Preparation & Presentation of Financial Statements Flashcards
What is the Objective of Financial Statements According to IAS1?
Provide info about financial position/performance, and cash flows of an entity to be used in making economic decisions
What are the 4 Different Financial Statements?
Statement of Profit/Loss or Income Statement
Statement of Financial Position
Statement of Cash Flows
Statement of Changes in Equity
What is Statement of Profit/Loss or Income Statement?
How well company performs during a period.
Revenue – Expenses = Net income
What is Statement of Financial Position (Balance Sheet)?
Financial position of company at end of period.
Must distinguish between current/non-current.
Liabilities + Equity = Assets
Fixed assets + current assets - short term payables = long-term debt + equity.
What is Statement of Cash Flow (SCFs)?
How much cash company generates and spends during period.
Operating cash flows +/ Investing cash flows +/- Financing cash flow = Increase/Decrease in cash during period.
What is Statement of Changes in Equity (SCE)?
Why/How each component of equity has changed during accounting period.
Must reconcile opening & closing balance on each component of equity.
Beginning retained earnings +/- Net income – Dividends = Ending retained earnings.
General Features of Financial Statement:
- Fair presentation
- Compliance with international standards
- Going concern basis
- Accruals basis
- Materiality and aggregation
- Offsetting
- Frequency of reporting
- Comparative information
- Consistency of presentation
When are Continued and Discontinued Operation Reported in Statement of Profit/Loss:
Discontinued operations reported after pre-taxing, followed by the relevant income taxes.
Continuing operations are reported after-tax earnings.
What Criteria must be Met Under IFRS for Discontinued Operations?
- Asset must be disposed of or reported as being “held for sale”
- Components must be a distinguishable separate area of business intentionally being removed from operation or a subsidiary of a component being held with the intention of selling.
What are the Features of Accrual Based Accounting?
- Record effect of each transaction as it occurs
- Revenue recognised when earned and expenses when incurred.
- Required by IAS1
What are the Features of Cash Based Accounting?
- Record only cash receipts and payments
- Revenue recognised when cash received, and expenses when cash is paid.
- Not required by accounting standards.
What is the Difference between Materiality & Aggregation?
“Material” items could influence economic decisions based on financial statement.
“Aggregated” items are those that are not individually material.
What is Offsetting?
Asset & Liabilities reported separately in SoFP, and should not be offset against each other. Similarly with income & expenses in Income Statements.
What Must be Included in the Identification of Financial Statements?
- Name of the reporting entity
- Whether a single entity or a group
- Date at the end of the reporting period or the period covered
- Presentation currency used
- Level of rounding (e.g. £000 or £m)
What is the Criteria for a Current Asset?
- Expected to be realized (converted to cash) 12 months after reporting period within entity’s normal operating cycle
- Held for purpose of being traded
- It is cash or a cash equivalent as defined by IAS7.
What is the Criteria for a Current Liability?
- Expected to be settled within 12 months after reporting period within entity’s normal operating cycle.
- Held for purpose of being traded
Includes:
* Payables
* Collections received in advance for delivery of goods or performance of services
* Other liabilities whose liquidation takes place within the operating cycle or 1 yrs.
What are the Different Components of Equity?
Share Capital,
* Stated value of shares issued. Includes ordinary (common) shares and preference (preferred) shares.
Share Premium,
* Excess amount paid on top of stated value.
Retained Earnings,
* Company’s undistributed earnings.
Accumulated Other Comprehensive Incomes,
* Aggregate amount of other comprehensive income items.
Treasury Shares,
* Amount ordinary shares are repurchased for.
Non-Controlling Interest (Minority Interest),
* Portion of equity of subsidiaries not owned by reporting company.
