necessary adjustments

See i-Learn module ‘The consolidated balance sheet’

Study Text Question Bank – Questions 8, 9, 10

This is a long chapter and is one of the most important chapter in the text Make a note to come back and redo this chapter when you get to the end You must be able to deal with goodwill on acquisition and calculate consolidated reserves, in addition to adjustments for:

• Unrealised profit

• Fair value

• Intercompany transfers of assets

• Intercompany debtors/ creditors/ loans

The consolidated balance sheet

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High Priority

Examined:

The consolidation question may involve a profit and loss

account rather than a balance sheet You must be able to do

both

This session covers the preparation of the consolidated profit

and loss account

See i-Learn module ‘The consolidated profit and loss account’

Study text Question Bank – Questions 11, 12, 13

The main issues to learn from this chapter are:

• Treatment of a subsidiary acquired during the year – results will have to be split between pre-and post-acquisition

• Elimination of intercompany trading

• Calculation of minority interest – remember to include this when setting out the profit and loss account pro-forma

The consolidated profit and loss account

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High Priority

Question 1 may have an associate Question 1 in the pilot paper

had a consolidated balance sheet with an associate

This session covers the treatment of associates, which are

accounted for using the equity method

See i-Learn module ‘Accounting for associates’

Study text Question Bank – Question 14

The important points covered in this chapter are:

• The definition of an associate – based on 'significant influence'

• Calculation of 'investment in associate' in the balance sheet

• Treatment of results of associate in the profit and loss account

Note also possible adjustments for unrealised profit or impairment

Accounting for associates

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High Priority

Progress Test 1

In order to reinforce what you have learnt so far, answer the following questions Try to answer them without

referring to your Study Text or notes The test should take you no longer than 30 minutes and covers Study Periods

1–11 Solutions are at the back of this Study Programme

1 Deborah plc purchased the assets of a software business for a consideration of £1 million

The book values of the assets acquired (and fair values where appropriate) were as follows

Book value Fair value

2 The accountant of Pami plc, a construction company, has for the purposes of internal management decision

making, listed the costs and market values of the company's buildings as on 31 March 20X9 and the depreciation charges for the year ended on that date These are as follows:

Completed buildings held as investments

Leasehold – more than 20 but less

If the calculations for depreciation are used as the basis for the depreciation charge on buildings shown in the financial statements of the company for the year ended 31 March 20X9, what will be the depreciation charge in the financial statements?

A £20,000

B £27,500

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High Priority

Progress Test 1 (con't)

Data for Questions 3 & 4

Bruce Ltd acquired all 200,000 of Sheila Ltd's ordinary shares The consideration comprised 50p cash for each Sheila share and one Bruce share (market value 500p, nominal value 100p) for every two Sheila shares Bruce did not

previously own any of Sheila's equity

Immediately before the combination, their summarised balance sheets were as follows

4 What will be the value of the Bruce Group's consolidated sundry net assets and share capital?

Sundry net assets Share capital

A £598,000

B £671,000

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High Priority

6 The following details relate to a non-specialised property:

How would the revaluation loss be treated?

Profit and Statement of total recognised loss account gains and losses

8 Which of the following would be included as a 'discontinued activity' for a company with a year end of 31

December 20X9 and whose financial statements were approved on 14 April 20Y0?

(i) Closure of a business division on 4 April 20Y0 (ii) Disposal of the company's European operations on 28 February 20Y0

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High Priority

9 Hedgehog Ltd has owned 100% of the issued share capital of Squirrel Ltd for many years Hedgehog Ltd sells

goods to Squirrel Ltd at cost plus 20% The following information is available for the year:

Turnover – Hedgehog £460,000

– Squirrel Ltd £120,000 During the year Hedgehog Ltd sold goods to Squirrel Ltd for £60,000 of which £18,000 were still held in stock

by Squirrel Ltd at the year end

At what amount should turnover appear in the consolidated profit and loss account?

A £520,000

B £530,000

C £538,000

D £562,000

10 Gerbil plc acquired 80,000 £1 ordinary shares in Bunny plc on 1 April 20X7 at a cost of £77,000 Bunny plc's

reserves at that date were £50,000 and its issued ordinary share capital was £100,000

At 31 March 20X8 Bunny plc's reserves were £40,000 The amount of the negative goodwill arising on consolidation is:

A £35,000

B £43,000

C £63,000

D £73,000

You will find the answers to this test at the end of this Study Programme If you answer more than 5 questions

correctly, your performance is satisfactory; if you answer more than 7 correctly, you are doing well Once you have reviewed how you have performed, go back over topics where you feel your understanding is poor

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