Rangajewa Herath
B.Sc. Accountancy and Financial Management(Sp.)(USJ)
MBA-PIM(USJ)


LKAS 1 - Presentation of Financial Statements
prescribes the basis for the presentation of
general purpose financial statements for
public limited companies.
It sets out the overall requirements for
presentation of financial statements,
guideline for structure
Are the financial statements those intended
to meet the needs of users who are not in a
position to require an entity to require an
entity to prepare reports tailored to their
particular information needs.
The objective of financial statements is to
provide information about the financial
position, financial performance and cash
flows of an entity to wide range of users in
making economic decisions.






Assets;
Liabilities;
Equity;
Income and expenses;
Contribution from and distribution to owners
in their capacity of owners; and
Cash flows
The components of a complete set of financial statements
are;
 Statement of Financial Position
 Statement of profit or loss and other comprehensive
Income
 Statement of Changes in Equity
 Statement of Cash Flows
 Notes, including a summary of significant accounting
policies and other explanatory information

A statement of financial position at the beginning of the
earliest comparative period when an entity applies an
accounting policy retrospectively or makes a retrospective
restatement of items in its financial statements.
Other comprehensive income comprises
items of income and expenses that are not
recognized in profit or loss as required or
permitted by other SLFRS.
Profit or loss is the total income less
expenses excluding the components of other
comprehensive income.

Changes in revaluation surplus.

Gains or losses arising from translating the Financial
Statements of a foreign operation.

Gains or losses on re-measuring available-for-sale
financial assets.

The effective portion of gains and losses on hedging
instruments in a cash flow hedges.

Actuarial gains and losses on defined benefit plans.
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.
Total Comprehensive = Profit or Loss + Other Comprehensive Income
Income
When preparing financial statements,
management shall make an assessment of
the entity’s ability to continue as going
concern. An entity should prepare the
financial statements on going concern basis
unless the management either intends to
liquidate the business or cease trading, or has
no realistic alternative but to do so.
An entity should prepare its financial
statements, except for the cash flow
information, on accrual basis.
Each material class of similar items should be
separately presented. Immaterial items can
be aggregated and presented according to
either their nature or function
An entity shall not offset assets and liabilities
or income and expenses, unless required or
permitted by an SLFRS.

An entity should disclose comparative
information in respect of the previous period
for all amounts reported in the current
period’s Financial Statements.

What is an asset?









Inventories ( LKAS 2)
Property, plant and equipment ( LKAS 16)
Cash and cash equivalent ( LKAS 7)
Intangible assets (LKAS 38)
Investment property (LKAS 40)
Biological Assets ( LKAS )
Financial assets (SLFRS )
Deferred tax assets (LKAS 12)
Non-current assets held for sale(SLFRS)
Inventories are assets:
(a) held for sale in the ordinary course of
business;
(b) in the process of production for such sale; or
(c) in the form of materials or supplies to be
consumed in the production process or in the
rendering of services.
Inventories shall be measured at the lower of
cost and net realizable value.
The cost of inventories shall comprise all costs of
purchase, costs of conversion and other costs
incurred in bringing the inventories to their present
location and condition.
Cost of purchase
XXX
Cost of conversion
XXX
Other costs to bring the inventory to present
location and condition
XXX
Cost of inventories
XXX
The estimated selling price in the ordinary
course of business less the estimated costs of
completion and the estimated costs
necessary to make the sale.
Fair value is the price that would be received
to sell an asset or paid to transfer a liability in
an ordinary transaction between market
participants at the measurement date.




Tranga Company PLC is a textile manufacturing company. Following
information is relevant clothes and other materials imported during the
December 2014.
Purchased price (Prior to the trade discount)
450 000
Discount
10%
Freight and insurance
100 000
Import duties
150 000
Transport charges
20 000

During the period these materials were used to manufacture garments and
direct laboure cost and manufacturing overhead incurred were Rs.150 000
and Rs.80 000 respectively. Special design cost incurred Rs.50 000 for a
special customer order which was manufactured using these materials.
These items are still available in the stores and storage cost is Rs.75 000.
General administration cost of the December was Rs.45 000.

Required: Calculate the cost of closing inventory as at 31.12.2014.

Lanka Company PLC. had 50 000 units of
product X which was purchased at Rs.40 each.
But these items now can only be sold at Rs.35
per unit. However 10% sales commission
should be given to sales staff at the time of
sale.
Required: Calculate the NRV of the stock.


Lanka Company PLC. had 10 000 units of
product X which are party completed. Cost
incurred up to date is Rs.150,000. These items
can be sold at Rs.25 each once the product is
completed. However a cost of Rs.80,000 has
to be incurred to complete these products.
Further, 10% sales commission should be
given to sales staff at the time of sale.
Required: Calculate the NRV of the stock.

First-in first- out (FIFO)
The FIFO formula assumes that the items of inventory that were
purchased or produced first are sold first, and consequently the
items remaining in inventory at the end of the period are those
most recently purchased or produced.

Weighted Average Cost (WAC)
Under the weighted average cost formula, the cost of each item is
determined from the weighted average of the cost of similar items
at the beginning of a period and the cost of similar items
purchased or produced during the period.

Property, plant and equipment are tangible
items that:
(a) are held for use in the production or
supply of goods or services, for rental to
others, or for administrative purposes; and
(b) are expected to be used during more than
one period.


Depreciation is the systematic allocation of
the depreciable amount of an asset over its
useful life.
Depreciable amount is the cost of an asset,
or other amount substituted for cost, less its
residual value.

Cost is the amount of cash or cash
equivalents paid or the fair value of the other
consideration given to acquire an asset at the
time of its acquisition or construction or,
where applicable, the amount attributed to
that asset when initially recognized in
accordance with the specific requirements of
other Standards.

Residual value of an asset is the estimated
amount that an entity would currently obtain
from disposal of the asset, after deducting
the estimated costs of disposal, if the asset
were already of the age and in the condition
expected at the end of its useful life.
Useful life is:
(a) the period over which an asset is expected
to be available for use by an entity; or
(b) the number of production or similar units
expected to be obtained from the asset by an
entity.


An item of property, plant and equipment
that qualifies for recognition as an asset shall
be measured at its cost.
a) Costs of employee benefits arising directly from the
construction or acquisition of the item of property,
plant and equipment;
(b) Cost of site preparation;
(c) Initial delivery and handling costs;
(d) Installation and assembly costs;
(e) Costs of testing whether the asset is functioning
properly, after deducting the net proceeds from
selling any items produced while bringing the asset to
that location and condition (such as samples
produced when testing equipment); and
(f) Professional fees.

A business imported a plant for its manufacturing factory. Purchase
price of the machine is Rs.600 000 and 5% trade discount was
received from the buyer. Fright and insurance cost of bring the
machine to Sri Lanka was Rs.250 000. Import duties and other taxes
paid at the port was Rs.350 000. Local transport cost of Rs.40 000
was incurred to bring the plant to the factory. Rs.5000 wages for
laborers and Rs.15 000 professional fee for engineer was paid at the
installation of the plant. Fire insurance policy is obtained for the
plant and annual insurance premium paid is Rs.35 000. Prior to
commence the commercial production, a test run was made by
incurring Rs.80 000 cost. Items produced in this test run were sold
for Rs.35 000 after incurring Rs.5000 selling expenses.

Required: Calculate Cost of Plant which should be recognized in
the financial statements.

Cost Model
After recognition as an asset, an item of property, plant and
equipment shall be carried at its cost less any accumulated
depreciation.

Revaluation Model
After recognition as an asset, an item of property, plant and
equipment whose fair value can be measured reliably shall be
carried at a revalued amount, being its fair value at the date of the
revaluation less any subsequent accumulated depreciation and
subsequent accumulated impairment losses.