ACCA Study Notes - Financial
Reporting
Chapter 1 - Published Financial Accounts
Statement of Financial Position – Shows assets, liabilities and equity
Statement of Profit or Loss (and Other Comprehensive Income) – Reports income,
expenditure and unrealized gains/losses
Statement of Changes in Equity – Presents movements in all equity components
Statement of Cash Flows – Details cash movements during the period
Accounting Policies and Explanatory Notes – Explains the basis and methods used to produce
the financial statements
Not-for-profit and public sector entities:
Profit-orientated Sector Not for profit / public sector
Financial aim is to make profit and Financial aim is to achieve value for
increase shareholder wealth. money / provide service.
Directors are accountable to Managers are accountable to trustees/
shareholders. government / public.
External finance freely available in Finance generally limited to donations
the form of loans and share capital. / government subsidies.
ACCA Study Notes - Financial Reporting 1
, Chapter 2 - Tangible Non-Current Assets
IAS 16 - Property, Plant, and Equipment
PPE = tangible assets held by an entity for more than one accounting period for use in the
production or supply of goods or services, for rental to others, or for administrative purposes.
Recognition:
Probable that future economic benefits will flow to the entity
Cost of the asset can be reliably measured
Initial Measurement:
INCLUDE:
All costs involved with bringing asset to working condition (e.g. delivery costs, site prep,
installation costs, borrowing costs)
Professional fees (e.g. architect, solicitor)
Dismantling costs (present value = 1 / (1+r)^n) (r= interest rate, n = number of years to
settlement). Discount unwound each year until dismantling cost incurred.
DONT INCLUDE:
Expense items - e.g. fuel, training, warranty costs
SUBSEQUENT EXPENDITURE - Only recognise if:
Enhances economic benefits provided by asset (e.g. expansion, increasing productivity)
Relates to an overhaul or major safety inspection
Replaces a component of an asset
Depreciation:
Systematic allocation of the depreciable amount of an asset over its useful life.
Revaluation Model
Impact:
All assets in the same class must be revalued
Once revalued, revaluations must be kept up to date (ensure carrying amount doesn’t
materially differ from fair value each reporting date)
Subsequent depreciation based on new value and remaining useful life
ACCA Study Notes - Financial Reporting 2
, Accounting:
1. Restate asset cost to new value (DR asset cost)
2. Eliminate any accumulated depreciation (DR accumulated depreciated)
3. Recognise revaluation gain in other comprehensive income (CR revaluation surplus - OCI)
*If revaluation causes a loss, write it off against the revaluation surplus (if any) - if not, take it to
Impairment Expense in P&L
*Revaluation Surplus - capital reserve, non-distributable
Depreciation of Revalued Assets:
Depreciation is charged over the remaining useful life of the asset - whole charge going to
P&L
Annual reserves transfer can be made for the additional depreciation charged on revalued
asset compared to asset at cost (DR revaluation surplus, CR retained earnings)
Disposal of Revalued Assets:
Calculate gain on disposal by comparing sales proceeds to carrying amount (profit or loss
on disposal taken to P&L)
Any balance on revaluation surplus relating to the asset is transferred to retained earnings
IAS 20 - Accounting for Government Grants & Disclosure of Government
Assistance
Revenue Grant:
Presented as a credit in P&L OR
Deducted from the relevant expense
Capital Grant:
Deduct from the cost of NCA and depreciate the reduced amount OR
Treat grant as deferred credit and transfer a portion to revenue each year
IAS 23 Borrowing Costs
Borrowing costs must be capitalised for ‘qualifying assets’ (ones that ‘necessarily take a
substantial time to get ready for the intended use or sale’)
ACCA Study Notes - Financial Reporting 3
, Commencement of Capitalisation:
Expenditure for the asset is being incurred, AND
Borrowing costs are being incurred, AND
Activities necessary to prepare the asset for the intended use or sale are in progress
Cessation of Capitalisation:
Substantially all activities necessary for preparation are complete OR
There is an unplanned suspension of construction (e.g. industrial disputes)
Rate of Interest:
Actual interest rate where specific funds borrowed OR
Weighted average of general borrowings where general borrowings used*
*Weighted average = (loan 1 x interest %) + (loan 2 x interest %) / loan 1 + loan 2
Interest Income:
If surplus borrowings are invested to earn interest -
Earned during period of construction - offset against cost of asset
Earned prior to construction commencing - recognise in P&L
IAS 40 Investment Property
Land or a building held to earn rentals or for capital appreciation or both (rather than for use or
sale by the entity)
Cost Model:
Held at initial cost less accumulated depreciation (same as IAS16 PPE)
Fair Value Model:
Asset revalued to fair value at the end of each year (ref to current prices on active market
for properties in same location and condition)
Gain or loss shown directly in P&L
No depreciation is charged
Transfer to and from Investment Property:
ACCA Study Notes - Financial Reporting 4
Reporting
Chapter 1 - Published Financial Accounts
Statement of Financial Position – Shows assets, liabilities and equity
Statement of Profit or Loss (and Other Comprehensive Income) – Reports income,
expenditure and unrealized gains/losses
Statement of Changes in Equity – Presents movements in all equity components
Statement of Cash Flows – Details cash movements during the period
Accounting Policies and Explanatory Notes – Explains the basis and methods used to produce
the financial statements
Not-for-profit and public sector entities:
Profit-orientated Sector Not for profit / public sector
Financial aim is to make profit and Financial aim is to achieve value for
increase shareholder wealth. money / provide service.
Directors are accountable to Managers are accountable to trustees/
shareholders. government / public.
External finance freely available in Finance generally limited to donations
the form of loans and share capital. / government subsidies.
ACCA Study Notes - Financial Reporting 1
, Chapter 2 - Tangible Non-Current Assets
IAS 16 - Property, Plant, and Equipment
PPE = tangible assets held by an entity for more than one accounting period for use in the
production or supply of goods or services, for rental to others, or for administrative purposes.
Recognition:
Probable that future economic benefits will flow to the entity
Cost of the asset can be reliably measured
Initial Measurement:
INCLUDE:
All costs involved with bringing asset to working condition (e.g. delivery costs, site prep,
installation costs, borrowing costs)
Professional fees (e.g. architect, solicitor)
Dismantling costs (present value = 1 / (1+r)^n) (r= interest rate, n = number of years to
settlement). Discount unwound each year until dismantling cost incurred.
DONT INCLUDE:
Expense items - e.g. fuel, training, warranty costs
SUBSEQUENT EXPENDITURE - Only recognise if:
Enhances economic benefits provided by asset (e.g. expansion, increasing productivity)
Relates to an overhaul or major safety inspection
Replaces a component of an asset
Depreciation:
Systematic allocation of the depreciable amount of an asset over its useful life.
Revaluation Model
Impact:
All assets in the same class must be revalued
Once revalued, revaluations must be kept up to date (ensure carrying amount doesn’t
materially differ from fair value each reporting date)
Subsequent depreciation based on new value and remaining useful life
ACCA Study Notes - Financial Reporting 2
, Accounting:
1. Restate asset cost to new value (DR asset cost)
2. Eliminate any accumulated depreciation (DR accumulated depreciated)
3. Recognise revaluation gain in other comprehensive income (CR revaluation surplus - OCI)
*If revaluation causes a loss, write it off against the revaluation surplus (if any) - if not, take it to
Impairment Expense in P&L
*Revaluation Surplus - capital reserve, non-distributable
Depreciation of Revalued Assets:
Depreciation is charged over the remaining useful life of the asset - whole charge going to
P&L
Annual reserves transfer can be made for the additional depreciation charged on revalued
asset compared to asset at cost (DR revaluation surplus, CR retained earnings)
Disposal of Revalued Assets:
Calculate gain on disposal by comparing sales proceeds to carrying amount (profit or loss
on disposal taken to P&L)
Any balance on revaluation surplus relating to the asset is transferred to retained earnings
IAS 20 - Accounting for Government Grants & Disclosure of Government
Assistance
Revenue Grant:
Presented as a credit in P&L OR
Deducted from the relevant expense
Capital Grant:
Deduct from the cost of NCA and depreciate the reduced amount OR
Treat grant as deferred credit and transfer a portion to revenue each year
IAS 23 Borrowing Costs
Borrowing costs must be capitalised for ‘qualifying assets’ (ones that ‘necessarily take a
substantial time to get ready for the intended use or sale’)
ACCA Study Notes - Financial Reporting 3
, Commencement of Capitalisation:
Expenditure for the asset is being incurred, AND
Borrowing costs are being incurred, AND
Activities necessary to prepare the asset for the intended use or sale are in progress
Cessation of Capitalisation:
Substantially all activities necessary for preparation are complete OR
There is an unplanned suspension of construction (e.g. industrial disputes)
Rate of Interest:
Actual interest rate where specific funds borrowed OR
Weighted average of general borrowings where general borrowings used*
*Weighted average = (loan 1 x interest %) + (loan 2 x interest %) / loan 1 + loan 2
Interest Income:
If surplus borrowings are invested to earn interest -
Earned during period of construction - offset against cost of asset
Earned prior to construction commencing - recognise in P&L
IAS 40 Investment Property
Land or a building held to earn rentals or for capital appreciation or both (rather than for use or
sale by the entity)
Cost Model:
Held at initial cost less accumulated depreciation (same as IAS16 PPE)
Fair Value Model:
Asset revalued to fair value at the end of each year (ref to current prices on active market
for properties in same location and condition)
Gain or loss shown directly in P&L
No depreciation is charged
Transfer to and from Investment Property:
ACCA Study Notes - Financial Reporting 4
