Presentation Of Financial Statements Flashcards
Purpose of FS
The objective of financial statements is to provide information about the financial position, performance and cash flows of an entity that’s is useful to a wide range of users in making economic decisions
What’re financial statements?
-A statement of financial position (blanc sheets)
-A statement of profit and loss , other comprehensive income for the period (income statement)
-A statement of changes in equity
-A statement of cash flows
-Notes , comprising a summary of significant accounting policies and other explanatory information
- Comparative information in respect of the preceding period
What do the financial statements show?
-Financial position (statement of financial position)
-Performance ( statement of profit and loss , other comprehensive income, changes in equity)
-Cash flows(statement of cash flows )
How many format we use for detailing income and expenses?
Two
Explain format 1?
Format one is vertical with costs analyzed according to function,for example cost of sales , distribution costs, administration expenses and other operating income or expense
Explain format 2?
Format two is vertical with costs analyzed according to nature for example raw materials, employee benefits expenses , operating expenses and depreciation
What’s cost of sales?
The direct cost attributable to the production of the goods or supply of services by an entity
What may include cost of sales?
•Direct materials, direct labor , other external charges that comprise production costs from external sources
•Overheads : variable and fixed production overheads
•Depreciation and amortization: depreciation of non-current assets used in production
•Adjustments : opening and closing inventory
•Cost of sales : opening+purchase closings
What’s distribution costs?
Costs incurred after the production of the finished article and up to and including transfer of the goods to the customer
What’re the examples of distribution costs ?
•Warehousing Cost such as rent ,rates and wages
• Promotion costs such as advertising
•Selling costs such as sales staff salaries and commissions and cost of rent
•Transport cost for example gross wages and pension contributions of transport staff , vehicle costs such as running costs maintenance and depreciation
What’re administrative expenses?
Costs of running the business that have not been classified as either cost of sales or distribution costs
Examples of AE?
•Administration salaries
•Property costs , for example rent and rates
•Bad debts
•Professional fees
What’re the operating incomes/expenses
Under this heading a company disclose material income or expenses derived from ordinary activities of the business that haven’t been included elsewhere
What’re the examples of other operating income/expenses?
•Income derived from intangible assets (royalties , commissions)
•Income derived from third party use of property, plant and equipment that’s surplus to the current productive needs of the company
•Income received from employees (canteen , recreation fees)
•Payments for rights to use intangible assets not directly related to operations (licenses )
Explain finance costs / income
•Represent interest payable/receivable on borrowings , and similar expenses .
•Are usually shown separately on the face of the profit and loss a/c
What’s current tax?
•Usually an estimated figure
•Treated as an expense in profit and loss
•A current liability in the statement of financial position (credit)
What other comprehensive income can include?
Revaluation gain/loss of non-current assets, financial instruments and employee benefits
Talk about The statement of financial position (sofp old name is balance sheet)
Ias1 specifies which items are to be included on the face of the statement of financial position. It doesn’t prescribe the order and presentation that’s to be followed.In almost all cases , it would be appropriate to split items into current and non -current .
Give some examples of items that has to be included on the face of the sfop
•Property , plant and equipment
•Inventories (or stocks is current assets)
•Trade and other payables
What the statement of changes in equity will show?
•The brought forward (b/f) and carried forward (c/f)figures for all capital and reserve accounts
•Total comprehensive income and expense for the period , showing the total amounts attributable to equity holders
•The amounts of transactions with equity holders ,showing contributions by and distribution to equity holders separately
What kind of qualitative information the investor needs in addition to the FS to make decisions?
•Segmental analysis
•The impact of changes on the operation (a breakdown of turnover , costs and profits for both new and discontinued operations)
•The existence of related parties
What kind of qualitative narrative information the investor needs in addition to the FS to make decisions?
•Mandatory disclosures
•Chairman’s report
•Management commentary
•Director’s report
•Management commentary
•Directors’ report
•Best practice disclosures : Operating and financial review
•Business review in the director’s report
•Strategic Report
