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Structure and content of financial statements - Coggle Diagram
Structure and content of financial statements
Disclosure of items
IAS 1 specifies particular disclosure of line items in the financial statements and in the notes
Some items must appear on the face of the SOFP or P&L, others can appear in a note to the financial statements instead
Disclosures specified by both IAS 1 and other IFRS may be made either on the face of the statement or in the notes unless otherwise stated
Identification of financial statements
An entity should clearly identify and distinguish the financial statements and related notes which are prepared under IFRS from other information published with the in the annual report
IFRS apply only to the financial statements
IAS 1 also requires related disclosure of the following information in a prominent manner wherever it is felt necesary
The name of the reporting entity and any change in name
Whether the statements are for an individual entity or for a group of entities
The period end date or period covered by the financial statements
The presentation currency
The level of rounding used (thousands, millions)
Statement of Financial Position
Presents the financial position of an entity at a given date
Helps users to assess the financial soundness of an entity in terms of liquidity risk, financial risk, credit risk and business risk
Assets
PPE
Investment property
Intangible assets
Financial assets
Investments accounted for using the equity method
Bological assets
Inventories
Trade and other receivables
Cash and cash equivalents
Assets held for sale
Liabilities
Trade and other payables
Provisions
Financial liabilities
Current tax liabilities
Deferred tax liabilities
Liabilities included in disposal groups classified as held for sale
Equity
Issued share capital and other components of equity
Non-controlling interests presented as part of equity
Non controllng interest
Format of statement
IAS 1 does not prescribe the format of the SOFP nor does it specify the order or format in which the items listed should be presented
IAS 1 requires that items which are sufficiently different in nature or function are to be presented separately
An additional item must be presented separately based on judgements and on the basis of an assessment of the following factors
Nature and liquidity of assets and their materialty
Monetary/non monetary assets and current/non-current assets are presented separately
Goodwill and assets arising from development expenditure are also shown separately
Function of assets within the entity
Operating and financial assets
Inventories
Receivables and cash
Cash equivalents should be presented separately
Amounts, nature and timing of liabilities
Interest bearing and non interest bearing liabilities and provisions are classified, they are shown separately as current or non-current
A separate presentation is also required where different measurement bases are used for assets and liabilities which differ in nature or function
Line items are included when the size, nature or function of an item or aggregation of similar items is such that separate presentation is relevant and required to fairly present the entity's financial positon
Sub classification of each line item depends on its size, nature, function and the requirements of IFRS
Current/non-current classification
These distinctions should give an indication of the extent when they can be realised, this is useful for an assessment of the financial position and solvency of an entity
Entities such as financial institutions who do not supply goods or services within a clearly identifiable operating cycle, should present all assets and liabilities in order of liquidity in increasing or decreasing order
In all cases, an entity shall disclose the amount for each assets and liabilities expected to be settled after the reporting date into the following separate classifications
Less than 12 months after the reporting period
More than 12 months after the reporting period
A long term debt expected to be refinanced under an existing loan facility is classified as non-current, even if the liability would otherwise be due within 12 months
An asset is classified as current by IAS 1 when it is
Expected to be realised (sold or consumed) in the entity's normal operating cycle
Held primarily for the purpose of trading and expected to be realised within 12 months after the reporting date
Cash or a cash equivalent which is not restricted in its use
A liability is classified as current by IAS 1 when it is
Expected to be settled in the entity's normal operating cycle
Held primarily for the purpose of trading
Due to be settled within 12 months after the reporting date
It does not have an unconditional right to defer settlement of the liability
Share capital and other components of equity
IAS 1 requires the following disclosures regarding issued share capital and other components of equity
Share capital for each class of share capital
Number of shares issued and full paid and issued but not fully paid
Par or nominal share value per share
Reconciliation of the number of shares outstanding at the start and end of the period
Rights, preferences and restrictions attached to the shares
Shares in the entity held by the entity itself or by related group companies
Shares reserved for issuance under options and sales contracts
A description of the nature and purpose of each reserve within equity
Description of the nature and purpose of each component within equity, including share premium, revaluation surplus and retained earnings
Statement of Profit or Loss and OCI
Provides a significant indicator of the performance of the entity during the accounting period as well as summarising revenues generated and costs incurred as a result of undertaking business activity
It is the review of overall performance as a result of the financial transactions that took place during the accounting period
Users obtain the following information from the statement of profit or loss and OCI
The profit or loss made in the period
The estimated amount of corporation tax payable
The residual amount retained by the company
A statement of cash flows will provide information that reconciles profit and the change in cash for a period. Some decisions in a company are a balance between maximising profit and the timing of cash receipts
Total comprehensive income is defined as the change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners
IAS 1 provides an entity a choice of presenting either
A single statement of comprehensive income with profit or loss and OCI presented in two sections or
A separate P&L showing the profit or loss for the period followed by a statement of OCI
The statements must present the profit or loss for the period, OCI, total comrpenshive income and for consolidated statements, an allocation of the final results between owners of the parent and any NCI's
The various costs of sale fall into the general subcategories of direct about, direct materials and overheads
The calculations for different types of companies are as follows
Costs of goods sold for a manufacturer is the cost of its finished goods in its beginning inventory plus the cost of goods manufactured during the accounting period minus the cost of finished goods in ending inventory
Costs of goods sold for a retailed is the cost of merchandise I'm its beginning inventory plus the net cost of merchandise purchased during the accounting period minus the cost of merchandise in its ending inventory
Cost of sales for a service company cannot usually be based on inventory but is more likely to be based on the direct labour costs of providing services
IAS 1 lists the following as the minimum items to be presented in the P&L section
Revenue
Finance costs
Shares of profits and losses of associates and joint ventures accounted for using the equity method
A single amount for the total of discontinued operations
Tax expense
A total for profit or loss for the period
Gains and losses from the derecognition of financial assets measured at amortised costs
Expenses recognised in profit or loss should be analysed either by nature (raw materials, staffing costs, depreciation) or by function (costs of sales, distribution, administrative costs)
OCI
Changes in the revaluation surplus on non-current assets
Acturial gains and losses on the re-measurement of defined benefit plans
Exchange differences arising from the translation of the financial statements of a foreign operation
Certain gains and losses relating to financial instruments, including on certain instruments used for hedging
Correction of prior period errors and the effect of changes in accounting policies
IAS 1 requires disclosure of certain items to be made separately, these are material items of income and expense of sue size, nature or incidence that they require disclosure either in the OCI or in the notes. These include
Write down of inventories to NRV
Write down of PPE to recoverable amounts
Provisions for the costs of restructuring
Reversals of write downs and provisions
Gains/losses on disposal of non-current assets
Gains/losses on disposal of investments
Discontinued operations
Litigation settlements
Discontinued operations
A discontinued operation must meet two criteria under IFRS 5 (Non-Current Assets Held for Sale and Discontinued Operations)
The asset or component must be disposed of or reported as being held for sale
The component must be a distinguishable separate area of business intentionally being removed from operation or a subsidiary of a component behind held with the intention of selling
IFRS also permits equity method investments to be classified as held for sale
IFRS 5 requires non current assets held for sale to be measured at the lower of its carrying amount and fair value, less costs to sell; such assets held for sae are not depreciated
When discontinued operations occur such as when the relevant assets or parts of the business are being sold or closed down or scrapped - IFRS 5 requires the results of any discontinued operations to be disclosed separately
Any gain or loss from the sale of assets should be reported in a special section of the P&L and OCI to provide users with a clear picture of which parts of an entity's business result will not be repeated