Topic list Syllabus reference

Required

1. 
   Prepare journal entries to cover items in notes (i) to (v) above. You are not to open any new accounts and may use only those accounts included in the list of account balances as given.
   
2. 
   Prepare final accounts for internal use within the limits of the available information. For presentation purposes all the items arising from notes (i) to (v) above should be regarded as material.
   

Answer

(a)	JOURNAL ENTRIES FOR ADJUSTMENTS		Debit	Credit
			$	$
	(i) Trade accounts payable		10,000
	Trade accounts receivable			10,000
	Profit before tax Trade accounts receivable		1,000	1,000
	Profit before tax Suspense		4,000	4,000
	(ii) Bank		2,000
	Trade accounts receivable			2,000
	Profit before tax Bank		1,000	1,000
	(iii) Profit before tax		1,000
	Trade accounts receivable			1,000
	Allowance for receivables (W1) Profit before tax		1,140	1,140
	(iv) Inventories		2,000
	Profit before tax			2,000
	Retained earnings brought forward Profit before tax		1,000	1,000
	(v) Suspense		3,000
	Profit before tax			3,000
(b)	STATEMENT OF FINANCIAL POSITION	$	$	$
	Assets Non-current assets
	Land and buildings		220,000
	Plant and machinery		170,000
	Depreciation		(120,000)	270,000
	Current assets
	Inventories (190 + 2) Accounts receivable (W1)	186,000	192,000
	Less allowance	(1,860)	184,140
	Bank (12 + 2-1)		13,000	389,140
	Total assets Equity and liabilities Equity			659,140
	Share capital		100,000
	Retained earnings (see profit or loss)		459,140	559,140
	Current liabilities
	Accounts payable (110-10)			100,000
	Total equity and liabilities			659,140
	FIDDLES CO

STATEMENT OF PROFIT OR LOSS (This is not as per IAS 1, it is purely for internal purposes) $

Profit before tax (W2) Retained earnings brought forward ($380,000 -1,000) Retained earnings carried forward

80,140 379,000 459,140

LEARNING

Workings	$
1 Accounts receivable
Per opening trial balance	200,000
Contra	(10,000)
Miscasting	(1,000)
Standing order	(2,000)
Written off	JtOOO) 186,000
Allowance b/f	3,000
Allowance required	1,860
Journal	1,140
2 Profit before tax	$
Per question	80,000
Wrong batch total	(1,000)
Returns	(4,000)
Bank charges	(1,000)
Irrecoverable debt	(1,000)
Allowance for receivables	1,140
Inventory (2,000 + 1,000)	3,000
Suspense (sales)	3,000 80,140

This question dealt with accounts for internal purposes. In accounts produced for publication the statement of profit or loss would comply with the IAS 1 format. In the following chapter we will be dealing with all the issues involved in producing financial statements for publication.

4. 
   
   FAST FORWARD
   Changes in equity
   

IAS 1 requires a statement of changes in equity. This shows the movement in the equity section of the statement of financial position. A full set of financial statements includes a statement of changes in equity.

1. 
   Format
   

This is the format of the statement of changes in equity as per IAS 1. For clarity, we have left out those columns relating to items not in the Financial Reporting syllabus as highlighted in Section 4, and amended totals accordingly. (IAS1:IG)
GENERIC GROUP - STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20X7
Investments Non-

	Share capital	Retained earnings	in equity instruments	Revaluation surplus	Total	controlling interest	Total equity
Balance at 1	$000	$000	$'000	$000	$'000	$'000	$000
January 20X6	600,000	118,100	1,600	-	719,700	29,800	749,500
Changes in accounting policy	—	400	—	—	400	100	500
Restated balance	600,000	118,500	1,600	-	720,100	29,900	750,000
Changes in equity Dividends	—	(10,000)	—	—	(10,000)	—	(10,000)
Total comprehensive income for the year	—	53,200	16,000	1,600	70,800	18,700	89,500
Balance at 31 December 20X6	600,000	161,700	17,600	1,600	780,900	48,600	829,500

Share capital	Investments Non- Retained in equity Revaluation controlling Total earnings instruments surplus Total interest equity
Changes in equity for 20X7 Issue of share capital 50,000 Dividends Total comprehensive income for the year Transfer to retained earnings	- - - 50,000 - 50,000 (15,000) - - (15,000) - (15,000) 96,600 (14,400) 800 83,000 21,450 104,450 200 - (200) _ _ _
Balance at 31 650,000 December 20X7	243,500 3,200 2,200 898,900 70,050 968,950

Note that where there has been a change of accounting policy necessitating a retrospective restatement, the adjustment is disclosed for each period. So, rather than just showing an adjustment to the balance b/f on 1.1 ,X7, the balances for 20X6 are restated.

4. 
   
   FAST FORWARD
   Notes to the financial statements
   

Some items need to be disclosed by way of note.

1. 
   Contents of notes
   

The notes to the financial statements will amplify the information given in the statement of financial position, statement of profit or loss and other comprehensive income and statement of changes in equity. We have already noted above the information which the IAS allows to be shown by note rather than in the statements. To some extent, then, the contents of the notes will be determined by the level of detail shown on the face of the statements.

2. 
   Structure
   

The notes to the financial statements should perform the following functions.

1. 
   Present information about the basis on which the financial statements were prepared and which specific accounting policies were chosen and applied to significant transactions/events
   
2. 
   Disclose any information, not shown elsewhere in the financial statements, which is required by IFRSs
   
3. 
   Show any additional information that is relevant to understanding which is not shown elsewhere in
   

the financial statements (IAS 1: para. 112)
The way the notes are presented is important. They should be given in a systematic manner and cross referenced back to the related figure(s) in the statement of financial position, statement of comprehensive income or statement of cash flows. (IAS 1: para. 113)
Notes to the financial statements will amplify the information shown therein by giving the following.

1. 
   More detailed analysis or breakdowns of figures in the statements
   
2. 
   Narrative information explaining figures in the statements
   
3. 
   Additional information, eg contingent liabilities and commitments
   

IAS 1 suggests a certain order for notes to the financial statements. This will assist users when comparing the statements of different entities.

1. 
   Statement of compliance with IFRSs
   
2. 
   Statement of the measurement basis (bases) and accounting policies applied
   
3.