financial accounting and reporting ii

480 Pages·2015·6.05 MB·English

by  George Primentas

2015
FINANCIAL ACCOUNTING
AND REPORTING II
STUDY TEXT
CAF-07

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P
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Financial accounting and reporting II
Second edition published by
Emile Woolf International
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© Emile Woolf International, February 2015

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© Emile Woolf International ii The Institute of Chartered Accountants of Pakistan
Certificate in Accounting and Finance

Financial accounting and reporting II
C

Contents

Page
Syllabus objective and learning outcomes v
Chapter
1 Legal background to the preparation of financial statements 1
2 IAS 1: Presentation of financial statements 27
3 IAS 7: Statements of cash flows 63
4 Consolidated accounts: Statements of financial position –
Basic approach 125
5 Consolidated accounts: Statements of financial position –
Complications 155
6 Consolidated accounts: Statements of comprehensive income 183
7 IAS 16: Property, plant and equipment 199
8 IAS 38: Intangible assets 259
9 IAS 17: Leases 283
10 IAS 37: Provisions, contingent liabilities and contingent assets
and IAS 10: Events after the reporting period 351
11 IAS 8: Accounting policies, changes in accounting estimates
and errors 383
12 IAS 12: Income taxes 399
13 Ratio analysis 433
14 Ethical issues in financial reporting 451
Index 463

© Emile Woolf International iii The Institute of Chartered Accountants of Pakistan
Financial accounting and reporting II

© Emile Woolf International iv The Institute of Chartered Accountants of Pakistan
Certificate in Accounting and Finance

Financial accounting and reporting II
S

Syllabus objectives
and learning outcomes
CERTIFICATE IN ACCOUNTING AND FINANCE
FINANCIAL ACCOUNTING AND REPORTING II
Objective
To broaden the knowledge base of basic accounting acquired in earlier modules with
emphasis on International Financial Reporting Standards.

Learning Outcome
On the successful completion of this paper candidates will be able to:
1 prepare financial statements in accordance with the relevant law of the country
and in compliance with the reporting requirement of the international
pronouncements.
2 account for transactions relating to tangible and intangible assets including
transactions relating to their common financing matters.
3 understand the implication of contingencies; changes in accounting policies and
estimates; errors and events occurring after reporting period.
4 account for transactions relating to taxation.
5 demonstrate knowledge of basic ethical issues in preparation and reporting of
financial information.
6 apply financial analysis on given financial and non-financial information.

© Emile Woolf International v The Institute of Chartered Accountants of Pakistan
Financial accounting and reporting II
Grid Weighting
Final Accounts 8-12
Consolidation of single subsidiary 10-20
Accounting for tangible and intangible assets, leases and borrowing cost 25-35
Provisions and contingencies; changes in accounting policies and 25-35
estimates; errors and events occurring after reporting period; and taxation
Ethics 5-10
Financial analysis 5-10
Total 100

Contents Level Learning Outcome
Preparation of financial

statements – Final accounts
Preparation of financial 2 LO1.1.1: Prepare statements of financial
statements of limited position in accordance with the guidance in
companies in line with the IAS 1 from data and information provided
requirement of the Companies LO1.1.2: Identify the laws, regulations,
Ordinance, 1984 and reporting standards and other requirements
International Financial applicable to statutory financial statements of a
Reporting Standards (IAS 1 limited company
and 7 and others included in LO1.1.3: Prepare and present the following in
the syllabus) excluding accordance with the disclosure requirements of
liquidations reconstructions IAS1, Companies ordinance, fourth schedule /
and mergers fifth schedule.
 Statement of financial position
 Statement of comprehensive income.
 Statement of changes in equity
 Notes to the financial statements
LO1.1.4: Prepare statement of cash flows in
accordance with the requirements of IAS 7.
Preparation of financial
statements – Consolidation
of a single subsidiary
Elimination of investment in 1 LO1.2.1: Describe the concept of a group as a
subsidiary and parent’s equity single economic unit.
LO1.2.2: Define using simple examples
subsidiary, parent and control
LO1.2.3: Describe situations when control is
presumed to exist.
© Emile Woolf International vi The Institute of Chartered Accountants of Pakistan
Syllabus objectives and learning outcomes
Contents Level Learning Outcome
LO1.2.4: Identify and describe the
circumstances in which an entity is required to
prepare and present consolidated financial
statements
LO1.2.5: Eliminate (by posting journal entries)
the carrying amount of the parent’s investment
in subsidiary against the parent’s portion of
equity of subsidiary and recognize the
difference between the two balances as either
 goodwill; or
 gain from bargain purchase
Preparation of financial
statements – Consolidation

of a single subsidiary
(continued)
Identification of non-controlling 1 LO1.3.1: Define and describe non- controlling
interest interest in the case of a partially owned
subsidiary.
LO1.3.2: Identify the non-controlling interest in
the following.
 net assets of a consolidated subsidiary;
and
 profit or loss of the consolidated
subsidiary for the reporting period
Profit and loss from intra- 1 LO1.4.1: Post adjusting entries to eliminate the
company transactions relating effects of intergroup sale of inventory and
to assets and inventories depreciable assets.
without tax implications
Preparation of consolidated 1 LO1.5.1: Prepare and present simple
statements of financial position consolidated statements of financial position
involving a single subsidiary in accordance
with IFRS 10.
Preparation of consolidated 1 LO1.6.1: Prepare and present a simple
statements of comprehensive consolidated statement of comprehensive
income income involving a single subsidiary in
accordance with IFRS 10.
Accounting for tangible and
intangible assets, leases and
borrowing costs
Recognition, de-recognition, 2 LO2.1.1: Explain and apply the accounting
measurement, depreciation / treatment of property, plant and equipment and
amortization and measurement intangible assets.
after recognition of non- LO2.1.2: Formulate accounting policies in
current assets (IAS 16 and IAS respect of property, plant and equipment and
38) intangible assets.
© Emile Woolf International vii The Institute of Chartered Accountants of Pakistan
Financial accounting and reporting II
Contents Level Learning Outcome
Leases (IAS 17) 2 LO2.2.1: Describe the method of determining a
lease type i.e. an operating or finance lease.
LO2.2.2: Prepare journal entries and present
extracts of financial statements in respect of
lessee accounting, lessor accounting, and sale
and lease back arrangements after making
necessary calculations.
LO2.2.3: Formulate accounting policies in
respect of different lease transactions.
LO2.2.4: Analyse the effect of different leasing
transactions on the presentation of financial
statements.
Recognition of borrowing costs 2 LO2.3.1: Describe borrowing cost and
(IAS 23) qualifying assets using examples.
LO2.3.2: Identify and account for borrowing
costs in accordance with IAS 23.
LO2.3.3: Disclose borrowing costs in financial
statements.
LO2.3.4: Formulate accounting policies in
respect of borrowing cost.
Provisions and
contingencies; changes in
accounting policies and

estimates; errors and events
occurring after reporting
period
Provisions, contingent liabilities 2 LO3.1.1: Define liability, provision, contingent
and contingent assets (IAS-37) liability and contingent asset describe their
accounting treatment.
LO3.1.2: Distinguish between provisions,
contingent liabilities or contingent assets.
LO3.1.3: Understand and apply the recognition
and de-recognition criteria for provisions
LO3.1.4: Calculate/ measure provisions such
as warranties/guarantees, restructuring,
onerous contracts, environmental and similar
provisions, provisions for future repairs or
refurbishments.
LO3.1.5: Account for changes in provisions
LO3.1.6: Disclosure requirements for
provisions
Accounting policies, changes 2 LO3.2.1: Define accounting policies,
in accounting estimates; and accounting estimates and prior period errors.
errors (IAS-8) LO3.2.2: Account for the effect of change in
accounting estimates and policies in the
© Emile Woolf International viii The Institute of Chartered Accountants of Pakistan