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International Financial Accounting Elisabeth Martinez
2. Presentation of Financial Statements
It is very volatile and changes very often. It requires
change because of the nature of firms and its
accounting. There are many links between the
many IAS. The latest version came into force 1st of January 2013.
0. Complete set of Financial Statements (important) What should be included in the Financial Statements? • • • • • • • A Statement of financial position as at the end of a period (before Balance Sheet) (1) Statement of profit and loss and other comprehensive income for the period.
(2) A statement of changes in equity for a period.
A Statement of cash flows for a period. (before cash flow Statement) Notes, comprising a summary of significant accounting policies and other explanatory information.
Comparative information of the preceding period (at least one year) A Statement of Financial Position at the beginning of the preceding period when an entity applies an accounting policy retrospectively or makes retrospective restatements of items in its financial statements, or when it reclassifies items.
I. Minimum lines items to be included Those are the items in a Balance Sheet! a) Property, plant and equipment; b) Investment property; c) Intangible assets; d) Financial assets (excluding e), h) and i); e) Investments accounted for using the equity method; f) Biological assets g) Inventories; h) Trade and other receivables; i) Cash and cash equivalents; An entity shall present current and noncurrent assets, and current and noncurrent liabilities, as separate classifications in its statement of financial position... Except when a presentation based on liquidity provides information that is reliable and more relevant.
j) The total assets classified as held for sale and other assets included in disposal groups classified as held for sale in accordance with IFRS 5.
k) Trade and other payables; l) Provisions; m) Financial liabilities; n) Liabilities and assets for current tax, as defined in IAS 12, Income Taxes.
o) Deferred tax liabilities and deferred tax assets, as defined in IAS 12.
p) Liabilities included in disposal groups classified as held for sale in accordance with IFRS 5.
q) Non controlling interests, presented within equity; and r) Issued capital and reserves attributable to owners of the parent.
1 International Financial Accounting Elisabeth Martinez II. General features of financial statements • Fair presentation and compliance with IFRS; • Going concern basis and accrual basis of accounting; • Materiality (something that is relevant and should be accounted separately) and aggregation (different issues added together because they are not relevant); • Offsetting; (you can’t compensate an expense with a revenue, you have to write them all) • Frequency of reporting; • Comparative information; • Consistency of presentation 1. The Statement of Comprehensive Income Profit or loss + Other Comprehensive Income = Total Comprehensive Income EQUITY Owner’s Equity (Paidin-Capital, reserves…) Statement of Changes in Equity Non-owner’s Equity Other comprehensive income 1. Changes in revaluation surplus 2. Re-measurements of defined benefits plan 3. Gains and losses arising from translation financial statement of foreign applications 2 International Financial Accounting Elisabeth Martinez I Minimum content • Revenue; • Finance costs; • Share of profit (loss) of associates and joint ventures accounted for using the equity method; • Tax expense; • The total of: o Post-tax profit or loss of discontinued operations; o The post-tax gain or loss recognized on the profit or loss; II. Classification • Nature: what is the cost • • • Each component of other comprehensive income (OCI) classified by nature Share of the OCI of associates and joint ventures accounted for using the equity method; Total comprehensive income Function: the name of the account III. Types Cost of Sales Distribution Costs -Opening (closing) inventories -Direct materials Other external changes -Direct labor -Al direct production overheads -Amort of capitalized expend.
-Cash discounts -Inventory writedowns -Payroll of sales, marketing and distribution -Advertising -Sales person costs -Warehouse costs -Transport of finished goods -Maintain sales outlets -Agents commissions Statement of Comprehensive Income Administrative Other Finance Expenses income/expenses Costs -General management -Administration buildings -Bad debt -Professional costs -Interest income on investments -Lessor’s finance income on finance leases -Dividend income -Gains and loses on financial assets at fair value through income statement -Gains and loses on trading derivatives -Licence fees -Interest payable -Finance charges of finance leases -Dividends on preference share classified as debt -Amortization of discounts and premiums on debt instruments -Foreign exchange diff.
on borrowings -Changes in fair value o a certain derivative financial instrument Finance Revenue -Interest income on cash and cash equivalents -Unwinding of discounts on financial assets 3 International Financial Accounting Elisabeth Martinez 2. Statement of Changes in Equity IAS 8 Include all elements and of Equity and all the elements of other comprehensive income Paid in Bonus Revalutation Restricted Other RE 20x2 K reserve reserves 31 DEC 100,000 0 4,000 10,000 20,000 8,000 20x1 ∧rev. IA 8,000 ∨rev IA (-6,000) Profit dist.
8,000 32,000 (-40,000) Dividends (-40,000) Profit year 95,000 31 DEC 100,000 6,000 18,000 52,000 95,000 20x3 20X2 ∧ kapital 50,000 25,000 ∨rev.
4,000 Profit year 112,000 Result to 9,500 25,500 35,000 res.
Reserves Dividends 60,000 31 DEC 150,000 25,000 10,000 27,500 77,500 112,000 20X3 3. Statement of Cash Flows According to IAS 7 - Objective To require the disclosure of information about the cash movements of an entity by means of a statement of cash flow that classifies cash flows among operating, investing and financing activities.
- Scope An entity shall prepare the statement of cash flow (or cash flow statement) for each period for which financial statements are prepared.
-Benefits of cash flow information Cash Flow Statement (CFS), when used in conjunction with other financial statements, enables users to evaluate the changes in net assets of an entity, its financial structure and its ability to generate cash.
I. Definitions -Cash: Cash on hand and demand deposits -Cash equivalents: Short-term, highly liquid investments that are readily convertible to cash without any risk (e.g.
bank accounts or deposits up to 3 months) -Cash flows: Inflows and outflows of cash and cash equivalents 4 International Financial Accounting Elisabeth Martinez -Operating activities: Principal revenueproducing activities that are not investing or financing activities.
-Investing activities: Acquisitions or disposals of long-term assets -Financing activities: Activities that result in changes in the seize and composition of equity and borrowings of the entity.
II. Presentation of a Statement of Cash Flows • Operating activities; • Receipts from: Sale of goods or services / Royalties, fees, commissions...
• Payments to: Suppliers / Employees / Tax authorities /Insurances...
• Investing activities; • Receipts from: sales of PPE, intangibles and other long-term assets / sales of equity or debt instruments • Payments to: acquire PPE, intangibles and other long-term assets / acquire equity or debt instruments • Financing activities • Receipts from: issuing shares or other equity instruments /acquiring borrowing instruments (loans, mortgages, bonds...) • Payments to: acquire entity’s shares / repayments of amounts borrowed / lease rental payments (lessee perspective) / dividends paid III. Computing Cash Flows DIRECT METHOD INDIRECT METHOD 5 International Financial Accounting Elisabeth Martinez EXAMPLE INDIRECT METHOD 6 ...