IAS Conversion Document Mar12 Lcci

internationalenquiries@ediplc.
com
+44 (0) 2476 518951 www.lcci.org.uk
International Accounting Standards

(IAS) Guidance:
Terminology and Presentation
International Accounting Standards (IAS) Guidance: Terminology and Presentation
Contents
1
Introduction
First Level
1.1 Terminology
Format of the Income
1.2 Statement and Statement of
Financial Position
1.3 Treatment of discount
1.4 Summary
Second Level
2.1 Preface
2.2 Partnerships
2.3 Limited liability companies
2.4 Manufacturing Accounts
10
2.5 Non-trading organisations
11
2.6
Statement of Comprehensive
Income
2.7 Summary
11
11
Third Level
3.1 Preface
3.2 Terminology
3.3
Accounting treatment of
goodwill
12
12
12
Format of Consolidated
Income Statement and
3.4
Consolidated Statement of
Financial Position
13
3.5 Cash flows
14
3.6 IAS standards
15
3.7 Summary
15
Fourth Level
4.1 Preface
16
4.2
Components of financial
statements
16
4.3
Format of the Statement of

Financial Position
16
4.4
Statement of Comprehensive
Income
17
4.5
Statement of Changes in
Equity
17
4.6 Financial statements
18
4.7 IAS Standards
20
Introduction
The International Accounting Standards (IAS) and the International Financial Reporting Standards (FRS)
are widely used throughout the world. Since 2001, almost 120 countries have required or permitted the
use of IFRS. All remaining major economies have established time lines to converge with or adopt IFRS in
the near future.
1. First Level
1.1 Terminology
UK
IAS
Fixed Assets
Non-current Assets
Stock
Inventory
Trade Debtors
Trade Receivables
Prepayments
Other Receivables
Trade Creditors
Trade Payables
Accruals
Other Payables
Trading Profit and Loss Account
Income Statement
Sales
Revenue
Balance Sheet
Statement Of Financial Position
Provision for Doubtful Debts
Allowance For Doubtful Debts
Net Book Value
Carrying Amount
Creditors amounts falling due within 1 year
Current Liabilities
Creditors amounts falling due after more than 1 year
Non-current Liabilities
Long term Debenture
Loan Note
1.2 Format of the Income Statement and the Statement

of Financial Position
Whilst there are no compulsory requirements for the presentation of the accounts of sole traders, it is
recommended that candidates become familiar with preparing accounts in the IAS format.
1.2.1 Format of Financial Statements for a sole trader

Peter Piper
Income Statement for the year ended
31 March 20x0
$
Revenue
18,300
Cost of goods sold

Opening inventory
2,200
Add Purchases
13,100
Less Closing inventory
Peter Piper
Statement of Financial Position at
31 March 20x0
Plant and equipment
4,560
Motor vehicles
2,500
7,060
15,300
Current Assets
(2,100) 13,200
Inventories
Gross profit
5,100
Less Expenses:
4,200
Other receivables
150
1,000
Cash
Rent and rates
1,500
Total Assets
Light and heat
1,300
Sundry expenses
Profit for the year
70
6,520
13,580
Capital
50
200
2,100
Trade receivables
Motor expenses
Loan interest
Non-cuurent Assets
(4,050)
1,050
Opening balance
4,150
Add Profit for the year
1,050
5,200
( 400 )
Less Drawings
4,800
Bank loan
5,000
Current Liabilities
Trade payables
2,400
Other payables
400
Bank overdraft
980
Total equity and liabilities
3,780
13,580
1.3 Treatment of Discount

Discount allowed should be deducted from revenue,
Discount received should be deducted from purchases.
1.4 Summary
The impact of international accounting standards at this level is mainly presentational. Candidates
preparing accounts under recognisable formats will not be penalised as IAS does not apply to sole traders.
However, candidates wishing to progress to higher levels would be encouraged to use these formats.
2. Second Level
2.1 Preface
Practices and principles raised at the First Level will be relevant at the Second Level, reflecting the
cumulative requirements of the LCCI syllabuses.
2.2 Partnerships

2.2.1 Terminology
UK
IAS
Trading, Profit and Loss and Appropriation Account
Income Statement and Appropriation Account
Balance Sheet
Statement of Financial Position
2.2.2 Format of Financial Statements for a partnership

Peter and Pope
Income Statement and Appropriation
Account for the year ended
31 March 20x0
$
Peter and Pope

31 March 20x0
$
Revenue
18,300
Non-cuurent Assets
Cost of goods sold
Plant and equipment
4,560
Opening inventory
2,200
Motor vehicles
2,500
Add Purchases
13,100
7,060
15,300
Current Assets
(2,100) 13,200
Inventories
Gross profit
5,100
Less Expenses:
Trade receivables
4,200
Other receivables
150
Motor expenses
1,000
Cash
Rent and rates
1,500
Total Assets
Light and heat
1,300
Loan interest
Sundry expenses
Profit for the year
70
6,520
13,580
Capital Accounts
50
200
2,100
(4,050)
Peter
1,550
1,050
Pope
1,550
3,100
Interest on Drawing
Peter
100
Pope
50
150
1,200
( 500 )
Salary-Pope
Current Accounts
Peter
1,000
Pope
700
4,800
Interest on capital
Peter
100
Pope
100
( 200 )
500
Share of Profits
1,700
Bank loan
5,000
Current Liabilities
Peter (1/2 x 500)
250
Pope (1/2 x 500)
250
( 500 )
Trade payables
2,400
Other payables
400
Bank overdraft
980
3,780
13,580
2.3 Limited liability companies

The accounts of limited liability companies are affected much more substantially, and candidates
preparing for examinations under IAS will be expected to comply with the basic layouts to be given in
sections 2.3.2 and 2.6.
UK GAAP
IAS equivalent
Limited Company (Ltd)
Private Company
Public Limited Company
Public Company
Preference share Capital
Preferred share capital
Ordinary shares
Equity shares
Profit & loss/Accumulated profits
Retained earnings
2.3.1 Terminology
2.3.2 Treatment of prefered share capital
UK GAAP
IAS equivalent
Redeemable preferred share capital
Shown in Non Current liability
Irredeemable preferred share capital
Shown in Shareholders equity
2.3.2 Format of Financial Statements for companies

Hill Traders
31 March 20x0
Hill Traders
Income Statement for the year ended
31 March 20x0
$
Revenue
18,300
Non-current Assets
Cost of goods sold
Plant and equipment
17,600
Opening inventory
2,200
Motor vehicles
2,500
Add Purchases
13,100
20,100
15,300
Current Assets
(2,100) 13,200
Inventories
Gross profit
5,100
Less Expenses:
Trade receivables
4,200
Other receivables
150
Motor expenses
1,000
Cash
Rent and rates
1,500
Total Assets
Light and heat
1,300
Loan interest
Less: Sundry expenses
Profit for the year
Equity and Liabilities
50
200
(4,050)
1,050
2,100
70
6,520
26,620
Capital and reserves

Ordinary share capital
10,000
Share premium
5,000
Retained earnings
4,000
Equity
19,000
Bank loan
3,000
Current Liabilities
Trade payables
2,400
Other payables
400
Bank overdraft
1,820
4,620
26,620
2.3.3 Presentation of Dividends
Dividends paid by limited companies are no longer reported in the Income Statement. They are included
in the Statement of Changes in Equity, as shown in 2.5. Only dividends paid before the yearend are
included.
2.3.4 Statement of Changes in Equity
The Statement of Changes in Equity reports information about the increase/decrease in net assets or
wealth of equity shareholders. The items that are likely to appear in the Statement of Changes in Equity at
this level are:
Profit for the year
Additional shares issued during the year
Dividends paid during the year
Transfers between reserves (for example , transfer from retained earnings to general reserve)

2.3.5 Format of the Statement of Changes in Equity of

companies
Trotters
Statement of Changes in Equity
For the year ended 31 March 20x0
10
Balance at 1 April
Share
capital
Share
Premium
Retained
earning
General
reserve
Total
equity
$000
$000
$000
$000
$000
1,000
200
500
100
1,800
Changes in Equity for 20x0

Issue of share capital
200
200
(200)
Transfers
Profit for the period
Dividends
Balance at 31 March
1,200
200
200
600
600
(300)
(300)
600
300
2,300
2.4 Manufacturing accounts

The layout of manufacturing accounts will be unchanged, however, although the terminology will be
consistent with IAS, and for example stock will be referred to as inventory.
2.5 Non-trading organisations

The layout of the accounts of non-trading organisations will remain unchanged, although the terminology
will be consistent with IAS.
However, the Statement of Financial Position will be laid out similarly to Hill Traders, in the Statement of
Financial Position shown in 2.3.2. The Accumulated Fund will be shown above Non Current Liabilities.
2.6 Statement of Comprehensive Income

The Statement of Comprehensive Income will be examined at Level 4.
2.7 Summary
Changes at this level are mainly presentational and specific formats only apply to company accounts.
However, once again, candidates wishing to progress to higher levels would be encouraged to become
used to the formats.
11
3. Third Level
3.1 Preface
Practices and principles raised at the First and Second Levels will be relevant at the Third Level, reflecting
the cumulative requirements of the LCCI syllabi.
3.2 Terminology
UK
IAS
Minority interest
Non-controlling interest
3.3 Accounting treatment of goodwill

There are two methods of calculating goodwill, the partial and full methods. The partial method is the
method that is currently examined in the syllabus and is therefore currently the only method that is
examined.

12
3.3.1 Accounting treatment of positive goodwill
Goodwill arising from the acquisition of a subsidiary is not amortised. After the initial measurement and
recognition, the group is expected to measure the goodwill at cost less any accumulated impairment
losses since acquisition. The goodwill impairment loss should be charged to the Income Statement.
3.3.2 Accounting treatment of negative goodwill
Negative goodwill should be credited to the Income Statement. It does not appear in the Consolidated
Statement of Financial Position.
3.4 Format of the Consolidated Income Statement and

Consolidated Statement of Financial Position
Peter Pope Group
Consolidated Statement of Financial Position
at 31 March 20x0
Peter Pope Group

Consolidated Income Statement
for the year ended 31 March 20x0
$
Revenue
18,300
Non-cuurent Assets
Cost of sales
13,200
Goodwill
5,000
Plant and equipment
17,600
Motor vehicles
2,500
Gross profit
5,100
Less: Distibution costs
1,200
Less: Administrative expense
1,000
(2,200 )
2,900
Other operating income

Profit from operations
Interest payable
Profit for the year
1,100
4,000
500
3,500
25,100
Current Assets
Inventories
2,100
Trade receivables
4,200
Other receivables
150
Cash
70
Total Assets
Profit attributable to:
Owners of the Parent
6,520
31,620
$
3,200
300
3,500
Equity and Liabilities

Capital and reserves
Ordinary share capital
$
10,000
Share premium
5,000
Retained earnings
2,000
17,000
Non-controlling Interest
1,000
Equity
18,000
Redeemable preferred share
capital
Bank loan
5,100
5,000
10,100
Current Liabilities
Trade payables
1,400
Other payables
400
Bank overdraft
1,720
3,520
31,620
13
3.5 Cash Flows (IAS 7)

3.5.1 Format of the Statement of Cash Flow
IAS 7 requires reporting of cash flows to be shown under three headings. These are Operating activities;
investing activities and Financing activities.
Whellars
Statement of Cash flows for the year ended 31 March 20x1
$
Cash flows from operating activities

Profit for the year
7,600
Adjustments for:
Depreciation of non-current assets
120
Interest expense
10
Investment income
Operating profit before working capital changes
Decrease in trade receivables
7,718
4,210
Increase in inventories
( 1,100 )
Decrease in trade payables
( 1,800 ) 1,310
cash generated from operations
9,028
Interest paid
14
12
Net cash flow from operating activities
80
8,948
Cash flows form investing activities

Cash paid for non-current assets
Cash received from the sale of non-current assets
(4,000 )
1,400
Interest received
300
Dividends received
200
(2,100 )
Net cash used in investing activities

Cash flows from financing activities
Proceeds from issue of shares
100
Proceeds from long term borrowing
200
Dividends paid
Net cash used in financing activities
( 400 )
( 100 )
Net increase in cash and cash equivalents
6,748
Cash and cash equivalents at 1 April 20x0
1,200
Cash and cash equivalents at 31 March 20x1
7,948
The example is designed to show the possibilities likely in an LCCI examination and contains more figures
than a typical question. However, as in previous sittings, examiners may ask for separate calculations of
the cash flow from operating activities, cash flow from investing activities and cash flow from financing
activities.
3.6 Relevant international accounting standards

3.6.1 IAS 2 (Inventories)
Inventories are valued at the lower of cost and net realisable value. Costs include purchase cost,
conversion costs and other costs incurred in bringing the inventory to its present location and condition.
No different from the UK standards.
3.6.2 IAS 7 (Statement of Cash Flows)
Cash flows are reported under three main headings: operating activities, investing activities and financing
activities
3.6.3 IAS 16 (Non-current Assets)
Tangible non-current assets are assets that have a physical substance and are held for use in the
production or supply of goods or services, for rental to others or for administrative purposes and
are expected to be utilised in more than one reporting year. A tangible non-current asset should be
depreciated over its useful economic life. No different from the UK standards.
3.6.4 IAS 27 (Consolidated Financial Statements)
Consolidated financial statements are financial statements of a group (parent and subsidiary) presented
as those of a single entity. Non-controlling interests are reported in equity in the Consolidated Statement
of Financial Position. This standard will be superseded by IFRS 10 from 2013.
3.6.5 IFRS 3 (Business Combinations)
Goodwill arising from consolidation is measured as the difference between the cost (fair value of
the purchase consideration) of an acquired entity and the aggregate of the fair values of the entitys
identifiable assets and liabilities. No different to the UK standards.
3.7 Summary
Changes at this level are once again mainly presentational, most notably with regards to the Statement of
Cash Flow.
15
4. Fourth Level
4.1 Preface
The issues raised in the First, Second and Third Levels will be relevant at the Fourth Level, reflecting as
such, the cumulative requirements of LCCI syllabi.
4.2 Components of financial statements

IAS 1, states that a complete set of financial statements should include the following:
A Statement of Financial Position at the end of the reporting period.
A Statement of Comprehensive Income for the period.
A Statement of Changes in Equity for the period
A Statement of Cash Flows for the period.
Notes to the accounts, which include accounting policies and relevant explanatory notes.
4.3 Format of the Statement of Financial Position

IAS 1 does not prescribe a format of the statement of financial position. However, it stipulates the
minimum information that has to be disclosed on the face of the statement of financial position.
16
This information is:

Cash and cash equivalents
Intangible assets
Inventories
Issued capital and reserves attributable to the owners of the firm
Non-controlling interest (minority interest) presented within equity
Payables (trade and other)
Provisions
Property, plant and equipment
Receivables (trade and other)
4.4 Statement of Comprehensive Income

Comprehensive Income for a period includes profit or loss for that period and Other Comprehensive
Income recognised during the period. The only item reported under Other Comprehensive Income that
is examinable at this level is a gain/loss on the revaluation of a non-current asset during the reporting
period.

4.4.1 Minimum Information required on the Statement of

Comprehensive Income
The minimum information on the face of the statement of comprehensive Income required by IAS 1
includes:
Revenue
Finance costs
Profit or loss for the period
Each component of other comprehensive income classified by nature
Total comprehensive income
Profit or loss attributable to non-controlling
Profit or loss attributable to equity holders of the parent company
Total comprehensive income attributable to non-controlling interests
Total comprehensive income attributable to the parent company
4.5 Statement of Changes in equity

The Statement of Changes in Equity reflects information about the increase or decrease in net assets or
wealth of equity shareholders. The minimum information on the face of the statement of changes in equity
includes:
Profit or loss for the period
Each item of other comprehensive income
Additional shares issued during the period
Dividends paid during the year
Purchase of shares during the period
Effects of changes in accounting policy
Effects of correction of errors
17
4.6 Financial statements

4.6.1 Statement of
classifying expenses by
function
Hayes Metals
Statement of Comprehensive Income
$
Revenue
18,300
Cost of sales
13,200
Gross Profit
5,100
Less: Distribution costs
1,200
1,000
(2,200 )
2,900
1,000
3,900
Finance costs
( 200 )
Profit for the year
3,700
Other comprehensive income
18
4.6.2 Statement of
classifying expenses by
nature
Gains on revaluation of property
1,000
4,700
Hayes Metals
Statement of Comprehensive Income
$
Revenue
$
18,300
Change in inventories of finished

goods and WIP
1,000
Own work capitalised
1,500
1,000
3,500
21,800
Raw materials and consumables
3,000
Staff costs
5,000
Depreciation and amortisation
6,900
Other operating expenses
3,000

Finance costs
Profit for the year
(17,900 )
3,900
( 200 )
3,700

1,000
4,700
4.6.3 Consolidated Statement of Comprehensive Income

Hayes Metals
Consolidated Statement of
$
Revenue
18,300
Cost of sales
13,200
Gross Profit
5,100
Less: Distribution costs
1,200
1,000
(2,200 )
2,900

Interest payable
Profit for the year
1,100
4,000
( 600 )
3,400

200
3,600
Profit attributale to:

3,100
300
3,400

attributable to:
3,250
350
3,600
Questions at this level would not combine group accounts with the presentation of accounts in
accordance with IAS 1, although candidates would be expected to prepare their answers in a clear and
well-presented way.
19
4.7 Relevant international accounting standards

4.8.1 IAS 8 - Accounting policies
Accounting policies
Accounting policies are specific principles, bases, conventions and practices used by an entity in preparing
and presenting its financial statements. They explain the way a firm treats items within its financial
statements.
Changes in accounting policies
Accounting policies should only be changed where a new accounting standard requires such a change or
where the new policy will result in more relevant and reliable information being presented.
Changes in accounting estimates
An example of a change in accounting estimate is a change in the percentage used to estimate allowance
for doubtful debts. The effect of the change is recognised in the income statement for the year in which
the change takes place. Another example of a change in accounting estimate is a change in the useful
economic life of an asset.
Prior period errors
A prior period error is where an error has occurred even though reliable information was available when
those financial statements were authorised for issue. Examples are mathematical errors, mistakes in
applying accounting policies, misinterpretation of facts and fraud.

20
4.7.2 IAS 10 - Events after the reporting period
IAS 10 with events that occur between the year-end date and the date the financial statements are
authorised for issue by the directors. The events that occur are either adjusting events or non-adjusting
events. Adjusting events are those that provide evidence about conditions that existed at the end of
the reporting date. Non-adjusting events are those that are indicative of conditions that arose after the
reporting date.
4.7.3 IAS 11 Construction contracts
There are minor differences between IAS 11 and SSAP 9, but they will not affect examination questions set
at this level.

4.7.4 IAS 16 Accounting for property, plant and

equipment
IAS 16 deals with the recognition of non-current assets, initial measurement, subsequent measurement
and depreciation. There are no major differences between IAS 16 and FRS 15, the equivalent UK standard.
4.7.5 IAS 20 - Government grants
Grants must not be recognised until conditions have been complied with and there is reasonable
certainty that the grant will be received (prudence). Government grants received must be matched with
expenditure for which the grant is intended (accruals). This standard is not materially different from the
equivalent UK standard.
4.7.6 IAS 37 - Provisions, contingent liabilities and assets
A liability is an obligation of an entity to transfer economic benefits as a result of past transactions or

events. A provision is a liability of uncertain timing or amount. A provision should be recognised when:
A firm has a present obligation as a result of a past event. The obligation may be legal or constructive
It is probable that an outflow of resources will be required to settle the obligation
A reliable estimate can be made of the amount
If a firm through its future actions can avoid an obligation, a provision cannot be set up
Contingent liability
If one or more of the conditions required for a provision is not met a contingent liability may exist. A
contingent liability should be disclosed unless the possible outflow to meet the obligation is remote. If
outflow of resources is remote do not disclose in the accounts.
Contingent assets
A contingent asset is a possible asset that arises from past events and whose existence will be confirmed
only by the occurrence of one or more uncertain future events not wholly within the entitys control. A
contingent asset should be disclosed when the expected inflow of economic resources is probable.
4.7.7 IAS 38 Intangible assets
Intangible non-current assets are identifiable non-monetary assets that do not have a physical substance.
IAS 38 deals with all intangible non-current assets, including development expenditure. Under SSAP 13
development expenditure may be capitalised after certain conditions have been satisfied. However, under
IAS 38, development expenditure must be capitalised after certain conditions have been satisfied.
21
Tel. +44 (0) 2476 518951

Email. [email protected]
www.lcci.org.uk

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internationalenquiries@ediplc.

International Accounting Standards

International Accounting Standards (IAS) Guidance: Terminology and Presentation

1.3 Treatment of discount

2.3 Limited liability companies

2.4 Manufacturing Accounts

2.5 Non-trading organisations

3.5 Cash flows

3.6 IAS standards

Format of the Statement of

4.6 Financial statements

4.7 IAS Standards

International Accounting Standards (IAS) Guidance: Terminology and Presentation

International Accounting Standards (IAS) Guidance: Terminology and Presentation

Trading Profit and Loss Account

Statement Of Financial Position

Provision for Doubtful Debts

Allowance For Doubtful Debts

Net Book Value

Creditors amounts falling due within 1 year

Creditors amounts falling due after more than 1 year

Long term Debenture

1.2 Format of the Income Statement and the Statement

International Accounting Standards (IAS) Guidance: Terminology and Presentation

1.2.1 Format of Financial Statements for a sole trader

Cost of goods sold

Less Closing inventory

Plant and equipment

Rent and rates

Light and heat

Add Profit for the year

Total equity and liabilities

1.3 Treatment of Discount

International Accounting Standards (IAS) Guidance: Terminology and Presentation

Trading, Profit and Loss and Appropriation Account

Income Statement and Appropriation Account

Statement of Financial Position

International Accounting Standards (IAS) Guidance: Terminology and Presentation

2.2.2 Format of Financial Statements for a partnership

Peter and Pope

Cost of goods sold

Plant and equipment

Less Closing inventory

Rent and rates

Light and heat

Peter (1/2 x 500)

Pope (1/2 x 500)

Total equity and liabilities

International Accounting Standards (IAS) Guidance: Terminology and Presentation

2.3 Limited liability companies

Limited Company (Ltd)

Public Limited Company

Preference share Capital

Preferred share capital

Profit & loss/Accumulated profits

2.3.2 Treatment of prefered share capital

Redeemable preferred share capital

Shown in Non Current liability

Irredeemable preferred share capital