Ch02 - Introduction To Published Accounts - v2

Chapter 02
Introduction to published accounts

Learning Outcomes
At the end of this chapter, students will be able to:

▪ Prepare an entity’s financial statements in accordance with prescribed structure and content
▪ Prepare and explain the contents and purpose of the statement of changes in equity.
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IAS 1 Presentation of Financial statements
The purpose of IAS 1 (revised) is to ensure greater clarity and understandability of financial
statements. Financial statements will present to the users of accounts:
▪ Statement of financial position
▪ Statement of profit or loss and other comprehensive income
▪ Statement of changes in equity
▪ Statement of cash flows
▪ Notes to the accounts (accounting policies and explanations)
▪ Comparatives
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IAS 1 Presentation of Financial statements (Cont.)
Financial statements should provide a fair presentation of the results, which is achieved by
compliance with IFRSs.
Additionally, the entity should also disclose the following to make the financial statements more
understandable:
▪ The name of the reporting entity
▪ Whether the financial statements are the individual or group financial statements
▪ The reporting date and the period covered by the financial statements
▪ The presentation currency
▪ The level of rounding used in presenting the amounts within the financial statements
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Statement of financial position
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Statement of changes in equity (SOCIE)
The statement of changes in equity provides a summary of all changes

in equity arising from transactions with owners in their capacity as
owners. This includes the effect of share issues and dividends.
Other non-owner changes in equity, such as comprehensive income,

are disclosed in aggregate only.
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Statement of profit or loss and other comprehensive income
IAS 1 Presentation of Financial Statements requires that you

prepare either:
1. A statement of profit or loss and other comprehensive income
showing total comprehensive income, or
2. A statement of profit or loss showing the realized profit or loss
for the period PLUS a statement showing other comprehensive
income.
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Statement of profit or loss and other comprehensive income (Cont.)
Alternative presentation
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Not-for-profit and public sector entities
Comparison of aims
The main aims of not-for-profit and public sector entities are very different to those of profit-
orientated entities:
Profit-orientated sector Not-for-profit/public sector

Financial aim is to make profit and Financial aim is to achieve value for
increase shareholder wealth. money/provide service.
Directors are accountable to shareholders Managers are accountable to
trustees/government/public
External finance freely available in the Finance generally limited to
form of loans and share capital donations/government subsidies.
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Not-for-profit and public sector entities (Cont.)
Accounting standards are designed to:

▪ Measure financial performance accurately and consistently
▪ Report the financial position accurately and consistently
▪ Account for the directors’ stewardship of resources and assets.
Not-for-profit and public sector organizations:

▪ Do not aim to achieve a profit but have to account for their income and costs
▪ Have to account for their effectiveness, economy and efficiency
▪ Do not have to produce financial statements for the public (but in many cases may do so).
Some measurement accounting standards will be relevant such as those relating to inventory, non-
current assets, leasing, etc. Others relating purely to reporting such as earnings per share (eps)
will not be so relevant.
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Practice 1
You are the accountant of Trott Ltd, a business that buys and sells cricket equipment. The trial balance at 31 December 2017 was as
follows:
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Practice 1 (Cont.)
Additional information:
1. Trott has not made any additions or disposals of tangible non-current assets in the year. Its depreciation
policy is as follows:
Motor vehicles – 20% reducing balance
Buildings – 25 years straight line
The depreciation expense for the year is charged to cost of sales.
2. Inventory at the end of the year was valued as follows:
Cost ($) NRV ($)
Bats 2,500 4,000
Gloves 650 500
Pads 1,000 2,000
Total 4,150 6,500
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Practice 1 (Cont.)
3. Staff costs are to be apportioned equally across cost of sales, distribution costs and
administrative expense.
4. The balance of tax on the tax account represents the over/under provision for the prior year. An
estimate of $1,500 has been made for the tax payable at the year-end.
Prepare in a statement of profit or loss for the year-ended 31 December 2017 and a
statement of financial position at that date.
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Practice 2
Which of the following should appear in a company’s statement of changes in equity?

1. Total comprehensive income for the year
2. Amortisation of capitalised development costs
3. Surplus on revaluation of non-current assets
A. 1, 2 and 3
B. 2 and 3 only
C. 1 and 3 only
D. 1 and 2 only
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Practice 3
Extracts from Ball’s nominal ledger for the year ended 31 December 2017 are as follows:
$’000
Profit for the year 421
Dividend (98)
323
During the year the following important events took place:
i. Properties were revalued by $105,000 increase.
ii. 200,000 equity shares of $1 were issued during the year at a 25c premium
The opening equity balances were as follows:

$
Issued capital 400,000
Share premium 50,000
Revaluation surplus 165,000
Retained earnings 310,000
925,000
Prepare the statement of changes in equity for the year-ended 31 December 2017.
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END OF CHAPTER
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Chapter 02

Introduction to published accounts

At the end of this chapter, students will be able to:

The statement of changes in equity provides a summary of all changes

Other non-owner changes in equity, such as comprehensive income,

IAS 1 Presentation of Financial Statements requires that you

Profit-orientated sector Not-for-profit/public sector

Accounting standards are designed to:

Not-for-profit and public sector organizations:

Which of the following should appear in a company’s statement of changes in equity?

The opening equity balances were as follows:

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