UNIVERSITY OF LIMPOPO
TURFLOOP CAMPUS
SCHOOL OF ACCOUNTANCY
CACC012
2ND SEMESTER 2020
WORKBOOK:2(b)
MODULE 2
FINANCIAL STATEMENTS -
COMPANIES
(IAS 1)
(Explanations to Content, Structure & format)
Pages 1- 9
Prepared by: Ms A Brandt - (Revised: July 2016)
Revised by: Mr G Nyirenda (October 2020)
ACCOUNTANCY DREAM @ UL
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,FINANCIAL STATEMENTS: FRAMEWORK FOR PRESENTATION AND DISCLOSURE
The framework for the presentation and disclosure in respect of financial statements are prepared
with reference to IFRS (adapted for the course) and is applicable to private and public companies.
These statements are also known as separate financial statements (IAS 27). A company that has
investments in subsidiary companies has to prepare consolidated financial statements as well as
separate financial statements. Consolidated financial statements are a sophisticated merging of the
separate financial statements of the companies in the group. (Further level of accounting).
STRUCTURE AND CONTENT (dealing with the format and content of the F/S.)
Identification of financial statements
The financial statements shall be identified clearly and distinguished from other information in the
same published document.
Each component of the financial statements shall be identified clearly. In addition, the following
information shall be displayed prominently, and repeated when it is necessary for a proper
understanding of the information presented:
- the name of the reporting entity or other means of identification, and any change in that
information from the preceding reporting period;
- whether the financial statements cover the individual entity or group of companies;
- the end of the reporting period or the period covered by the financial statements or
notes;
- the presentation currency, as defined in IAS 21 - The effects of changes in foreign
exchange rates; and
- the level of rounding used in presenting amounts in the financial statements.
Other disclosure (IAS 1 - par 138)
An entity shall disclose the following, if not disclosed elsewhere in information published with the
financial statements:
- the domicile and legal form of the entity, its country of incorporation and the address of
its registered office (or principal place of business, if different from the registered office;
- a description of the nature of the entity’s operations and its principal activities; and
- the name of the parent entity and the ultimate holding entity of the group.
Notes to the financial statements
Notes contain information in addition to that presented in the statement of financial position, the
statement of profit or loss, the statement of changes in equity and the statement of cash flows.
Notes provide narrative descriptions on disaggregation of items presented in those statements.
The notes shall:
- present information about the basis of preparation of the financial statements and the
specific accounting policies,
- disclose the information required by IFRS’s that is not presented on other places in the
financial statements; and
- provide additional information that is not presented elsewhere in the financial
statements, but is relevant to an understanding of any of them
An entity shall as far as is practicable, present notes in a systematic manner. An entity shall cross
reference each item in the statements of financial position, profit or loss and also in the statement of
changes in equity and the statement of cash flows, to any related information in the notes.
(In answering questions calculations should be cross referenced to items in the financial statements.
Please note that calculations do NOT FORM PART OF the financial statements and can NOT be used
to
replace the notes to the financial statements.)
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,Notes to the statement of Profit or Loss
Revenue
Revenue includes all items from the sale of merchandise, after discounts have been deducted as well
as returns. Revenue will always exclude VAT as the entity is an agent that collects VAT on behalf of
SARS. Also refer to the accounting policy note, (Note 4.4) and Note 11 in respect of revenue.
Other income – Note 12
The line item in the SoPL will include:
- Profit on the sale PPE items (these items must be shown per category of PPE)
- Insurance compensation received in respect of PPE items destroyed in an incident
- Profit on the disposal of investments in unlisted shares
- Rent income from investment property
Detail of the above items must be disclosed in the note “Profit before tax” – refer to Note 14
Income from other financial investments – Note 12
This line item in the SoPL includes:
- Dividends received on an investment in unlisted shares of a company
- Dividends received on an investment in listed shares of a company
- Interest received on a fixed deposit
Note that the total of this note must agree with the R value in the statement of profit or loss.
Cost of sales – (NO separate note)
Cost of sales is a separate line item. The calculation of cost of sales must be done separately and NOT
on the face of the SoPL. Marks are normally awarded to this calculation, so DON’T omit the
calculation. Any write–off or losses of inventory are included in Cost of Sales, and are NOT shown as a
separate item under expenses in the SoPL.
The loss as a result of the write down of inventory to nett realisable value must be disclosed in the
note “Profit before tax” (Note 14), BUT will be included in cost of sales in the SoPL.
Any insurance compensation received in respect of an event regarding inventory will be credited to
Cost of sales, AND will also be disclosed in the note under the “Profit before Tax” (Note 14) in the
notes to the financial statements.
Expenses
Distribution costs, administrative costs & other expenses
In this course, expenses in the case of companies are presented in accordance with the function it
relates to. The following three line items are used to present expenses, other than cost of sales,
finance costs and income tax expense:
- Distribution costs
- Administrative costs; and
- Other expenses.
At the end of the reporting period, expense accounts are closed off against retained earnings. In the
case of the presentation of expenses according to the function method thereof, the accounting
system would be set up in such a way that the expenses are automatically allocated to the function it
relates to. In this course, it would NOT be expected of you to allocate expenses to the function it
relates to. In examples there will be only one amount in respect of the three line items “Distribution
costs”, Administrative costs” and “Other expenses”.
Finance costs - (Note 13)
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, All finance costs (=interest paid) will be included in this line item. The note to this expense will
disclose the detail of finance costs paid, supplying users with further information.
Profit before tax - (Note 14)
The “Profit before tax” note must inter alia disclose the following expenses:
Depreciation – (per category of PPE )
Amortisation
Impairment loss - PPE
Loss with write-down of trade inventories to net realisable value
Loss on disposal of PPE items (per PPE category)
Loss on disposal of investment in unlisted shares
Loss on PPE items destroyed in an incident
Loss due to trade inventories destroyed in an incident
Employee benefit expense
Settlement of law suits
Management-, technical-, administrative-, and secretarial services (to non-
employees)
Auditors’ remuneration
Directors’ remuneration
Please note that once the above items are disclosed it is not necessary to add the items to arrive at a
total in the disclosure note. The total will be meaningless and will not agree with any total in the
statement of profit or loss. The reason for this is that only certain selected items are disclosed in the
note and NOT ALL the expenses.
Earnings per share – Note 16
Earnings per share must be shown on the face of the statement of profit or loss. Calculations were
done in Module 4.
More about auditors’ remuneration
In respect of a sole proprietor, the owner and the management is the same person, whilst the owners
(shareholders) and the management (directors & top management) of a company are separated.
The financial statements of a public company as well as specific private companies (refer to Public
Interest Score) have to be audited annually by an external auditor. Specific private companies’
financial statements are annually subject to an independent review. The same individual may not
serve as the auditor or designated auditor of a company for more than five consecutive financial
years.
To give assurance to the users of the financial statements, including the shareholders, that the
directors properly operated the company in terms of the applicable legislation and practices, all
financial statements of any public company and certain private companies must be reviewed by an
external auditor. An external auditor is an appropriately qualified independent person, which will be,
in the case of a public company, one of the senior partners of an audit firm.
The external auditor annually delivers a report to the shareholders in which an opinion is expressed
over the financial statements of the company. The appointment of an auditor of a company is done
by the shareholders during a general meeting.
The auditor provides detail of the audit approach that will be followed during the performance of the
audit / audit review as well as the estimated costs attached thereto. The audit/ audit review of
financial records and statements for 20.7 is performed during 20.7 as well as 20.8. The financial
statements of a public company will usually be completed between three to six months after the
reporting period.
The auditors’ remuneration is recognised as an expense as the invoice in respect of completed audit
work is received from the auditor. Audit work in respect of the 20.7 reporting period that will only be
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