FSLC Accounting Standards



Presentation of Financial Statements

The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions.

  • According to IAS 1 a complete set of financial statements comprises:
  • Statement of financial position
  • Statement of profit or loss and other comprehensive income
  • Statement of changes in equity
  • Statement of cash flows
  • Accounting policies and explanatory notes
  • Comparative information for the preceding period
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IAS 2 applies to all types of inventories including raw materials, work-in-progress and finished goods except for the valuation of construction contracts and certain other specialist assets

The principle of inventory valuation is:

'The lower of cost and net realisable value'

Inventory Valuation Methods

  • FIFO - First in first out
  • AVCO - Average cost

Not Allowed:

  • LIFO - Last in first out
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Statement of Cash Flows

The objective of the statement of cash flow is to show an overall view of money flowing in and out of a company during an accounting period.

The statement of cash flows is divided into three sections:

  • Operating Activities
  • Investing Activities
  • Financing Activities

The Indirect or Direct methods can be used for the operating activities. The indirect method starts with profit from operations. The direct method shows cash flows as:

  • Cash received from the sale of goods
  • Cash paid to suppliers and employees
  • Interest Paid
  • Tax Paid
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IAS 10

Events after the Reporting Period

This relates to events which take place in the period between the end of the financial year and the date the financial statements are authorised for issue.

Events can be adjusting or non-adjusting.

Adjusting events are material events which existed at the end of the reporting period e.g.:

  • The settlement of a court case which existed before the year end
  • Inventory which has a net realisable value of less than its cost
  • Trade receivables where the customer has become insolvent
  • The discovery of fraud or errors which show the financial statements are incorrect

Non-adjusting events are ones which occur after the end of the reporing period, if material they must be disclosed in the notes e.g.:

  • Discontinuing a significant part of the business
  • Losses in production capacity e.g. caused by fire or flood
  • Dividends declared after the reporting period
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IAS 12

Income Taxes

This relates to the accounting treatment for taxes on income such as corporation tax paid by UK comanies

The tax expense for the year is recognised as an expense on the statement of profit or loss and other comprehensive income.

The amount of unpaid current tax is recognised as a liability on the statement of financial position. If the amount already paid exceeds the amount due it is recognised as an asset.

The amount is usually an estimate as the amount due is not confirmed by HMRC until after they have received the statement of profit or loss and other comprehensive income. An adjustment then needs to be made to correct the under or over estimation.

The corporation tax charge in the statement of profit or loss and other comprehensive income includes the adjustment for under/over estimation.

The corporation tax liability on the statement of financial position is the estimation of the tax payable for that year.

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IAS 16

Property, Plant & Equipment

This sets out the principles of accounting for non-current assets such as land and buildings, machinery, office equipment, shop fittings, vehicles etc.

Initial measurement should be at cost including all costs which are directly attributable to bringing the asset into working condition for its intended use e.g. delivery, installation, testing, legal fees etc.

Subsequent expenditure should only be capitalised if it enhances the economic benefits of the asset. Expenditure which maintains the standard performance of the asset is charged to the statement of profit or loss as an expense.

After acquisition of PPE the entity must choose between the cost model so the assets is carried at cost less accumulated depreciation and impairment losses. Or revaluation model where the asset is carried at a revalued amount, its fair value, less any subsequent depreciation or impairment losses. Revaluations must be done regularly and all assets within the same class must also be revalued.

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IAS 36

Impairment of Assets

This means that if the carrying amount of an asset exceeds its recoverable amount it must be impaired which is recognised as an expense in the statement of profit or loss.

  • Carrying Amount - The amount the asset is recognised as less any accumulated depreciation/amortisation and accumulated impairment losses.
  • Recoverable Amount - The higher of fair value less costs of disposal and its value in use.
  • Fair Value - The price the asset could be sold at or paid to transfer the liability.
  • Value in Use - The present value of the future cash flows expected to be derived from the asset

Indications of Impairment include:

  • External - a significant fall in its value, increase in interest rates, changes in the legal system.
  • Internal - physical damage to or obsolescence of the asset, a loss/fall in profit for the entity, major loss of key employees

After recognition of an impairment loss depreciation/amortisation will need to be adjusted for future financial periods.

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IAS 37

Provisions, Contingent Liabilities and Contingent Assets

A provision is a liability of uncertain timing or amount. It must be recognised in the financial statements when:

  • An entity has a present obligation as a result of a past event
  • It is probable that an outflow of economic benefits will be required to settle the obligation
  • A reliable estimate can be made of the amount of the obligation

Contingent Liabilities:

  • Possible - Not recognised in the financial statements, disclosed in notes
  • Remote - Not recognised in the financial statements, not disclosed in notes

Contingent Assets

  • Probable - Not recognised in financial statements, disclosed in notes
  • Possible/Remote - Not recognised in financial statements, not disclosed in notes
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IAS 38

Intangible Assets

An intangible asset is 'an identifiable non-monetary asset without physical substance'. This includes: computer software, patents, copyrights, customer lists, etc Internally generated goodwill and or brands cannot be recognised as an asset.

Research involves uncovering new knowledge and expenditure is recognised as an expense.

Development involves applying research findings to develop something with commercial use. This can be recongised as an asset if all of the following can be demonstrated:

  • The techincal feasibility of completing the asset for use or sale
  • The intention to complete the asset and use or sell it
  • The ability to use or sell the asset
  • How the asset will generate probable future economic benefits.
  • The availability of adequate technical, financial and other resources to complete the asset
  • The ability to measure reliably the expenditure attributable to the asset during development

Intangible assets need to be amortised over their useful life, if the asset has an indefinite life to shall not be amortised

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