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ACCA Revision
Session:
F7 Financial
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Reporting
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(Day 2)

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Hamza Abdul Haq

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14th Nov 2017

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Overall
Days Course
AgendaPlan

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Day 1 Accounting Standards

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 Tangible non-current assets (IAS 16, IAS 40, IAS 23)
 Financial instruments (IFRS 9)

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 Taxation (IAS 12)

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 Revenue (IFRS 15)
 Accounting Standards

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Day 2
 Leasing (IFRS 16)

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 Intangible assets (IAS 38)
 Impairment of assets (IAS 36)
 Non-current assets held for sale (IFRS 5)

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 Government grants (IAS 20)

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 Final Accounts (Triage)
Day 3 Final Accounts (Xtol, Downing)

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Day 4

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Consolidation (Dargent, Laurel)
Day 5

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Ratios (Funject, Landing)
Day 6 Mock Debrief
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Leases

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Leases
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Accounting

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Lease

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Year 0
Dr. Right to use
Cr. Lease liability
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 Low value asset
 Short term lease (< 1 year)

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Cr. Bank

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Accounting
Year 1  Rentals are recorded as an

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Dr. Finance cost expense on straight line basis.
Cr. Lease liability

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𝑇𝑜𝑡𝑎𝑙 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠
 𝐸𝑥𝑝𝑒𝑛𝑠𝑒 = 𝐿𝑒𝑎𝑠𝑒 𝑡𝑒𝑟𝑚
Dr. Lease liability

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Cr. Bank

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Example 1 – Rentals in arrears
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An entity acquired a plant on lease for 4 years on 1st January 2010 with an annual

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lease rentals of $12m payable at the end of each year. Implicit rate in the lease

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was 10%. The present value of minimum lease payments was $38m.

Year b/d Interest Rentals

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Repayment c/d

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Example 2 – Rentals in Advance
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An entity acquired a plant on lease for 4 years on 1st January 2010 with an annual

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lease rentals of $12m payable at the end of each year. Implicit rate in the lease

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was 10%. The present value of minimum lease payments was $38m.

Year b/d Interest Rentals

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Repayment c/d

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Sale and Leaseback
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Dr. Bank

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Dr. Right to use

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Cr. Asset

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Cr. Lease Liability

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Cr. PnL (Bal. Fig.)

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𝐿𝑒𝑎𝑠𝑒 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦

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% Retained =
𝐹𝑎𝑖𝑟 𝑣𝑎𝑙𝑢𝑒

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Example 3 – Sale and leaseback
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An entity sold a plant with a carrying amount of $80m at its fair value of $100m.

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The plant had a remaining life of 10 years. On the same date the plant was leased

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back for the next 6 years with an annual rental of 12m payable in arrears. The rate
implicit in the lease is 10%.

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IAS 38

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Intangible assets

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Purchased Intangible Asset
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Intangible Asset

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Purchased

d u Internally Developed

 Criteria’s
 Cost can be measured reliably

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 It is probable that economic benefit
associated with the asset will flow to

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the entity.
 The above criteria’s are by default met

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and every purchased intangible asset is

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always capitalised
 In case of any uncertainty impairment

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testing will be done.
 Research Purchased is also capitalised.
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Internally Developed Intangible Asset
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Internal

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Development

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Research Development

 Internal Research (Expensed)

 External Research (Expensed)

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 Technically feasible

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 Third Party Research (IFRS 15)  Commercially viable
 Intension & Ability to complete the

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asset either for use or to sell.
 Reinstatement is not allowed

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 If the development cost cannot be

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separately identified, it is expensed out.

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Amortisation & Impairment
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Life

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Finite

d u Indefinite

 Amortise at each year end.

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 Impairment test at each year end.
 Reassess the life at each year end if the

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life change from indefinite to finite, it will

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treated prospectively ass a change in
accounting estimate under IAS 8.

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IAS 38
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IAS 36 –
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Impairment of
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Assets

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Calculating Impairment
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 Impairment = Carrying amount – Recoverable amount

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 Recoverable amount is the higher of
 Fair value less cost to sell and
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 Value in use (Present value of all future cash flows)
 Impairment loss shall be recognised in R.R (if any) with

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excess taken profit and loss

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Indications of Impairment
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Indications of

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Impairment

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Internal indications External Indications

 Asset being damaged

 Results below expectation

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 Increase in Interest rates

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 Development of intention to sale  Technological advancements

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Assets to be impairment tested Annually
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1. Goodwill under Business Combination (IFRS 3)

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2. Intangible asset with indefinite useful lives

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3. Intangible asset under development

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Cash Generating Unit
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 A cash generating unit is the smallest identifiable group of assets for

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which individual cash flows can be identified and measured.

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 Assets which cannot be tested for impairment individually are tested

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for impairment by considering them as a part of Cash Generating Unit
 Loss in a cash generating unit is allocated in the following sequence:

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 Goodwill

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 Obviously impaired asset

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 Pro-rate amongst the remaining assets that fall under the scope of
IAS 36.

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IAS 36
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IFRS 5
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NCA Held for
sale &
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Discontinued
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operations

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Criteria’s
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 Management is committed to a plan to sell the asset.

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 An active program to locate a buyer exists

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 Reasonable price is quoted

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 Asset is immediately available for sale

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 It is probable that the asset will be sold within 12 months
 Management actions should not suggest that the plan will either be

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changed or be withdrawn.

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Accounting
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 NCA to CA

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 No depreciation will be charged

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 Asset is carried at lower of

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 Carrying amount before impairment

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 Fair value less cost to sell

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IFRS 5
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IAS 20
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Government
grants
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Types of Government Grant
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Types of

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Government Grants

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Capital Grant Revenue Grant

Deferred Income

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Netting Off
Treated as other income

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Yr 0 Yr 0
Dr. Asset

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Dr. Asset
Cr. Bank Cr. Bank
Cr. Government Grant

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Yr 1

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Yr 1 Dr. Depreciation Exp.
Dr. Depreciation Exp. Cr. Asset

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Cr. Asset

Dr. Government Grant ©ACCA

Cr. Other income
IAS 20
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IAS 20
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A b Final Accounts

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Past paper Question

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Triage - Sept 2016

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Questions or comments?

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Thank you 
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