FINANCIAL REPORTING

BBAF 308
INTERNATIONAL FINANCIAL REPORTING
STANDARDS
(IAS 1 & IAS 2)
 IAS 1:
Presentation of Financial Statements
IAS 1: Presentation of Financial Statements
o Objective and scope
o General purpose financial statements (covered already)
o Accounting concepts (covered already)
o Elements of financial statements (covered already)
o Measurement of the Elements of financial statements
Accounting concepts (covered already)
o Components of financial statements
o Disclosures
 Objective of IAS 1
The purpose of IAS 1 is to provides guidelines on the presentation of
the “general purpose financial statements,”.

To ensure comparability with the entity’s financial statements of

previous periods and with those of other entities.

It provides overall requirements for the presentation of financial

statements.

It provides guidance on their structure, and the minimum

requirements for their content.
 Scope of the IAS 1
 The requirements of IAS 1 are to be applied to all “general purpose
financial statements” that have been prepared and presented in
accordance with International Financial Reporting Standards (IFRS).

 “General purpose financial statements” are those intended to meet the

needs of users who are not in a position to demand reports that are
tailored according to their information needs.

 IAS 1 is not applicable to condensed interim financial statements

prepared according to IAS 34
 Components of Financial Statements
Financial statements should contain following:

A statement of financial position at the end of the period.

A statement of profit or loss and other comprehensive Income for the

period.

A statement of changes in equity for the period

A statement of Cash flow.

Notes, comprising of summary of accounting policies and other

relevant explanatory notes to the financial statements.
 COMPONENTS OF FINANCIAL STATEMENTS
Statement Assets, Equity and
of financial Liabilities
position

Statement
of profit or Income and Expenses
Loss

Components Statement All changes in equity or changes

of Financial of Changes other than those with equity
Statements in Equity holders

Cash Flow
Cash inflows & outflows
Statement from operating, financing,
and investing activities

Notes Significant accounting

policies & explanatory notes
6
 Reporting Period
• The basic assumption is that the financial statement
should be prepared annually (i.e., 12 months).

• Any financial statements prepared that depart from the

annual reporting period should be disclosed by reason for
this change and a warning associated with comparability.
 Statement of Financial Position
• Noncurrent and current assets and liabilities should be classified separately on the
face of the balance sheet except in circumstances when a liquidity-based
presentation provides more reliable and relevant information (an example is
reporting for financial institutions)

• Current assets. A current asset is one that is likely to be realized within the normal
operating cycle or 12 months after balance sheet date, held for trading purposes,
or is cash or cash equivalent. All other assets are noncurrent.

• Current liabilities. A current liability is one that is likely to be settled within the
normal operating cycle or 12 months after Statement of Financial Position date,
held for trading purposes, or there is no unconditional right to defer settlement for
at least 12 months after Statement of Financial Position date. All other liabilities
are noncurrent.
Statement of Financial Position
The minimum line items to be included on the face of SFP are:
o Property, plant, and equipment
o Investment property
o Intangible assets
o Financial assets
o Inventories
o Trade and other receivables
o Cash and cash equivalents
o Trade and other payables
o Provisions
o Liabilities and assets for current tax
o Deferred tax etc.
o Issued capital and
o Reserves
 Statement of Financial Position
Statement of Financial Position as at 31st December 2018
ASSETS
Non-Current Assets: GH¢'000
Property, Plant and Equipment 41,655
Investment Property 9,000
Intangible Assets 700
51,355
Current Assets:
Inventories 3,150
Trade Receivables 8,200
Total Assets 62,705
Statement of Financial Position Cont’d
EQUITY AND LIABILITIES
Equity:
Stated Capital 15,750
Retained Earnings 10,480
Revaluation Surplus 15,560
General /Statutory/Contingency Reserve 1,500
43,290
Non-Current
Liability:
10% Loan Note 2,500
10% Preference shares (redeemable) 3,000
Deferred taxation 2,300
Statement of Financial Position Cont’d
Current Liabilities:
Trade payables 3,400
Loan interest accrued 305
Bank overdraft 910
Income tax accrued 7,000
Total Equity and Liabilities 62,705
Statement of Profit or Loss and other
Comprehensive Incomehensive
Statement of Profit orIncome
Loss and other Comprehensive
Income for the year ended 31 December 2018
st

GH¢’000
Revenue 68,865
Cost of sales (35,500)
Gross profit 33,365
Administrative expenses (10,695)
Selling, Marketing & Distribution costs (5,600)
Operating profit 17,070
Other incomes-(rental/investment income/Gain IAS 40) 1,360
Statement of Profit or Loss and other
Comprehensive Income Cont’d
Profit before Interest and Tax 18,430
Finance Cost (500)
Profit before Tax 17,930
Income tax expense (7,000)
Profit after Tax 10,930
Other Comprehensive Income:
Revaluation gain (IAS 16) 14,760
Total Comprehensive Income 25,690
 Statement of Changes in Equity
Statement of Changes in Equity for the year ended 31st December 2018
Stated Retained Revaluation General Total
Capital Earnings Surplus Reserve
GH¢’000 GH¢’000 GH¢’000 GH¢’000 GH¢’000
Balance as at 1/1/2017 14,500 3,200 800 1,500 20,000
Profit for the year 10,930 10,930
Revaluation gain on PPE 14,760 14,760
Bonus issue of shares (500000/4*10) 1,250 (1,250) 0
Dividends ______ (2,400) ______ _____ (2,400)
15,750 10,480 15,560 1,500 43,290
 Statement of Cashflow

 The statement of cash flow serves as a basis for evaluating the entity’s ability
to generate cash and cash equivalents and the needs to utilize these cash
flows.

 Requirements of statement of cash flow presentation have been elaborated in

IAS 7, Statements of Cash Flow.

 This financial statement will be covered in week 10

Notes to the financial statements
IAS 1 suggested that note should be presented in the following order:
o A statement of compliance with IFRSs.
o A summary of significant accounting policies applied
including.
o The measurement basis (or bases) used in preparing the
financial statements.
o The other accounting policies used.
INVENTORIES: IAS 2
 IAS 2 - OVERVIEW
Objective and scope
Expense recognition
Measurement
Disclosure
 IAS 2 –Objective and Scope
• The Standard prescribes the accounting treatment for inventories.
.

• It provides guidance on the determination of the cost and

subsequent recognition of expense to be written down of
inventory (i.e., Net realizable value).

• The Standard also provides guidance on the cost flow

assumptions (“cost formulas”) that are to be used in assigning
costs to inventories.

• It is used to determine the costs to be recognized as inventory costs and

the cost to be transferred to the statement of profit or loss as expense
 IAS 2 – Objective and Scope

IAS 2 applies to inventories excepts:

• construction work-in-progress (i.e., NOW IFRS 15).
• Financial instruments (i.e., IAS 32).
• Biological assets related to agricultural produce at
the point of harvest (i.e., IAS 41).
 Definition of Inventories
Inventories are assets:
o Held for sale in the ordinary course of business (usually
within the 12 months of the entity)
o In the process of production for such sale (W.I.P), or
o In the form of materials or supplies to be consumed in
the production process or in the rendering of services
(e.g., raw materials )
 IAS 2 - Measurement
There are three stages involved in valuing
inventory.
1. Inventory should be valued at cost or
production cost.
2. Determine the Net realisable value of the
inventory.
3. Using the standard measurement such as:
the lower than cost/ production cost.
Determination of Net Realizable Value (NRV)
• NRV is the estimated selling price in the ordinary
course of business less Trade discount or rebate, the
estimated costs of completion and the estimated costs
necessary to make the sale such as (Marketing,
selling and distribution expenses)
 Determination of Cost
Cost includes:
o cost of purchase (exclude trade discounts and rebates)
o Actual cost of conversion (include ‘normal’ production
overheads)
o Other costs incurred in bringing the inventories to their present
location and condition
Fixed production overheads must be allocated to items of inventory on the
basis of normal capacity of the production facilities
 Determination of Cost

Cost excludes:
 abnormal amounts of wasted materials,
labour or other production costs
 storage costs, unless necessary in the
production process before the next
production stage
 administrative overheads
 selling costs
 IAS 2- Measurement
Example 1- Valuing Inventory
LBC manufactures mechanical talkative recorder, which trade under the name
‘Talkative’. In the year ended 31 December 2018, 10,000 Talkatives were
manufactured and the related costs were
GH₵
Materials 3,000
Labour 4,000
Depreciation of Machinery 2,000
Factory rates 1,000
Sundry factory expenses 3,000
Selling expenses 2,000
Expenses at head office 4,000
19,000

In addition to the information above, at 31 December 2018, there were 1,000 Talkatives
in inventory.
Requirement
Assuming that these have a resale value of GH₵4 and a Net Realisable Value of
GH₵1.20 each, what value should be placed on the closing inventory?
 IAS 2- Measurement
Example 1- Valuing Inventory
Solution
GH₵
Materials 3,000
Labour 4,000
Depreciation of machinery 2,000
Factory rates 1,000
Sundry factory expenses 3,000
Total cost 13,000

Units manufactured 10,000

Unit cost GH₵1.30

Number of units on hand at year end 1,000

Value of closing inventory (1,000 x GH₵1.2) GH₵1,200
 IAS 2- Measurement
Example 2- Valuing Inventory
Finished Goods of dissimilar items at 31 December 2018:
Item Cost NRV Value
GH₵ GH₵ GH₵
Samsung 1,000 1,400
Nokia 800 700
Sony 2,500 2,800
Ericson 1,800 1,700
infinix 200 300
Dumsor 300 250
6,600 7,150

What figure should be recorded for the inventories in the financial

statements at 31 December , 2017?
 IAS 2- Measurement
Example 2- Valuing Inventory
Solution:
Finished Goods of dissimilar items at 31 December 2018:
Item Cost NRV Value
GH₵ GH₵ GH₵

Samsung 1,000 1,400 1,000

Nokia 800 700 700
Sony 2,500 2,800 2,500
Ericson 1,800 1,700 1,700
infinix 200 300 200
Dumsor 300 250 250
6,600 7,150 6,350
 IAS 2 – Measurement
Example 3-Valuing inventory
Finished Goods of dissimilar items at 31 December 2018:
Esinam Ltd has the following products in inventory at the end of 2018:
Units Cost per unit GH¢
Ahomka (completed) 5,400 22
Adonko (part complete) 2,800 26
Each product normally sells at GH¢34 per unit. Due to the difficult trading
conditions, Esinam Ltd intends to offer a discount of 15% per unit and expects to
incur GH¢4 per unit in selling costs. GH¢10 per unit is expected to be incurred to
complete each unit of Adonko.
Required:In accordance with IAS 2 Inventories, at what amount should inventory
be stated in the financial statements of Esinam Ltd as at 31 December 2018?
(3 marks)Source: ICA, NOV., 2017
 IAS 2 – Measurement
Example 3-Valuing inventory

Quantity Cost NRV Total GH¢

Ahomka 5,400 22 34*0.85=28.9-4=24.9 118,800
Adonko 2,800 26 34*0.85=28.9-4-10=14.9 41,720
160,520
 Cost Formulae
Methods of valuing inventory issues are:
 First In First Out (FIFO)
 Last In First Out (LIFO)
 Weighted Average
LIFO is not allowed under IAS 2
 DISCLOSURE
 Accounting policy adopted in measuring inventories,
including cost formulas
 Carrying amount of inventories under major headings
(e.g. raw materials, WIP and finished goods)
 Carrying amount of inventories at fair value less costs to
sell
 Amount expended in the period
 Amount of any write downs of inventories
 Amount of any reversal of write downs
 Cause of write downs
 Carrying amount of inventories pledged as security
 ASSIGNMENT 1- IAS 2: INVENTORIES
QUESTION 1
LBC manufactures mechanical talkative recorder, which trade under the name ‘Talkative’.
In the year ended 31st December 2017, 10,000 Talkatives were manufactured and the
related costs were:

In addition to the information above, at 31st December 2017, there were 2,000 Talkatives in
inventory.
Required:
Assuming that these have a resale value of GH¢5 and a Net Realisable Value of GH¢1.15
each, what value should be placed on the closing inventory?
 ASSIGNMENT 1- IAS 2: INVENTORIES
QUESTION 2
a) State how closing inventory is to be measured according to IAS 2.
b) Using the following information calculate;
(i) The value of closing inventory for each of the Phones (Nokia, Sumsung and Motorola).
(ii) The total value of all the closing inventories (Nokia, Sumsung and Motorola).
Azonto trades in different types of phones on wholesale basis. The following data was
extracted at the end of the year 31st December, 2016.

Nokia Sumsung Motorola

Cost per unit GH¢8 GH¢10 GH¢19
Net realisable value per unit GH¢10 GH¢7.9 GH¢15.6
Selling price per unit in the market GH¢12 GH¢11 GH¢14
Units in inventory 10,000 20,000 30,000