Accounting (Basics) - Lecture 2
Financial statements presentation


Contents
nOverall principles
nStatement of Financial position
nStatement of Comprehensive Income and Income Statement
nStatement of Change in Equity and Statement of Income and Retained Earnings
nStatement of Cash Flow
nNotes to Financial Statements
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Overall principles
nFair presentation – it requires the faithful representation of the effects of transactions, other
events and conditions in accordance with the definitions and recognition criteria for assets,
liabilities, income and expenses.
nCompliance with IFRS for SMEs – an entity whose financial statements comply with the IFRS for SMEs
shall make an explicit and unreserved statement of such compliance in the notes. Financial
statements shall not be described as complying with the IFRS for SMEs unless they comply with all
the requirements of these IFRS.
nGoing concern – when preparing financial statements, the management of an entity using IFRS for
SMEs shall make an assessment of the entity’s ability to continue as a going concern. An entity is
a going concern unless management either intends to liquidate the entity or to cease operations, or
has no realistic alternative but to do so.
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Overall principles
nFrequency of reporting – an entity shall present a complete set of financial statements at least
annually.
nConsistency of presentation – an entity shall retain the presentation and classification of items
in the financial statements from one period to the next unless it is apparent, following a
significant change in the nature of the entity’s operations or a review of its financial
statements, that another presentation or classification would be more appropriate having regard to
the criteria for the selection and application of accounting policies, estimates and errors.
nComparative information – an entity shall disclose comparative information in respect of the
previous comparable period for all amounts presented in the current period’s financial statements.
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Overall principles
nMateriality and aggregation – an entity shall present separately each material class of similar
items. An entity shall present separately items of a dissimilar nature or function unless they are
immaterial.
nComplete set of financial statements – a complete set of financial statements of an entity shall
include a statement of financial position, a statement of changes in equity for the reporting
period, a statement of cash flows for the reporting period, notes.
nIdentification of the financial statements – an entity shall clearly identify each of the
financial statements and the notes and distinguish them from other information in the same
document. Also an entity shall display the name of the reporting entity and any change in its name
since the end of the preceding reporting period, whether the financial statements cover the
individual entity or a group of entities, the date of the end of the reporting period and the
period covered by the financial statements, the presentation currency, the level of rounding, if
any, used in presenting amounts.
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Statement of Financial position
nStatement of financial position reports the relationship of the assets, liabilities and equity of
an entity at a specific point in time.
nAs a minimum, the statement of financial position shall include line items that present the
following amounts:
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a)cash and cash equivalents
b)trade and other receivables
c)financial assets (excluding amounts shown in (a), (b), (j), (k))
d)Inventories
e)property, plant and equipment
f)investment property carried at fair value through profit or loss
g)intangible assets
h)biological assets carried at cost less accumulated depreciation and impairment.
i)biological assets carried at fair value
j)investments in associates
k)investments in jointly controlled entities
l)trade and other payables
m)financial liabilities (excluding amounts shown in (l) and (p))
n)liabilities and assets for current tax
o)deferred tax liabilities and deferred tax assets (these shall always be classified as
non-current)
p)provisions
q)non-controlling interest, presented within equity separately from the equity attributable to the
owners of the parent
r)equity attributable to the owners of the parent

Statement of Financial position
nAn entity shall present current and non-current assets, and current and non-current liabilities,
as separate classifications in its statement of financial position, except when a presentation
based on liquidity provides information that is reliable and more relevant.
nAn entity shall classify an asset as current when:
a)it expects to realize the asset, or intends to sell or consume it, in the entity’s normal
operating cycle;
b)it holds the asset primarily for the purpose of trading;
c)it expects to realize the asset within twelve months after the reporting date; or
d)the asset is cash or a cash equivalent, unless it is restricted from being exchanged or used to
settle a liability for at least twelve months after the reporting date.
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Statement of Financial position
nAn entity shall classify all other assets as non-current. When the entity’s normal operating cycle
is not clearly identifiable, its duration is assumed to be twelve months.
nAn entity shall classify a liability as current when:
a)it expects to settle the liability in the entity’s normal operating cycle;
b)it holds the liability primarily for the purpose of trading;
c)the liability is due to be settled within twelve months after the reporting date; or
d)the entity does not have an unconditional right to defer settlement of the liability for at least
twelve months after reporting date.
nAn entity shall classify all other liabilities as non-current.
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Statement of Comprehensive Income and Income Statement
nStatement of comprehensive income and income statement report the relationship of the income and
expenses of an entity during a specific period of time.
nAn entity shall present its total comprehensive income for a period either:
a)in a single statement of comprehensive income, in which case the statement of comprehensive
income presents all items of income and expense recognized in the period, or
b)in two statements – an income statement and a statement of comprehensive income – in which case
the income statement presents all items of income and expense recognized in the period except those
that are recognized in total comprehensive income outside of profit or loss as permitted or
required by this IFRS.
nA change from the single-statement approach to the two-statement approach, or vice versa, is a
change in accounting policy.
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Statement of Comprehensive Income and Income Statement
nUnder the single-statement approach, the statement of comprehensive income shall include all items
of income and expense recognized in a period. IFRS for SMEs provides different treatment for the
following circumstances:
a)The effects of corrections of errors and changes in accounting policies are presented as
retrospective adjustments of prior periods rather than as part of profit or loss in the period in
which they arise .
b)Three types of other comprehensive income are recognized as part of total comprehensive income,
outside of profit or loss, when they arise:
i.some gains and losses arising on translating the financial statements of a foreign operation
ii.some actuarial gains and losses
iii.some changes in fair values of hedging instruments
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Statement of Comprehensive Income and Income Statement
nAs a minimum, an entity shall include in the statement of comprehensive income line items that
present the following amounts for the period:
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a)revenue
b)finance costs
c)share of the profit or loss of investments in associates and jointly controlled entities
d)tax expense excluding tax allocated to items (e), (g) and (h)
e)a single amount comprising the total of:
i.the post-tax profit or loss of a discontinued operation, and
ii.the post-tax gain or loss recognized on the measurement to fair value less costs to sell or on
the disposal of the net assets constituting the discontinued operation.
f)profit or loss
g)each item of other comprehensive income
h)share of the other comprehensive income of associates and jointly controlled entities
i)total comprehensive income

Statement of Comprehensive Income and Income Statement
nUnder the two-statement approach, the income statement shall display, as a minimum, line items
that present the amounts in above mentioned paragraph (a) - (f) for the period, with profit or loss
as the last line. The statement of comprehensive income shall begin with profit or loss as its
first line and shall display, as a minimum, line items that present the amounts in above mentioned
paragraph (g) - (i), and profit or loss for the period as well as total comprehensive income for
the period.
nRegardless to chosen approach – single-statement or two-statement approach – IFRS for SMEs
requires:
a)to present the effects of corrections of errors and changes as retrospective adjustments of prior
periods rather than as part of profit or loss in the period in which they arise.
b)to present additional line items, headings and subtotals in the statement of comprehensive
income, when such presentation is relevant for understanding of entity’s financial performance.
c)
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Statement of Comprehensive Income and Income Statement
c)not to present or describe any items of income and expense as ‘extraordinary items’ in the
statement of comprehensive income or in the notes.
d)to present an analysis of expenses using a classification based on either the nature of expenses
or the function of expenses within the entity:
i.by nature of expense - expenses are aggregated in the statement of comprehensive income according
to their nature, e.g. depreciation, purchases of materials, transport costs
ii.by function of expense – expenses are aggregated according to their function as part of cost of
sales or, for example, the costs of distribution or administrative activities. At a minimum, an
entity discloses its cost of sales under this method separately from other expenses.
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Statement of Change in Equity and Statement of Income and Retained Earnings
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nThe statement of changes in equity presents an entity’s profit or loss for a reporting period,
items of income and expense recognized in other comprehensive income for the period, the effects of
changes in accounting policies and corrections of errors recognized in the period, and the amounts
of investments by, and dividends and other distributions to, equity investors during the period.
nAn entity shall present a statement of changes in equity showing in the statement:
a)total comprehensive income for the period, showing separately the total amounts attributable to
owners of the parent and to non-controlling interests.
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Statement of Change in Equity and Statement of Income and Retained Earnings
b)
b)
b)for each component of equity – the effects of retrospective application or retrospective
restatement recognized.
c)for each component of equity – a reconciliation between the carrying amount at the beginning and
the end of the period, separately disclosing changes resulting from:
i.profit or loss.
ii.each item of other comprehensive income.
iii.the amounts of investments by, and dividends and other distributions to, owners, showing
separately issues of shares, treasury share transactions, dividends and other distributions to
owners, and changes in ownership interests in subsidiaries that do not result in a loss of control.
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Statement of Change in Equity and Statement of Income and Retained Earnings
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nThe statement of income and retained earnings presents an entity’s profit or loss and changes in
retained earnings for a reporting period. IFRS for SMEs permits an entity to present a statement of
income and retained earnings in place of a statement of comprehensive income and a statement of
changes in equity if the only changes to its equity during the periods for which financial
statements are presented arise from profit or loss, payment of dividends, corrections of prior
period errors, and changes in accounting policy.
nAn entity shall present, in the statement of income and retained earnings, the following items in
addition to the information required by statement of comprehensive income and income statement:
a)retained earnings at the beginning of the reporting period.
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Statement of Change in Equity and Statement of Income and Retained Earnings
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b)dividends declared and paid or payable during the period.
c)restatements of retained earnings for corrections of prior period errors.
d)restatements of retained earnings for changes in accounting policy.
e)retained earnings at the end of the reporting period.
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Statement of Cash Flow
nCash equivalents are short-term, highly liquid investments held to meet short-term cash
commitments rather than for investment or other purposes. Therefore, an investment normally
qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from
the date of acquisition. Bank overdrafts are normally considered financing activities similar to
borrowings. However, if they are repayable on demand and form an integral part of an entity’s cash
management, bank overdrafts are a component of cash and cash equivalents.
nAn entity shall present a statement of cash flows that presents cash flows for a reporting period
classified by operating activities, investing activities and financing activities.
nOperating activities are the principal revenue-producing activities of the entity. Therefore, cash
flows from operating activities generally result from the transactions and other events and
conditions that enter into the determination of profit or loss.
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Statement of Cash Flow
nExamples of cash flows from operating activities are:
a)cash receipts from the sale of goods and the rendering of services.
b)cash receipts from royalties, fees, commissions and other revenue.
c)cash payments to suppliers for goods and services.
d)cash payments to and on behalf of employees.
e)cash payments or refunds of income tax, unless they can be specifically identified with financing
and investing activities.
f)cash receipts and payments from investments, loans and other contracts held for dealing or
trading purposes, which are similar to inventory acquired specifically for resale.
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Statement of Cash Flow
nInvesting activities are the acquisition and disposal of long-term assets and other investments
not included in cash equivalents. Examples of cash flows arising from investing activities are:
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a)cash payments to acquire property, plant and equipment, intangible assets and other long-term
assets.
b)cash receipts from sales of property, plant and equipment, intangibles and other long-term
assets.
c)cash payments to acquire equity or debt instruments of other entities and interests in joint
ventures.
d)cash receipts from sales of equity or debt instruments of other entities and interests in joint
ventures.
e)cash advances and loans made to other parties.
f)cash receipts from the repayment of advances and loans made to other parties.
g)cash payments for futures contracts, forward contracts, option contracts and swap contracts,
except when the contracts are held for dealing or trading, or the payments are classified as
financing activities.
h)cash receipts from futures contracts, forward contracts, option contracts and swap contracts,
except when the contracts are held for dealing or trading, or the receipts are classified as
financing activities.

Statement of Cash Flow
nFinancing activities are activities that result in changes in the size and composition of the
contributed equity and borrowings of an entity. Examples of cash flows arising from financing
activities are:
a)cash proceeds from issuing shares or other equity instruments.
b)cash payments to owners to acquire or redeem the entity’s shares.
c)cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other short-term or
long-term borrowings.
d)cash repayments of amounts borrowed. cash payments by a lessee for the reduction of the
outstanding liability relating to a finance lease.
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Statement of Cash Flow
nAn entity shall present cash flows from operating activities using either:
a)indirect method, whereby the net cash flow from operating activities is determined by adjusting
profit or loss for the effects of:
i.changes during the period in inventories and operating receivables and payables;
ii.non-cash items such as depreciation, provisions, deferred tax, accrued income (expenses) not yet
received (paid) in cash, unrealized foreign currency gains and losses, undistributed profits of
associates, and non-controlling interests; and
iii.all other items for which the cash effects relate to investing or financing.
nor
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Statement of Cash Flow
b)the direct method, whereby net cash flow from operating activities is presented by disclosing
information about major classes of gross cash receipts and gross cash payments. Such information
may be obtained either:
i.from the accounting records of the entity; or
ii.by adjusting sales, cost of sales and other items in the statement of comprehensive income (or
the income statement, if presented) for:
•changes during the period in inventories and operating receivables and payables;
•other non-cash items; and
•other items for which the cash effects are investing or financing cash flows.
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Statement of Cash Flow
nAn entity shall present separately major classes of gross cash receipts and gross cash payments
arising from investing and financing activities.
nAn entity shall record cash flows arising from transactions in a foreign currency in the entity’s
functional currency by applying to the foreign currency amount the exchange rate between the
functional currency and the foreign currency at the date of the cash flow. The entity shall
translate cash flows of a foreign subsidiary at the exchange rates between the entity’s functional
currency and the foreign currency at the dates of the cash flows.
nUnrealized gains and losses arising from changes in foreign currency exchange rates are not cash
flows. The entity shall remeasure cash and cash equivalents held during the reporting period at
period-end exchange rates. The entity shall present the resulting unrealized gain or loss
separately from cash flows from operating, investing and financing activities
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Statement of Cash Flow
nAn entity shall present separately cash flows from interest and dividends received and paid, and
classify them as cash flows from operating, investing or financing activities.
nAn entity shall present separately cash flows arising from income tax and shall classify them as
cash flows from operating activities unless they can be specifically identified with financing and
investing activities.
nMany investing and financing activities do not have a direct impact on current cash flows even
though they affect the capital and asset structure of an entity. An entity shall exclude from the
statement of cash flows investing and financing transactions that do not require the use of cash or
cash equivalents.
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Notes to Financial Statements
nThe notes shall:
a)present information about the basis of preparation of the financial statements and the specific
accounting policies used;
b)disclose the information required by IFRS for SMEs that is not presented elsewhere in the
financial statements; and
c)provide information that is not presented elsewhere in the financial statements but is relevant
to an understanding of any of them.
nAn entity shall, as far as practicable, present the notes in a systematic manner. An entity shall
cross-reference each item in the financial statements to any related information in the notes.
nAn entity normally presents the notes in the following order:
a)a statement that the financial statements have been prepared in compliance with IFRS for SMEs;
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Notes to Financial Statements
b)a summary of significant accounting policies applied, which comprises disclosure of:
i.the measurement basis (or bases) used in preparing the financial statements.
ii.the other accounting policies used that are relevant to an understanding of the financial
statements.
iii.supporting information for items presented in the financial statements, in the sequence in
which each statement and each line item is presented.
nAn entity shall disclose in the notes information about the key assumptions concerning the future,
and other key sources of estimation uncertainty at the reporting date, that have a significant risk
of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year. In respect of those assets and liabilities, the notes shall include details of
their nature and their carrying amount at the end of the reporting period.
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