Week 6 ii

1
Week 6 (ii)

• CHAPTER 10
• DISCLOSURE INCOME STATEMENT, BALANCE SHEET AND
  STATEMENT OF CHANGES IN EQUITY

2
Learning Objectives

• To understand the general reporting requirements
  facing companies which must comply with Chapter
  2M of the Corporations Law and accounting
  standards
• To understand the format of an income statement
  (Statement of financial performance) in
  accordance with accounting standard AASB 101/IAS
  1 for presentation in a general-purpose financial
  report
• To understand the format of a balance sheet
  (Statement of financial position) in accordance
  with accounting standard AASB 101/IAS 1 for
  presentation in a general-purpose financial
  report, using both current/non-current and
  liquidity presentations

3
Learning Objectives

• To understand the format of the statement of
  changes in equity in accordance with accounting
  standards AASB 101/ IAS 1 for presentation in a
  general-purpose financial report
• To prepare an income statement (Statement of
  financial performance), a balance sheet(Statement
  of financial position) and a statement of changes
  in equity
• To distinguish between a change in an accounting
  estimate and a change in an accounting policy
• To disclose the effects of an error in a
  general-purpose financial report
• To understand the disclosure required regarding
  key sources of estimation uncertainty.

4
GENERAL REQUIREMENTS FOR REPORTS

• AASB 101 /IAS 1 requires
• Reports are to be in English and A
• Each component of the financial report must be
  clearly identified and include the company name,
  reporting date or period and rounding format used
• Disclosure of the period to which the reports
  relate
• Attachment of additional information necessary to
  assess financial performance and position (i.e.
  notes)

5
GENERAL REQUIREMENTS FOR REPORTS

• AASB 101 /IAS 1 requires
• Notes to be in a specific order
• Disclosure of comparative details for both
  financial and narrative information on statements
  and in notes
• Cross-reference of items on each statement to
  directly related information in notes

6
GENERAL REQUIREMENTS FOR REPORTS

• AASB 101/ IAS 1 requires
• Disclosure of comparative details for both
  financial and narrative information on statements
  and in notes
• Consistent presentation and classification of
  items unless
• a change in operations requires a more relevant
  presentation
• the change will provide more relevant
  information, or
• the change is required by an accounting standard

7
GENERAL REQUIREMENTS FOR REPORTS

• AASB 101/ IAS 1 requires
• If items are reclassified then
• disclose the nature, amount of, and reason for
  reclassification or representation
• reclassify comparatives unless this would
  requirean adjustment to retained profits
  (beginning balance)
• explain why comparatives have not been
  restatedand disclose the changes that have been
  made

8
Income statement-Statement of financial
performance

• Format based on Appendix of AASB 101/IAS 1
• All-inclusive approach except for accounting
  standards exclusions
• Correction of errors
• Revaluations
• Adjustments to translation of foreign operations
• Remeasuring available for sale financial assets

9
Income statement-Statement of financial
performance

• Refer to ABC Group Ltd Income statement-(Statement
  of financial performance) on page 373 of Ch
  10-Fig.10.1 to satisfy requirements of AASB 101/
  IAS 1
• This suggested format is based on the AASB
  101/IAS Appendix and provides all the details
  required.

10
Balance Sheet-Statement of financial position

• Para. 68 AASB 101/ IAS 1 details items to be
  disclosed on the face of the balance
  sheet/statement of financial position as line
  items
• It should also include
• Total assets held for sale and assets included in
  disposal groups
• Liabilities included in disposal groups held for
  sale

11
Balance Sheet- Statement of Financial position

• Para. 69 requires additional items if relevant to
  understanding of companys financial position
  based on assessment of
• The nature and liquidity of assets
• The function of assets within the entity
• The amounts, nature and timing of liabilities
• Examples include receivables, inventories,
  property plant and equipment, provisions, share
  capital and reserves and biological assets

12
Balance Sheet-Statement of financial position

• Refer to Fig. 10.2 and Fig.10.3 of ABC Group Ltd
  on pg 375-377 of Ch 10.
• It shows the current/non current format of
  balance sheet-statement of financial position to
  satisfy requirements of AASB 101/IAS 1.
• Basic formats to achieve these disclosures are
  shown in the Appendix to AASB 101/IAS 1

13
Statement of changes in equity

• This discloses a companys total income and
  expenses, including those recognised directly in
  equity Para. 96
• Profit and loss for the period
• Each item of income and expense as required by
  Accounting Standards
• Total income and expense for the period (sum (a)
  and (b)) to equity holders of parent and minority
  interest
• For each component of equity changes in
  accounting policies and corrections of errors

14
Statement of changes in equity

• Para. 97 requires a company to disclose as part
  of the statement of changes in equity or in the
  notes
• The amounts of transactions with equity holders,
  showing separately distributions to equity
  holders
• Opening and closing balances of retained earnings
  and the changes during the period
• A reconciliation between the opening and closing
  balance of each class of contributed equity and
  each reserve, and details of changes during the
  period

15
Statement of changes in equity

• Refer to Fig. 10.4 of ABC Group Ltd in relation
  to the format of statement of changes in equity
  to satisfy the requirements of AASB 101/ IAS 1
  para. 96.
• Although AASB 101 does not prescribe a format for
  the statement of changes in equity, an entity is
  encouraged to adopt the format in the Appendix
  to AASB 101 (Para. Aus 97.1)

16
CHANGES IN ACCOUNTING ESTIMATES

• Accounting estimates include allowances for
  doubtful debts, depreciation, provisions for long
  service leave
• As new information becomes available such
  estimates may need revision
• AASB 108/IAS 8 prohibits retrospective
  adjustments
• Be careful to clearly distinguish between changes
  of accounting policy and changes of accounting
  estimates
• Only material changes of estimates are required
  to be disclosed

17
ACCOUNTING ERRORS

• Errors include mathematical mistakes, fraud,
  oversight and misinterpretation of information
• Para. 42 AASB 108/ IAS 8 correction of material
  prior period error is to be accounted for
  retrospectively in the first financial report
  issued after the error is discovered
• Previously reported financial information has to
  be corrected

18
ACCOUNTING ERRORS

• Current year errors can affect prior years,
  para.49 must disclose
• Nature of error
• For previous period, extent of correction on
  financial statement line and if AASB 133/ IAS 33
  applies, for basic and diluted earnings per share
• Amount of correction relating to period before
  comparatives
• If retrospective statement is impracticable
  circumstances that caused condition and
  description of how error corrected

19
KEY SOURCES OF ESTIMATION UNCERTAINTY

• Para.116 AASB 101/ IAS1, an entity shall disclose
  in notes key assumptions about the future of
  estimation uncertainty that is material.
• Notes shall include details of
• Their nature
• Their carrying amount as at the reporting date

20
DEMO 1 Laucala Ltd

• Lecture 6(ii)
• The following information relates to Laucala
  Ltd.. Profit before tax for year ended
• 30 June 2007 was 194000.
• The following items were used in determining
  that profit
• Sales revenue
  
  540000
• Cost of sales
  
  234000
• Selling and admin expenses
  60000
• Gain on sale of land (carrying amount at date of
  sale 108000) 18000
• Bad debts expense
  36000
• Research costs written off
  22000
• Interest expense
  
  12000
• Assume the companys taxation rate is 30
• Required
• Prepare an income statement for Laucala Ltd for
  the year ended 30 June 2007,
• in accordance with the requirements of AASB
  101/IAS 1.

21
Solution Demo to EX 1-Laucala Ltd Income
Statement/Statement of financial performance for
the year ended 30 June 2007

• Revenue 540 000
• Other income 18 000
• 558 000
• Expenses, excluding financed costs (352 000)
• Finance costs (12 000)
• Profit before income tax 194 000
• Income tax expense  (58 200)
• Profit for the period 135 800
• Workings
• Expenses, excluding borrowing costs
• Cost of sales 234 000
• Selling and administrative expenses 60 000
• Bad debts 36 000
• Research costs written off 22
  000
• 352 000

22
NOTES

• It is in accordance to AASB 101/ IAS 1 Para. 86
  which states when items of income and expenses
  are material, their nature and amount shall be
  disclosed separately
• Para.88 states an entity shall present an
  analysis of expenses using a classification based
  on either nature of expenses or their function
  within thentity whichever provides information
  that is reliable and more relevant
• Para. 91 which states that the first form of
  analysis is the nature of expense method.
  Expenses are aggregated in the income statement
  according to their nature
• Para. 92 which states the second form of analysis
  is the function of expense and classifies
  expenses according to their function as part of
  cost of sales or,(e.g.cost of distribution or
  administrative activities