Lecture 4 - inventories & IAS1 Flashcards
IAS 1 presentation of financial statements
IAS1 is only about
The general features of financial statements
Guidelines with regard to their structure
Minimum requirements for their continent
Not about specific transactions or events
These are dealt with in other accounting standards
Objectives of financial statements
To provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions
Should provide info about an entity’s
- Assets, liabilities and equity
- income and expenses, inc gains and losses
-Contributions by and distributions to owners
-Cash flows
Components of financial statements
Complete set of financial statements should include:-
- statement of financial position as at the end of the accounting period
-statement of comprehensive income for the period
-statement of changes in equity for the period
- statement of cash flows for the period
Another integral part is the notes that accompany these statements
Fair presentation
The financial statements must present fairly the
Financial position
Financial performance
Cash flows
Application of IFRS’s presumed to result in fair presentation
Other assumptions
Going concern Accrual accounting Consistency of presentation Materiality and aggregation Offsetting Comparative information
Requirement to clearly identify
The financial statements The reporting enterprise Whether the statements are for the enterprise or for a group The date of period covered The presentation currency The level of precision
Current and non-current assets
An asset is classified as current if it satisfies any of the following
Expected to be realised within the entity’s normal operating cycle
Held for the purpose of trading
Expected to be realised within 12 months after the balance sheet ‘s cash or cash equivalent (e.g receivables)
E.g. Inventories, trade receivables (debtors)
All other assets are non-current
Current & non-current liabilities
A liability is classified as current if it satisfies any of the following criteria
- Expected to be settled within the entity’s normal operating cycle
- Held for the purpose of trading
- Due to be settled within 12 months after the balance short date
- Entity does not have the right to defer settlement
- E.g overdraft, trade payables
All other liabilities are non-current
Statement of comprehensive Income
This can be:
- single statement of comprehensive income or
- two statement
- (I) an income statement, AND
- (I) a statement beginning with profit or loss (from the income statement) follow by components of other comprehensive income
- Components of other comprehensive income include items such as
Changes in revaluation surplus
Actuarial gains and losses on defined benefit plans
Gains and losses from foreign currency transaction
Gains and losses from remeasuring available for sale financial assets
Summary of content
Revenue
Finance costs
Share of the profit or loss of associates and joint ventures
Tax expense
A single amount comprising of post tax profit or loss of discontinued operations and adjustment of fair value
Profit or loss
Each component of other compressive income
Share of other comprehensive income of associates and joint ventures
Total comprehensive income
Statement of changes in equity
Main purpose: show how each equity component has changed during the accounting period
Show items
Total comprehensive income for the period to the owners and non-controlling interests respectively
Each component of equity affected by retrospective application or restatement under IAS 8
A reconciliation between the carrying amount of each equity component at the beginning and end of accounting period, disclosing the changes resulting from
Profit or loss
Each item of other comprehensive income
Transactions with owners (e.g. Dividends, share issue)
Notes to financial statements
Another integral part of the financial statements
Notes should:
Provide info about the basis of preparation of the financial statements and the accounting policies used
The measurement used
Other accounting policies used that are relevant to our understanding of the FS
Disclose info required by other IAS and IFRS which is not disclosed in other parts of the FS
Provide additional info relevant to our understanding of the FS
Notes to financial statements
Disclosure judgments
The judgements, part from those involving estimations, the management has made in the process of applying the entity’s accounting policies that have the most significant effect on the amounts recognised in the financial statements
IAS 2 Inventories
Excludes: WIP Construction contracts Financial Instruments Biological assets Cost include: Cost of purchase Cost of conversion Other costs incurred in bringing the inventories to their current location and condition Borrowing costs FIFO or Weighted Average Exclude Abnormal waste Storage costs Admin costs Selling costs Foreign exchange Interest cost if purchased on deferred settlement
