Class Lecture

on
Company financial statements
under IFRS Accounting Standards

Class-

Masum Gazi, ACA

e-mail: [email protected]
LinkedIn:
https://www.linkedin.com/in/taxprofessionalbd/
 Scope & Exam context

• Focus: Single company financial statements under IFRS Accounting

Standards (IAS 1).
• Primary statements: SPL, SFP, SOCE (cash flows excluded here).
• Comparatives required; all expenses as negatives in SPL; operating profit is
common but not required.
 Statement of Profit or Loss (IAS 1) – Overview

 Includes all Income and expenses recognized in the period.

 Functional classification:
 Cost of Sales,
 Distribution Costs,
 Administrative Expenses.

 Finance Income and Finance Costs presented separately; income tax

presented below Profit Before Tax (PBT).
 Statement of Profit or Loss
Classification of Expenses (by Function)
Cost of sales, Distribution Costs & Administrative
Expenses
IAS 1 states that an entity shall present an analysis of
expenses using a classification based on either the nature of
expenses or their functions within the entity, whichever
provides information that is reliable and more relevant.
 Cost of Sales (COS):

 Distribution costs:

 Administrative expenses:
Cost of Sales, Distribution Costs, Administrative Expenses
 SPL – Other income, Finance Income/Costs
Income other than revenue or finance income (investment
income) should be presented separately in determining
operating profit.
Examples of other income include:
 Other income :
– Rent received from property rented to 3rd party
– Proceeds from Insurance claims
– Gains on asset disposals of property, plant and equipment.
– Gains on disposal of intangible assets,

 Finance income:
– Dividends received on investment in equity shares
– Bank interest received

 Finance costs:
– interest on loans/overdrafts/debt securities;
– Costs of obtaining finance.
 Manual Example – SPL (Ducat plc) [Amounts in BDT]

The main requirement of IAS 1 is that all items of income and expense recognized in a
period shall be included in profit or loss.
Line item Amount (BDT) The Operating profit sub-total is not
Revenue 623,000 required by IAS 1, but is commonly
presented on the face of the statement of
Cost of sales (414,000)
profit or loss.
Gross profit 209,000
Note that income tax is the term used in
Other income 26,000
IAS 1 to refer to tax on the entity’s
Distribution costs (73,000) profits.
Administrative expenses (32,000)
Operating profit 130,000
Finance income 5,000
Finance costs (20,000)
Profit before tax 115,000
Income tax (35,000)
Profit for the period 80,000
 SPL – Presentation notes

 Enter expenses/losses as negative numbers in the SPL.

 Classify costs consistently to ensure comparability and true & fair view.
 Use judgement where specific guidance is absent; disclose by nature
where required.
Statement of Financial Position (IAS 1) – Overview

 The Statement of Financial Position (SOFP) is split between Total Assets

and Total Equity Plus Liabilities.
 Both Assets and Liabilities must show the Current/Non-Current Split.

 Equity shows share capital, Share Premium, rEtained earnings, other

reserves.
 Show income tax payable as a separate current liability; overdrafts as
short‑term borrowings.
 Statement of Financial Position – Points to Note

Total equity and liabilities758,000

Points to note:
All tangible assets (including land and buildings) are combined under the heading property, plantand equipment.
The user would refer to the non-current assets note, as covered in Chapter 10, fordetail.
Other intangible assets will include the carrying amount of purchased intangible assets and thecapitalised costs
of internally developed intangible assets.
Trade receivables and any other receivables (including VAT due) are combined as trade and otherreceivables;
prepayments are included in the heading other current assets. T he allowance forreceivables is offset against
‘trade and other receivables’.
Cash in hand and at bank are combined as ‘cash and cash equivalents’.
Any long-term liabilities such as bank loans or debt securities that are not repayable within 12months are
combined as long-term borrowings under non-current liabilities. Redeemablepreference shares would be
included here.
There are detailed disclosure requirements for share capital in IAS 1, in particular of the issued,fully paid and
partly paid share capital, and of the par value. The figure included in the statementof financial position is the
called-up share capital, both paid and unpaid.
Bank overdrafts, which are technically repayable on demand, are called ‘short-term borrowings’.They are not
offset against any cash and cash equivalent asset balances, unless a right of set-offexists.
Trade payables and other payables (including VAT, PAYE/NIC and sales commission owed,interest payable and
accruals) are combined as ‘trade and other payables’.
Deferred income is income that has been received before it has been earned. It is presented as acurrent liability
as it represents the goods or services that the entity must transfer to its customersin respect of the income
received.
Manual Example – SFP (Ducat Plc.) – Assets [BDT]

Statement of Financial Position

Manual Example – SFP (Ducat plc) – Equity & Liabilities [BDT]
Statement of Changes in Equity (IAS 1) – Purpose & Components

 Movements in share capital come

IAS 1 requires a statement of changes
from:
in equity showing:  Share issues &
 Bonus issues
1.Total comprehensive income for the
period (profit or loss).  movements in retained earnings
come from:
2. Owner transactions – contributions  Profits
(e.g., share capital issues, share  Dividends, &
 Bonus Share Issues.
premium) and distributions
(dividends).
3. Reconciliation of each equity
component (share capital, share
premium, retained earnings, reserves)
from beginning to end of the period.
Statement of Changes in Equity
Example - Monty Ltd [Manual]
Statement of Changes in Equity
Example - Monty Ltd [Manual]
Applying IAS 1 – Workflow from Trial Balance to Final Accounts

• Extract an initial trial balance

1

• Prepare the adjustment journals

2

• Process the adjustments and calculate the final trial balance

3

• Identify the ledger accounts to be included in the statement of profit or loss

in respect of: cost of sales, administrative expenses and distribution cost
4 headings

• Complete the formats for statement of profit or loss, statement of

5 financial position and statement of changes in equity
Applying IAS 1 – Typical year‑end journals (Format plc example) [BDT ’000]
Applying IAS 1 – Typical year‑end journals (Format plc example) [BDT ’000]
Applying IAS 1 – Typical year‑end journals (Format plc example)
Solution : Format Plc.
Solution : Format Plc.
Solution : Format Plc.
Solution : Format Plc.
 Format Plc.

Statement of profit or loss for the year ended 31 December 20X2

 Format Plc.
Statement of
financial position as
at 31 December 20X2
 (Format Plc.)
Statement of Changes in Equity
Statement of changes in equity for the year ended 31 December 20X2
 (Format Plc.)
Statement of Changes in Equity
 (Format Plc.)
Statement of Changes in Equity
 Presentation & Disclosure
Reminders

Show income tax as a separate line in SPL and income

Show tax payable in current liabilities.

Do not Overdrafts shown as short‑term borrowings; do not

offset offset cash unless right of set‑off exists.

Provide notes with sub‑classifications appropriate to

Provide the entity’s operations.
 Summary
What you should be able to do now

Prepare SPL, SFP, SOCE in IAS 1 format with BDT

Prepare figures.

Make year‑end adjustments and build from trial

Make balance to final accounts.

Explain classifications and disclosures clearly and

Explain consistently.
End of Chapter 12
Thank you