3. The Statement Of Financial Position

Question 1

What does IAS1 identify?

Answer 1

• the purpose of financial statements

- complete set of financial statements

Question 2

What does a complete set of financial statements per IAS1 comprise of?

Answer 2

• statement of profit or loss and other comprehensive income
• statement of financial position
• statement of changes in equity
• statement of cash flows
• notes to the financial statements

Question 3

What information must be displayed on the financial information?

Answer 3

• Name of the entity
• If the financial statements are for a single company or a group
• The accounting period end date
• The currency
• The rounding level

Question 4

What does IAS1 state?

Answer 4

Financial statements shall present fairly the financial position, financial performance and cash flows of an entity.

Question 5

What are the 5 fundamental accounting concepts that IAS1 require?

Answer 5

1) accruals concept
2) going concern concept
3) consistency - classification from one period to the next
4) offsetting - assets and liabilities should not be offset unless required of permitted by the relevant standard.
5) materiality and aggregation - each material class of similar items should be presented separately in the financial statements.

Question 6

What is required in the disclosure of shares in the financial statements?

Answer 6

• number of shares authorised
• number of shares issued and paid for
• nominal value of the share
• class of the share

Question 7

What are the types of reserves?

Answer 7

• Revaluation reserve

- Retained earnings

Question 8

What is a revaluation reserve?

Answer 8

It arises if you revalue an asset. It is a non distributable reserve and it serves a particular purpose and is used when we increase the value of a non-current asset.

Question 9

What are retained earnings?

Answer 9

Accumulation of profits and losses made over the years after deducting any dividends, so the balance of undistributed profits. Any distribution of profit to the owners will be deducted.

Question 10

What is dividends never?

Answer 10

An expense

Question 11

How are dividends treated?

Answer 11

As a reduction in retained earnings

Question 12

What are the two stages dividend can be paid?

Answer 12

Interim (mid year)

Final (end of year)

Question 13

Which accounting period should dividends be included in?

Answer 13

The accounting period they have been approved by directors in

Question 14

What needs to be disclosed with dividends?

Answer 14

• their nature and purpose of each reserve
• reconciliation between b/f and c/f amounts
• proposed dividends which have not been approved by year end and the date of declaration and amount

Question 15

What are the steps for drafting the SOFP?

Answer 15

1. Review the proforma
2. Workings
3. Enter the figures
4. Post the double entries
5. Complete the workings