Statement Of Financial Performance Flashcards
What is statement of change in equity? Its purpose?
SOCE is a financial report which details the changes in owner’s equity over an accounting period.
Purpose: to report all changes in owner’s equity that are taken directly into the equity section of the balance sheet, together with the comprehensive income for the period.
What is statement of comprehensive income (SOCI)?
SOCI illustrates the financial performance and results of operations of a particular company or entity for a period of time.
Entity can choose either:
-prepare a SOCI; or
-prepare an IS (SOFP) and a SOCI
If prepare 2 statement, the opening line in the SOCI is the profit from the IS.
What is the break even position?
Where revenues=expenses
Purpose of income statement (IS or SOFP)?
To measure the profit or loss for the period
Summarize revenue and expenses for a period
Use to assess how well entity has performed during a period of time. To be able to answer these questions:
-are they spending too much on expenses?
-are they generating enough revenue?
-whether they are in a breakeven position or a profit or a loss position?
What changes in the SOFPosition can be explained by the profit or loss for the period?
Changes in owner’s equity
What is income?
Income is the increases in economic benefits for the accounting period in the form of inflows of assets or decreases in liabilities that result in increases in equity, other than those relating to ownership contributions.
INCOME=REVENUE + GAINS (all other inflows from non-operating activities)
What is revenue?
Revenue is the increases in the owners’ claim as a result of operations.
What is expenses?
Expenses is the decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases in equity other than those relating to distributions to equity participants.
Expenses arise in the course of the ordinary activities of the entity.
How many kinds of financial statement are there?
4
Statement of financial performance(Income Statement)
Statement of financial position ( balance sheet)
Statement of cash flow
Statement of change in equity
Examples of gains or losses (other comprehensive income)?
- increases in the value of non-current assets
- actuarial gains or losses on defined benefits schemes relating to superannuation
- gains or losses occur when translating financial statements of a foreign operation
- gains or losses on holding financial assets that are available for sale
- gains or losses associated with hedging instruments
Differentiate SOFPosition and SOFPerformance
-SOFPosition of a business is a report at a single point in time and is effectively a snapshot of the stock of wealth held by the business.
-SOFPerformance is concerned with the generation of wealth over a period of time.
SOFPerformance can be seen as linking the SOFPosition at the beginning of the period with that at the end of the period
What is matching convention about?
Expenses had to be taken into account in the same period and in the income statement in which the associated sales or other income was recognized.
The traditional matching convention posed problems of determining which expenditure to align with the current period’s income, and which expenditure to defer and carry forward to be matched against future projected income.
What are possible points of revenue recognition?
- commencement of business
- make purchases
- receipt of orders before production
- start of production
- progressively throughout production
- completion of production
- receipt of order after production
- delivery of goods/ services to customers
- receipt of cash
When is expenses recognized?
Expenses recognized when:
- it is probable that the decrease in economic benefits has occurred
- the amount can be reliably measured
