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International Accounting Standards (IAS) Guidance:Terminology and Presentation
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International Accounting Standards (IAS) Guidance: Terminology and Presentation
Introduction 3
1 First Level 4
1.1 Terminology 4
1.2Format of the Income Statement and Statement of Financial Position
4
1.3 Treatment of discount 5
1.4 Summary 5
2 Second Level
2.1 Preface 6
2.2 Partnerships 6
2.3 Limited liability companies 8
2.4 Manufacturing Accounts 10
2.5 Non-trading organisations 11
2.6 Statement of Comprehensive Income 11
2.7 Summary 11
3 Third Level
3.1 Preface 12
3.2 Terminology 12
3.3 Accounting treatment of goodwill 12
3.4
Format of Consolidated Income Statement and Consolidated Statement of Financial Position
13
3.5 Cash flows 14
3.6 IAS standards 15
3.7 Summary 15
4 Fourth Level
4.1 Preface 16
4.2 Components of financial statements 16
4.3 Format of the Statement of Financial Position
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4.4 Statement of Comprehensive Income
17
4.5 Statement of Changes in Equity
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4.6 Financial statements 18
4.7 IAS Standards 20
Contents
International Accounting Standards (IAS) Guidance: Terminology and Presentation
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Introduction
The International Accounting Standards (IAS) and the International Financial Reporting Standards (FRS) are widely used throughout the world. Since 2001, almost 120 countries have required or permitted the use of IFRS. All remaining major economies have established time lines to converge with or adopt IFRS in the near future.
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International Accounting Standards (IAS) Guidance: Terminology and Presentation
1. First Level
1.1 Terminology
UK IAS
Fixed Assets Non-current Assets
Stock Inventory
Trade Debtors Trade Receivables
Prepayments Other Receivables
Trade Creditors Trade Payables
Accruals Other Payables
Trading Profit and Loss Account Income Statement
Sales Revenue
Balance Sheet Statement Of Financial Position
Provision for Doubtful Debts Allowance For Doubtful Debts
Net Book Value Carrying Amount
Creditors’ amounts falling due within 1 year Current Liabilities
Creditors’ amounts falling due after more than 1 year Non-current Liabilities
Long term Debenture Loan Note
1.2 Format of the Income Statement and the Statement of Financial PositionWhilst there are no compulsory requirements for the presentation of the accounts of sole traders, it is recommended that candidates become familiar with preparing accounts in the IAS format.
International Accounting Standards (IAS) Guidance: Terminology and Presentation
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1.2.1 Format of Financial Statements for a sole trader
1.4 SummaryThe impact of international accounting standards at this level is mainly presentational. Candidates preparing accounts under recognisable formats will not be penalised as IAS does not apply to sole traders. However, candidates wishing to progress to higher levels would be encouraged to use these formats.
1.3 Treatment of DiscountDiscount allowed should be deducted from revenue,
Discount received should be deducted from purchases.
Peter PiperIncome Statement for the year ended
31 March 20x0
$ $
Revenue 18,300
Cost of goods sold
Opening inventory 2,200
Add Purchases 13,100
15,300
Less Closing inventory (2,100 13,200
Gross profit 5,100
Less Expenses:
Motor expenses 1,000
Rent and rates 1,500
Light and heat 1,300
Loan interest 50
Sundry expenses 200 (4,050
Profit for the year 1,050
Peter PiperStatement of Financial Position at
31 March 20x0$ $
Non-cuurent Assets
Plant and equipment 4,560
Motor vehicles 2,500
7,060
Current Assets
Inventories 2,100
Trade receivables 4,200
Other receivables 150
Cash 70 6,520
Total Assets 13,580
Capital
Opening balance 4,150
Add Profit for the year 1,050
5,200
Less Drawings ( 400
4,800
Non-current Liabilities
Bank loan 5,000
Current Liabilities
Trade payables 2,400
Other payables 400
Bank overdraft 980 3,780
Total equity and liabilities 13,580
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International Accounting Standards (IAS) Guidance: Terminology and Presentation
2. Second Level
2.1 PrefacePractices and principles raised at the First Level will be relevant at the Second Level, reflecting the cumulative requirements of the LCCI syllabuses.
2.2 Partnerships 2.2.1 Terminology
UK IAS
Trading, Profit and Loss and Appropriation Account Income Statement and Appropriation Account
Balance Sheet Statement of Financial Position
International Accounting Standards (IAS) Guidance: Terminology and Presentation
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2.2.2 Format of Financial Statements for a partnership
Peter and PopeStatement of Financial Position at
31 March 20x0
$ $
Non-cuurent Assets
Plant and equipment 4,560
Motor vehicles 2,500
7,060
Current Assets
Inventories 2,100
Trade receivables 4,200
Other receivables 150
Cash 70 6,520
Total Assets 13,580
Capital Accounts
Peter 1,550
Pope 1,550 3,100
Current Accounts
Peter 1,000
Pope 700 1,700
4,800
Non-current Liabilities
Bank loan 5,000
Current Liabilities
Trade payables 2,400
Other payables 400
Bank overdraft 980 3,780
Total equity and liabilities 13,580
Peter and PopeIncome Statement and Appropriation
Account for the year ended 31 March 20x0
$ $
Revenue 18,300
Cost of goods sold
Opening inventory 2,200
Add Purchases 13,100
15,300
Less Closing inventory (2,100 13,200
Gross profit 5,100
Less Expenses:
Motor expenses 1,000
Rent and rates 1,500
Light and heat 1,300
Loan interest 50
Sundry expenses 200 (4,050
Profit for the year 1,050
Interest on Drawing
Peter 100
Pope 50 150
1,200
Salary-Pope ( 500
Interest on capital
Peter 100
Pope 100 ( 200
500
Share of Profits
Peter (1/2 x 500) 250
Pope (1/2 x 500) 250 ( 500
)
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International Accounting Standards (IAS) Guidance: Terminology and Presentation
2.3 Limited liability companiesThe accounts of limited liability companies are affected much more substantially, and candidates preparing for examinations under IAS will be expected to comply with the basic layouts to be given in sections 2.3.2 and 2.6.
2.3.1 Terminology
2.3.2 Treatment of prefered share capital
UK GAAP IAS equivalent
Limited Company (Ltd) Private Company
Public Limited Company Public Company
Preference share Capital Preferred share capital
Ordinary shares Equity shares
Profit & loss/Accumulated profits Retained earnings
UK GAAP IAS equivalent
Redeemable preferred share capital Shown in Non Current liability
Irredeemable preferred share capital Shown in Shareholder’s equity
International Accounting Standards (IAS) Guidance: Terminology and Presentation
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2.3.2 Format of Financial Statements for companies
Hill TradersStatement of Financial Position at
31 March 20x0$ $
Non-current Assets
Plant and equipment 17,600
Motor vehicles 2,500
20,100
Current Assets
Inventories 2,100
Trade receivables 4,200
Other receivables 150
Cash 70 6,520
Total Assets 26,620
Equity and Liabilities $ $
Capital and reserves
Ordinary share capital 10,000
Share premium 5,000
Retained earnings 4,000
Equity 19,000
Non-current Liabilities
Bank loan 3,000
Current Liabilities
Trade payables 2,400
Other payables 400
Bank overdraft 1,820 4,620
Total equity and liabilities 26,620
Hill TradersIncome Statement for the year ended
31 March 20x0
$ $
Revenue 18,300
Cost of goods sold
Opening inventory 2,200
Add Purchases 13,100
15,300
Less Closing inventory (2,100 13,200
Gross profit 5,100
Less Expenses:
Motor expenses 1,000
Rent and rates 1,500
Light and heat 1,300
Loan interest 50
Less: Sundry expenses 200 (4,050
Profit for the year 1,050
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International Accounting Standards (IAS) Guidance: Terminology and Presentation
2.4 Manufacturing accountsThe layout of manufacturing accounts will be unchanged, however, although the terminology will be consistent with IAS, and for example ‘stock’ will be referred to as ‘inventory’.
2.3.5 Format of the Statement of Changes in Equity of companies
2.3.3 Presentation of Dividends
Dividends paid by limited companies are no longer reported in the Income Statement. They are included in the Statement of Changes in Equity, as shown in 2.5. Only dividends paid before the yearend are included.
2.3.4 Statement of Changes in Equity
The Statement of Changes in Equity reports information about the increase/decrease in net assets or wealth of equity shareholders. The items that are likely to appear in the Statement of Changes in Equity at this level are:
� Profit for the year
� Additional shares issued during the year
� Dividends paid during the year
� Transfers between reserves (for example , transfer from retained earnings to general reserve)
Trotters Statement of Changes in Equity
For the year ended 31 March 20x0
Share capital
Share Premium
Retained earning
General reserve
Total equity
$000 $000 $000 $000 $000
Balance at 1 April 1,000 200 500 100 1,800
Changes in Equity for 20x0
Issue of share capital 200 200
Transfers (200) 200
Profit for the period 600 600
Dividends (300) (300)Balance at 31 March
1,200 200 600 300 2,300
International Accounting Standards (IAS) Guidance: Terminology and Presentation
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2.5 Non-trading organisations The layout of the accounts of non-trading organisations will remain unchanged, although the terminology will be consistent with IAS.
However, the Statement of Financial Position will be laid out similarly to Hill Traders, in the Statement of Financial Position shown in 2.3.2. The Accumulated Fund will be shown above Non Current Liabilities.
2.6 Statement of Comprehensive Income The Statement of Comprehensive Income will be examined at Level 4.
2.7 Summary Changes at this level are mainly presentational and specific formats only apply to company accounts.
However, once again, candidates wishing to progress to higher levels would be encouraged to become used to the formats.
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International Accounting Standards (IAS) Guidance: Terminology and Presentation
3. Third Level
3.1 PrefacePractices and principles raised at the First and Second Levels will be relevant at the Third Level, reflecting the cumulative requirements of the LCCI syllabi.
3.3 Accounting treatment of goodwillThere are two methods of calculating goodwill, the partial and full methods. The partial method is the method that is currently examined in the syllabus and is therefore currently the only method that is examined.
3.2 Terminology
UK IAS
Minority interest Non-controlling interest
3.3.1 Accounting treatment of positive goodwill
Goodwill arising from the acquisition of a subsidiary is not amortised. After the initial measurement and recognition, the group is expected to measure the goodwill at cost less any accumulated impairment losses since acquisition. The goodwill impairment loss should be charged to the Income Statement.
3.3.2 Accounting treatment of negative goodwill
Negative goodwill should be credited to the Income Statement. It does not appear in the Consolidated Statement of Financial Position.
International Accounting Standards (IAS) Guidance: Terminology and Presentation
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3.4 Format of the Consolidated Income Statement and Consolidated Statement of Financial Position
Peter Pope GroupConsolidated Statement of Financial Position
at 31 March 20x0$ $
Non-cuurent Assets
Goodwill 5,000
Plant and equipment 17,600
Motor vehicles 2,500
25,100
Current Assets
Inventories 2,100
Trade receivables 4,200
Other receivables 150
Cash 70 6,520
Total Assets 31,620
Equity and Liabilities
Capital and reserves $ $
Ordinary share capital 10,000
Share premium 5,000
Retained earnings 2,000
17,000
Non-controlling Interest 1,000
Equity 18,000
Non-current Liabilities
Redeemable preferred share capital 5,100
Bank loan 5,000 10,100
Current Liabilities
Trade payables 1,400
Other payables 400
Bank overdraft 1,720 3,520
Total equity and liabilities 31,620
Peter Pope GroupConsolidated Income Statement
for the year ended 31 March 20x0
$ $
Revenue 18,300
Cost of sales 13,200
Gross profit 5,100
Less: Distibution costs 1,200
Less: Administrative expense 1,000 (2,200
2,900
Other operating income 1,100
Profit from operations 4,000
Interest payable 500
Profit for the year 3,500
Profit attributable to: $
Owners of the Parent 3,200
Non-controlling interest 300
3,500
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International Accounting Standards (IAS) Guidance: Terminology and Presentation
3.5 Cash Flows (IAS 7) 3.5.1 Format of the Statement of Cash Flow
IAS 7 requires reporting of cash flows to be shown under three headings. These are Operating activities; investing activities and Financing activities.
The example is designed to show the possibilities likely in an LCCI examination and contains more figures than a typical question. However, as in previous sittings, examiners may ask for separate calculations of the cash flow from operating activities, cash flow from investing activities and cash flow from financing activities.
WhellarsStatement of Cash flows for the year ended 31 March 20x1
$ $
Cash flows from operating activities
Profit for the year 7,600
Adjustments for:
Depreciation of non-current assets 120
Interest expense 10
Investment income ( 12
Operating profit before working capital changes 7,718
Decrease in trade receivables 4,210
Increase in inventories ( 1,100
Decrease in trade payables ( 1,800 1,310
cash generated from operations 9,028
Interest paid ( 80
Net cash flow from operating activities 8,948
Cash flows form investing activities
Cash paid for non-current assets (4,000
Cash received from the sale of non-current assets 1,400
Interest received 300
Dividends received 200
Net cash used in investing activities (2,100
Cash flows from financing activities
Proceeds from issue of shares 100
Proceeds from long term borrowing 200
Dividends paid ( 400
Net cash used in financing activities ( 100
Net increase in cash and cash equivalents 6,748
Cash and cash equivalents at 1 April 20x0 1,200
Cash and cash equivalents at 31 March 20x1 7,948
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International Accounting Standards (IAS) Guidance: Terminology and Presentation
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3.6 Relevant international accounting standards 3.6.1 IAS 2 (Inventories)
Inventories are valued at the lower of cost and net realisable value. Costs include purchase cost, conversion costs and other costs incurred in bringing the inventory to its present location and condition. No different from the UK standards.
3.6.2 IAS 7 (Statement of Cash Flows)
Cash flows are reported under three main headings: operating activities, investing activities and financing activities
3.6.3 IAS 16 (Non-current Assets)
Tangible non-current assets are assets that have a physical substance and are held for use in the production or supply of goods or services, for rental to others or for administrative purposes and are expected to be utilised in more than one reporting year. A tangible non-current asset should be depreciated over its useful economic life. No different from the UK standards.
3.6.4 IAS 27 (Consolidated Financial Statements)
Consolidated financial statements are financial statements of a group (parent and subsidiary) presented as those of a single entity. Non-controlling interests are reported in equity in the Consolidated Statement of Financial Position. This standard will be superseded by IFRS 10 from 2013.
3.6.5 IFRS 3 (Business Combinations)
Goodwill arising from consolidation is measured as the difference between the cost (fair value of the purchase consideration) of an acquired entity and the aggregate of the fair values of the entity’s identifiable assets and liabilities. No different to the UK standards.
3.7 Summary Changes at this level are once again mainly presentational, most notably with regards to the Statement of Cash Flow.
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International Accounting Standards (IAS) Guidance: Terminology and Presentation
4. Fourth Level
4.1 PrefaceThe issues raised in the First, Second and Third Levels will be relevant at the Fourth Level, reflecting as such, the cumulative requirements of LCCI syllabi.
4.3 Format of the Statement of Financial PositionIAS 1 does not prescribe a format of the statement of financial position. However, it stipulates the minimum information that has to be disclosed on the face of the statement of financial position.
4.2 Components of financial statementsIAS 1, states that a complete set of financial statements should include the following:
� A Statement of Financial Position at the end of the reporting period.
� A Statement of Comprehensive Income for the period.
� A Statement of Changes in Equity for the period
� A Statement of Cash Flows for the period.
� Notes to the accounts, which include accounting policies and relevant explanatory notes.
This information is:
Cash and cash equivalents
Intangible assets
Inventories
Issued capital and reserves attributable to the owners of the firm
Non-controlling interest (minority interest) presented within equity
Payables (trade and other)
Provisions
Property, plant and equipment
Receivables (trade and other)
International Accounting Standards (IAS) Guidance: Terminology and Presentation
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4.4 Statement of Comprehensive IncomeComprehensive Income for a period includes profit or loss for that period and Other Comprehensive Income recognised during the period. The only item reported under Other Comprehensive Income that is examinable at this level is a gain/loss on the revaluation of a non-current asset during the reporting period.
4.5 Statement of Changes in equityThe Statement of Changes in Equity reflects information about the increase or decrease in net assets or wealth of equity shareholders. The minimum information on the face of the statement of changes in equity includes:
� Profit or loss for the period
� Each item of other comprehensive income
� Additional shares issued during the period
� Dividends paid during the year
� Purchase of shares during the period
� Effects of changes in accounting policy
� Effects of correction of errors
4.4.1 Minimum Information required on the Statement of Comprehensive Income
The minimum information on the face of the statement of comprehensive Income required by IAS 1 includes:
� Revenue
� Finance costs
� Profit or loss for the period
� Each component of other comprehensive income classified by nature
� Total comprehensive income
� Profit or loss attributable to non-controlling
� Profit or loss attributable to equity holders of the parent company
� Total comprehensive income attributable to non-controlling interests
� Total comprehensive income attributable to the parent company
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International Accounting Standards (IAS) Guidance: Terminology and Presentation
4.6 Financial statements
4.6.1 Statement of Comprehensive Income classifying expenses by function
4.6.2 Statement of Comprehensive Income classifying expenses by nature
Hayes MetalsStatement of Comprehensive Income
for the year ended 31 March 20x0
$ $
Revenue 18,300
Cost of sales 13,200
Gross Profit 5,100
Less: Distribution costs 1,200
Less: Administrative expense 1,000 (2,200
2,900
Other operating income 1,000
Profit from operations 3,900
Finance costs ( 200
Profit for the year 3,700
Other comprehensive income
Gains on revaluation of property 1,000
Total comprehensive income 4,700
Hayes MetalsStatement of Comprehensive Income
for the year ended 31 March 20x0
$ $
Revenue 18,300
Change in inventories of finished goods and WIP 1,000
Own work capitalised 1,500
Other operating income 1,000 3,500
21,800
Raw materials and consumables 3,000
Staff costs 5,000
Depreciation and amortisation 6,900
Other operating expenses 3,000 (17,900
Profit from operations 3,900
Finance costs ( 200
Profit for the year 3,700
Other comprehensive income
Gains on revaluation of property 1,000
Total comprehensive income 4,700
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International Accounting Standards (IAS) Guidance: Terminology and Presentation
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4.6.3 Consolidated Statement of Comprehensive Income
Questions at this level would not combine group accounts with the presentation of accounts in accordance with IAS 1, although candidates would be expected to prepare their answers in a clear and well-presented way.
Hayes MetalsConsolidated Statement of
Comprehensive Incomefor the year ended 31 March 20x0
$ $
Revenue 18,300
Cost of sales 13,200
Gross Profit 5,100
Less: Distribution costs 1,200
Less: Administrative expense 1,000 (2,200
2,900
Other operating income 1,100
Profit from operations 4,000
Interest payable ( 600
Profit for the year 3,400
Other comprehensive income
Gains on revaluation of property 200
Total comprehensive income 3,600
Profit attributale to:
Owners of the Parent 3,100
Non-controlling interest 300
3,400
Total comprehensive income attributable to:
Owners of the Parent 3,250
Non-controlling interest 350
3,600
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International Accounting Standards (IAS) Guidance: Terminology and Presentation
4.7 Relevant international accounting standards 4.8.1 IAS 8 - Accounting policies
Accounting policies
Accounting policies are specific principles, bases, conventions and practices used by an entity in preparing and presenting its financial statements. They explain the way a firm treats items within its financial statements.
Changes in accounting policies
Accounting policies should only be changed where a new accounting standard requires such a change or where the new policy will result in more relevant and reliable information being presented.
Changes in accounting estimates
An example of a change in accounting estimate is a change in the percentage used to estimate allowance for doubtful debts. The effect of the change is recognised in the income statement for the year in which the change takes place. Another example of a change in accounting estimate is a change in the useful economic life of an asset.
Prior period errors
A prior period error is where an error has occurred even though reliable information was available when those financial statements were authorised for issue. Examples are mathematical errors, mistakes in applying accounting policies, misinterpretation of facts and fraud.
4.7.2 IAS 10 - Events after the reporting period
IAS 10 with events that occur between the year-end date and the date the financial statements are authorised for issue by the directors. The events that occur are either adjusting events or non-adjusting events. Adjusting events are those that provide evidence about conditions that existed at the end of the reporting date. Non-adjusting events are those that are indicative of conditions that arose after the reporting date.
4.7.3 IAS 11 –Construction contracts
There are minor differences between IAS 11 and SSAP 9, but they will not affect examination questions set at this level.
4.7.5 IAS 20 - Government grants
Grants must not be recognised until conditions have been complied with and there is reasonable certainty that the grant will be received (prudence). Government grants received must be matched with expenditure for which the grant is intended (accruals). This standard is not materially different from the equivalent UK standard.
4.7.4 IAS 16 – Accounting for property, plant and equipment
IAS 16 deals with the recognition of non-current assets, initial measurement, subsequent measurement and depreciation. There are no major differences between IAS 16 and FRS 15, the equivalent UK standard.
International Accounting Standards (IAS) Guidance: Terminology and Presentation
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4.7.6 IAS 37 - Provisions, contingent liabilities and assets
A liability is an obligation of an entity to transfer economic benefits as a result of past transactions or events. A provision is a liability of uncertain timing or amount. A provision should be recognised when:
� A firm has a present obligation as a result of a past event. The obligation may be legal or constructive
� It is probable that an outflow of resources will be required to settle the obligation
� A reliable estimate can be made of the amount
� If a firm through its future actions can avoid an obligation, a provision cannot be set up
Contingent liability
If one or more of the conditions required for a provision is not met a contingent liability may exist. A contingent liability should be disclosed unless the possible outflow to meet the obligation is remote. If outflow of resources is remote do not disclose in the accounts.
Contingent assets
A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence of one or more uncertain future events not wholly within the entity’s control. A contingent asset should be disclosed when the expected inflow of economic resources is probable.
4.7.7 IAS 38 – Intangible assets
Intangible non-current assets are identifiable non-monetary assets that do not have a physical substance. IAS 38 deals with all intangible non-current assets, including development expenditure. Under SSAP 13 development expenditure may be capitalised after certain conditions have been satisfied. However, under IAS 38, development expenditure must be capitalised after certain conditions have been satisfied.
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www.lcci.org.uk