Topic list Syllabus reference

Continuing operations	$000
$000
Revenue	X	X
Cost of sales	(X)	(X)
Gross profit	X	X
Other income	X	X
Distribution costs	(X)	(X)
Administrative expenses	(X)	(X)
Other expenses	(X)	(X)
Finance costs	(X)	(X)
Share of profit of associates	X	X
Profit before tax	X	X
Income tax expense	(X)	(X)
Profit for the year from continuing operations Discontinued operations	X	X
Profit for the year from discontinued operations	X	X
Profit for the year	X	X
Profit attributable to:
Owners of the parent	X	X
Non-controlling interest	X	X
	X	X

Note that if there were items of 'other comprehensive income' this would be shown as a full 'statement of profit or loss and other comprehensive income' as per the format in IAS 1.

Closure
Question
On 20 October 20X3 the directors of Largo Co made a public announcement of plans to close a steel works. The closure means that the group will no longer carry out this type of operation, which until recently has represented about 10% of its total revenue. The works will be gradually shut down over a period of several months, with complete closure expected in July 20X4. At 31 December output had been significantly reduced and some redundancies had already taken place. The cash flows, revenues and expenses relating to the steel works can be clearly distinguished from those of the subsidiary's other operations.
Required
How should the closure be treated in the financial statements for the year ended 31 December 20X3?
Answer
Because the steel works is being closed, rather than sold, it cannot be classified as 'held for sale'. In addition, the steel works is not a discontinued operation. Although at 31 December 20X3 Largo Co was firmly committed to the closure, this has not yet taken place nor can its assets be classified as held for
sale, therefore the steel works must be included in continuing operations. Information about the planned closure could be disclosed in the notes to the financial statements.

4. 
   
   FAST FORWARD
   IAS 21 Foreign currency transactions
   

Transactions involving foreign currency are very common in practice. IAS 21 sets out the accounting treatment for foreign currency transactions.
If a company trades overseas, it will buy or sell assets in foreign currencies. For example, an American company might buy materials from Canada, and pay for them in US dollars, and then sell its finished goods in Germany, receiving payment in Euros, or perhaps in some other currency. If the company owes money in a foreign currency at the end of the accounting year, or holds assets which were bought in a foreign currency, those liabilities or assets must be translated into the local currency, in order to be included in the financial statements.
A company might have a subsidiary abroad (ie a foreign entity that it owns), and the subsidiary will trade in its own local currency. The subsidiary will keep books of account and prepare its annual accounts in its own currency. However, at the year end, the holding company must 'consolidate' the results of the overseas subsidiary into its group accounts, so that somehow, the assets and liabilities and the annual profits of the subsidiary must be translated from the foreign currency into $.
Note. The Financial Reporting exam will only be testing foreign currency in the context of single entities, so we will not be covering group aspects.
If foreign currency exchange rates remained constant, there would be no accounting problem. However, foreign exchange rates are continually changing, for instance the rate of exchange between the Japanese yen and sterling might be Y183 to £1 at the start of the accounting year, and Y174 to £1 at the end of the year.

1.