10. Presentation of FS pt.2 Flashcards
What is the purpose of the SOCIE?
To reconcile the opening equity balances in the SOFP to the closing balances.
What does the SOCIE present?
The Total Comprehensive Income for the period and other changes in equity between two financial periods.
What are the key presentation options for the SOCIE?
S cap / S pre / RE / RE surplus /Total Eq
Bal. at start of yr
Issue share cap
Dividends paid
Total CI
Transfer to RE
Balance at end of yr.
How is closing retained earnings calculated?
Opening Retained Earnings
+/- Profit/loss for the year
-Dividends Paid
+ Transfers from revaluation surplus
= Closing Retained Earnings
What is the purpose of the SOCF?
To provide information about the cash receipts (cash inflows) and cash payments (cash outflows) of an entity during an accounting period.
What are cash inflows, cash outflows and cash and cash equivalents?
Cash inflow:
* A cash inflow is cash coming into the business. In a journal entry, this would be a debit to bank (cash and cash equivalents).
* In the SOCF, a cash inflow is shown as a positive number.
Cash outflow:
* A cash outflow is cash leaving the business. In a journal entry, this would be a credit to bank
(cash and cash equivalents).
* In the SOCF a cash outflow is shown as a negative number, using brackets.
Cash and cash equivalents:
* This is a heading on the SOFP.
* Cash is the physical cash held by the business in a bank account, or within the business itself (in petty cash, cash registers, safes, etc).
* Cash equivalents are defined by IFRS as ‘short-term, highly liquid investments that are readily convertible to known amounts of cash…with insignificant risk of change in value’ (IAS 7). In practice, this means cash in a short-term saving account, eg on deposit for a two-month period, which the entity will get back from the financial institution.
What are cash flows from operating, investing and financing activities, and how are they calculated?
Cash flows from operating activities:
- Cash inflows and outflows from the revenue generating activities of the business, eg sales, purchases and other expenses, including staff costs.
Cash flows from investing activities:
- A business invests in assets. These could be assets for use in the business, such as PPE, and cashflows will include purchases and disposals.
Cash flows from financing activities:
- A business is financed by debt and equity and this section relates to raising finance – shares issues
and obtaining debt finance and repayments, such as loan repayments or dividend payments.
What is the CF from operating activities pro-forma?
Operating activities section:
1. Cash received from customers = opening trade receivables + revenue - closing trade receivables
- Cash paid to suppliers and employees = opening trade payables + purchases + administrative expenses + distribution costs - closing trade payables
- Cash paid to suppliers = Opening TP + Purchases - Closing TP
4.. Purchases = cost of sales - opening inventories + closing inventories
5.. Administrative expenses = From SPL – depreciation – loss on sale + gain on sale – any other non-cash items
- Interest paid = opening interest payable + finance costs – closing interest payable
- Tax paid = opening taxation payable + taxation – closing taxation payable
What is the CF from investing activities pro-forma?
Cash flows from investing activities (purchase of PPE and Proceeds from sale of PPE):
1. Opening PPE X
-depreciation (X)
-carrying amount of disposals (X)
+ revaluation increase on PPE X
- revaluation decrease on PPE X
Expected Closing PPE X
Closing PPE X
Purchase of PPE (Difference between
expected closing PPE & closing) X
- Proceeds = Gain/ (Loss) + carrying amount of PPE on disposal
What is the CF from financing activities pro-forma?
Cash flows from financing activities:
- Proceeds from issue of share capital : (Closing share cap + Share premium) - (Opening share cap + Share premium)
- Proceeds from issue of bonds/debentures
- Proceeds from loan received (eg a bank loan)
- Payment of loan liabilities
- Payment of lease liabilities
- Dividends paid: (Open Retained E +/- PFY + Transfers from Reval + Closing RE)
What is the working proforma for Dividends, bank loan, share capital?
Dividends paid:
Opening retained earnings x
Add: profit for the year x
Less: loss for the year (x)
= x
- Closing retained earnings x
= Dividends paid (difference) x
Bank loan:
Opening bank loan X
Closing bank loan X
Proceeds/ (Repayment )of bank loan X
Share capital:
Closing share capital + share premium x
Less: opening share capital + share premium (x)
Proceeds of share issue x
State the SOCF Template that the workings go into
- Cash flows from operating activities:
Cash receipts from customers
- Cash paid to suppliers and employees
= Cash generated from operations
- Interest paid
- Taxes paid
= Net cash generated from operating
activities
- Cash flows from investing activities:
- Purchase of property, plant and equipment
Proceeds from sale of equipment
= Net cash used in investing activities
- Net cash used in Financing activities:
Proceeds from issue of share capital
Proceeds from issue of debentures
- Payment of lease liabilities
- Dividends paid
= Net cash used in financing activities (790)
- Net increase in cash and cash equivalents =
Cash and cash equivalents at Start of yr
Cash and cash equivalents at End of yr
What is FRS 102?
FRS 102 adopts an IFRS-based framework and is based on the IFRS for Small and Medium-sized Entities (SME) Accounting Standard, amended to ensure compliance with UK company law.
Who uses IFRS and who uses FRS to prepare financial statements?
Entities that are accountable to the public must use IFRS Accounting Standards.
Unlisted companies in the UK may choose to prepare their accounts in accordance with UK accounting standards, and the FRS standard relevant for the presentation of financial statements is FRS 102.
What are the presentation differences under FRS 102 for the SPLOCI?
- Under IFRS, the statement is titled the statement of profit or loss and OCI. Under FRS 102, it is titled the statement of comprehensive income.
Under FRS 102, there is also the option to prepare two separate statements – the income statement (referred to as the profit and loss account in the Companies Act 2006) and a separate statement of comprehensive income.
- Under IFRS, sales are referred to as revenue. Under FRS 102, they are referred to as turnover.
- Under IFRS, entities can choose – but are not required – to report the operating profit. FRS 102 requires entities to report the operating profit.
- Under IFRS, other income is positioned after gross profit and before other expenses. Under FRS 102, other income is positioned after other expenses.
- IFRS refers to finance income and finance costs in relation to interest earned or paid by an entity. FRS 102 refers to interest receivable and similar income and interest payable and similar expense. Under FRS 102, an entity may classify the expenditure items according to nature or function.
