Topic 4 IAS 1 Presentation of financial statements Students notes PDF

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Topic 4: IAS 1 Presentation of financial statements IAS 1 PRESENTATION OF FINANCIAL STATEMENTS The objective of this Standard is to outline the basis for presentation of general purpose financial statements, to ensure comparability both with the entity’s financial statements of previous periods and with the financial statements of all other entities. IAS 1 sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content.

A complete set of financial statements comprises:



a statement of financial position



a statement of profit or loss and other comprehensive income



a statement showing changes in equity



a statement of cash flows



notes for accounting policies and other explanatory notes.

IAS 1 provides the following formats within its Implementation Guidance for the first three statements. These are shown below for a basic incorporated company only. The statement of cash flow will be considered later in the chapter under IAS 7.

Fair presentation and compliance with IFRS’s Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria set out in the Framework.

THE STATEMENT OF FINANCIAL POSITION Statement of Financial Position as at 31 December 20X9 ASSETS Non-current assets Property, plant and equipment Goodwill Other intangible assets Available-for-sale investments

Current assets Inventories Trade receivables Other current assets Cash and cash equivalents

£ X X X X ––

X X X X ––

Total assets EQUITY AND LIABILITIES Capital and reserves Share capital Other reserves Retained earnings

X –– X

X X X ––

Total equity and liabilities

X ––

X X X

Total equity

Current liabilities Trade and other payables Short-term borrowings Current portion of long term borrowings Current tax payable Short-term provisions

X

X ––

––

Non-current liabilities Long-term borrowings Deferred tax Long-term provisions

£

X X X X X ––

X

X –– X

THE STATEMENT OF PROFIT AND LOSS Two formats are provided by IAS 1 but we shall consider the most likely to be examined. Classification of expenses by function

Statement of profit or loss for the year ended 31 December 20X9

Revenue Cost of sales

£ X (X) ––

Gross profit

X

Distribution costs Administrative expenses

(X) (X) ––

Profit from operations* Investment income Finance costs

X

Profit before tax Income tax expense Profit or loss for the period

(X) –– X (X) –– X

OTHER * There is no requirement to show profit from operations in IAS1 but it is often beneficial for you to do so.

STATEMENT OF CHANGES IN EQUITY The statement of changes in equity provides a comprehensive summary of all movements in the share capital and reserves during the year.

Statement of Changes in Equity for the year ended 31 December 20X9 Share capital £ X

Balance at 31 December 20X8 Changes in accounting policy ––

Share premium £ X

Total

£ X (X) ––

£ X (X) ––

––

X

X

X X (X)

X

X X (X)

––

––

––

––

––

Deficit on revaluation of investments

Net gains and losses not recognised in the income statement Net profit for the period

Balance at 31 December 20X9

Retained earnings

––

Restated balance Surplus on revaluation of properties

Dividends Issue of share capital

Revaluat ion reserve £ X

X

X X (X) X ––

X ––

––

––

X (X) X ––

X

X

X

X

X

NOTES TO THE FINANCIAL STATEMENTS It is unlikely full sets of notes would be requested. It is more likely that specific notes would be requested. Many disclosures are laid out in the standard itself e.g. IAS 16 property, plant & equipment.

Question 1 The trial balance of Duster plc on 31 July 2017 is given below: £000

£000

Ordinary £1 share capital

1,000

Retained earnings

5,673

5% Loan

5,000

Freehold buildings

12,000

Accumulated depreciation –buildings Plant and equipment

1,200 6,280

Accumulated depreciation -plant

1,576

Inventory at 1st August 2016

4,200

Cash at bank

2,707

Allowance for irrecoverable debts Purchases

450 70,450

Sales Irrecoverable debts Trade payables and receivables Repairs and maintenance

97,182 212 13,334 2,100

Rent received

3,000

Salaries

7,400

Wages

3,266

Travelling expenses

452

Discounts allowed and received

3,410

General expenses

5,821

Gas, electricity and water

7,100

Printing and stationery

1,708

Suspense Total

14,733

5,126

5,500 £140,440

£140,440

You are given the following information in respect of the company at 31 July 2017 1. Inventory at 31 July 2017 has been valued at cost at £5,600,000. However, this includes some damaged inventory which had cost £700,000 but which has a net realisable value of £450,000. 2. Depreciation is to be provided for the year to 31 July 2017 as follows:

 Buildings 10% per annum straight line basis  Plant and Equipment 25% per annum reducing balance basis 3. Duster Plc tenants are three months in advance with their rent. Duster Plc charges them £200,000 per month.

4. The amount shown in the trial balance for General expenses includes rates of £500,000 for the 12 month period ending 31 October 2017. 5. Debenture interest from 1 August 2016 to 31 July 2017 has not been paid. 6. Corporation tax for the year has been estimated at £4,500,000. 7. In addition to the irrecoverable debts to be written off, some receivables are in financial difficulties and the directors of Duster Plc think it would be prudent to make an allowance for receivables equivalent to 5% of remaining receivables. 8. The suspense account relates to the issue of 1,000,000 ordinary shares sold for £5.50 per share on 31st July 2017. The cash received from the shares was correctly recorded in the bank account.

Required A) Prepare the journal entries necessary for the above note (1-8) B) Prepare Duster’s Plc Statutory Statement of profit or loss and the Statement of changes in equity for the year ended 31 July 2017 and statutory Statement of Financial Position as at that date incorporating the journals from part A...