Recognition of Current Assets and Equity

Note that IAS-1 requires an asset or liability to be as current if:

-it will be settled within 12months of the reporting date, or
-it is part of the entity’s normal operating cycle.
Within the capital and reserves section of the statement of the
financial position, other component of equity includes:
-Revaluation Reserve
-General Reserve
Statement of Changes in Equity:
Accounting Policies, Changes in Accounting Estimates and
Errors (IAS-8)
Accounting policies are the principles, bases, conventions, rules and
practices applied by an entity which specifies how the effects of
transactions and other events are reflected in the financial statements.
IAS-8 requires an entity to select and apply appropriate accounting
policies complying with IFRS and interpretations to ensure financial
statements provide information that is relevant to the decision making
needs of shareholders.
Changing Accounting Policies:
The general rule is that accounting policies are normally kept same from
period to period to ensure comparability of financial statements overtime.
IAS-8 Requires accounting policies to be changed only if the change is
required by IFRS, or
-will result in a reliable and more relevant presentation of events or
transactions.
 Statement to the Changes to the Equity
Problem-2:
The following information has been extracted from ABC Company
annual report for the year 2019.You are required to prepare owners
equity statement of ABC Company.
a) Authorized share capital of $100,000 of $10 each of which 75%
shares are issued and paid up at $15.
b)Beginning balance of retained earnings was $15000.Current year
profit and loss and other comprehensive income shows a profit of
$10500.
c) The company has some noncurrent assets whose market value is
$20000.However these assets were purchased for $22,000 and
accumulated depreciation to date was $1000.
d)Due to change in accounting policy the company need to adjust $1500
as loss resulted from previous operation.
 Solution to problem 2
Soluton to Problem-2.
ABC company
Statemebnt of Changes to the Equity
For the year ended December,2019
Particulars Share Capital Share Premium Revaluation Surplus Retained Earnings Total Equity
$'000 $'000 $'000 $'000 $'000
Balance brought forward (b/f), W-1 750 375 0 15 1140
Current Year Profit 10.5 10.5
Revaluation surplus (W-2) 3 3
Prior period adujustments -1 -1
750 375 3 24.5 1152.5

Workings
1 Paid-up share capital
100000 share @10 1000000
75% of 10,00,000 750000

Share Premium
100000 share @ (15-10)*75% 375000

2 Revaluation Surplus
Makrket value 22000
Book Value (20000-1000) 19000
3000
 Testing your Understanding
• From the following information of XYZ Company ,prepare changes to
the equity statement for the year ended, 2019:
• Beginning balance of Authorized share capital of 20000 shares at $15
dollar each, of which 15000 shares are paid up. Book value of shares is
$10.
• Beginning balance of retained earnings was $50000.Current year profit
and loss and other comprehensive income shows a profit of $100000.
• The company has some noncurrent assets whose market value is
$120,000.However these assets were purchased for $122,000 and
accumulated depreciation to date was $10,000.
• Due to change in accounting policy the company need to adjust
$15000 as profit resulted from previous operation.
• The company declared 15% dividend of which 10% cash and 5% Stock.
 Solution
Soluton to Problem-2.
ABC company
Statemebnt of Changes to the Equity
For the year ended December,2019
Particulars Share Capital Share Premium Revaluation Surplus Retained Earnings Total Equity
$'000 $'000 $'000 $'000 $'000
Balance brought forward (b/f), W-1
Current Year Profit
Revaluation surplus (W-2)
Prior period adujustments
Dividend payment
Stock
Cash

Workings
1 Paid-up share capital

Share Premium

2 Revaluation Surplus
Makrket value
Book Value

3 Dividend
Cash
Stock
 Comprehensive Problem
Problem-4

The following trial balance has been extracted from the books of Golden Limited as at 31st March 2019.

Particulars Amounts Amounts

‘$000 ‘$000
Accounts Office Rent 98
Audit 22
Salaries 150
Irrecoverable debts 27
General Administration 125
General Distribution 23
Distribution Centre Storage Costs 110
Advertising 40
Share Capital (All ordinary shares of $1 each) 270
Share premium 80
Revaluation Reserve 20
Dividend 27
Cash at bank and in hand 3
Receivables 233
Noncurrent asset investments 280
Interest Paid 25
Dividend Received 15
Interest Received 1
Land and building at costs(Land $100,Buildin$100) 200
Land and building: Accumulated Depreciation 30
Plant and Machinery at costs $400
Plant and Machinery :Accumulated Depreciation 170
Retained Earnings Accounts(at 1April 2018) 235
Purchases 1210
Sales 2165
Inventory at 1st April 2018 140
Trade Payables 27
Bank Loan 100
Total 3113 3113

Additional Information:

1. In inventory at 31st march 2019 had a cost of $85,000

2. Depreciation for the year to 31 st march 2019 is to be charged against cost of sales as follows:
Building-5% on Cost (Straight Line)
Plan and Machinery-30% on carrying value (Reducing Balance)
3. Income tax of $165,000 is to be provided for the year to 31st march 2019.A dividend of 10 cents per share
was paid. The loan is repayable in 5yrs.
4. Non-Current asset investments are to be revalued up by $100,000
5. Salaries are to be paid apportioned equally between cost of sales, administration expenses and distribution
costs.

Prepare the statement of comprehensive income, statement of changes in equity and statement of financial
position for year ended 31st March2019.
 Solution to Comprehensive Problem
Solution to comprehensive problem: Workings:
1 Calcuation of Cost of Sales
Golden Ltd
Statement of Comprehensive Income Particulars Cos of Distribution Administrative
For the Year Ended 31st March,2019 sales ($'000) Costs ($'000) Costs ($'000)
Particulars Ammount Accounts offi ce rent 98
$'000 $'000 Audit Fees 22
Sales Revenue 2165 Salaries (Additional Information-5) 50 50 50
Less: Irrecoverable debts 27
Cost of Sales (W-1) 1389 General Administration 125
Gross Profi t 776 General Distribution 23
Less: Selling and Adm Cost Distribution Centre 110
Distribution Costs 250 Advertising 40
Administration Costs 295 Purchase 1210
545 Opening Inventory 140
Operating Profit 231 Closing Inventory -85
Less Finance Costs: Decpreciation:
Interest receivable 1 5% of 100 5
Investment Income 15 (400-170)*30% 69 74
Total finance income 16 Total 1389 250 295
Finance costs -25
Net Finance Costs 9 2 Tangible non-current assets Land and Plant and Total
Profi t Before Tax 222 Building Machinary
Less: Income tax expenses 165 $'000 $'000 $'000
Profi t for the year 57 Carring value (b/f) 170 230 400
Depreciation (W-1 ) 5 69 74
Other comprehensive income: Carrring value (C/F) 165 161 326
Gain on Property Valuation 100
Total Comprehensive Income (100+57) 157

Golden Ltd Golden Ltd

Statement of Changes in Equity Statement of Financial Position
For the Year Ended 31st March,2019 As at 31st 31st March,2019
Particulars Share Share Revaluation Retained Total Equity Particulars Amout $'000
Capital Premium Reserve Earnings Non-current assets :
$'000 $'000 $'000 $'000 $'000 Property plant and equipment (W-2) 326
Bance B/F 270 80 20 235 605 Investment (280+100) 380
Total comprehensive income Total Non Current Assets 706
for the year 100 57 157 Current Assets:
Dividends -27 -27 Inventory 85
270 80 120 265 735 Receivables 233
Bank 3
Total current assets 321
Total assets 1027

Share Capital 270

Share Premium 80
Revauation Reserve 120
Retained Earnings 265
Total Equity 735

Non-current liabilities 100

Current Liabilities (27+165) 192
Total Liabilities 292
Total shareholders' equity and liability 1027