Its objective is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions. Considerations underpinning Financial Statements preparation: * Comparability – Standardisation of information, internationally to aid users of the accounts. * Consistency – Same accounting methods and policies each month/accounting period. * Understandability - expression, with clarity, of accounting information in such a way that it will be understandable to users. * Relevance – Information presented should be timely as investors cannot made solid decisions on old information. * Reliability – Free from bias so users have assurance that all information is accurate and has not been manipulated. Accounting Concepts: Two fundamental accounting concepts
Going Concern – is the assumption that an entity will remain in business for the foreseeable future. Accruals - Income should be properly "matched" with the expenses of a given accounting period. Other Accounting Concepts:
Consistency – Same accounting methods and policies each month/accounting period. Fair presentation - Faithfully represent the data presented and be useful to the reader or user in terms of relevance and reliability. Off Setting - Entities can't offset assets and liabilities against each other. Elements of the Financial Statements are:
Assets – Resources controlled by past events where future economic benefits are expected. Liabilities – Obligations owed as a result of past events that result in an outflow of cash. Equity – the excess of assets over liabilities.
Income – Revenue from the course of ordinary activities, such as sale of goods Expense – includes expenses, cost of sales and losses.
IAS 2 - Inventories
Inventories should be valued at the lower of cost and net realisable value (NRV); NRV is the estimated selling price in the ordinary course of business. Accepted valuation methods are FIFO and AVCO
IAS 7 – Statement of Cash Flow
Presentation of information about the historical changes in cash and cash equivalents by means of a statement of cash flows. Classified under 3 headings:
* Operating Activities
* Investing Activities
* Financing Activities
These can be performed under the direct or indirect methods. IAS 10 – Events after the reporting period
These are defined as events either favourable or unfavourable that occur between the end of the reporting period and the date which the accounts are authorised for issue. * Adjusting events: Valuation of property with evidence, settlement of court case, insolvency of trade receivables, fraud or errors. * Non Adjusting: change in tax rates, fire or flood, major purchase of assets, issue of shares, closing significant part of trading activities.
IAS 12 – Income Taxes
1. Tax owing is a liability.
2. Current tax is calculated using tax rates and laws at year end. 3. Tax is an expense in the income statement.
4. Tax relating to a gain or loss in the ‘other comprehensive income’ section of SOCI should be separately recorded in this section.
IAS 16 – Property Plant and Equipment
PPE are tangible items that are held for use in the ordinary course of business and are expected to be used over more than one accounting period. PPE are recognised when it is probable that they will generate an inflow of future economic benefit and the cost of the item can be measured reliably. 2 methods
1. Cost model – Historic cost less accumulated depreciation. 2. Revaluation model – Measured at fair value less any subsequent depreciation.
IAS 17 – Leases
Two types of lease:
1. Finance Lease – An asset used for most of its useful life, similar to owning outright. Recognised at fair value as NCA and depreciated over shorter of UEL and lease term. A liability is set up showing amount owed to lessor, each payment...