Question

Explain how IFRS accounting standards and a firm's choice of accounting policies and accounting and actuarial estimates are used to determine the values for the following items in the comprehensive income statement a) Reported in cost of sales: the cost of indistinguishable goods such as oil and steel ingots; direct labour and other direct costs; manufacturing overheads. (b) Reported in general administrative (other) expenses: the cost of using up noncurrent assets; periodic utility expenses paid in arrears and paid in advance; items relating to defined benefit pensions (c) Reported in net finance (interest) costs: all items of income and expense. (6 marks) (d) Reported in other comprehensive income: items relating to defined benefit pension plans.

Answer 1

Answer:- International Financial Reporting Standards, usually called IFRS, are standards issued by the IFRS Foundation and the International Accounting Standard Board (IASB) to provide a common global language accounts are understandable and comparable across international boundaries.

IAS 1 Presentation of Financial Statements sets out the overall requirement for financial statement, including how they should be structured, the minimum requirements for their content and overriding concept such as going concern, the accrual basis of accounting and the current/non-current distinction. The standard requires a complete set of financial statement to comprise a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity and statement of cash flows

IAS 1 was reissued in September 2007 and applies to annual periods beginning on or after 1 January 2009.

(a). The following minimum line items must be presented in the profit or loss section (or separate statement of profit or loss, if presented): [IAS 1.82-82A]

• Revenue
• Gain and losses from the derecognition of financial assets measured at amortised cost
• Finance costs
• Share of profit or loss of associates and joint ventures accounted for using the equity method
• Certain gains or losses associated with the reclassification of financial assets
• Tax expenses
• Asingle amount for the total of discontinued items.

*Expenses recognised in profit or loss should be analysed either by nature (raw materials, staffing costs, depreciation, etc.) or by function (cost of sales, selling, administrative, etc). [IAS 1.99] if an entity categorises by function, then additional information on the nature of expenses – at a minimum depreciation, amortisation and employee benefits – must be disclosed. [IAS 1.104]

(b). An entity must normally present a classified statement of financial position, separating current and non-current assets and liabilities, unless presentation based on liquidity provides information that is reliable. [IAS 1.60] In either case, if an asset (liability) category combines amounts that will be received (settled) after 12 months with assets (liabilities) that will be received (settled) within 12 month, note disclosure is required that separates the longer-term amounts from the 12-month amounts. [IAS 1.61]

-Current assets are assets that are: [IAS 1.66]

• Expected to be realised in the entity’s normal operating cycle
• Held primarily for the purpose of trading
• Expected to be realised within 12 months after the reporting period
• Cash and cash equivalents (unless restricted).

-All other assets are non-current. [IAS 1.66]

(c). The following minimum line items must be presented in the profit or loss section (or separate section of profit or loss, if presented): [IAS 1.82-82A]

Revenue

Gains and losses from the derecognition of financial assets measured at amortised cost

Finance costs

Sjare of the profit or loss of associates and joint ventures accounted for using the equity method

Certain gains or losses associated with the reclassification of financial assets

Tax expense

Asingle amount for the total of discontinued items

Expenses recognised in the profit or loss should be analysed either by nature (raw materials, staffing costs, depreciation, etc.) or by function (cost of sales, selling, administrative, etc). [IAS 1.99] if an entity categorises by function, then additional information on the nature of expenses – at a minimum depreciation, amortisation and employee benefits expenses – must be disclosed. [IAS 1.104].

(d). Profit and loss defined as “the total of income less expenses, excluding the components of other comprehensive income”. Other comprehensive income defined as comprising “items of income and expense (including reclassification adjustments) that are not recognised in profit and loss as required or permitted by IFRSs”. Total comprehensive income is defined as the change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners”. [IAS 1.7].

THUS,

Comprehensive income for the period = profit or loss + other comprehensive income (like pension plans, etc.)

All items of income and expenses recognised in a period must be included in the profit or loss unless a standard or an interpretation requires otherwise. [IAS 1.88] Some IFRSs require or permit that some components to be excluded from profit or loss and instead to be included in other comprehensive income.