All statements are to be prepared in accordance with the requirements of IFRSs. Ignore taxation.
CHAPTER 20
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PREPARATION OF FINANCIAL STATEMENTS FOR COMPANIES
369
ANSWER
(a) USB
STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 20X9
$'000
Revenue
11,752
Cost of sales (W2)
4,984
Gross profit
6,768
Administrative expenses (W3)
2,822
Distribution costs (650 + 50 (W1))
700
Profit for the year
3,246
(b) USB
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20X9
Share
capital
Share
premium
Retained
earnings
Total
$'000
$'000
$'000
$'000
Balance at 1 January 20X9
1,000
500
560
2,060
Prior period adjustment
–
–
(200)
(200)
Restated balance
1,000
500
360
1,860
Total comprehensive income for the year
–
–
3,246
3,246
Dividend paid
–
–
(200)
(200)
Share issue
1,000
500
–
1,500
Balance at 31 December 20X9
2,000
1,000
3,406
6,406
(c) USB
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20X9
$'000
$'000
Non-current assets
Property, plant and equipment (W4)
6,386
Current assets
Inventory
1,600
Trade receivables (876 – 76 – 40)
760
Cash
100
2,460
Total assets
8,846
Equity and liabilities
Equity
Share capital (1000 + 1000)
2,000
Share premium (500 + 500)
1,000
Retained earnings (W5)
3,406
Current liabilities
Sales tax payable
1,390
Trade payables
1,050
2,440
Total equity and liabilities
8,846
Workings
1
Depreciation
$'000
Buildings (10,000 5%)
500
Plant (1,400 – 480) 20%
184
Motor vehicles (320 – 120) 25%
50
2
Cost of sales
$'000
Opening inventory
2,200
Purchases
4,200
Depreciation (W1)
184
Closing inventory
(1,600)
4,984
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PART F: PREPARING BASIC FINANCIAL STATEMENTS
370
3
Administrative expenses
$'000
Per T/B
2,206
Depreciation (W1)
500
Irrecoverable debt
76
Receivables allowance ((876 – 76) 5%)
40
2,822
4
Property, plant and equipment
Cost
Acc. dep
Dep. chg
Carrying value
$'000
$'000
$'000
$'000
Buildings
10,000
4,000
500
5,500
Plant
1,400
480
184
736
Motor vehicles
320
120
50
150
11,720
4,600
734
6,386
5
Retained earnings
$'000
B/f per T/B
560
Prior period adjustment (inventory)
(200)
Profit for period
3,246
Dividend paid
(200)
3,406
This section of the Interactive Text will help fulfil performance objective PO7 of the PER: Prepare
external financial reports.
BPP Tutor Toolkit Copy
CHAPTER 20
//
PREPARATION OF FINANCIAL STATEMENTS FOR COMPANIES
371
IAS 1 Presentation of financial statements lists the required contents of a company's financial
statements. It also gives guidance on how items should be presented in the financial statements.
A complete set of financial statements includes a statement of financial position, a statement of profit or
loss and other comprehensive income, a statement of changes in equity, a statement of cash flows and
disclosures notes.
IAS 1 specifies what should be included in a statement of financial position and includes a suggested
format. It also provides guidance on the current/non-current distinction.
IAS 1 specifies what should be included in a statement of profit or loss and other comprehensive income
and includes a suggested format. Some items must be disclosed on the face of the statement.
IAS 1 requires an entity to provide a statement of changes in equity. The statement of changes in equity
shows the movements in the entity's equity for the period.
Disclosure notes are included in a set of financial statements to give users extra information.
IFRS 15 Revenue from contracts with customers replaces IAS 18 Revenue (effective for annual reporting
periods beginning on or after 1 January 2018).
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.'
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
CHAPTER ROUNDUP
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PART F: PREPARING BASIC FINANCIAL STATEMENTS
372
1
According to IAS 1, which of the following items must appear on the face of the statement of profit or
loss and other comprehensive income?
1
Tax
expense
2
Revenue
3
Cost
of
sales
4
Profit or loss
A
4
only
B
2 and 4 only
C
1, 2 and 4 only
D
2 and 3 only
2
According to IAS 1, which of the following items make up a complete set of financial statements?
1
Statement of changes in equity
2
Statement of cash flows
3
Notes to the accounts
4
Statement of financial position
5
Statement of profit or loss and other comprehensive income
6
Chairman's report
A
All of the items
B
1, 2, 4 and 5 only
C
1, 2, 3, 4 and 5 only
D
3, 4 and 5 only
3
Which of the following items are non-current assets?
1
Land
2
Machinery
3
Bank
loan
4
Inventory
A
1
only
B
1 and 2 only
C
1, 2 and 3 only
D
2, 3 and 4 only
4
How is a bank overdraft classified in the statement of financial position?
A
Non-current
asset
B
Current
asset
C
Current
liability
D
Non-current
liability
5
In the published accounts of XYZ Co, the profit for the period is $3,500,000. The balance of retained
earnings at the beginning of the year is $500,000. If dividends of $2,500,000 were paid, what is the
closing balance of retained earnings?
A
$4,000,000
B
$1,500,000
C
$500,000
D
$1,000,000
QUICK QUIZ
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CHAPTER 20
//
PREPARATION OF FINANCIAL STATEMENTS FOR COMPANIES
373
1
C
See Paragraph 3.1 for a complete list of items that must be disclosed on the face of the statement
of profit or loss and other comprehensive income.
2
C
The chairman's report does not form part of the financial statements required by IAS 1, although it
often accompanies a company's financial statements.
3
B
Item (3) is a liability and item (4) is a current asset.
4
C
A bank overdraft is strictly payable on demand and so it is a current liability.
5 B
$'000
Retained earnings
Opening balance
500
Profit for the period
3,500
4,000
Dividends paid
(2,500)
Closing balance
1,500
Now try ...
Attempt the questions below from the Practice Question Bank
Qs 77 – 80
ANSWERS TO QUICK QUIZ
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