Unit 3: IAS 1 Presentation of financial statements

STUDY UNIT
3

IAS 1
PRESENTATION OF
FINANCIAL STATEMENTS

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Unit 3: IAS 1 Presentation of financial statements

Prior learning for this unit

You should already be able to

 Discuss the following principles from IAS 1:

o discuss the objective and scope of the statement;
o discuss the purpose of financial statements;
o identify and discuss the components of financial statements;
o define the following:
 impracticable,
 International Financial Reporting Standards (IFRSs),
 material, and
 notes;
 Discuss the following concepts:
o fair presentation and compliance with Statements of IFRS,
o going concern,
o accrual basis of accounting,
o consistency of presentation,
o materiality and aggregation,
o offsetting, and
o comparative information;
 Explain the following:
o identification of financial statements,
o reporting period;
o discuss the current/non-current distinction in the Statement of Financial Position;
o prepare a Statement of Financial Position, a Statement of Comprehensive Income a
Statement of Changes in Equity and the additional notes;
o integrate the requirements of IAS 1 with all topics.

 discuss the structure and contents of the statement of financial position and be able to
prepare a basic statement of financial position

 comment critically on a given statement of financial position and accompanying notes

 differentiate between historical cost, current cost, realisable value and present value
according to Conceptual Framework for financial reporting

 identify, recognise, measure, present and disclose property, plant and equipment and
intangible assets on the historical cost model and

 identify, recognise, measure, present and disclose financial assets on the amortised cost
model.

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Unit 3: IAS 1 Presentation of financial statements
Outcomes for this unit (NB!)

After completion of this unit you should be able to

 set out the objectives of IAS 1 and the scope for applying it
 discuss the content of IAS 1 (including the paragraphs left out for Accounting 2A) except for
those that deal with the statement of financial position, the statement of comprehensive income
and statement of changes in equity
 apply all aspects of IAS 1 to practical case studies and
 apply all aspects of IAS 1 to all the Standards that will be discussed later.
 understand the foundation of the statement of financial position and apply it in comprehensive
practical cases
 present the statement of financial position according to the presentation requirements of IAS 1,
and apply it in comprehensive practical cases
 integrate the statement of financial position with all IASs and IFRSs to follow

Literature

• IAS 1 Presentation of Financial Statements Summary per https://www.iasplus.com/

• Companies Act 71 of 2008 (as applicable – Section 29 & 30)

• IFRS Applications: Questions and Solutions: (See additional notes)

Pietersen, Stegmann, van Schalkwyk, Wesson, Malan
LexisNexis Butterworths
Chapter IAS 1

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Unit 3: IAS 1 Presentation of financial statements
Theoretical aspects in terms of IAS 1

The first 53 paragraphs of IAS1 deal with some theoretical aspects related to the Conceptual
Framework. The other paragraphs of IAS 1 deal with some disclosure requirements.

IAS 1 discusses the presentation of financial statements in order to improve comparability.

Comparability is defined and discussed in the Conceptual Framework. IAS 1 is applicable to all
financial statements prepared for a general purpose. General purpose financial statements (financial
statements) are those financial statements that are prepared to meet the needs of users who are not
in a position to insist on financial statements that meet their specific information needs. General
purpose financial statements are, therefore, prepared for external users.

It is important that students study the Conceptual Framework and IAS 1 together.

Schematic Summary

IAS 1
PRESENTATION OF FINANCIAL STATEMENTS

Introduction Definitions Financial General features Structure and content

(par 1–6) (par 7–8) statements (par 15–46) (par 47–138)
(par 9–14)
• Objective • General purpose • Purpose of f/s • Fair presentation • Introduction
• Scope f/s • Complete set of and compliance • Identification
• Impracticable f/s with IFRSs • Statement of financial
• IFRSs • Going concern position
• Material • Accrual basis of • Statement of
• Notes accounting comprehensive
• Other • Materiality and income
comprehensive aggregation • Statement of changes
income • Offsetting in equity
• Owners • Frequency of • Statement of cash
• Profit or loss reporting flows
• Reclassification • Comparative • Notes
adjustment information
• Total • Consistency of
comprehensive presentation
income

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Unit 3: IAS 1 Presentation of financial statements

Illustrative financial statements (IAS 1)

XYZ Ltd - Statement of financial position as at 31 December 20x8

(in thousands of currency units)

31 Dec 20x8 31 Dec 20x7

ASSETS
Non-current assets
Property, plant and equipment xxx xxx
Goodwill xxx xxx
Other intangible assets xxx xxx
Investments in associates xxx xxx
Available-for-sale financial assets xxx xxx
xxx xxx

Current assets
Inventories xxx xxx
Trade receivables xxx xxx
Other current assets xxx xxx
Cash and cash equivalents xxx xxx
xxx xxx
Total assets xxx xxx

EQUITY AND LIABILITIES

Share capital xxx xxx
Retained earnings xxx xxx
Other components of equity xxx xxx
Total equity xxx xxx

Non-current liabilities
Long-term borrowings xxx xxx
Deferred tax xxx xxx
Long-term provisions xxx xxx
Total non-current liabilities xxx xxx

Current liabilities
Trade and other payables xxx xxx
Short-term borrowings xxx xxx
Current portion of long-term borrowings xxx xxx
Current tax payable xxx xxx
Short-term provisions xxx xxx
Total current liabilities xxx xxx
Total liabilities xxx xxx
Total equity and liabilities xxx xxx

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Unit 3: IAS 1 Presentation of financial statements
XYZ Ltd - Statement of comprehensive income for the year ended 31 December 20x8

(Illustrating the presentation of comprehensive income in one statement and the

classification of expenses within profit by function)

(in thousands of currency units)

20x8 20x7

Revenue xxx xxx

Cost of sales xxx xxx
Gross profit xxx xxx
Other income xxx xxx
Distribution costs xxx xxx
Administrative expenses xxx xxx
Other expenses xxx xxx
Finance costs xxx xxx
Profit before tax xxx xxx
Income tax expense xxx xxx
PROFIT FOR THE YEAR xxx xxx
Other comprehensive income:
Gains on available-for-sale financial assets* xxx xxx
Gains on property revaluation* xxx xxx
Other comprehensive income for the year, net of xxx xxx
tax
TOTAL COMPREHENSIVE INCOME FOR THE xxx xxx
YEAR

Earnings per share Rx,xx p.s. Rx,xx p.s.

Dividend per share Rx,xx p.s. Rx,xx p.s.

* The income tax relating to each component of other

comprehensive income is disclosed in the notes.

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Unit 3: IAS 1 Presentation of financial statements

XYZ Ltd - Statement of comprehensive income for the year ended 31 December 20x8

(Illustrating the presentation of comprehensive income in two statements and

classification of expenses within profit by nature)

(in thousands of currency units)

20x7 20x6

Revenue xxx xxx

Other income xxx xxx
Changes in inventories of finished goods and work in xxx xxx
progress
Work performed by the entity and capitalised xxx xxx
Raw material and consumables used xxx xxx
Employee benefits expense xxx xxx
Depreciation and amortization expense xxx xxx
Impairment of property, plant and equipment xxx xxx
Other expenses xxx xxx
Finance costs xxx xxx
Profit before tax xxx xxx
Income tax expense xxx xxx
PROFIT FOR THE YEAR xxx xxx

XYZ Ltd - Statement of comprehensive income for the year ended 31 December 20x8

(Illustrating the presentation of comprehensive income in two statements)

(in thousands of currency units)

20x7 20x6

Profit for the year xxx xxx

Other comprehensive income:
Gains on available-for-sale financial assets (xxx) (xxx)
Gains on property revaluation xxx xxx
Other comprehensive income for the year, net of xxx xxx
tax

Income tax relating to component of other

comprehensive income. (xxx) (xxx)

TOTAL COMPREHENSIVE INCOME FOR THE YEAR xxx xxx

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Unit 3: IAS 1 Presentation of financial statements

XYZ Ltd - Statement of changes in equity for the year ended 31 December 20x8
(in thousands of currency units)

Available-
Share Retained for-sale Revaluation Total
capital earnings financial surplus
assets

Balance at 1 January xxx xxx xxx xxx xxx

20x7
Correction of prior period - xxx - - xxx
errors
Restated balance xxx xxx xxx - xxx

Change in equity for

20x7
Dividends - xxx - - xxx
Total comprehensive
income for the year - xxx xxx xxx xxx

Balance at 31 xxx xxx xxx xxx xxx

December 20x7
Changes in equity for
20x8
Issue of share capital xxx - - - xxx
Dividends - xxx - - xxx
Total comprehensive
income for the year - xxx xxx xxx xxx
Transfer to retained - xxx - xxx -
earnings

Balance at 31 xxx xxx xxx xxx xxx

December 20x8

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Unit 3: IAS 1 Presentation of financial statements
Example 1

You are one of the financial advisors of Moon International Ltd. Moon is a hotel group listed on the
Johannesburg Stock Exchange. Their reporting period date is 31 December. Moon has experienced
significant growth in the past few years, due to their good-value-for-money holiday packages to
Europe and the Middle East.

The following information has been provided to you:

1. Three of Moon’s holiday resorts in Thailand were severely damaged when the tsunami hit the
shores on 26 December 2004. One of your colleagues has already done extensive research
regarding the amount of damage done to these resorts which were destroyed. His research
memorandum, dated 31 December 2004, indicated that it will cost R100 million to repair the
damage. Moon intends to start shortly with the repair work, and discussions are already
underway with the building contractors.

REQUIRED:

Discuss the applicable accounting treatment for point 1 by applying the principles of IAS 37
Provisions, Contingent Liabilities and Contingent Assets

Discuss by applying the following criteria:

i) What is the problem?

ii) How am I going to solve the problem?
iii) Application with regards to
 Identification, and
 Measurement
iv) Conclusion with regards to:
 Recognition (if any) and
 Disclosure (if applicable). However, you do not need to discuss the disclosure
requirements.

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Unit 3: IAS 1 Presentation of financial statements
Suggested Solution

Discussion of situation

i) What is the problem?

May Moon provide for the R100 million to repair the resorts?

ii) How am I going to solve this?

By applying IAS 37 (Provisions, contingent liabilities and contingent assets).

iii) Application

Identification

Present obligation:

There does not seem to be a current obligation as there is no legal or constructive

obligation at year end to repair the resorts. Management have not signed any
contracts with contractors

Transfer of economic benefits is probable: Yes; management is planning to repair the

resorts, and negotiations are already underway. This indicates management’s intention to
incur the costs, and thus an outflow is probable.

Measurement

The costs can be reliably measured: Yes; research has indicated that it will cost R100
million to repair the resorts.

iv) Conclusion

Recognition

There is no current obligation at year end. The R100 million may not be recognised
(provided for).

Disclosure

The future capital expenditure that is being planned must be disclosed in a note to the
financial statements.

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Unit 3: IAS 1 Presentation of financial statements
Example 2

Question: Fair presentation

After a thorough investigation, the management of A Ltd concluded that compliance with a specific
requirement of one of the International Financial Reporting Standards would be so misleading that it
would conflict with the objective of financial statements set out in the Framework for Preparation and
Presentation of Financial Statements

Required:

Draft the note to the financial statements explaining these circumstances assuming hypothetical
information.

Suggested solution

After a thorough investigation, management concluded that compliance with IAS 1 par. 19 & 20
dealing with ……………………… would be so misleading that it would conflict with the objective of
financial statements. Management has concluded that the financial statements present fairly the
entity’s financial position at ……, as well as the financial performance and cash flows for the reporting
period. Applicable IFRSs were complied with, except that the requirement stated above has been
departed from to achieve fair presentation.

IAS X (AC XXX) requires that the specific aspect should have been treated ……………………
(indicate the treatment required by the IFRS), but in the interest of fair presentation, it is treated as
follows: …………………… (indicate the nature of the departure, i.e. the treatment adopted). The
required treatment would, in our opinion, in the following way conflict with the objective of financial
statements:…………………………………………

The financial impact of the departure is that profit (or loss) and …… (the element in the statement of
financial position affected) would have increased (or decreased) by RXXX,XX (RXXX,XX), had the
prescribed treatment been followed. No other amount in the financial statements is affected by the
departure.

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