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Chapter 18:
Preparation of financial
statements for companies
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What you will learn?

 IAS 1 – Presentation of financial statements

 The statement of financial position

 The statement of profit or loss and other

comprehensive income

 Statements of changes in equity

 Notes to the financial statements

 IFRS 15 – Revenue from contracts with customers

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IAS 1 – Presentation of financial statements

Content of financial statements

IAS 1 required contents of a company’s financial statements.

It also gives guidance on how items should be presented in
the financial statements

Statement of financial position (SOFP)

Statement of profit or loss and other

comprehensive income (SPLOCI)
A complete
set of
Statement of changes in equity (SOCIE)
financial
statements
Statement of cash flows (SOCF)
(Detail in Chapter 20)

Notes to financial statements

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IAS 1 – Presentation of financial statements

How are items disclosed?

Some items must appear on the face of the

SOFP or SOPL
How are items disclosed?

Other items can appear in a note to the

financial statements

Recommended formats are given which

entities may or may not follow, depending on
their circumstances.
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IAS 1 – Presentation of financial statements

Disclosures requirements

Name of the reporting entity

Disclosures requirements

Whether the accounts cover the single entity or

a group of entities

The reporting date or the period covered by

the financial statements

The reporting currency

The level of precision used in presenting the

figures in the financial statements

FSs should be prepared at least as often as annually

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Statement of financial position

Requirement

Assets and liabilities should be

Information should be
presented:
disclosed
current items and non-current items

expected to be realized in Classes of property, plant

normal operating cycle and equipment

held for purpose of

Classifications of inventory
trading

Current expected to be realized

Types of provision
items within 1 year

unrestricted cash or cash Details of classes of share

equivalent capital

a liability has to be A description of reserves

settled within 1 year within equity
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Statement of financial position

Simple format of SOFP
20X2 20X1

$’000 $’000 $’000 $’000

Assets

Non-current assets X X

Property. Plant and equipment X X

Goodwill X X

Other intangible assets X X

X X

Current assets

Inventories X X

Trade receivables X X

Other current assets X X

Cash and cash equivalents X X

X X

Total assets X X
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Statement of financial position

Simple format of SOFP
20X2 20X1
$’000 $’000 $’000 $’000
Equity and liabilities
Equity
Share capital X X
Retained earnings X X
Other reserves X X
X X
Non-current liabilities
Long-term borrowings X X
Long-term provisions X X
X X
Current liabilities
Trade and other payables X X
Short-term borrowings X X
Current tax payable X X

Total equity and liabilities X X

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Statement of profit or loss and

other comprehensive income
Requirement

SPLOCI may be presented as one statement or two seperate

statements

Other comprehensive income

Profit or loss includes
includes

Items of income Revaluation surplus arising on PPE

Remeasurement of defined
Items of expenses pension schemes

Cash flow hedges

Change in fair value of financial

instruments

Exchange differences arising on

translation of foreign subsidiary
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Statement of profit or loss and

other comprehensive income
Requirement

Disclosure requirement

Share of profit or loss of

Revenue
associates/joint ventures

Gains/losses on Gains/losses on
derecognition of financial reclassification of financial
assets assets

Finance costs Tax expense

Impairment losses (and Single amount for

reversals) discontinued operations
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Statement of profit or loss and

other comprehensive income
Simple format of SPLOCI
20X2 20X1
$‘000 $‘000

Revenue X X
Cost of sales (X) (X)
Gross profit X X
Other income X X
Distribution costs (X) (X)
Administrative expenses (X) (X)
Other expenses (X) (X)
Finance cost (X) (X)
Profit before tax X X
Tax expense (X) (X)
Profit for the year X X
Other comprehensive income:
Gains on property revaluation X X
Total comprehensive income for the year X X
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Statement of changes in equity

Statement of changes in equity (SOCIE)

SOCIE includes

Total comprehensive income for the period

The effects of changes in accounting policies and

corrections of errors recognised in accordance with IAS 8

A reconciliation between the carrying amount at the

beginning and end of the period
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Statement of changes in equity

Simple format of SOCIE

Share Share Revaluation Retained

Total
capital premium surplus earnings

Balance at
X X X X X
1.1.20X8

Changes in
- - - (X) (X)
accounting policy

Restated balance X X X X X

Changes on
equity for 20X8

Dividends - - - (X) (X)

Comprehensive
income for the - - X X X
year
Issue of share
X X - - X
capital

Balance at
X X X X X
31.12.20X9
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Notes to financial statements

Requirement

Notes are included in a set of financial statements to give

users extra information

Present information about the basic of

preparation and accounting policies
Notes to the
financial Disclose information required by IFRS
statements Standards that is not disclosed elsewhere

should
Provide other relevant information not
presented elsewhere
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Notes to financial statements

Format of notes to the financial statements

Tangible non-current assets (IAS 16)

• Measurement model
• Depreciation method
• Depreciation rate or useful life
• Reconciliation of opening and closing carrying value
• Revalued assets

Intangible non-current assets (IAS 38)

• Intangible assets with definite life
• Intangible assets with indefinite life
• Factors to assess indefinite life intangible assets
• Internally generated intangible assets
• Reconciliation of carrying value at start to year end
• Impairment loss

Inventories (IAS 2)
• Accounting policies of measuring inventories
• Total carrying amount of inventories and the carrying amount in
classifications appropriate to the entity
• Carrying amount of inventories at NRV
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Notes to financial statements

Format of notes to the financial statements

Provision, Contingent liabilities and Contingent assets (IAS 37)

• Provision
₋ Opening balance
₋ Increase in period
₋ Release in period
₋ Closing balance
• Contingent liabilities
₋ A brief description of its nature, and where practicable
₋ An estimate of financial effects
₋ An indication of the uncertainties relating to the amount or timing
of any outflow
₋ The possibility of any reimburesement
• Contingent assets
₋ A brief description of its nature, and where practicable
₋ An estimate of financial effects

Events after the reporting period (IAS 10)

• Nature of the event
• An estimate of its financial effect (or a statement that an estimate
cannot be made)
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Notes to financial statements

Exam focus point 1

Which TWO of the following items must be disclosed in the

note to financial statements for intangible assets?

A. The useful lives of intangible assets capitalized in the

financial statements

B. A description of the development projects that have been

undertaken during the period

C. A list of all intangible assets purchased or developed in the

period

D. Impairment losses written off intangible assets during the

period
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Notes to financial statements

Exam focus point 1

A. The useful lives of intangible assets capitalized in the

financial statements

D. Impairment losses written off intangible assets during the

period

An entity is not required to disclose a description of the

development projects undertaken in the period, or a list of all
intangible assets purchased or developed in the period.
An entity is required to:
- Disclose a description, the carrying amount and remain
amortization period of any individual intangible assets that
is material to the entity’s financial statements, and
- Distinguish between internally generated intangible assets
capitalized in the period and those acquired in the period.
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Notes to financial statements

Exam focus point 2

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

in equity?
1. Total comprehensive income for the year
2. Amortisation of capitalized development assets
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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Notes to financial statements

Exam focus point 2

C. 1 and 3 only

Amortisation of development costs will appear in the

statement of profit or loss, not the statement of changes in
equity
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IFRS 15:
Revenue from Contracts with Customers
Introduction

IFRS 15 - Revenue from contracts with customers replaces IAS 18

- Revenue and IAS 11 - Construction Contracts.
IFRS is effective from 1 January 2018

Revenue is recognized when the entity has transferred control of

goods or services to the buyer.

Control of an asset is “the ability to direct the use of, and obtain
substantially all of the remaining benefits from, the asset”.
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IFRS 15:
Revenue from Contracts with Customers
Scope

IFRS 15 is applicable for all contracts with customers

Leases within the scope of IFRS 16: Leases

Insurance contracts within the scope of

IFRS 4: Insurance contract
Except:

Financial instruments and other

contractual rights and obligations within
the scope of IFRS 9, IFRS 10, IFRS 11, IAS
27 or IAS 28
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IFRS 15:
Revenue from Contracts with Customers
Five-step model

STEP 1 Identify the contract

STEP 2 Identify the performance obligations

STEP 3 Determine the transaction price

Allocate the transaction price to each performance

STEP 4
obligation

STEP 5 Recognise revenue

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IFRS 15:
Revenue from Contracts with Customers
Five-step model

STEP 1
Identify the contract

Approved by all parties

Rights can be identified

Features of a
Payment terms can be identified
“contract”

Commercial substance

Consideration is probable
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IFRS 15:
Revenue from Contracts with Customers
Five-step model

STEP 2
Identify the performance obligations

Performance obligation

Series of distinct
Distinct goods/services
goods/services

Entity's
A
Customer promise to
performance
can benefit transfer the A single
obligation
from the good or method of
that is
good or service is measuring
satisfied
service separately
over time
identifiable
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IFRS 15:
Revenue from Contracts with Customers
Five-step model

STEP 2
Identify the performance obligations

Example

Steadman Construction Co is contracted to build an office for a

customer. It will design the building, purchase materials, prepare the
site, construct the property, install wiring and air conditioning and finish
the property.

Although each element of the construction process is capable of being

distinct, in the context of the contract, the company provides a
significant service in integrating the input processes to produce a
property.
Therefore there is a single performance obligation, being the
construction of the property.
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IFRS 15:
Revenue from Contracts with Customers
Five-step model

STEP 3
Determine the transaction price

Elements for considering

TRANSACTION PRICE the transaction price

The amount of Significant financing

components
consideration an entity
Variable consideration
expects to be entitled to in
exchange for transfering the Non-cash consideration
promised goods/services
Consideration payable to
a customer
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IFRS 15:
Revenue from Contracts with Customers
Five-step model

STEP 3
Determine the transaction price

Example

Taplop Co supplies laptop computer to businesses.

1/7/20X8: entered contract with Trill Co – Trill Co purchases laptop $500/unit
If Trill Co purchase more than 500 laptops/year, price reduces to $450/unit
Taplop year end on 30/6.
a, At 30/9/20X8, Trill Co bought 70 laptops. Taplop Co estimates Trill Co
purchase would not exceed 500 in the year to 30/6/20X9, and Trill Co would
not be entitled to the volume discount.
b, During quarter ended 31/12/20X8, Trill Co purchased an additional 250
laptops. Taplop estimates Trill Co purchases would exceed the threshold for
the volume discount in the year to 30/6/20X9.
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IFRS 15:
Revenue from Contracts with Customers
Five-step model

STEP 3
Determine the transaction price

Example

a, Recognized revenue in Taplop Co in quarter ended 30/9/20X8

Taplop recognized revenue of 70 x $500 = $35,000

b, Recognize revenue in Taplop Co in quarter ended 31/12/20X8

Taplop should recognize revenue of $109,000
Calculation: $112,500 (250 laptops x $450) less change in transaction
price of $3,500 (70 laptops x $50 price reduction) for the the reduction of
price in the laptop sold in the quarter ended 30/9/20X8.
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IFRS 15:
Revenue from Contracts with Customers
Five-step model

STEP 4
Allocate the transaction price

Allocate base on stand-alone price

Stand-alone price of each performance obligation

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IFRS 15:
Revenue from Contracts with Customers
Five-step model

STEP 5
Recognise revenue

Entity has a present right to payment for the asset

Customer has legal title to asset

Revenue
at a point Entity has transferred physical possession of the asset
in time
Customer has significant risks and rewards related
to ownership of the asset

Customer has accepted the asset

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IFRS 15:
Revenue from Contracts with Customers
Five-step model

STEP 5
Recognise revenue

Customer simultaneously receives and

consumes all the benefits provided

If any of 3
criterias
Revenue are met The entity’s work creates or enhances an
asset controlled by the customer
overtime

Entity's performance does not create an

asset with an alternative use & has an
enforceable right to payment for
performance completed to date
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IFRS 15:
Revenue from Contracts with Customers
Example

FPT received an online order from a customer X to buy a

smartphone at a price of $500 on 10/2/20X9. According to the
order, the customer X is entitled to a free simcard. FPT delivered
the 2 products to customer X on 15/2/20X9. Customer X received
the products satisfactorily.
If the customer buys the smartphone or the simcard separately,
FPT would charge him at $490 for the smartphone and $60 for the
simcard.
How should FPT recognized revenues from the order with
customer X under IFRS 15?
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IFRS 15:
Revenue from Contracts with Customers
Example

STEP 1
Identify the Online order signed on 10/2/2019
contract

FPT has 2 separate POs:

STEP 2
 PO1: Smartphone
Identify the PO
 PO2: Simcard

STEP 3
Determine the $500 for both POs  Combined price
TP
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IFRS 15:
Revenue from Contracts with Customers
Example

STEP 4
Allocate TP to each PO

Single price TP Billing

PO1:
490 445.45 (500 x 490/550) 500
Smartphone

PO2:
60 54.55 (500 x 60/550) 0
Simcard

Total 550 500 500

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IFRS 15:
Revenue from Contracts with Customers
Example

STEP 5
Recognize revenue when the PO is satisfied

Control for both POs is passed on 15/2/20X9

On 15/2/20X9:
PO1 Smartphone:
DR Cash 500
CR Sales revenue 445.45
CR Contract asset 54.55
PO2 Simcard:
DR Contract asset 54.55
CR Sales revenue 54.55
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IFRS 15:
Revenue from Contracts with Customers
Measurement of revenue

Settlement discount

Expect customer to
take up discount?
Yes No

Recognize revenue
deducted from discount Recognize revenue fully
amount
Customer Customer
subsequently subsequently
does not take take up
up discount? discount?

Increase revenue by the Reduce revenue by the

discount amount discount amount
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IFRS 15:
Revenue from Contracts with Customers
Example

Khalin Co is a company that manufactures office furnitures. A

customer placed an order on 22/12/20X8 for an office desk at a
price of $330 plus sales tax at 20% of $57.
Khalin Co offered a settlement discount of 5% if payment within
1 month from the invoice date. Khalin Co assessed it is likely that
the customer will take up this discount.
The desk was delivered to the customer on 25/1/20X9, who
accepted the good as satisfactory by signing a delivery note.
Khalin Co then invoiced the customer for the good on 2/2/20X9.
The customer paid $342 to Khalin Co on 1/3/20X9.
How should Khalin Co account for revenue?
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IFRS 15:
Revenue from Contracts with Customers
Example

STEP 1
Identify the A contract to supplu the desk
contract

STEP 2 There is one PO: The delivery of a satisfactory

Identify the PO desk

STEP 3
Determine the TP = $300 - $300 x 5% = $285
TP

STEP 4
Full TP is allocated to PO: The delivery of a
Allocate TP to
satisfactory desk
each PO
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IFRS 15:
Revenue from Contracts with Customers
Example

STEP 5
Recognize revenue when the PO is satisfied

On 25/1/20X9: Control of the office desk is passed

DR Accrual revenue 285 (not recognize receivables)
CR Revenue 285
On 2/2/20X9: Invoice issued
DR Receivables 342 (285 + 57)
CR Accrual revenue 285
CR Sales tax 57
On 1/3/20X9: Payment received
DR Cash 342
CR Receivables 342