Presentation of Financial Statements (IFRS 18)

The purpose of IFRS 18 is to ensure greater clarity and understandability of financial statements through the presentation and disclosure of information.

Financial statements will present to the users of accounts:

Statement of financial position
Statement of financial performance
Statement of changes in equity
Statement of cash flows
Notes to the accounts (accounting policies and explanations)
Comparatives

Financial statements should provide a fair presentation of the results, which is achieved by compliance with IFRS Accounting Standards.

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

Statement of financial position as at [date]

	$’000s	$’000s
ASSETS
Non-current assets
Property, plant and equipment		X
Intangibles		X
Financial assets		X
		X
Current assets
Inventories	X
Trade and other receivables	X
Financial assets	X
Cash and cash equivalents	X
	X
Non-current assets held for sale	X
		X
Total assets		X

EQUITY AND LIABILITIES
Equity
Equity shares ($1)		X
Retained earnings		X
Other components of equity		X
Total equity		X

Non-current liabilities
Long term borrowings	X
Deferred tax	X
		X
Current liabilities
Trade and other payables	X
Dividends payable	X
Tax payable	X
		X
Total equity and liabilities		X

Statement of profit and loss and other comprehensive income for the year ended [date]

Continuing operations	$’000s
Revenue	X
Cost of sales	(X)
Gross profit	X
Research and development expenses	(X)
General and administrative expenses	(X)
Operating profit	X
Interest income on financial assets	X
Gain on investment property	X
Profit before finance and income taxes	X
Interest on borrowings and lease liabilities	(X)
Interest on pensions	(X)
Profit before income taxes	X
Income tax expense	(X)
Profit from continuing operations	X

Discontinued operations
Profit/(loss) for the period from discontinued operations	X
Profit/(loss) for the period	X

Other comprehensive income for the year (after tax):
Items that will not be reclassified to profit or loss:
Gain on non-current asset revaluations	X
Gain/(loss) on fair value through other comprehensive income investment	X/(X)
Income tax on items that will not be reclassified	X/(X)

Other comprehensive income, net of tax	X
Total comprehensive income for the period	X

Statement of profit and loss, and statement of financial position
You are the accountant of Trott Ltd, a business that buys and sells cricket equipment.
The trial balance at 31 December 20X7 was as follows:

	$	$
Equity share capital ($1)		5,000
Retained earnings at 1 January 20X7		5,835
Revenue		66,980
Staff costs	5,400
Inventory at 1 January 20X7	3,930
Purchases	38,760
Operating expenses	6,920
Loan interest	200
Interest income		250
Tax	200
Receivables and payables	9,290	2,360
Bank	3,125
Motor vehicles – cost	5,000
Buildings – cost	12,000
Motor vehicles – accumulated depreciation 1 January 20X7		1,000
Buildings - accumulated depreciation 1 January 20X7		2,400
Debentures (20X9)		1,000

	84,825	84,825

Additional information:

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.
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
Staff costs are to be apportioned one-third to cost of sales, and two-thirds to operating expenses.
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.

	Cost ($)	NRV ($)
Bats	2,500	4,000
Gloves	650	500
Pads	1,000	2,000
Total	4,150	6,500

Prepare in a statement of profit or loss for the year-ended 31 December 20X7 and a statement of financial position at that date.

	A	B	D	E
1	Trott Ltd		Trott Ltd
2	Statement of profit or loss		Statement of financial position
3	for the year ended 31 December 20X7	$	as at 31 December 20X7	$
4	Revenue		Non-current assets
5	Cost of sales		Motor vehicles	3,200
6	Gross profit		Buildings	9,120
7	Operating expenses		Total non-current assets	12,320
8	Operating profit		Current assets
9	Interest income		Inventory	4,000
10	Profit before finance and income taxes		Receivables	9,290
11	Finance cost		Bank	3,125
12	Profit before income taxes		Total current assets	16,415
13	Income tax expense		Total assets	28,735
14	Profit for the year
15			Equity
16			Equity share capital	5,000
17			Retained earnings	18,875
18			Total equity	23,875
19			Non-current liabilities
20			Debentures	1,000
21			Current liabilities
22			Trade and other payables	2,360
23			Tax payable	1,500
24			Total current liabilities	3,860
25			Total equity and liabilities	28,735
26
27	Workings
28	Closing inventory: 2,500 + 500 + 1,000	4,000
29	Motor vehicle depreciation: 20% × (5,000 − 1,000)	800
30	Building depreciation: 12,000 ÷ 25	480
31	Cost of sales: 3,930 + 38,760 + 1,800 + 800 + 480 − 4,000	41,770
32	Operating expenses: 6,920 + 3,600	10,520
33	Tax expense: 200 prior-year underprovision + 1,500 current year	1,700
34	Closing retained earnings: 5,835 + 13,040	18,875

Statement of changes in equity for the year ended [date]

	Equity shares	Retained earnings	Revaluation surplus	Total
	$’000s	$’000s	$’000s	$’000s
B/f (as previously stated)	X	X	X	X
Change in policy/error	–	X/(X)	–	X/(X)
B/f (restated)	X	X	X	X
Issue of share capital	X	–	–	X
Dividends	–	(X)	–	(X)
Total comprehensive income for the year	–	X	X	X
Transfer to retained earnings	–	X	(X)	–
C/f	X	X	X	X

Practice question

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

Total comprehensive income for the year
Amortisation of capitalised development costs
A surplus arising on the revaluation of non-current assets

1, 2 and 32 and 3 only1 and 3 only1 and 2 only

Statement of changes in equity (2)
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.

	A	B	C	D	E	F
1	Ball
2	Statement of changes in equity for the year ended 31 December 2017
3	$'000
4		Equity share capital	Share premium	Revaluation surplus	Retained earnings	Total
5	Balance b/f
6	Issue of shares
7	Profit for the year
8	Dividend
9	Revaluation increase
10	Balance c/f

Answer the questions one at a time. Your progress is saved so you can leave and come back.

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