Financial Accounting and Reporting
CA Professional Level
Format of Financial
Statements
Presented by:
Sabbir Ahmed FCA
Managing Partner
1
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IAS 1 Presentation of
Financial Statements
IAS 1 Presentation of Financial Statements
IAS 1 (revised) Presentation of Financial Statements prescribes the basis for the
presentation of financial statements, so as to ensure comparability with:
• The entity's own financial statements of previous periods, and
• The financial statements of other entities.
Objective
IAS 1 must be applied to all general purpose financial statements prepared in accordance
with IFRSs, ie those intended to meet the needs of users who are not in a position to
demand reports tailored to their specific needs. IAS 1 is concerned with overall
considerations about the minimum content of a set of financial statements; detailed
rules about recognition, measurement and disclosures of specific transactions are then
contained in other standards.
Whilst the terminology used was designed for profit-orientated businesses, it can be
used, with modifications, for not-for-profit entities.
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IAS 1 Presentation of Financial Statements
The objective of general purpose financial statements is to provide information about
the financial position, financial performance and cash flows of an entity that is useful
to a wide range of users in making economic decisions. They also show the result of
management stewardship of the resources of the entity.
Objective
In order to achieve this, information is provided about the following aspects of the
entity's results:
• Assets
• Liabilities
• Equity
• Income and expenses (including gains and losses)
• Other changes in equity, and
• Cash flows
Additional information is contained in the notes.
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IAS 1 Presentation of Financial Statements
Objective
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IAS 1 Presentation of Financial Statements
Financial statements should present fairly the financial position, financial performance
and cash flows of an entity as discussed in Chapter 1.
Fair presentation
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IAS 1 expands on this principle as follows:
• Compliance with IFRS should be disclosed.
• Financial statements can only be described as complying with IFRS if they comply
with all the requirements of IFRS.
• Use of inappropriate accounting policies cannot be rectified either by disclosure or
explanatory material.
IAS 1 Presentation of Financial Statements
Financial statements are prepared on the going concern basis unless management either
intends to liquidate the entity or to cease trading or has no realistic alternative but to do
so.
Going concern
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IAS 1 makes the following points:
• In assessing whether the entity is a going concern management must look at least
twelve months into the future measured from the end of the reporting period (not
from the date the financial statements are approved.)
• Uncertainties that may cast significant doubt on the entity's ability to continue
should be disclosed.
• If the going concern assumption is not followed that fact must be disclosed together
with:
– The basis on which financial statements have been prepared
– The reasons why the entity is not considered to be a going concern
IAS 1 Presentation of Financial Statements
Items are recognised as assets, liabilities, equity, income and expenses when they
satisfy the definitions and recognition criteria for those elements in the Conceptual
Framework.
Accrual basis of
accounting
Point to note:
The definition refers to the definitions and recognition criteria of the Conceptual
Framework. The effect is that:
• Transactions are recognised when they occur (and not when the relevant cash is
received or paid).
• They are recorded in the financial statements of the periods to which they relate.
According to the accrual assumption, then, in computing profit, revenue earned must be
matched against the expenditure incurred in earning it.
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IAS 1 Presentation of Financial Statements
Consistency of
preparation
To maintain consistency, the presentation and classification of items in the financial
statements should stay the same from one period to the next. There are two exceptions
to this:
• Where there is a significant change in the nature and operations or a review of the
financial statements presentation which indicates a more appropriate presentation.
(This change is only allowed if the resulting information is a more faithful
representation and more relevant than the previous presentation. If two
presentations are equally appropriate then the current presentation must be
retained.)
• Where a change in presentation is required by an IFRS.
Where a change of presentation and classification is made, figures for the previous period
must be restated on the new basis, unless this is impracticable (ie not possible 'after
making every reasonable effort').
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IAS 1 Presentation of Financial Statements
Each material class of items should be presented separately in the financial
statements because such presentation is relevant to the understanding of the financial
statements.
Amounts which are immaterial can be aggregated with amounts of a similar nature or
function and need not be presented separately.
Materiality and
aggregation
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Materiality:
Omissions or misstatements of items are material if they could, individually or
collectively, influence the economic decisions of users taken on the basis of the financial
statements. Materiality depends on the size and nature of the omission or misstatement
judged in the surrounding circumstances. The size or nature of the item, or a
combination of both, could be the determining factor.
IAS 1 Presentation of Financial Statements
If a statement of financial position shows non-current assets of Tk. 2 million and
inventories of Tk. 30,000 an error of Tk. 20,000 in the depreciation calculations might
not be regarded as material, whereas an error of Tk. 20,000 in the inventory valuation
probably would be. In other words, the total of which the erroneous item forms part
must be considered.
Worked example: If a business has a bank loan of Tk. 50,000 and a Tk. 55,000 balance on bank deposit
account, it might well be regarded as a material misstatement if these two amounts were
Materiality
displayed in the statement of financial position as 'cash at bank Tk. 5,000'. In other
words, incorrect presentation may amount to material misstatement even if there is no
monetary error.
Users are assumed to have a reasonable knowledge of business and economic activities
and accounting and a willingness to study the information with reasonable diligence.
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IAS 1 Presentation of Financial Statements
IAS 1 does not allow assets and liabilities to be offset against each other unless such a
treatment is required or permitted by another IFRS.
Offsetting
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Income and expenses can be offset only when:
• An IFRS requires/permits it, or
• Gains, losses and related expenses arising from the same/similar transactions are
not material (in aggregate).
IAS 1 Presentation of Financial Statements
IAS I requires comparative information to be disclosed for the previous period for all
numerical information, unless another IFRS permits/requires otherwise. Comparatives
should also be given in narrative information where relevant to an understanding of the
current period's financial statements.
Comparative
information
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Comparatives should be reclassified when the presentation or classification of items in
the financial statements is amended.
Under IAS 8 a statement of financial position as at the beginning of the earliest
comparative period is additionally required when an entity applies an accounting policy
retrospectively or makes a retrospective restatement of items in its financial statements,
or when it reclassifies items in its financial statements.
IAS 1 Presentation of Financial Statements
There should be a specific section for accounting policies in the notes to the financial
statements and the following should be disclosed there.
Disclosure of
accounting
policies
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• Measurement bases used in preparing the financial statements.
• Each specific accounting policy necessary for a proper understanding of the financial
statements.
To be clear and understandable it is essential that financial statements should disclose
the accounting policies used in their preparation. This is because policies may vary, not
only from entity to entity, but also from country to country. As an aid to users, all the
major accounting policies used should be disclosed in the same place. This is normally
referred to as the accounting policy note.
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Other regulatory
requirements
Other regulatory requirements
Legal regulations concerning the financial statements of an entity are of course specific to
the country of incorporation. Bangladesh companies come under the Companies Act
1994.
The Companies Act establishes deadlines for the filing of financial statements:
Filing deadlines
Both Private and Public companies are required to held AGM within six months after
the financial year end or an annual basis, whichever is earlier. The audited accounts to be
filed with RJSC within 30 days from the AGM.
Listed companies are required to get their accounts audited within 120 days of the
financial year end.
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Other regulatory requirements
Small and medium-sized enterprises (SMEs) are allowed to prepare their accounts in
compliance with the IFRSs for SMEs, originally issued by IASB, and adopted by ICAB. As
per National Industrial policy(2016), the thresholds for the definition of an SME are
periodically updated and are currently:
Small and
medium-sized
enterprises
SI
Type of Industry
1. Cottage Industry
2. Micro Industry
Manufacturing
3. Small Industry
Service
Manufacturing
Medium
4.
Industry
Service
5. Large Industry
Manufacturing
Service
The amount of
investment
Number of employed
workers
Below 10 lakh
10 lakh to 75 lakh
75 lakh to 15 crore
not exceed 15
16 to 30
31 to 120
10 lakh to 2 crore
15 crore to 50 crore
16 to 50
121 to 300
2 crore to 30 crore
More than 50 crore
More than 30 crore
51 to 120
More than 300
More than 120
*Investment in replacement cost and value of fixed assets, excluding land and
factory buildings
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IAS 12 Income taxes
IAS 12 Income taxes
The basic rule is that when a liability for tax arises it is recognised as an expense in profit
or loss for the period. It is also recognised as a liability to the extent that it remains
unpaid.
Accounting for
tax
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Tk.
DR Income tax expense
Tk.
X
CR Cash
X
CR Current liabilities: taxation
X
IAS 12 Income taxes
Recognition of
current tax
liabilities and
assets
The income tax due on the profit for any year cannot be finally determined until after the
year end when the tax liability has been agreed with the tax authorities, something which
takes months and, in some cases, years. So the amount of income tax on profits
recognised each year is an estimate. When the tax due is later agreed with the tax
authorities, an adjustment to the original estimate will normally be required. This
adjustment will be recognised in profit or loss for the accounting period in which the
estimate is revised.
IAS 12 requires any unpaid tax in respect of the current or prior periods to be recognised
as a liability (resulting in an income tax expense being recognised in profit or loss).
Conversely, any tax paid in respect of current or prior periods in excess of what is due
should be recognised as an asset (resulting in a reduction in the income tax expense
recognised in profit or loss).
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IAS 12 Income taxes
Measurement of current tax liabilities (assets) for the current and prior periods is very
simple. Liabilities (assets) are measured at the amount expected to be paid to (recovered
from) the tax authorities. The tax rates (and tax laws) used should be those enacted (or
substantively enacted) by the end of the reporting period.
Measurement
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IAS 12 Income taxes
In the statement of financial position, tax assets and liabilities should be shown
separately from other assets and liabilities.
Presentation
Current tax assets and liabilities can be offset, but this should happen only when certain
conditions apply.
a) The entity has a legally enforceable right to set off the recognised amounts; and
b) The entity intends to settle the amounts on a net basis, or to realise the asset and
settle the liability at the same time.
The tax expense (income) related to the profit or loss from ordinary activities should be
presented in profit or loss. An analysis of this figure would be provided in the notes to
the financial statements showing the major components.
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Structure and
content of financial
statements
Structure and content of financial statements
The statement of profit or loss and statement of profit or loss and other comprehensive
income are the most significant indicators of a company's financial performance. So it is
important to ensure that they are not misleading.
IAS 1 stipulates that all items of income and expense recognised in a period shall be
included in profit or loss unless a Standard or an Interpretation requires otherwise.
Profit or loss for
the period
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Circumstances where items may be excluded from profit or loss for the current year
include the correction of errors and the effect of changes in accounting policies. These
are covered in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
Structure and content of financial statements
IAS 1 specifies disclosures of certain items in certain ways:
• Some items must appear in the statement of financial position, statement of profit
or loss, or in the statement of profit or loss and other comprehensive income.
• Other items can appear in a note to the financial statements instead.
• Illustrative formats are given which entities may or may not follow, depending on
their circumstances.
How items are
disclosed
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Obviously, disclosures specified by other standards must also be made, and we will
mention the necessary disclosures when we cover each IAS or IFRS in turn. Disclosures in
both IAS 1 and other IAS or IFRS must be made either in the relevant statement or in the
notes unless otherwise stated, ie disclosures cannot be made in an accompanying
commentary or report.
Structure and content of financial statements
Identification of
financial
statements
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The entity should identify each component of the financial statements very clearly. IAS 1
also requires disclosure of the following information in a prominent position. If necessary
it should be repeated wherever it is felt to be of use to the reader in his understanding of
the information presented.
• Name of the reporting entity (or other means of identification)
• Whether the accounts cover the single entity only or a group of entities
• The end of the reporting period or the period covered by the financial statements
(as appropriate)
• The reporting currency
• The level of rounding used in presenting the figures in the financial statements
Structure and content of financial statements
It is normal for entities to present financial statements annually and IAS 1 states that they
should be prepared at least as often as this. If (unusually) an entity's reporting period is
changed, for whatever reason, the period for which the statements are presented will be
less or more than one year. In such cases the entity should also disclose:
• The reason(s) why a period other than one year is used, and
• The fact that the comparative figures given are not in fact comparable.
Reporting period
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Structure and content of financial statements
Pro-forma
accounts
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IAS 1 looks at the statement of financial position, the statement of profit or loss, the
statement of profit or loss and other comprehensive income and the statement of
changes in equity. We will not give all the detailed disclosures as some are outside the
scope of your syllabus. Instead we will look at a 'pro-forma' set of accounts based on the
Guidance on Implementing IAS 1 which accompanies the Standard. Note the description
of this guidance as 'not part' of IAS 1 which means that it is not mandatory. So it shows
ways in which financial statements may be presented. However, these are the formats
that the Financial Accounting and Reporting paper is based on and therefore should be
adopted in the exam.
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Statement of
financial position
Statement of financial position
Statement of
financial position
format
ASSETS
Non-current assets
Property, plant and equipment
Intangibles
Investments
Current assets
Inventories
Trade and other receivables
Investments
Cash and cash equivalents
Non-current assets held for sale
Total assets
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Tk. '000
Tk. '000
350,700
308,270
242,650
901,620
135,230
91,600
25,000
153,953
405,783
25,650
431,433
1,333,053
Statement of financial position
Tk. '000
EQUITY AND LIABILITIES
Statement of
financial position
format
Equity attributable to owners of the parent
Ordinary share capital
Preference share capital (irredeemable)
Share premium account
Revaluation surplus
Retained earnings
Non-controlling interest
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600,000
30,000
20,000
2,053
243,900
895,953
72,950
968,903
Statement of financial position
Statement of
financial position
format
Non-current liabilities
Preference share capital (redeemable)
Finance lease liabilities
Borrowings
Current liabilities
Trade and other payables
Dividends payable *
Taxation
Provisions
Borrowings
Finance lease liabilities
Total equity and liabilities
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Tk. '000
28,000
28,850
120,800
177,650
115,100
7,500
34,500
5,000
10,000
14,400
186,500
1,333,053
Statement of financial position
Any other line items, headings or sub-totals should be shown in the statement of
financial position when it is necessary for an understanding of the entity's financial
position.
This decision depends on judgements based on the assessment of the following factors.
Information
• Nature and liquidity of assets and their materiality. Thus goodwill and assets arising
which must be
from development expenditure will be presented separately, as will monetary/nonpresented in the
monetary assets and current/non-current assets.
statement of
• Function within the entity. Operating and financial assets, inventories, receivables
and cash and cash equivalents are therefore shown separately.
financial position
• Amounts, nature and timing of liabilities. Interest-bearing and non-interest-bearing
liabilities and provisions will be shown separately, classified as current or noncurrent as appropriate.
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Statement of financial position
Information
which must be
presented in the
statement of
financial position
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The standard also requires separate presentation where different measurement bases
are used for assets and liabilities which differ in nature or function. According to IAS
16 Property, Plant and Equipment, for example, it is permitted to carry certain items
of property, plant and equipment at cost or at a revalued amount. Property, plant and
equipment may therefore be split to show classes held at historical cost separately
from those that have been revalued.
Statement of financial position
Certain pieces of information may be presented either in the statement of financial
position or in the notes to the financial statements.
Information
presented either
in the statement
of financial
position or in the
notes
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These comprise:
• Further sub-classification of line items from the statement of financial position.
Disclosures will vary from item to item, which will in part depend on the
requirements of IFRS. For example, tangible assets are classified by class of asset
(eg land and buildings, plant and equipment) as required by IAS 16 Property, Plant
and Equipment.
• Details about each class of share capital.
• Details about each reserve within equity.
Statement of financial position
An entity must present current and non-current assets and liabilities as separate
classifications in the statement of financial position. This is similar to separate current
assets from fixed assets and amounts due within one year from amounts due after more
than one year.
An alternative liquidity presentation which lists assets by reference to how closely they
The current/nonapproximate to cash is permitted but only where this provides more reliable information,
current
eg in the case of a financial institution such as a bank.
distinction
For all businesses which have a clearly identifiable operating cycle, it is the current/noncurrent presentation which is more meaningful, so this is the one which must be used.
(See section 4.5 below).
In either case, the entity should disclose any portion of an asset or liability which is
expected to be recovered or settled after more than twelve months.
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Statement of financial position
Current assets
Current asset: An asset shall be classified as current when it satisfies any of the following
criteria:
• It is expected to be realised in, or is intended for sale or consumption in, the entity's
normal operating cycle
• It is held primarily for the purpose of being traded
• It is expected to be realised within twelve months after the reporting period, or
• It is cash or a cash equivalent (as defined in IAS 7 Statement of Cash Flows), unless it
is restricted from being exchanged or used to settle a liability for at least twelve
months after the reporting period.
All other assets should be classified as non-current assets.
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Statement of financial position
A company statement of financial position will show ordinary shares but may also show
preference shares. Preference shares may be redeemable or irredeemable. Redeemable,
and some irredeemable, preference shares are accounted for as a liability, not as equity,
and this also affects the treatment of the dividends.
Shares and
dividends
Dividends on ordinary and some irredeemable preference shares are treated as
appropriations of profit (ie a reduction to retained earnings) and are therefore reflected
in the statement of changes in equity (see later).
An ordinary dividend that has been declared in the period but is unpaid at the year end is
not treated as a liability in the statement of financial position. However, an unpaid
mandatory dividend on irredeemable preference shares at the end of the reporting
period is shown under current liabilities as a dividend payable.
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Statement of financial position
Payment of ordinary dividend:
Shares and
dividends
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Tk.
DR
Retained earnings
CR
Cash
Tk.
X
X
Statement of financial position
Payment or declaration of interim or final dividend on
redeemable preference shares:
Shares and
dividends
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Tk.
DR
Finance costs
CR
Cash/other payables (current liability)
Tk.
X
X
Statement of financial position
Payment or declaration in the accounting period of dividend
on irredeemable preference shares:
Shares and
dividends
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Tk.
DR
Retained earnings
CR
Cash/other payables (current liability)
Tk.
X
X
Statement of financial position
Non-controlling
interest
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A parent company may own less than 100% of a subsidiary, in which case the amount not
owned is described as the non-controlling interest. The detail of how to account for such
holdings is dealt with in Chapter 10 onwards, so for the moment it is only necessary to
note that:
• In the statement of financial position, equity must be split between the noncontrolling interest and the amount attributable to the owners of the parent.
• In the statement of profit or loss, the allocation must be shown of the profit or loss
for the period between the non-controlling interest and the owners of the parent.
• In the statement of changes in equity, the total comprehensive income for the
period must be split between the non-controlling interest and the amount
attributable to the owners of the parent.
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Statement of profit or
loss and other
comprehensive income
Statement of profit or loss and other comprehensive income
Format
The standard gives the following examples of the formats for the single statement and
the two separate statements. You should be aware of the single statement of profit or
loss and other comprehensive income but your exam will be based on the two separate
statements. The only items under 'other comprehensive income' which are included in
your syllabus are valuation gains/losses, so where there is a gain or loss on non-current
assets you may be required to show it in a separate statement of profit and loss and
other comprehensive income.
Note that here the single statement format shows the classification of expenses in the
statement of profit or loss by function and the two statement format shows expenses
classified by nature. Expense classification by function is more common in practice and
will be tested more frequently in the exam.
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Statement of profit or loss and other comprehensive income
XYZ Ltd – statement of profit or loss and other comprehensive income for the
year ended 31 December 20X7 (illustrating a single statement approach)
Illustrating the classification of expenses by function
Format
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Revenue
Cost of sales
Gross profit
Other income
Distribution costs
Administrative expenses
Other expenses
Profit/(loss) from operations
Finance costs
Share of profits/(losses) of associates
Profit/(loss) before tax
Income tax expense
Profit/(loss) for the year from continuing operations
Tk. ’000
390,000
(245,000)
145,000
20,667
(9,000)
(20,000)
(2,100)
134,567
(8,000)
35,100
161,667
(40,417)
121,250
Statement of profit or loss and other comprehensive income
XYZ Ltd – statement of profit or loss and other comprehensive income for the
year ended 31 December 20X7 (illustrating a single statement approach)
Illustrating the classification of expenses by function
Format
Profit/(loss) for the year from continuing operations
Profit/(loss) for the year from discontinued operations
Tk. ’000
121,250
–
Profit/(loss) for the year
121,250
Other comprehensive income:
Gains on property revaluation
Income tax relating to component of other comprehensive
income
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
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933
(280)
653
121,903
Statement of profit or loss and other comprehensive income
XYZ Ltd – statement of profit or loss and other comprehensive income for the
year ended 31 December 20X7 (illustrating a single statement approach)
Illustrating the classification of expenses by function
Tk. ’000
Profit attributable to:
Owners of the parent
Non-controlling interest
Format
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interest
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97,000
24,250
121,250
97,653
24,250
121,903
Statement of profit or loss and other comprehensive income
The standard lists the following as the minimum to be included in the statement of profit
or loss and other comprehensive income (under the two statement approach).
• Each component of other comprehensive income
• Total comprehensive income
Information
presented in the
statement of
The following items must be disclosed in the statement of profit or loss and other
profit or loss and comprehensive income as allocations of total comprehensive income for the period.
• Total comprehensive income attributable to non-controlling interest
other
• Total comprehensive income attributable to owners of the parent
comprehensive
income (under
the two
statement
approach)
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Statement of profit or loss and other comprehensive income
Function of expense/
cost of sales method
You are likely to be more familiar with this method.
Expenses are classified according to their function as part
of cost of sales, distribution or administrative activities.
This method often gives more relevant information for
users, but the allocation of expenses by function requires
the use of judgement and can be arbitrary. Consequently,
perhaps, when this method is used, entities should
disclose additional information on the nature of
expenses, including staff costs, and depreciation and
amortisation expense.
Nature of expense
method
Expenses are not reallocated amongst various functions
within the entity, but are aggregated in the statement of
profit or loss according to their nature eg purchase of
materials, depreciation, wages and salaries, transport
costs. This may be the easiest method for smaller
entities.
Analysis of
expenses
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Statement of profit or loss and other comprehensive income
Which of the above methods is chosen by an entity will depend on historical and
industry factors, and also the nature of the organisation. The choice of method should
fairly reflect the main elements of the entity's performance. These Learning Materials
Analysis of
expenses
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will use the functional analysis in accordance with past practice. (It is also more likely
to be examined than the nature of expenses method.)
Statement of profit or loss and other comprehensive income
Exceptional items
These are material items of income and expense which should be disclosed separately.
These include:
o Write downs of inventories to net realisable value
o Write down of property, plant and equipment to recoverable amount
Other information o Disposals of property, plant and equipment
o Restructuring of the activities of an entity and reversals of any provisions for the
presented either
cost of restructuring
in the statement o Disposals of investments
of profit or loss or o Discontinued operations
in the notes
o Litigation settlements
o Other reversals of provisions
IAS 1 does not specifically use the term 'exceptional'. However, it is a useful label for this
type of item and is used in GAAP. (IAS 1 has prohibited the use of the term 'extraordinary'
in line with most jurisdictions.)
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Statement of profit or loss and other comprehensive income
Point to note:
Dividends paid (on ordinary and irredeemable preference shares) are not shown as
expenses in the statement of profit or loss; instead they should be shown in the
statement of changes in equity.
Other information
IMPORTANT NOTE: Where no items are involved which would be shown in a separate
presented either
statement of profit or loss and other comprehensive income, this text refers to
in the statement 'statement of profit or loss'.
of profit or loss or
in the notes
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Statement of
changes in equity
Statement of changes in equity
The statement of profit or loss and other comprehensive income is framed as a
straightforward measure of financial performance, in that it shows all items of income
and expense recognised in a period. It is then necessary to link this result with the results
of transactions with owners such as share issues and dividends. The statement making
the link is the statement of changes in equity. This must be presented as a separate
Other information component of the financial statements not just included in the notes.
presented either
The following should be shown in the statement:
in the statement a) Total comprehensive income for the period, showing separately the total amounts
of profit or loss or
attributable to owners of the parent and to non-controlling interest.
in the notes
b) The effect of changes in accounting policy or correction of errors for each
component of equity where these have been recognised during the period in
accordance with IAS 8 (see Chapter 3).
c) The amounts of transactions with owners in their capacity as owners, showing
separately contributions by and distributions to owners.
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Statement of changes in equity
d) For each component of equity, a reconciliation between the carrying amount at the
beginning and end of the period, showing separately each change.
Dividends to owners recognised during the period and the amount per share can be
presented in the statement of changes in equity or in the notes.
Other information
NOTE: In most cases the 'total comprehensive income for the year' will be the profit for
presented either
the period from the statement of profit or loss. Where an additional 'statement of profit
in the statement or loss and other comprehensive income' has been prepared, the items comprising 'other
of profit or loss or comprehensive income' will be shown on the same line; for instance any revaluation gain
in the notes
will appear under 'revaluation surplus'.
NOTE: In extracts from the statement of changes in equity throughout this text we will
show the correct terminology of 'total comprehensive income for the year' even though
the figures may be taken from a simple statement of profit or loss.
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Statement of changes in equity
XYZ group – statement of changes in equity for the year ended 31 December 20X7
Ordinary share
capital
Tk. ’000
Preference share
capital
(irredeemable)
Tk. '000
Retained
Share premium
earnings
Tk. '000
Tk. ’000
Revaluation
surplus
Tk. ’000
NonControlling
interest
Tk. ’000
Total
Tk. ’000
Total equity
Tk. ’000
At 1 January 20X7
550,000
30,000
10,000
161,300
1,600
752,900
48,600
801,500
–
–
–
400
–
400
100
500
550,000
30,000
10,000
161,700
1,600
753,300
48,700
802,000
50,000
–
10,000
–
–
60,000
–
60,000
–
–
–
(12,000)
–
(12,000)
–
(12,000)
–
–
–
(3,000)
–
(3,000)
–
(3,000)
–
–
–
97,000
653
97,653
24,250
121,903
–
–
–
200
(200)
–
–
–
600,000
30,000
20,000
243,900
2,053
895,953
72,950
968,903
Changes in accounting policy
Restated balance
Issue of share capital
Final dividends on ordinary shares
Final dividends on irredeemable shares
Total comprehensive income for the year
Transfer to Retained earnings
At 31 December 20X7
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8
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Statement of cash
flows
Statement of cash flows
The objective of IAS 7 Statement of Cash Flows is to provide historical information
about changes in cash and cash equivalents, classifying cash flows between operating,
investing and financing activities. This will provide information to users of financial
statements about the entity's ability to generate cash and cash equivalents, as well as
indicating the cash needs of the entity.
Objective of IAS 7
Statements of cash flows, particularly when they can be analysed over more than one
year, are useful to creditors, lenders and investors, especially major investors such as
pension funds. A company with good operating cash flows can finance both business
operations and returns to investors.
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Statement of cash flows
Statements of cash flows should be used in conjunction with the rest of the financial
statements. Users can gain further appreciation of:
• The change in net assets.
• The entity's financial position (liquidity and solvency).
• The entity's ability to adapt to changing circumstances and opportunities by
Benefits of cash
flow information
affecting the amount and timing of cash flows.
Statements of cash flows enhance comparability as they are not affected by differing
accounting policies used for the same type of transactions or events.
Cash flow information of a historical nature can be used as an indicator of the amount,
timing and certainty of future cash flows. Past forecast cash flow information can be
checked for accuracy as actual figures emerge. The relationship between profit and net
cash flow and the impact of changing prices can be analysed over time.
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Statement of cash flows
IAS 7 requires statements of cash flows to report cash flows during the period
classified by:
• Operating activities: These are primarily derived from the principal revenueproducing activities of the entity and other activities that are not investing or
financing activities.
• Investing activities: These are the cash flows derived from acquisition and
Presentation
disposal of non-current assets and other investments not included in cash
equivalents.
• Financing activities: These are activities that result in changes in the size and
composition of the equity capital and borrowings of the entity.
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Statement of cash flows
Presentation
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Statement of cash flows for the year ended 31 December 20X7
Tk. m
Cash flows from operating activities
Cash generated from operations
2,730
Interest paid
(270)
Income taxes paid
(900)
Net cash from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
(900)
Proceeds from sale of property, plant and equipment
20
Interest received
200
Dividends received
200
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital
250
Proceeds from issue of long-term borrowings
250
Dividends paid
(1,290)
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Tk. m
1,560
(480)
(790)
290
120
410
Statement of cash flows
The adjustments in the statement of cash flows to 'cash generated from operations' to
arrive at 'net cash from operating activities' consist of payments of interest and
income tax.
A similar method can be used to calculate the cash flows for interest paid and income
Payments of
interest and tax
tax paid. For each item, the information available might be:
• Opening balance at the start of the period (opening statement of financial
position)
• Statement of profit or loss (the amount of the item, as reported)
• Closing balance at the end of the period (closing statement of financial position)
The cash flow is a balancing figure obtained from these three figures.
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Statement of cash flows
Interest paid is calculated as follows.
Figures in Tk.
Payments of
interest and tax
Tk.
Opening balance
54,000
Add: interest charge
240,000
Less: closing balance
(63,000)
231,000
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Statement of cash flows
Cash and cash equivalents
The following disclosures are required:
• The components of cash and cash equivalents.
• A reconciliation showing the amounts in the statement of cash flows reconciled
with the equivalent items reported in the statement of financial position.
Disclosures
• The accounting policy used in deciding the items included in cash and cash
equivalents (IAS 1).
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Statement of cash flows
Other disclosures
All entities should disclose, together with a commentary by management, any other
information likely to be of importance, for example:
• Restrictions on the use of or access to any part of cash equivalents.
• The amount of undrawn borrowing facilities which are available.
Disclosures
• Cash flows which increased operating capacity compared to cash flows which
merely maintained operating capacity.
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Statement of cash flows
Example: Notes to the statement of cash flows
The following shows how the required disclosures would be presented.
Note: Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and balances with banks, and
Disclosures
investments in money market instruments. Cash and cash equivalents included in the
statement of cash flows comprise the following amounts from the statement of
financial position.
Cash on hand and balances with banks
Short-term investments
Cash and cash equivalents
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20X7
Tk. m
40
370
410
20X6
Tk. m
25
95
120
Statement of cash flows
Example: Notes to the statement of cash flows
The company has undrawn borrowing facilities of Tk. 2,000m of which only Tk. 700m
may be used for future expansion.
Note: Property, plant and equipment
Disclosures
During the period the company acquired property, plant and equipment with an
aggregate cost of Tk. 1,250m of which Tk. 900m was acquired by lease. Cash
payments of Tk. 350m were made to purchase property, plant and equipment.
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?
Thank You!
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