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PART F: PREPARING BASIC FINANCIAL STATEMENTS 

 

362

 

ZABIT CO 

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME  

FOR THE YEAR ENDED 31 DECEMBER 20X7 

 

 

$'000 

 

$'000 

 

$'000 

Revenue 

 

 

 

2,695 

Cost of sales 

 

 

 

  

Opening inventory 

 

 

190 

 

  

Purchases (2,152 + 34) 

 

 

2,186 

 

 

 

 

2,376 

 

  

Closing inventory 

 

 

   220 

 

 

 

 

 

2,156 

Gross profit 

 

 

 

539 

Profit on disposal of plant 

 

 

 

     26 

 

 

 

 

565 

Expenses 

 

 

 

 

 

Wages, salaries and commission 

 

 

274 

 

 

 

Sundry expenses (113 – 6) 

 

 

107 

 

 

 

Light and heat (31 – 20 + 3) 

 

 

14 

 

  

Depreciation: buildings 

 

 

2 

 

 

  

plant 

 

 

36 

 

 

 Audit 

fees 

 

 

4 

 

 

   

Loan interest 

 

 

     20 

 

 

 

 

 

   457 

Profit for the year 

 

 

 

   108 

Other comprehensive income 

 

 

 

Revaluation of non-current assets 

 

 

 

   392 

Total comprehensive income for the year 

 

 

 

   500 

ZABIT CO 

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20X7 

 

 

Ordinary 

share 

capital 

Preference 

share 

capital 

Share 

premium

Revaluation 

surplus 

General 

reserve 

Retained 

earnings 

 

Total 

 

 

$'000

 

 

$'000 

 

$'000 

 

$'000 

 

$'000 

 

$'000 

 

$'000 

Balance at 1.1.X7 

 

350

 

100 

– 

– 

 

171 

 

242 

 

863 

Total comprehensive  

 

 

 

 

 

 

 

  

income for the year 

 

–

 

 

– 

– 

 

392 

– 

 

108 

 

500 

Issue of shares 

 

50

 

– 

 

70 

– 

 

– 

– 

 

120 

Dividends paid 

 

–

 

 

– 

– 

– 

 

– 

 

(15) 

 

(15) 

Transfer to general  

 

     –

 

 

     – 

 

   – 

 

     – 

 

  16 

 (16) 

 

       – 

   reserve 

 

 

 

 

 

 

 

Balance at 1.12.X7 

 400 

 100 

 70 

 392 

 

187 

 

319 

 

1,468 

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CHAPTER 20  

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  PREPARATION OF FINANCIAL STATEMENTS FOR COMPANIES 

 

363 

ZABIT CO 

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20X7 

 

$'000 

$'000 

ASSETS 

 

 

Non-current assets 

 

 

Property, plant land and equipment 

 

 

 

     Property at valuation 

 

 

800 

 

     Plant: cost 

 

480 

 

 

              depreciation 

 

182 

 

 

 

 

298 

Goodwill 

 

 20 

Investments 

 

 

   231 

Current assets 

 

 

Inventory 

 

220 

 

Trade accounts receivable 

 

179 

 

Prepayments 

 

6 

 

Cash  

 

126 

 

 

 

 

   531 

Total assets 

 

 

1,880 

 

 

 

EQUITY AND LIABILITIES  

 

 

Equity 

 

 

50c ordinary shares (350 + 50) 

 

400 

 

7% $1 preference shares 

 

100 

 

Share premium 

 

70 

 

Revaluation surplus 

 

392 

 

General reserve 

 

187 

 

Retained earnings 

 

319 

 

 

 

 

1,468 

Non-current liabilities 

 

 

10% loan stock (secured) 

 

 

200 

 

 

 

Current liabilities 

 

 

Trade accounts payable 

 

195 

 

Accrued expenses 

  17 

 

 

 

 

   212 

Total equity and liabilities  

 

 

1,880 

Tutorial note. A lot of information has been shown on the face of the statement of profit or loss and other 

comprehensive income and the statement of financial position. However, for external purposes, most of 

this would be hidden in the notes.  

 

 

7

   IFRS 15 Revenue from contracts with customers 

IFRS 15 Revenue from contracts with customers replaces IAS 18 Revenue (effective for annual reporting 

periods beginning on or after 1 January 2018). 

For straightforward transactions of sales of goods, the change to IFRS 15 from IAS 18 will have little, if 

any, effect on the amount and timing of revenue recognition. For contracts such as long-term service 

contracts it could result in changes either to the amount or to the timing of revenue recognised. 

However, the only significant area in which the FFA/FA syllabus will be affected is the recognition of 

revenue for sales where a cash/settlement discount allowed is offered to the customer. This is covered in 

Section 2 of Chapter 14. If you are not clear on how cash/settlement discounts allowed are accounted 

for, go back and revisit that section.  

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PART F: PREPARING BASIC FINANCIAL STATEMENTS 

 

364

 

IFRS 15 is concerned with reporting the nature, amount, timing and uncertainty of revenue and cash 

flows resulting from contracts with customers. 

Revenue from contracts with customers arises from fairly common transactions:  

 

The sale of goods 

 

The rendering of services 

 

Generally revenue is recognised when the entity has transferred control of goods and services to the 

buyer. Control of an asset is described in the standard as ‘the ability to direct the use of, and obtain 

substantially all of the remaining benefits from, the asset.’ (IFRS 15, para. 31) 

7.1 Introduction 

Accruals accounting is based on the matching of costs with the revenue they generate. It is crucially 

important under this convention that we establish the point at which revenue is recognised, so that the 

correct treatment can be applied to the related costs. For example, the costs of producing an item of 

finished goods should be carried as an asset in the statement of financial position until such time as it is 

sold; they should then be written off as a charge to the trading account. Which of these two treatments 

should be applied cannot be decided until it is clear at what moment the sale of the item takes place.  

The decision has a direct impact on profit since it would not be prudent to recognise the profit on sale 

until a sale has taken place, in accordance with the criteria of revenue recognition. 

Revenue is generally recognised as earned at the point of sale, because at that point four criteria will 

generally have been met. 

 

The product or service has been provided to the buyer. 

 

The buyer has recognised his liability to pay for the goods or services provided. The converse of 

this is that the seller has recognised that ownership of goods has passed from himself to the 

buyer. 

 

The buyer has indicated his willingness to hand over cash or other assets in settlement of his 

liability. 

 The 

monetary value of the goods or services has been established. 

However, there are situations where revenue is recognised at other times than at the point of sale, for 

example, the sale of a cell phone contract. This is a long-term service contract which may involve 

multiple services and goods delivered at different points over the contract. In this scenario, revenue is 

recognised upon the fulfilment of various performance obligations of each distinct good and service.  

IFRS 15 applies to long-term service contracts as well as simpler sales transactions involving single 

products and services. However, revenue recognition of long-term service contracts is beyond the scope 

of this syllabus. 

7.2 IFRS 15 

IFRS 15 governs the recognition of revenue arising from contracts with customers.  

Revenue is income arising in the ordinary course of an entity's activities, such as sales and fees. 

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The key principle of IFRS 15 is that revenue is recognised to depict the transfer of promised goods or 

services to customers at an amount that the entity expects to be entitled to in exchange for those goods 

or services.

 

This is achieved by applying a five step model: 

(1) 

Identify the contract(s) with a customer 

(2) 

Identify the performance obligations in the contract 

(3) 

Determine the transaction price 

(4) 

Allocate the transaction price to the performance obligations in the contract 

(5) 

Recognise revenue when (or as) the entity satisfies a performance obligation  

(IFRS 15, IN7) 

7.3 Definitions 

The following definitions are given in the standard. 

Revenue

 is 

income arising in the course of an entity’s ordinary activities.

  

Income

 is increases in economic benefits during the accounting period in the form of inflows or 

enhancements of assets or decreases of liabilities that result in an increase in equity, other than those 

relating to contributions from equity participants.  

A 

contract

 is an agreement between two or more parties that creates enforceable rights and obligations.  

A 

customer

 is a party that has contracted with an entity to obtain goods or services that are an output of 

the entity’s ordinary activities in exchange for consideration. 

A 

performance obligation

 is a promise in a contract with a customer to transfer to the customer either: a 

good or service (or a bundle of goods or services) that is distinct; or a series of distinct goods or services 

that are substantially the same and that have the same pattern of transfer to the customer. 

Transaction price

 is the amount of consideration to which an entity expects to be entitled in exchange for 

transferring promised goods or services to a customer, excluding amounts collected on behalf of third 

parties. 

(IFRS 15, Appendix A) 

 

Revenue does not include sales taxes, value added taxes or goods and service taxes which are only 

collected for third parties, because these do not represent economic benefits flowing to the entity. The 

same is true for revenues collected by an agent on behalf of a principal. Revenue for the agent is only the 

commission received for acting as agent. 

7.4 Measurement of revenue 

This is the transaction price, as defined above in the standard, allocated to each performance obligation. 

This will take account of any trade discounts and volume rebates. At FFA/FA level, this is simply the 

amount at which the goods/services are sold to the customer, with one exception; where a sale involves a 

cash (or settlement) discount. 

7.4.1 Cash/settlement discounts allowed 

IFRS 15 refers to ‘variable consideration’. This means the variable element of the payment a business 

expects to receive for a sale. 

A cash/settlement discount allowed for payment by cash/prompt payment is one such variable 

consideration. IFRS 15 requires a business to estimate the amount of variable consideration it expects to 

receive, and reflect this in the transaction price (para. 50). 

This gives rise to the following accounting treatment of cash/settlement discounts allowed: 

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