IAS 1 Presentation of financial statements – key formats

Question 1

IAS1 – presenting profit or loss

IAS1 requires the presentation of both realised and unrealised profit and loss in a period

These can either be:

Answer 1

• combined into one statement – “statement of comprehensive income”
• or split into two, one showing the profit and loss for a period, the other showing the other comprehensive income for the period

Question 2

Typical classification of expenses

Cost of sales
Distribution costs
Administration expenses
Finance costs

Answer 2

Cost of sales:

• Opening inventory (raw materials, - WIP, finished goods)
• Carriage inwards
• Purchases
• Manufacturing expenses
• Closing inventory (raw materials, WIP, finished goods)

Distribution costs:

• Advertising
• Carriage outwards
• Delivery vehicle expenses
• Expenses relating to warehousing of finished goods ready to be sold
• Selling costs

Administration expenses

• Auditor fees
• Irrecoverable receivables
• Discount received
• Directors remuneration
• Office costs

Finance costs:

• Bank overdraft/loan interest
• Debenture interest
• Loan stock interest
• Redeemable preference share dividends
• Discount allowed

Question 3

Statement of financial position

Answer 3

• IAS1 provides recommended formats but they are not mandatory
• Specifies that certain items must be shown in the statement, other items can be shown in the notes
• Must separate current from non current assets and liabilities

Question 4

Non current assets

Answer 4

Property, Plant and Equipment

• Tangible non current assets
• The face of the SoFP should contain the overall carrying value (net book value).

IAS16, Property, plant & equipment requires a note showing the reconciliation of movements in each class of asset

IAS 16 PPE – PPE includes assets held for use in the production or supply of goods or services, or administrative purposes, and are expected to be used during more than one period

Question 5

What is the cost of a non-current asset?

Include vs exclude?

Answer 5

Include:

• Purchase price
• Delivery costs
• Installation costs
• Professional fees (e.g. architect)
• Subsequent capital expenditure

Exclude:

• Administration costs
• Staff training costs
• General overhead costs
• Repairs and maintenance costs

Question 6

Intangible non current assets

What are they?
3 examples?

Answer 6

IAS 38 – Intangible assets are “identifiable non-monetary assets without physical substance”

Examples:

• Goodwill (Difference between the amount paid for an investment and its net assets)
• Patents, copyrights, trademarks
• Development costs (Costs spent on developing a new product with commercial viability e.g. software, drugs development)

Question 7

Statement of Changes in Equity (SOCIE)

Answer 7

• The statement of changes in equity explains how the equity section of the statement of financial position has changed in the reporting period.ie it reconciles the opening and closing position.
• The SOCIE uses the information already contained in the statement of profit or loss and the statement of financial position to explain how equity has changed in the period.
• You need to use the information relating to transactions and balances already recorded in order to prepare the statement of changes in equity.