Chartered Institute of Public Finance and Accountancy (CIPFA) Financial Accounting Syllabus

What are the three sections of a statement of cash flows under IAS 7?

Operating activities, investing activities and financing activities. The statement reconciles the movement between opening and closing cash and cash equivalents.

Under the indirect method, how is cash from operating activities calculated?

Start with profit before tax, add back non-cash items (depreciation, amortisation, impairment) and finance costs, adjust for working capital changes (inventory, receivables, payables), then deduct interest paid and tax paid.

Give two examples each of investing and financing cash flows.

Investing: purchase/sale of PPE, purchase/sale of investments, interest/dividends received. Financing: proceeds from issuing shares or loans, repayment of borrowings, dividends paid to shareholders.

How does an increase in trade receivables affect operating cash flow under the indirect method?

An increase in receivables reduces operating cash flow (it is deducted), because revenue has been recognised in profit but the cash has not yet been collected.

What is the purpose of the statement of changes in equity?

It reconciles opening and closing balances of each component of equity, showing total comprehensive income, transactions with owners (share issues, dividends), and transfers between reserves over the period.

List four typical line items appearing in a statement of changes in equity.

Opening balance, profit for the year (to retained earnings), other comprehensive income, dividends paid, issue of share capital, transfers to/from reserves, and closing balance — shown by equity column.

What is an adjusting event after the reporting period under IAS 10?

An event providing evidence of conditions that existed at the reporting date. The financial statements are adjusted to reflect it (e.g. settlement of a court case confirming an existing obligation, evidence of irrecoverable debt or inventory NRV).

Distinguish adjusting from non-adjusting events after the reporting period.

Adjusting events relate to conditions existing at the reporting date and require the figures to be adjusted. Non-adjusting events arise from conditions after the reporting date and are only disclosed if material (e.g. a fire destroying a factory after year end).

How is the cost of an item of property, plant and equipment measured initially under IAS 16?

At cost: purchase price (net of trade discounts) plus import duties and non-refundable taxes, plus directly attributable costs of bringing the asset to working condition and location, plus the initial estimate of dismantling/restoration costs.

State the straight-line depreciation formula.

$$\text{Annual depreciation} = \frac{\text{Cost} - \text{Residual value}}{\text{Useful life (years)}}$$ This charges an equal amount to each accounting period over the asset's useful life.

How is reducing-balance depreciation calculated?

A fixed percentage is applied to the carrying amount (net book value) each year: $$\text{Depreciation} = \text{Carrying amount} \times \text{rate}$$ producing higher charges in earlier years and lower charges later.

Under the IAS 16 revaluation model, how are a revaluation gain and a revaluation loss treated?

A gain is credited to other comprehensive income and held in a revaluation surplus (unless reversing a previous loss). A loss is charged to profit or loss (unless reversing a previous surplus on the same asset, where it first reduces that surplus).

Distinguish capital expenditure from revenue expenditure.

Capital expenditure acquires or enhances non-current assets, providing benefit over several periods (capitalised on the SOFP). Revenue expenditure is day-to-day running cost, consumed within the period (expensed in profit or loss).

What are the recognition criteria for an intangible asset under IAS 38?

An intangible asset is an identifiable non-monetary asset without physical substance. It is recognised when it is probable that future economic benefits will flow to the entity and its cost can be measured reliably.

How does IAS 38 treat research costs versus development costs?

Research costs are always expensed as incurred. Development costs must be capitalised if all six criteria are met (technical feasibility, intention/ability to complete and use/sell, probable future benefits, adequate resources, reliable cost measurement).

How is the impairment of an asset measured under IAS 36?

An asset is impaired when its carrying amount exceeds its recoverable amount. $$\text{Recoverable amount} = \max(\text{Fair value} - \text{costs of disposal},\ \text{value in use})$$ The impairment loss reduces carrying amount to recoverable amount.

What is 'value in use' in impairment testing?

The present value of the future cash flows expected to be derived from an asset or cash-generating unit, including its eventual disposal — i.e. discounted estimated future cash flows.

How is inventory measured under IAS 2?

At the lower of cost and net realisable value (NRV). $$\text{NRV} = \text{estimated selling price} - \text{costs to complete} - \text{costs to sell}$$

Which inventory cost formulas are permitted by IAS 2, and which is prohibited?

Permitted: First-In-First-Out (FIFO) and weighted average cost. Specific identification is required for non-interchangeable items. LIFO (Last-In-First-Out) is prohibited.

In a period of rising prices, how do FIFO and weighted average affect closing inventory and profit?

FIFO values closing inventory at the most recent (higher) costs, giving higher closing inventory and higher profit. Weighted average smooths costs, giving a lower closing inventory value and lower profit than FIFO.

What three conditions must be met to recognise a provision under IAS 37?

A present obligation (legal or constructive) arising from a past event; a probable outflow of economic benefits to settle it; and a reliable estimate of the amount can be made. If all three are met, a provision is recognised.

Distinguish a provision, a contingent liability and a contingent asset under IAS 37.

A provision is recognised (probable outflow, reliable estimate). A contingent liability is only disclosed (possible obligation or probable but not measurable). A contingent asset is disclosed only when an inflow is probable and never recognised until virtually certain.

How is a provision measured under IAS 37?

At the best estimate of the expenditure required to settle the present obligation at the reporting date. Where the time value of money is material, the provision is discounted to present value.

Under IFRS 16, how does a lessee account for most leases?

The lessee recognises a right-of-use asset and a corresponding lease liability at the present value of future lease payments. The asset is depreciated and the liability accrues interest, replacing the old operating/finance lease distinction for lessees.

Which two exemptions allow a lessee to keep leases off-balance-sheet under IFRS 16?

Short-term leases (term of 12 months or less with no purchase option) and leases of low-value underlying assets. Payments are then recognised as an expense on a straight-line basis.

How does a lessor classify leases under IFRS 16?

As a finance lease if it transfers substantially all the risks and rewards of ownership to the lessee; otherwise as an operating lease. (Lessor accounting retains the dual classification model.)

What is the objective of general purpose financial reporting per the IASB Conceptual Framework?

To provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.

Name the two fundamental qualitative characteristics of useful financial information in the Conceptual Framework.

Relevance (capable of making a difference to decisions, including materiality and predictive/confirmatory value) and faithful representation (complete, neutral and free from error).

List the four enhancing qualitative characteristics in the Conceptual Framework.

Comparability, verifiability, timeliness and understandability. They enhance the usefulness of information that is already relevant and faithfully represented.

State the Conceptual Framework definitions of an asset and a liability.

An asset is a present economic resource controlled by the entity as a result of past events. A liability is a present obligation of the entity to transfer an economic resource as a result of past events. An economic resource is a right with potential to produce economic benefits.

What is the difference between IFRS Standards and the role of the IFRS Interpretations Committee, and who issues IFRS?

IFRS Standards (and IAS) are issued by the International Accounting Standards Board (IASB), part of the IFRS Foundation. The IFRS Interpretations Committee issues IFRIC interpretations giving authoritative guidance where standards are unclear or developing. National regulators (e.g. the UK FRC) oversee and enforce financial reporting.