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ACCA F7 financial reporting study guide

ACCA F7 financial reporting study guide

ACCA F7 financial reporting study guide: Study Guide

  1. d) Discuss the advantages and disadvantages of historical cost accounting.
ATHE CONCEPTUAL AND REGULATORYe)Discuss whether the use of current   value
 FRAMEWORK FOR FINANCIAL REPORTING accounting overcomes the problems  of
   historical cost accounting.
1.The need for a conceptual framework and the  
 characteristics of useful informationf)Describe  the  concept of  financial  and physical
   capital maintenance and how this affects    the
a)Describe what is meant by a conceptual framework for financial  reporting. determination of profits.
  3.Regulatory framework
b)Discuss whether a conceptual framework    is  
 necessary  and  what an alternative systema)Explain why a regulatory framework is   needed
 might be. including the advantages and disadvantages    of
   IFRS over a national regulatory framework.
c)Discuss what is meant by relevance    and  
 faithful representation and describe  theb)Explain why accounting standards on their    own
 qualities  that  enhance  these characteristics. are not a complete regulatory  framework.
d)Discuss whether  faithful representationc)Distinguish between a principles based and a
 constitutes more  than compliance with rules based framework and  discuss  whether
 accounting standards. they  can  be complementary.
e)Discuss what is meant by understandabilityd)Describe the IASB’s Standard setting process
 and verifiability in relation to the provision  of including revisions to and interpretations  of
 financial  information. Standards.
f)Discuss the importance of comparability    ande)Explain the relationship of national   standard
 timeliness  to  users of financial  statements. setters to the IASB in respect of the    standard
   setting process.
g)Discuss the principle of comparability    in  
 accounting for changes in   accounting4.The concepts and principles of groups   and
 policies. consolidated financial statements
2.Recognition and measurementa)Describe the concept of a group as a single
   economic unit.
a)Define what is meant by ‘recognition’   in  
 financial  statements  and  discuss theb)Explain and  apply  the  definition of  a subsidiary
 recognition criteria. within relevant accounting standards.
b)Apply the recognition criteria to:c)Using  accounting  standards  and other
 i)    assets and liabilities. regulation, identify and outline  the
 ii)  income and expenses. circumstances in which a group is required to
   prepare consolidated financial statements.
c)Explain and  compute amounts  using  the  
 following measures :d)Describe  the  circumstances  when a  group may
 i)   historical cost claim exemption from the preparation  of
 ii)   current cost consolidated  financial statements.
 iii) net realisable value  
 iv)  present value of future cash  flowse)Explain why directors  may  not wish to
 v)   fair value consolidate a subsidiary and when this is
   permitted by accounting standards and   other
   applicable  regulation.
  1. Explain the need for using coterminous year ends and uniform accounting polices when preparing consolidated financial
  1. Explain why it is necessary to eliminate intra group transactions.
  1. Explain the objective of consolidated financial statements.
  1. Explain why it is necessary to use fair values for the consideration for an investment in a subsidiary together with the fair values of a subsidiary’s identifiable assets and liabilities when preparing consolidated financial statements.
  1. Define an associate and explain the principles and reasoning for the use of equity


  1. Tangible non-current assets
  1. Define and compute the initial measurement of a non-current asset (including borrowing costs and an  asset that has been self-constructed   ).
  1. Identify subsequent expenditure that may be capitalised, distinguishing between capital and revenue
  1. Discuss the requirements of relevant accounting standards in relation to the revaluation of  non-current
  1. Account for revaluation and disposal gains and losses for  non-current
  2. Compute depreciation based on the cost and revaluation models and on assets that have two or more significant parts (complex assets).
  1. Discuss why the treatment of investment properties should differ from other
  1. Apply the requirements of relevant accounting standards to an investment

2.Intangible non-current assets

  1. Discuss the nature and accounting treatment of internally generated and purchased intangibles.
  1. Distinguish between goodwill and other intangible
  1. Describe the criteria for the initial recognition and measurement  of  intangible
  1. Describe the subsequent accounting treatment, including the principle of impairment tests in relation to
  1. Indicate why the value of purchase consideration for an investment may be less than the value of the acquired identifiable net assets and how the difference should be accounted
  1. Describe and apply the requirements of relevant accounting standards to research and development

3.Impairment of assets

  1. Define, calculate and account for an impairment
  1. account for the reversal of an impairment loss on an  individual asset
  1. Identify the circumstances that may indicate impairments to
  1. Describe what is meant by a cash generating unit.
  1. State the basis on which impairment losses should be allocated, and allocate an impairment loss to the assets of a cash generating

4.Inventory and biological assets

  1. Describe and apply the principles of inventory valuation.
  1. Apply the requirements of relevant accounting standards for  biological


5. Financial instruments

  1. Explain the need for an accounting standard on financial
  1. Define financial instruments in terms of financial assets  and  financial
  1. Explain and account for the factoring of receivables.
  1. Indicate for the following categories of financial instruments how they should be measured and how any gains and losses from  subsequent

measurement should be treated in the financial  statements:

  1. amortised cost
  2. fair value through other comprehensive
  1. State when provisions may and may not be made and demonstrate how they should be accounted
  1. Explain how provisions should be
  1. Define contingent assets and liabilities and describe their accounting treatment and required disclosures
  1. Identify and account for:
    1. warranties/guarantees
    2. onerous contracts
  • environmental and similar provisions
  1. provisions for future repairs or refurbishments.
  1. Events after the reporting period
    1. distinguish between and account for.

ACCA F7 financial reporting study guide

 income ( including where an irrevocable election has been made for  equity adjusting and non-adjusting events after the reporting period
instruments that are not held for  trading)

iii) fair value through profit or   loss

 ii) Identify items requiring separate disclosure, including their accounting treatment and required  disclosures
e)Distinguish between debt and equity capital.  
f)Apply the requirements of relevant  accounting  
 standards to  the issue and  finance  costs of:

i)   equity

a)Account for current taxation in accordance with relevant accounting standards.
 ii)   redeemable preference shares and  debt  
 instruments with no conversion rights (principle of amortised  cost)b)Explain the effect of taxable temporary differences  on accounting and  taxable profits.
 iii) convertible debt  




c)Compute and record deferred tax amounts in the  financial statements.
a)Account for right of use assets and lease liabilities in the records of the lessee.9.Reporting financial performance
  a)Discuss the importance of identifying   and



Explain the exemption from the  recognition

 reporting the results of discontinued operations.
 criteria for leases in the records of the   lessee.  



Account for  sale and  leaseback  agreements.

b)Define and account for non-current assets held for sale and discontinued   operations.
7.Provisions and events after the reporting periodc)Indicate the circumstances  where  separate



Explain why an accounting standard    on

 disclosure of material items of income and expense is required.
 provisions is necessary.  
  d)Account for  changes in accounting   estimates,
b)Distinguish between legal and   constructive changes  in accounting policy  and  correction of
 obligations. prior period errors


  1. Earnings per share (eps)
    1. calculate the eps in accordance with relevant accounting standards (dealing with bonus issues, full market value issues and rights issues)
    2. explain the relevance of the diluted eps and calculate the diluted eps involving convertible debt and share options (warrants)


  1. Explain and apply the principles of recognition of revenue:
    • Identification of contracts
    • Identification of performance obligations
    • Determination of transaction price
    • Allocation of the price to performance obligations
    • Recognition of revenue when/as performance obligations are
  1. Explain and apply the criteria for recognising revenue generated from contracts where performance obligations are satisfied over time or at a point in
  1. Describe the acceptable methods for measuring progress towards complete satisfaction of a performance
  1. Explain and apply the criteria for the recognition of contract costs.
  1. Apply the principles of recognition of revenue, and specifically account for the following types of transaction:
  2. principal versus agent
  3. repurchase agreements
  • bill and hold arrangements
  1. consignments
  1. Prepare financial statement extracts for contracts where performance obligations are satisfied over

11. Government grants

  1. a) Apply the provisions of relevant accounting standards in relation to accounting for government

12.Foreign currency transactions

  1. Explain the difference between functional and presentation currency and explain why adjustments for foreign currency transactions are
  1. Account for the translation of foreign currency transactions and monetary/non-monetary foreign currency items at the reporting


  1. Limitations of financial statements
  1. Indicate the problems of using historic information to predict future performance and trends.
  1. Discuss how financial statements may be manipulated to produce a desired effect (creative accounting,  window dressing).
  1. Explain why figures in a statement of financial position may not be representative of average values throughout the period for example, due to:
    1. seasonal trading
    2. major asset acquisitions near the end of the accounting
  1. Explain how the use of consolidated financial statements might limit interpretation techniques

2 Calculation and interpretation of accounting ratios and trends to address users’ and stakeholders’ needs

  1. Define and compute relevant financial ratios
  1. Explain what aspects of performance specific ratios are intended to
  1. Analyse and interpret ratios to give an assessment of an entity’s/group’s performance and financial position in comparison  with:
    1. previous period’s  financial statements
    2. another similar entity/group for the same reporting period
  • industry average
  1. Interpret financial statements to give advice from the perspectives of different stakeholders.
  1. Discuss how the interpretation of current value based financial statements would differ from those using  historical  cost  based

3.  Limitations of interpretation techniques

  1. Discuss the limitations in the use of ratio analysis  for  assessing  corporate
  1. Discuss the effect that changes in accounting policies or the use of different accounting polices between entities can have on the ability to interpret
  1. Indicate other information, including non- financial information, that may be of relevance to the assessment of an entity’s
  1. Compare the usefulness of cash flow information with that of a statement of profit or loss or a statement of profit or loss and other comprehensive
  1. Interpret a statement of cash flows (together with other financial information) to  assess

the performance and financial position of an entity.

  1. i) explain why the trend of eps may   be a more accurate indicator of performance than a company’s  profit

trend and the       importance of eps  as a stock  market  indicator

  1. ii) discuss the limitations of using eps as a performance measure.[3]

4.Specialised, not-for-profit and public sector entities

  1. a) Explain how the interpretation of the financial statement of a specialised, not-for-profit or public sector organisations might differ from that of a profit making entity by reference to the different aims, objectives and reporting requirements. ACCA F7 financial reporting study guide.PREPARATION OF FINANCIAL STATEMENTS
  1. Preparation of single entity financial statements
  1. Prepare an entity’s statement of financial position and statement of profit or loss and other comprehensive income in accordance  with the structure and content prescribed  within IFRS and with accounting treatments as identified  within syllabus  areas  A,  B  and
  1. Prepare and explain the contents and purpose of the statement of changes in
  1. Prepare a statement of cash flows for a single entity (not a group) in accordance with relevant accounting standards using the direct and the indirect method .

2.ACCA F7 financial reporting study guide: Preparation of consolidated financial statements including an  associate

  1. Prepare a consolidated statement of financial position for a simple group (parent and one subsidiary and associate) dealing with pre and post acquisition profits, non-controlling interests  and  consolidated
  1. Prepare a consolidated statement of profit or loss and consolidated statement of profit or loss and other comprehensive income for a simple group dealing with an acquisition in the period and non-controlling
  1. Explain and account for other reserves (e.g. share premium  and  revaluation surplus).
  1. Account for the effects in the financial statements of intra-group
  1. Account for the effects of fair value adjustments (including their effect on consolidated goodwill) to:
    1. depreciating and non-depreciating non- current assets
    2. inventory
  • monetary liabilities
  1. assets and liabilities not included in the subsidiary’s own statement of financial position, including contingent assets and liabilities


  1. Account for goodwill
  1. Describe and apply the required accounting treatment of consolidated
  1. Explain and illustrate the effect of the disposal of a parent’s investment in a subsidiary in the parent’s individual financial statements and/or those of the group (restricted to disposals of the parent’s entire investment in the subsidiary).

ACCA F7 financial reporting study guide

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