CP-02 (Format of financial statements)

Question 1

IAS 1
Presentation of Financial Statements

Answer 1

The objective of general purpose financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. They also show the result of management stewardship of the resources of the entity.

Question 2

Offsetting

Answer 2

Under IAS 1 – Presentation of Financial Statements, offsetting is generally not allowed unless it is:
»Required or permitted by another IFRS (e.g., IFRS 9 allows offsetting certain financial instruments).
»Reflective of the substance of the transaction.

✅ Permitted Offsetting Example:
A company has a receivable of BDT 10,000 from a customer and a payable of BDT 4,000 to the same customer. If the legal right exists, the net amount of BDT 6,000 may be presented.

❌ Not Permitted Example:
Offsetting revenue against expense (e.g., sales revenue vs. cost of goods sold) to show only net profit.

Question 3

IAS 12
Income Taxes

Answer 3

With tax being such a significant cost to business, it is essential that an entity’s financial statements include relevant information that enables users to understand historical, and predict future, taxation cash flows and liabilities.

• Current tax is recognised as an expense (income) in profit or loss and as a liability (asset) in the statement of financial position.
• Adjustments should be made in the current period for tax over/under charged in respect of prior periods.
• Tax liabilities and assets should be disclosed separately from other liabilities/assets.
• Tax expense (income) should be disclosed in the statement of profit or loss.

Question 4

Operating cycle

Answer 4

Operating cycle: The time between the acquisition of assets for processing and their realisation in cash or cash equivalents.

Question 5

Shares and dividends

Answer 5

An interim ordinary dividend that has been approved in the period but has not been declared at the year end is not treated as a liability in the statement of financial position. If the interim ordinary dividend is declared, an obligation is created and, therefore, a liability is required. An unpaid mandatory dividend on irredeemable preference shares at the end of the reporting period is shown under current liabilities as a dividend payable.

Dividends on shares classified as a liability are treated as an expense and recognised in profit or loss (as a finance cost). If they are unpaid at the year end, they are shown under current liabilities as other payables.

Question 6

Non-controlling interests

Answer 6

A non-controlling interest (NCI) typically occurs when a company owns more than 50% of another company but less than 100%. Since the first company (parent company) effectively controls the second company (subsidiary company), the parent will fully consolidate the subsidiary’s financials with its own.

🔹 Example:
If XY Ltd owns 80% of AB Ltd:
The remaining 20% is NCI.
In consolidation, you include 100% of the subsidiary’s assets, liabilities, income, and expenses, then allocate 20% of net assets and net profit to NCI.

Question 7

IAS 7
Statement of Cash Flows

Answer 7

The objective of IAS 7, Statement of Cash Flows is to provide historical information about changes in cash and cash equivalents, classifying cash flows between operating, investing and financing activities. This will provide information to users of financial statements about the entity’s ability to generate cash and cash equivalents, as well as indicating the cash needs of the entity.