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February 27, 2014 at 4:56 pm
February 27, 2014 at 2:07 pm
Sir, i understand how you arrived at all the figure except for the increase in receivable which i was thinking should be (584-492) 92…. i cant figure out how you got the 32…. i know i missing something in there. do help me please.
February 4, 2014 at 9:30 pm
I have a question Mr Mike little: You explained why intangible assets are amortised and why tangible assets are depreciated. Say for goodwill (INCA) – does it not increase with time?
February 5, 2014 at 8:16 am
You need to be careful here! Why did you stop at “goodwill” – until the recent property price crash, land and buildings values were also increasing. In fact, if you had bought pretty well any property in the UK 40 years ago, it’s most likely that its value in 2014 is substantially greater than you would have had to pay 40 years ago.
Right! So what’s depreciation about? Is it to ensure that the carrying value of an asset is somewhere close to its market value? A resounding NO! Depreciation is to allocate to those years that benefit from the use of an asset the proportionate share of the cost of that asset over its estimated useful life. So even though the value of an asset may well increase over time, nevertheless we depreciate it.
Now goodwill. You’re right of course. Goodwill can increase in value, particularly where we work hard at building up good relations with our suppliers, customers, bank, employees, shareholders – in fact, all our stakeholders. But can you not see that that is an increase due to our own efforts? This is “internally generated” goodwill and, of course, this is NOT recognised in the financial statements.
Where we have purchased goodwill on the acquisition of a subsidiary …. well that’s a different story. Like the buildings mentioned earlier in this post, a number of years are hopefully going to benefit from that acquisition, so we shall impair it – typically over a period not lasting greater than 20 years, but it will be subjected to an annual impairment review until it is fully “used up”
But even after it’s been fully impaired, we are still getting benefits from this notional, intangible asset! Yes, but that’s because we have been working hard at building up good relationships with our suppliers, customers etc and that maintenance of good relations is as a result of our own efforts – that is, it’s internally generated. So no recognition
February 5, 2014 at 8:58 pm
That is brilliant. I love your lectures and you are certainly one of the best teachers I’ve learned from! Thank you.
JEAN CLAUDE says
December 10, 2013 at 2:02 am
Just new op tuition and quite happy to join the crew. Mr mike seems to be very resourceful.
Well since we’re dealing with IAS7, could you give me the steps to follow when dealing with a mid year acquisition?
Would be going in for F3 in a couple of hours.
December 10, 2013 at 8:55 am
Mid-year acquisitions are not relevant for F7 cash flows! Let’s leave that one until we get to P2! particularly since you’ve only just finished F3 – did you pass?
December 10, 2013 at 12:05 pm
Well I wrongly quoted the standard. Wanted the know more about their treatment in the consolidated income statement.
Went in for the paper based examsn’ waiting for feb 8th.
December 10, 2013 at 12:08 pm
Hope you did enough to pass – fingers crossed until February
December 10, 2013 at 12:26 am
Thanks mr mike and please i want ask
why you do not do working in SCF like consolidation financial statements ? and is marker give me marks on my working? and if my last figure is wrong i will take marks on my all answer ? and for your shortcuts like TNCA can i use it like you or can i change it ?
December 10, 2013 at 8:01 am
There really is no need to get into workings as complicated as for consolidations. The most difficult is the working for TNCA but even that becomes relatively easy with practice.
Yes, you will get marks for workings if you don’t have the time to finish the cash flow statement – but you need to head up your workings to identify which figure you are calculating and therefore also how much CASH is involved in, say, investment income received.
If you follow my style of attacking these questions, your last figure cannot be wrong! If you mean the figure that you have just calculated in your workings, say, investment income received, then you will not gain the mark.
Work on the principle that for each and every figure you get correct in the Statement of Cash Flows, you will earn one mark
I would abbreviate TNCA, INCA, C & E, Pbles, Rbles …..yes, I would abbreviate – just so long as your abbreviation is pretty clear. A bit of a problem with “inv” for inventory and “inv” for investments
December 11, 2013 at 7:06 pm
Thanks Mr Mikel
I use instead Pbles , AP and instead Rbles AR AND (COST OF SALES ) Cogs and other shortcut what about that ? i can use it when when i prepare financial position or cash flow in exam? and some Terminology i do not know shortcut for it like( accrued expenses ) can i write full term like ( accrued expenses ) and TNCA in the same financial statement see that
A R 50
account payable 100
thanks mr mike
December 11, 2013 at 7:11 pm
You can use whatever abbreviations you want and anywhere EXCEPT in report / letter / memorandum writing
December 11, 2013 at 7:24 pm
Ok thanks alot mr mikel
December 11, 2013 at 7:27 pm
October 22, 2013 at 8:01 pm
You were great !!! Thanks for increasing self confidence ! This really helps !!!
September 24, 2013 at 12:34 am
well explained Dankie!
July 25, 2013 at 10:53 am
Hi all , another wonderful lecture, thanks Mike.
could someone please help me with a few issues as i seem to understand this lecture but there are two things i cant get around.
1. how do we work out the $32 increase in receivables? am i wrong to assume it should have been $584 – $492 = $92
2. in the answer at the back of the text, the cash &equivalents c/f were worked out as 17+32-60 = $(11). the bank liability of $60 was included.
August 6, 2013 at 3:51 pm
Hi Frank, thanks for your appreciative comments. The answer in the back of the notes shows the increase in receivables as (92). That’s correct so far as I am concerned
The cash and equivalents figure HAS included as a deduction the 60 overdraft at the bank at the end of the year netted off the figure of 17 + 32. So, yes, I ALWAYS include the overdrawn position as a cash and equivalent amount although, in practice, consideration needs to be given to the nature of the overdraft – is it long term financing or is it a short term element of cash and equivalents. If it’s long term, then it would probably be more correct to include the amount in the “Financing” section of the Statement of Cash Flows rather than as a Cash and Equivalent amount
July 25, 2013 at 10:44 am
hi all. thanks Mike, nice lecture as i seem to understand whats happening. I’ve got one question Mike,
how do you work out the increase in receivables, am i wrong to assume its $ (584 – 492) = $92
also in your answer at the back of the text, cash equivalents c/f are worked out as 17+32-60 = $(11) the bank liability is included in the working. please advise as i can’t get around this. thanks for the effort.
May 25, 2013 at 11:28 am
Can someone help me with the treatment of interest under operating cash flow please?
In Kaplan exam kit some of the answers do not add interest expense and then deduct it but instead they just deduct it, so my question is when do I add and deduct and when do I simply deduct it? Is there something in the question that need to watch out for?
May 25, 2013 at 12:18 pm
The start point is pbt. If interest has NOT been deducted in arriving, but the start given is pbit, then we need to deduct interest to arrive at pbt. That’s the top figure in the cash flow.
One of the first things we then do is add the interest back – the same figure we have just deducted.
Then we need to calculate the amount of interest actually paid and deduct that as Cash paid in the operating activities of the Statement of Cash Flows
Does that clear it up for you?
May 25, 2013 at 12:45 pm
Thank you very much Mike. It really helped, I’ve compared few question and answers they now make sense. Thank you again.
April 8, 2013 at 10:52 pm
Thank You very much Mike for your Teachings. Being listening to the Lectures and I understand it clearly.
April 10, 2013 at 7:20 pm
Good, and good luck with F7 exam
March 6, 2013 at 7:41 am
In SCF, which profit figure to be used, Profit before Tax or Profit before Tax & Finance Cost?
April 10, 2013 at 7:15 pm
January 12, 2013 at 7:55 pm
what is the difference between cash and profit?
April 10, 2013 at 7:13 pm
I’ve just sold my car for $10,000
How much profit have I made?
Can you confirm that you are genuinely an F7 student?
April 21, 2013 at 1:26 pm
I wish OpenTuition had a like button. 😀
April 21, 2013 at 4:06 pm
we have ‘share’ buttons, so share this page if you like it
October 20, 2012 at 4:08 am
dear lecture is the layout of statement of cash flow will be given in the exam?
October 20, 2012 at 8:57 am
@niko123, Why on this Earth would it be? A simple answer to your question is “No”. A fuller answer involves some words which I would rater not use in the public domain!
October 21, 2012 at 12:11 am
@MikeLittle, sorry Mike for this stupid question
October 7, 2012 at 11:05 am
can someone teach me how to get the revaluation amount of $110,000?
thanks a lot.
October 7, 2012 at 12:25 pm
@valenyap86, In the Statement of Financial Position, per the question, in the Equity section, third line, you’ll see the words “Revaluation surplus”. If you move your eyes to the right along that line, you come to the figures “150” and “40”
Now, by deducting “40” from “150”, you arrive at “110”
Does that answer it for you?
October 9, 2012 at 4:03 pm
@MikeLittle, yes, thanks …!!
April 21, 2013 at 1:29 pm
Pristine! I had the same question and I’m glad I found it without asking.
An ‘awefully’ (punning to an F4 lecture of yours) good lecture, this.
Thanks so much, Mike.
October 1, 2012 at 5:13 pm
hello, good example but I’m confused about one thing…in arriving at the figure of (239) for purchase of investments, why is the 32 taken away from to get 364…..isn’t that 32 related to the receivables?
October 1, 2012 at 5:19 pm
@r2d2, never mind ……it WAS in the investments ….shux!
September 26, 2012 at 9:35 pm
I have noticed in the notes I printed that investments in 2009 are 396
in your answer they are 364.
it stumped me for ages….
September 27, 2012 at 6:22 am
@aardvark, But are you ok now?
September 21, 2012 at 1:37 pm
Can you help me with the “1 for 4 bonus” part? I don’t get it why it is valued at $75,000 from the share premium account. Thanks.
September 21, 2012 at 6:47 pm
@alextrunghuynh, Ok … what’s the problem? The calculation to arrive at 75,000 or the fact that the debit entry has gone to Share Premium? ( The credit entry has gone to increase the Share Capital from 300,000 to 375,000 )
If the problem is the calculation of 75,000 that’s easily sorted! How many shares were in existence at the date just before the bonus issue? Last year’s shares brought forward = 300,000. A “1 for 4″ bonus issue means that, for every 4 shares you previously held, the company will give you 1 more share. So, for 300,000 shares there will be an additional 75,000 shares issued as bonus shares.
If the problem is “Why the Share Premium Account” it’s because there are only four allowable uses of the Share Premium, and the most valuable one – where you can use up the greatest amount of Share Premium. So, we’ve calculated 75,000 and I’ve explained WHY the Share Premium Account. The double entry to record the bonus is therefore is Debit Share Premium Account and Credit Share Capital Account. The entry will be recorded in the Statement of Changes in Equity
September 21, 2012 at 9:07 pm
@MikeLittle, Yes indeed. Thank you. I really appreciate it.
June 2, 2012 at 1:55 pm
maybe I am having blonde moments. I accessed the lecture where can I get the questions, ZETA. I have been doing the revisions based on ACCA past papers but on this one I do not KNOW where the ZETA question is , please help
June 2, 2012 at 2:39 pm
May 1, 2012 at 8:32 pm
Really very good example 6 ALL IN ONE. moreover, for better understanding the whole cash flow. if your double entry is very strong.
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