ACCA F7 Financial reporting [INT]

Sample Study Note

For exams in June2014

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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 .......................................................................................... 5 Live online note sample plan ........................................................................... 6 Live online course timetable: ........................................................................... 7 IAS 8 Accounting policies, changes in accounting ............................................. 11 estimates and errors .................................................................................... 11

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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content

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Oxford Brookes BSc in Applied Accounting

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Live online note sample plan

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Live online tuition note plan for June2014 F7 Exam [Only for super / gold package (there would be a unique plan for gold package)]

Live sessions: [2 hours/session---live online + recorded after class]:

Live session1: Accounting standards summary Live session2: Published account Live session3: Consolidated statement of financial position+consolidated statement of profit or loss and other comprehensive income Live session4: statement of cash flow and interpretation

Live revision note for June2014 F7 exam: [will be available since mid April 2014]: Live revision1+2: [There would be a separate live revision note detailing all past exam questions with answers to go through]

Live online course timetable:

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Live session/revision for F4-P7

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*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 years account then the company should adjust for this year and last years 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 theres 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 theres a

Misuse of the accounting standard last year; Fraud happended last year; Omit some figures in last years 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 years statement of changes in equity.

Material prior period errors found: Correct last years material errors; Adjust for last year closing retained earnings taken into account in the error effect to be brought forward in this years 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 $000 Profit before interest and tax Finance costs Profit before tax Income tax expense Profit after tax 8,700 (2,500) 6,200 (1,900) 4,300

2012 $000 6,200 (1,750) 4,450 (1,400) 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 14apitalization 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 Sales Cost of sales Gross profit Tax expense Profit after tax 52,100 (33,500) 18,600 (4,600) 14,000 2012 48,300 (30,200) 18,100 (4,300) 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?

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