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CHAPTER 1: PRESENTATION FINANCIAL STATEMENT

LEARNING OBJECTIVE
1. Statements of financial position
a) Recognise how the accounting equation, accounting treatments (as stipulated within relevant IAS 02, 16, 38,
40, 36, IFRS 15, IAS 10) and business entity concept underlie the statementof financial position.
b) Understand the nature of reserves.
c) Identify and report reserves in a companystatement of financial position.
d) Prepare a statement of financial position or extracts as applicable from given information using accounting
treatments as stipulated within relevant IAS 02, 16, 38, 40, 36, IFRS 15, IAS 10
e) Understand why the heading retained earnings appears in a company statement of financial position.
2. Statements of profit or loss and other comprehensive income
a) Prepare a statement of profit or loss and other comprehensive income or extracts as applicable from given
information using accounting treatments as stipulated within relevant IAS 02, 16, 38, 40, 36, IFRS 15, IAS 10
b) Understand how accounting concepts apply to revenue and expenses.
c) Calculate revenue, cost of sales, gross profit, profit for the year, and total comprehensive income from given
information.
d) Disclose items of income and expenditure in the statement of profit or loss.
e) Record income tax in the statement of profit or loss of a company.
f) Understand the interrelationship between the statement of financial position and the statement of profit or
loss and other comprehensive income.
g) Identify items requiring separate disclosure on the face of the statement of profit or loss.
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IAS 01 PRESENTATION FINANCIAL STATEMENT

STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS COMPRISES

CURRENT ASSETS Statement of financial position;

+ Expected to be realised in the entity's normal operating cycle Statement of profit and loss and other comprehensive income for the period;
+ Held for trading Statement of changes in equity for the period;
+ Realised within 12 months after the reporting period Statement of cash flows for the period;
+ Cash and cash equivalents Notes, comprising a summary of significant accounting policies and other explanator
information;
CURRENT LIABILITIES
COMPARATIVE INFORMATION: applies an accounting policy retrospectivel
+ settled within the entity's normal operating cycle or makes a retrospective restatement of items in its financial statements, or when
+ Settled within 12 months reclassifies items in its financial statements

+ the entity does not have an unconditional right to defer

settlement beyond 12 months
GENERAL REQUIREMENT

STATEMENT OF COMPERHENSIVE
INCOME going concern: management shall make an assessment of an entity’s ability
continue as a going concern.

STATEMENT OF PROFIT OR LOSS: An entity may present accrual basis of accounting

the profit or loss section in a separate statement of profit or loss.
THE OTHER COMPREHENSIVE INCOME:
+ will not be reclassified subsequently to profit or loss; and
+ will be reclassified subsequently to profit or loss when specific
conditions are met.
separately each material class of similar items
not offset assets and liabilities or income and expenses
present at least annually

NOTES

+ Present information about the basis of preparation of the

financial statements and the specific accounting policies used
+ evaluate the entity’s objectives, policies and processes for
managing capital.
+ additional disclosures on puttable financial instruments
classified as equity instruments.
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STANDARD FORMART FOR PREPARE FINANCIAL STATEMNT

1, Non-current asset

$’000

Opening Land and building at cost

add: Opening plant and equipment at cost

Less: Opening accumulated decrepitation of building

Less: Opening accumulated decrepitation of plant and equipment

Adjustment:

Less: Depreciation of building (working 2)

Less: Depreciation of plant and equipment (working 3)

Add: Revaluation surplus of land (working 2)

Add: Revaluation surplus of building (working 2)

Less: Impairment loss (working 4)

Non-current asset in statement of financial position at year end

2, Current asset

$’000

Inventory at 31.3.20X3

Add: Receivable

Adjustment:

Add: Contract asset (Working 1)

Current asset in SOFP as at year end

3, Revenue

$’000

Revenue reported on trial balance

Adjustment:

Add: Revenue from construction contract (working 1)

Less: Misstatement in revenue recognition

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Revenue for the period ended at year end

4, Cost of sale

$’000

Cost of sale reported on trial balance

Adjustment:

Add: Cost of sale from construction contract (working )

Add: Depreciation expense of building, plant, equipment (working )

Less: Incorrect cost of sale recognition (working )

Cost of sale for the period ended at year end

5, Distribution expense

$’000

Distribution expense reported in trial balance

Adjustment:

Add: Depreciation of building (working 2)

Add: Depreciation of plant and equipment (working 3)

Add: Impairment loss of asset (working 4)

Revenue in SOPL for the period ended

6, Equity

$’000

Ordinary share

Add: Share premium

Add: Opening retained earning

Adjustment

Add: Revaluation surplus (working 2)

Add: Profit for the year

Less: Dividend paid

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Equity in statement of financial position as at year end

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PART B: PRACTICE QUESTION

Question 1:
$'000 $'000
Fresco : Trial balance as at 31 March 20X2 (Dr) (Cr)
Equity shares of 50 cents each 45,000
Share premium 74,200
Retained earnings at 1 April 20X1 5,100
Property (12 years) – at cost 48,000
Plant and equipment – at cost 47,500

Investment property - fair value at 1 April 20X1 10,000

Accumulated amortisation of property at 1 April 20X1 16,000

Accumulated depreciation of plant and equipment at 1 April 20X1 33,500

Inventory at 31 March 20X2 25,200
Trade receivables (accounts receivable) 28,500
Bank (liability) 1,400
Trade payables (accounts payable) 27,300
Revenue 280,800
Cost of sales (cost of goods sold) 280,800
Distribution costs (selling expenses) 16,100
Administrative expenses 26,900
Bank interest (expense) 300
The following notes are relevant:
(i) Revenue as shown in its draft statement of profit or loss includes $8 million for a consignment of goods
sold on 31 March 20X2 on which the entity will incur ongoing service and support costs for two years after
the sale.
The supply of the goods and the provision of service and support are separate performance obligations
under the terms of IFRS 15 Revenue from contracts with customers.
The cost of providing service and support is estimated at $800,000 per annum. The entity applies a 30%
mark-up to all service costs.
(ii) Non-current assets:
To reflect a marked increase in property prices, Fresco decided to revalue its property on 1 April 20X1.
The directors accepted the report of an independent surveyor who valued the property at $36 million on
that date. Fresco has not yet recorded the revaluation.
1, The remaining life of the property is eight years at the date of the revaluation.
2, Fresco makes an annual transfer to retained profits to reflect the realization of the revaluation surplus.
3, Plant and equipment is depreciated at 20% per annum using the reducing balance method.
4, No depreciation/amortisation has yet been charged on any non-current asset for the year ended 31 March
20X2. Depreciation and amortisation are charged to cost of sales.
(iii) The investment property has fair value at 31.3.20X2 was $12m.
(iv) The above figures do not include the estimated provision for income tax on the profit for the year $3m.

Required:
(a) Prepare the statement of profit or loss and other comprehensive income for Fresco for the year
ended 31 March 20X2. (8 marks)
(b) Prepare the statement of financial position of Fresco as at 31 March 20X2. (12 marks)
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Question 2:
Fresco : Trial balance as at 31 March 20X2 $'000 $'000
Equity shares of 50 cents each 45,000
Share premium 74,200
Retained earnings at 1 April 20X1 5,100
Property (12 years) – at cost 48,000
Plant and equipment – at cost 47,500
Investment property - fair value at 1 April 20X1 10,000
Accumulated amortisation of property at 1 April 20X1 16,000
Accumulated depreciation of plant and equipment at 1 April 20X1 33,500
Inventory at 31 March 20X2 25,200
Trade receivables 28,500
Bank (liability) 1,400
Trade payables 27,300
Revenue 280,800
Cost of sales 280,800
Distribution costs 16,100
Administrative expenses 26,900
Bank interest 300
(i) Non-current assets:
To reflect a marked increase in property prices, Fresco decided to revalue its property on 31.3.20X2. The
directors accepted the report of an independent surveyor who valued the property at $34 million on that
date. Fresco has not yet recorded the revaluation.
The remaining life of the property is eight years at 1.4.20X1. Fresco does not makes an annual transfer to
retained profits to reflect the realization of the revaluation surplus.
Plant and equipment is depreciated at 15% per annum using the reducing balance method.
No depreciation/amortisation has yet been charged on any non-current asset for the year ended 31 March
20X2. Depreciation and amortisation are charged to administration expense.
(ii) The investment property has fair value at 31.3.20X2 was $8m.
(iii) The above figures do not include the estimated provision for income tax on the profit for the year
$1.5m.
(iv) At year end, a part of inventory obsoleted, this inventory has cost of $3m and net realizable value of
$2.8m. The entity currently recoded closing inventory at cost.
(v) During the year, entity perform a research and development project, the project commence at 1.9.20X1
with cost of $40,000 per month. At 1.1.20X2, director was confident that project commercial success and
the project still continue development at year end. However, the entity has recoded all research and
development cost in cost of sale for the year.

Required: Determine following items in financial statement of the entity for the year ended
31 March 20X2:
a. Revenue
b. Cost of sale
c. Administration expense
d. Distribution expense
e. Finance cost (bank interest)
f. Non-current asset
g. Inventory
h. Trade receivable
i. Equity RE, Surplus on revaluation
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Question 3:
Lotus: Trial balance as at 31 March 20X4 $'000 $'000
Equity shares of 50 cents each 40,000
Share premium 5,000
Retained earnings at 1 April 20X3 5,100
Property (20 years) – at cost 40,000
Plant and equipment – at cost 250,000
Accumulated depreciation of property at 1 April 20X3 16,000
Accumulated depreciation of plant and equipment at 1 April 20X3 33,500
Inventory at 31 March 20X4 25,200
Trade receivables 28,500
Bank 1,400
Trade payables 27,300
Revenue 539,500
Cost of sales 280,800
Distribution costs 16,100
Administrative expenses 26,900
Bank interest 300
The following notes are relevant:
(i) Revenue includes an amount of $20 million for cash sales made through Xtol's (Lotus) retail outlets
during the year on behalf of Francais. Xtol (Lotus), acting as agent, is entitled to a commission of 10% of
the selling price of these goods.
By 31 March 20X4, Xtol ( Lotus) had remitted to Francais $15 million (of the $20 million sales) and
recorded this amount in cost of sales.
(ii) At 31 March 20X4, an equipment has a carrying amount of $65,000 at the year end of 31 March 20X9.
Its market value is $78,000 and costs of disposal are estimated at $2,500. A new machine would cost
$150,000. The company which owns the machine expects it to produce net cash flows of $30,000 per
annum for the next three years. The company has a cost of capital of 8%.
(iii) Plant and equipment is depreciated at 12½% per annum on the reducing balance basis. All
amortisation and depreciation of non-current assets is charged to cost of sales.
Property is depreciated on straight line method.
(iv) A provision of $28 million is required for current tax for the year ended 31 March 20X4.
(v) At 3 Apr 20X4, a customer of business declare bankrupt, this client own the entity $15,000.
Required: with appropriate working determine following items:
a. Revenue (5 marks)
b. Cost of sale (5 marks)
c. Plant and equipment (2 marks)
d. Tax expense for the year (2 marks)
e. Receivable (2 marks)
f. Administration expense (5 marks)
g. Equipment (5 marks)
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g) Prepare profit and loss statement for the year ended 31/3/20x4

Question 4:
Atlas: Trial balance as at 31 March 20X3 $'000 $'000
Equity shares of 50 cents each 50,000
Share premium 20,000
Retained earnings at 1 April 20X2 11,200
long-term contract 4,000
Land and buildings – at cost (land $10 million) 60,000
Plant and equipment – at cost 94,500
Accumulated depreciation at 1 April 20X2 buildings 20,000
Accumulated depreciation at 1 April 20X2 plant and equipment 24,500
Inventory at 31 March 20X3 43,700

Trade receivables 44,200

Bank 8,800
Trade payables 35,100
Revenue 694,400
Cost of sales 544,900
Distribution costs 21,500
Administrative expenses 30,900
Dividends paid 20,000
Bank interest 300
The following notes are relevant.
(i) Non-current assets:
On 1 April 20X2, the directors of Atlas decided that the financial statements would show an improved
position if the land and buildings were revalued to market value. At that date, an independent valuer valued
the land at $12 million and the buildings at $35 million and these valuations were accepted by the directors.
The remaining life of the buildings at that date was 14 years. Atlas does not make a transfer to retained
earnings for excess depreciation. Ignore deferred tax on the revaluation surplus.
Plant and equipment is depreciated at 20% per annum using the reducing balance method and time
apportioned as appropriate. All depreciation is charged to cost of sales, but none has yet been charged on
any non-current asset for the year ended 31 March 20X3.
(ii) Atlas estimates that an income tax provision of $27.2 million is required for the year ended 31 March
20X3.
Required
(a) Prepare the statement of profit or loss and other comprehensive income for Atlas for the year
ended 31 March 20X3. (5 marks)
(b) Prepare the statement of financial position of Atlas as at 31 March 20X3. (5 marks)
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Question 5:
Bagio: Trial balance as at 31 March 20X3 $'000 $'000
Equity shares of 50 cents each 50,000
Share premium 20,000
Retained earnings at 1 April 20X2 11,200
Land and buildings – at cost (land $10 million) 60,000
Plant and equipment – at cost 94,500
Accumulated depreciation at 1 April 20X2 buildings 20,000
Accumulated depreciation at 1 April 20X2 plant and equipment 24,500
Inventory at 31 March 20X3 43,700

Trade receivables 44,200

Bank 8,800
Trade payables 35,100
Revenue 694,400
Cost of sales 544,900
Distribution costs 21,500
Administrative expenses 30,900
Dividends paid 20,000
Following information related to question:
1, Revenue includes an amount of $20 million for cash sales made through the entity's retail
outlets during the year on behalf of its customer. The entity, acting as agent, is entitled to a
commission of 15% of the selling price of these goods. By 31 March 20X4, the entity had paid to
the customer $15 million (of the $20 million sales) and recorded this amount in cost of sales.
2, On 31.3.20X3, the directors of Bagio decided that the financial statements would show an improved
position if the land and buildings were revalued to market value. At that date, an independent valuer valued
the land at $15 million and the buildings at $35 million and these valuations were accepted by the directors.
The remaining life of the buildings at 1.4.20X2 was 20 years. Atlas transfer to retained earnings for excess
depreciation. Ignore deferred tax on the revaluation surplus.
3, Plant and equipment is depreciated at 25% per annum using the reducing balance method and time
apportioned as appropriate.
4, All depreciation is charged to distribution expense, but none has yet been charged on any non-current
asset for the year ended 31 March 20X3.
5, At 31.3.20X3, the entity perform impairment review with a plant (with cost of $40,000 and accumulated
depreciation of $15,000 at 1.4.20X2. A study at the year end concluded that the present value of the
future estimated net cash flows from the plant at 31 March 20X3 is $20,000; however,
Downing Co also has a confirmed offer of $22,000 to sell the plant immediately at that date.
Required: Determine following items on financial statement as at 31.3.20X3
1, Non-current asset
2, Current asset
3, Revenue
4, Cost of sale
5, Distribution expense
6, Equity (Correct profit after tax of the entity for the period $150,000)
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Question 6:
Bagio: Trial balance as at 31 March 20X3
$'000 $'000
Equity shares of 50 cents each 50,000
Share premium 20,000
Retained earnings at 1 April 20X2 11,200
Land and buildings – at cost (land $10 million) 60,000
Plant and equipment – at cost 94,500
Accumulated depreciation at 1 April 20X2 buildings 20,000
Accumulated depreciation at 1 April 20X2 plant and equipment 24,500
Inventory at 31 March 20X3 43,700

Trade receivables =44,200+4,300

Bank 8,800
Trade payables 35,100
694,40
Revenue 0
Cost of sales 544,900
Distribution costs 21,500
Administrative expenses 30,900
Dividends paid 20,000
Using trial balance in question 1 and determine relevant items in financial statement based on
following information:
1, Revenue includes an amount of $22 million for a sale made on 1.12.20X2. The sale relates to a
single product and includes ongoing servicing from Downing Co for four years. The normal
selling price of the product and the servicing would be $20 million and $500,000 per annum ($2
million in total) respectively.
2, The remaining life of the buildings at 1.4.20X2 was 20 years.
3, Plant and equipment is depreciated at 20% per annum using the reducing balance method and time
apportioned as appropriate.
4, All depreciation is charged to administration expense, but none has yet been charged on any non-current
asset for the year ended 31 March 20X3.
5, At 31.3.20X3, the entity perform impairment review with a plant (with cost of $40,000 and accumulated
depreciation of $15,000 at 1.4.20X2), the plant have recoverable amount of $18,000 at 31.3.20X3.
6, At 1.5.20X3, the entity has sold 500 items A of inventory with net realisable value of $50, these
inventory has cost of $80 per unit (which is reflected on financial statement at 31.3.20X3)
7, The entity commenced a research and development project on 1.4.20X2. It spent $1 million per
month on research until 31.7.20X2, at which date the project passed into the development stage.
From this date it spent $1·6 million per month until the year end (31.3.20X3), at which date
development was completed. However, it was not until 1 May 20x3 that the directors of Moston
Bagio were confident that the new product would be a commercial success. The accountant has
recorded these expense as cost of sale in the period.
8, At 31.3.20X3, the entity decided to convert a building with cost of $5m and accumulated
depreciation of $2m to investment property. At this date, fair value of the investment property was
$6m.
Required: Determine following items on financial statement as at 31.3.20X3
1, Non-current asset
2, Current asset
3, Revenue
4, Cost of sale
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5, Distribution expense
6, Equity