0 оценок0% нашли этот документ полезным (0 голосов)
143 просмотров49 страниц
The document discusses key aspects of income statements, including:
- The two main forms of income statement presentation: functional and natural.
- The uses of income statements in evaluating past performance and predicting future performance.
- The two main approaches to income measurement: capital maintenance and transaction approach.
- Required components of an income statement including revenue, expenses, gains/losses, and net income or loss. Principles for income statement preparation are also outlined.
Исходное описание:
States the different Income Statement elements from
The document discusses key aspects of income statements, including:
- The two main forms of income statement presentation: functional and natural.
- The uses of income statements in evaluating past performance and predicting future performance.
- The two main approaches to income measurement: capital maintenance and transaction approach.
- Required components of an income statement including revenue, expenses, gains/losses, and net income or loss. Principles for income statement preparation are also outlined.
The document discusses key aspects of income statements, including:
- The two main forms of income statement presentation: functional and natural.
- The uses of income statements in evaluating past performance and predicting future performance.
- The two main approaches to income measurement: capital maintenance and transaction approach.
- Required components of an income statement including revenue, expenses, gains/losses, and net income or loss. Principles for income statement preparation are also outlined.
Related information Nature Uses Forms Approaches Component INCOME STATEMENT AND RELATED INFORMATION INCOME STATEMENT SPECIAL REPORTING INCOME STATEMENT Principles of Income Statement Presentation Concept of Income Statement Preparation Interim Reporting Segment Reporting
Discontinued Operation Extraordinary Items Accounting Changes The amended PAS 1, paragraph 10A provides that an entity has two options in presenting comprehensive income.
A. Income statement Shows the components of profit and loss. Under PAS 1 it is also called "statement of profit or loss" B. Statement of Comprehensive Income This statement begins with profit or loss plus or minus the other comprehensive income
Related information DEFINITION AND NATURE
Income Statement is a formal statement showing the financial performance of an entity given period of time. A company's financial performance is based in terms of level of income earned by the entity. It is also known as the results of operations of the entity. Income statement presents the income, expenses, gains, losses and net income or loss recognized during the period from entity's profit-directed activities.
Ice breaker question: What do you think is the 2 forms of Income Statement? a. Functional and Natural b. Comprehensive Income and Profit and loss c. Expense and Revenue form d. None of the Above TWO FORMS OF PRESENTATION 1. Functional presentation: - traditional and common form of income statement - cost of sale method - classifies expenses according to their function as part of cost of sales, distribution cost and administrative activities (Entity classifying expenses by function shall disclose additional information on the nature of expense)
TWO FORMS OF PRESENTATION 2. Natural presentation: -nature of expense method -expenses are aggregated according to their nature - expenses which are of the same nature are grouped as one item
T W O F O R M S Ice breaker question: Which of the form is required by the standard to be use? a. Functional b. Natural c. Expense and Revenue Recognition form d. None of the Above
Under PAS 1 paragraph, there is NO prescribed type of format since each presentation has merit for different type of entities. USES The income statement helps the users of financial statement predict fu ture cash flows in a number of ways. 1. Evaluate the past performance of the company 2. Provide a basis for predicting future performance. 3. Help assess the risk or uncertainty of achieving future cash flows
Ice breaker question: What do you think is the 2 type of approaches of Income Measurement? a. Rational and Logical Approach b. Revenue and Expense Approach c. Capital and Transaction Approach d. None of the Above APPROACHES TO INCOME MEASUREMENT 1. Capital maintenance approach This is also called net asset approach meaning that the net income occurs only after the capital is used from the beginning if the period is maintained. This has 2 variations: a. Financial Capital concept: b. Physical Capital Concept
Financial Capital Concept It is the traditional concept based on historical cost. Financial capital is the monetary value of the net asset contributed. -Under financial capital concept, Such capital is synonymous with net assets or equity of the entity Net income = Net asset at the end of the year > net asset at the beginning of the year Physical Concept This concept requires that productive assets must be valued at current cost It is the quantitative measure of the physical productive capacity to produce goods & services Net income = Physical productive capital end of the year > Physical productive capital beg of the year APPROACHES TO INCOME MEASUREMENT 2.Transaction approach The conventional or traditional preparation of income statement in conformity with PFRS In computing net income, it requires the determination of how much net income was earned It is the direct result of the application of the principle of matching cost with revenue NI= income - expense
COMPONENTS OF INCOME STATEMENT The following minimum line items must be presented in the profit or loss section (or separate statement of profit or loss, if presented): [IAS 1.82-82A] revenue gains and losses from the de-recognition of financial assets measured at -amortized cost finance costs Share of the profit or loss of associates and joint ventures accounted for using the equity method certain gains or losses associated with the reclassification of financial assets tax expense a single amount for the total of discontinued items COMPONENTS OF INCOME STATEMENT Expenses recognized in profit or loss should be analyzed either by nature (raw materials, staffing costs, depreciation, etc.) or by function (cost of sales, selling, administrative, etc). [IAS 1.99]
If an entity categorizes by function, then additional information on the nature of expenses at a minimum depreciation, amortization and employee benefits expense must be disclosed. [IAS 1.104]
Principles of Income Statement Presentation a. Going concern The Conceptual Framework notes that financial statements are normally prepared assuming the entity is a going concern and will continue in operation for the foreseeable future. [Conceptual Framework, paragraph 4.1] IAS 1 requires management to make an assessment of an entity's ability to continue as a going concern. If management has significant concerns about the entity's ability to continue as a going concern, the uncertainties must be disclosed. If management concludes that the entity is not a going concern, the financial statements should not be prepared on a going concern basis, in which case IAS 1 requires a series of disclosures. [IAS 1.25] b. Accrual basis of accounting IAS 1 requires that an entity prepare its financial statements, except for cash flow information, using the accrual basis of accounting. [IAS 1.27] Principles of Income Statement Presentation c. Consistency of presentation The presentation and classification of items in the financial statements shall be retained from one period to the next unless a change is justified either by a change in circumstances or a requirement of a new IFRS. [IAS 1.45] Principles of Income Statement Presentation d. Materiality and aggregation Each material class of similar items must be presented separately in the financial statements. Dissimilar items may be aggregated only if the are individually immaterial. [IAS 1.29] e. Offsetting Assets and liabilities, and income and expenses, may not be offset unless required or permitted by an IFRS. [IAS 1.32]
Principles of Income Statement Presentation Principles of Income Statement Presentation f. Comparative information IAS 1 requires that comparative information to be disclosed in respect of the previous period for all amounts reported in the financial statements, both on the face of the financial statements and in the notes, unless another Standard requires otherwise. Comparative information is provided for narrative and descriptive where it is relevant to understanding the financial statements of the current period. [IAS 1.38]
Concepts of Income Statement Preparation Profit or loss is defined as "the total of income less expenses, excluding the components of other comprehensive income". All items of income and expense recognized in a period must be included in profit or loss unless a Standard or an Interpretation requires otherwise. [IAS 1.88] Some IFRSs require or permit that some components to be excluded from profit or loss and instead to be included in other comprehensive income. In addition, IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors requires the correction of errors and the effect of changes in accounting policies to be recognised outside profit or loss for the current period. [IAS 1.89] Concepts of Income Statement Preparation DISCONTINUED OPERATIONS Discontinuing operation- A relatively large component of a business enterprise such as a business or geographical segment under IAS 14 Segment Reporting that the enterprise, pursuant to a single plan, either is disposing of substantially in its entirety or is terminating through abandonment or piecemeal sale. [IAS 35.2] note: A restructuring, transaction or event that does not meet the definition of a discontinuing operation should not be called a discontinuing operation. [IAS 35.43] DISCONTINUED OPERATIONS The Generally Accepted Accounting Principles framework requires special presentation treatment of the results of operations of a component of an entity that is either being held for sale or which has already been disposed of. The designated results of operations must be reported as a discontinued operation within the financial statements if both of the following conditions are present:
a. Resulting elimination. The disposal transaction will result in the operations and cash flows of the component being eliminated from company operations. b. Continuing involvement. There will be no significant continuing involvement by the company in the operations of the component, once the disposal transaction has been completed. Continuing involvement implies the ability to influence the operating or financial policies of the disposed component.
DISCONTINUED OPERATIONS If the preceding two conditions are met and a component is held for sale, the business must report the results of operations of the component for current and prior periods in a separate discontinued operations section of the income statement. Under the same conditions but where the component has been sold, the business must report the results of operations of the component for current and prior periods, as well as any gain or loss on disposal, in a separate discontinued operations section of the income statement. DISCONTINUED OPERATIONS EXTRAORDINARY ITEMS An extraordinary item is an event or transaction that is considered abnormal, not related to ordinary company activities, and unlikely to recur in the foreseeable future. Examples: destruction of facilities by an earthquake, or the destruction of a vineyard by a hailstorm in a region where hailstorm damage is rare. Conversely, an example of an item that does not qualify as extraordinary is weather-related crop damage in a region where such crop damage is relatively frequent.
EXTRAORDINARY ITEMS Disclosure of Extraordinary Items You should classify an extraordinary item separately in the income statement if it meets any of the following criteria: It is material in relation to income before extraordinary items It is material to the trend of annual earnings before extraordinary items It is material by other criteria Under IAS1 paragraph 87, (issued 1993) Extraordinary Items is required to be disclosed in the income statement separately from the profit or loss from ordinary activities. These are the transactions that are clearly distinct from ordinary ones.
In 2002, the board decided to eliminate the concept of extraordinary items. Therefore no items of income and expense are to be presented as arising from the outside the entitys ordinary activities or called as extraordinary items. The board decided that the nature or function of a transaction or other event rather than its frequency, should determine its presentation within the income statement. Eliminating this category also eliminated the need for random segregation of the effects of related external events. EXTRAORDINARY ITEMS EXTRAORDINARY ITEMS TODAY: Additional line items may be needed to fairly present the entity's results of operations. [IAS 1.85] Items cannot be presented as 'extraordinary items' in the financial statements or in the notes. [IAS 1.87] Certain items must be disclosed separately either in the statement of comprehensive income or in the notes, if material, including: [IAS 1.98] write-downs of inventories to net realizable value or of property, plant and equipment to recoverable amount, as well as reversals of such write-downs
restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring disposals of items of property, plant and equipment disposals of investments discontinuing operations litigation settlements other reversals of provisions
EXTRAORDINARY ITEMS ACCOUNTING CHANGES Under IAS8: An entity is permitted to change an accounting policy only if the change:
-is required by a standard or interpretation; or -results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity's financial position, financial performance, or cash flows
Cumulative Effects of Accounting Changes As irregular items, cumulative effects of accounting changes pertain to accounting adjustments a business makes to factor in financial reporting modifications in prior performance data. These adjustments do not call for any monetary transaction -- meaning, the company does not pay for any expense that results from these changes. ACCOUNTING CHANGES INTERIM REPORTING What is Interim financial reporting? Interim Reporting means that the preparation and presentation of financial information is for a period of less than one year.
Segment Reporting IAS 14 Segment Reporting requires reporting of financial information by business or geographical area. It requires disclosures for 'primary' and 'secondary' segment reporting formats, with the primary format based on whether the entity's risks and returns are affected predominantly by the products and services it produces or by the fact that it operates in different geographical Segment revenue: revenue, including intersegment revenue, that is directly attributable or reasonably allocable to a segment. Includes interest and dividend income and related securities gains only if the segment is a financial segment (bank, insurance company, etc.). [IAS 14.16] Segment Reporting Segment expenses: expenses, including expenses relating to intersegment transactions, that (a) result from operating activities and (b) are directly attributable or reasonably allocable to a segment. Includes interest expense and related securities losses only if the segment is a financial segment (bank, insurance company, etc.). Segment Reporting Segment expenses do not include: -interest -losses on sales of investments or debt extinguishments -losses on investments accounted for by the equity method income taxes -general corporate administrative and head-office expenses that relate to the entity as a whole [IAS 14.16] Segment Reporting QUIZ I. Enumeration 1-3) Give the 3 uses of Income Statement 4-5) 2 forms of Income Statement 6-7) 2 Approach Measurement of Income Statement 8-9) 2 Irregular Items II. 10-30) MC
"The Language of Business: How Accounting Tells Your Story" "A Comprehensive Guide to Understanding, Interpreting, and Leveraging Financial Statements for Personal and Professional Success"