Table Of ContentA
seventh edition
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Advanced Financial Accounting
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Richard Lewis and
Richard Lewis and David Pendrill n
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David Pendrill
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Rigorous in its approach, Advanced Financial Accounting
tackles the more complex issues of the subject in a lively F
The new edition
and engaging manner. Familiar in its structure and
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treatment of basic concepts, this seventh edition has been • explains the considerable changes which n
thoroughly revised and updated to reflect recent and are scheduled to take place in the European a
planned developments in financial reporting. Union during the next few years n
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• examines the increasing importance of the
This leading text continues to provide both clear
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explanations and critical evaluations of current accounting IASB and international standards a
practice, especially as found in national and international l
• includes greater focus on international Advanced
accounting standards, and relates them to the needs of
developments A
users of financial statements.
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• provides in-depth discussion of all
The seventh edition is accompanied by a downloadable c
important areas, including controversial
Solutions Manualwhich is available to lecturers on the o Financial Accounting
issues such as accounting for financial
website at www.booksites.net/lewispendrill. As with the u
instruments, goodwill and share options, as
previous edition, annual updates are also available online.
well as exploring the impact of the major n
Advanced Financial Accountingis written for second and changes that have occurred in the t
accounting treatment of pension costs i
third year financial accounting students on accounting or n
business studies degrees and is also suitable for MBA
• includes numerous questions, now grouped g
courses. The book provides extensive coverage of the
together at the ends of chapters
syllabuses for the advanced papers in financial accounting seventh edition
and financial reporting of the ACCA, CIMA, ICAEW, ICAI and
ICAS. seventh edition
Richard LewisMSc, FCA, is Co-Director of the Centre for Higher Education Research and Information at the Open University.
He was formerly a Pro-Vice-Chancellor of the Open University and Deputy Chief Examiner of the Council for National
Academic Awards. Prior to that, he was Sir Julian Hodge Professor of Accounting at the University of Wales, Aberystwyth, L
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and Head of the Accountancy Department at what is now London Metropolitan University. w
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David PendrillBSc(Econ), MSc, FCA, CTA, LTCL, is the Esmée Fairbairn Professor of Accounting and Financial Management
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at the University of Buckingham, where he was Head of the Department of Accounting and Finance for more than a decade. n
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He was formerly a Senior Lecturer in Accountancy at what is now Cardiff University and has taught at the London School of
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Economics as well as at universities in Canada, Singapore and the West Indies.
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seventh
edition
Advanced Financial Accounting
Richard Lewis
MSc, FCA
Co-Director of the Centre for Higher Education Research and Information,
Open University
David Pendrill
BSc(Econ), MSc, FCA, CTA, LTCL
Esmée Fairbairn Professor of Accounting and Financial Management,
University of Buckingham
Pearson Education Limited
Edinburgh Gate
Harlow
Essex CM20 2JE
England
and Associated Companies around the world
Visit us on the World Wide Web at:
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First published under the Pitman imprint 1981
Second edition published 1985
Third edition published 1991
Fourth edition published 1994
Fifth edition published under the Financial Times Pitman Publishing imprint 1996
Sixth edition published under the Financial Times Prentice Hall imprint 2000
Seventh edition published 2004
© Richard Lewis, David Pendrill and David S. Simon 1981, 1985
© Richard Lewis and David Pendrill 1991, 1994, 1996, 2000, 2004
The rights of Richard Lewis and David Pendrill to be identified as authors
of this work have been asserted by the authors in accordance with the
Copyright, Designs, and Patents Act 1988.
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 either the prior
written permission of the Publishers or a licence permitting restricted copying
in the United Kingdom issued by the Copyright Licensing Agency Ltd,
90 Tottenham Court Road, London W1T 4LP.
ISBN 0 273 65849 2
British Library Cataloguing-in-Publication Data
Acatalogue record for this book can be obtained from the British Library.
10 9 8 7 6 5 4 3 2 1
08 07 06 05 04
Typeset in 10/12pt Minion by 30.
Printed and bound in Great Britain by Bell and Bain Ltd, Glasgow.
The publisher’s policy is to use paper manufactured from sustainable forests.
Brief contents
Preface xiii
Part 1 · The framework of financial reporting 1
1 The search for principles 3
2 Sources of authority: the United Kingdom 23
3 Sources of authority: the rise of international standards 42
4 What is profit? 59
Part 2 · Financial reporting in practice 93
5 Assets I 95
6 Assets II 133
7 Liabilities 160
8 Financial instruments 176
9 Substance over form and leases 205
10 Pension costs 248
11 Reporting financial performance 276
12 Taxation: current and deferred 337
13 Business combinations and goodwill 359
14 Investments and groups 403
15 Associates and joint ventures 447
16 Overseas involvement 476
17 Expansion of the annual report 526
18 Capital reorganisation, reduction and reconstruction 579
Part 3 · Accounting and price changes 617
19 Accounting for price changes 619
20 Current cost accounting 644
21 Beyond current cost accounting 666
Index 703
Contents
Preface xiii
Part 1 · The framework of financial reporting 1
1 The search for principles 3
Overview 3
Introduction 3
Accounting theory 5
The FASB conceptual framework project 8
The IASC/IASB framework 11
The ASB’s Statement of Principles 12
Summary 21
Recommended reading 21
Questions 22
2 Sources of authority: the United Kingdom 23
Overview 23
Introduction 23
Legislation 24
Stock Exchange rules 27
Accounting concepts 28
Standardisation 31
The Government’s propo sals 37
Summary 39
Recommended reading 39
Some useful websites 39
Questions 40
3 Sources of authority: the rise of international standards 42
Overview 42
International standardisation 42
Harmonisation in the European Union 46
The EU Regulation of 2002 and the problems that it poses 50
Summary 55
Recommended reading 55
Some useful websites 56
Questions 56
viii Contents
4 What is profit? 59
Overview 59
Introduction 59
Present value of the business 61
Measurement of wealth by reference to the valuation of individual assets 61
Capital maintenance 65
The usefulness of different profit measures 71
How do we choose? 73
The limitations of historical cost accounting 73
Interim summary 77
Distributable profits 77
Realised profits 81
Summary 86
Recommended reading 87
A useful website 87
Questions 87
Part 2 · Financial reporting in practice 93
5 Assets I 95
Overview 95
Introduction 95
The basis of valuation 98
Tangible fixed assets 100
Depreciation 110
Investment properties 116
Intangible assets 118
Differences in the treatment of tangible and intangible fixed assets 122
Impairment reviews 122
Summary 127
Recommended reading 127
Questions 128
6 Assets II 133
Overview 133
Introduction 133
Stocks and long-term contracts 134
Research and development 144
Government grants 146
Summary 149
Recommended reading 149
Questions 150
Contents ix
7 Liabilities 160
Overview 160
Introduction 160
Liabilities 162
Provisions and contingencies 165
Summary 171
Recommended reading 171
Questions 171
8 Financial instruments 176
Overview 176
Introduction 176
FRS 4 Capital Instruments 177
Hedge accounting 189
Derivatives 191
The valuation of financial instruments 193
FRED 30 and the convergence programme 197
Summary 201
Recommended reading 201
Questions 202
9 Substance over form and leases 205
Overview 205
Introduction 206
Reflecting the substance of transactions 206
Leases 214
Beyond SSAP 21 236
Summary 238
Recommended reading 238
Questions 239
10 Pension costs 248
Overview 248
Introduction 248
SSAP 24 Accounting for Pension Costs 252
From SSAP 24 to FRS 17 259
FRS 17 Retirement Benefits 260
Summary 271
Recommended reading 271
Questions 271
11 Reporting financial performance 276
Overview 276
Part A · Reconfiguring the financial statements 277
Reporting financial performance 277
