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financial accounting and reporting ii PDF

480 Pages·2015·6.05 MB·English
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2015 FINANCIAL ACCOUNTING AND REPORTING II STUDY TEXT CAF-07 P P A C I Financial accounting and reporting II Second edition published by Emile Woolf International Bracknell Enterprise & Innovation Hub Ocean House, 12th Floor, The Ring Bracknell, Berkshire, RG12 1AX United Kingdom Email: [email protected] www.emilewoolf.com © Emile Woolf International, February 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, scanning or otherwise, without the prior permission in writing of Emile Woolf International, or as expressly permitted by law, or under the terms agreed with the appropriate reprographics rights organisation. You must not circulate this book in any other binding or cover and you must impose the same condition on any acquirer. Notice Emile Woolf International has made every effort to ensure that at the time of writing the contents of this study text are accurate, but neither Emile Woolf International nor its directors or employees shall be under any liability whatsoever for any inaccurate or misleading information this work could contain. © 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

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emphasis on International Financial Reporting Standards. Learning .. Loans to employees are interest free loans for the purpose of cars. They.
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