the lecture 3 (05/11/2015) notes
the lecture 3 (05/11/2015) notes ACC (Accountancy)
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This 23 page Class Notes was uploaded by Lin Jingwen on Friday November 6, 2015. The Class Notes belongs to ACC (Accountancy) at Ngee Ann Polytechnic taught by Quah Wei-Wei, Karen ; Yeow Kinn Leong in Fall 2015. Since its upload, it has received 54 views. For similar materials see Regulatory Framework Accounting in Accounting at Ngee Ann Polytechnic.
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Date Created: 11/06/15
Regulatory Framework of Accounting (RFA) Lecture 3 study notes #= sub-section / paragraph ……..=key word/phrase Published Financial Statements Part 1 1. Background 2. Financial Statements 3. Standard Procedure and Approach Background: Financial Statements issued for external reporting must comply with legal requirements (Company Act). Non-compliance to FRS will be tantamount to breach of Company Act. Listed companies must also conform to requirements of the SGX Listing Manual (Out-of-scope) Disclosure simply means showing separately the items listed and this may be done in the appropriate portions of the financial statements. The board of directors and/or other governing body of a company is responsible for the preparation and presentation of its financial statements. Financial statement: A complete set of financial statements include the following (FRS 1 #10) - A statement of comprehensive income - A statement of changes in equity - A statement of financial position - A statement of cash flow (to be covered in Advanced Financial Accounting module) -Notes to the financial statements stating the accounting policies and explanatory notes. [disclose at the back of the financial statement additional information that the stakeholders might want to know.] FRS 1 #38 states that because users wish to compare the financial position, performance and changes in financial position of an enterprise over time, it is important that the financial statements show corresponding information for the preceding periods. FRS 1 #36 stipulates that financial statements are to be presented at least annually. FORMATS [Reflected in PFS Template (FRS Manual)] [Changes may be necessary in order to achieve a fair presentation in each entity’s particular circumstances] 1 Statement of Comprehensive Income Format adapted from FRS 1 Guidance on Implementing (Classification of expenses by function) XYZ Pte Ltd Statement of Comprehensive Income for the year ended 31 December 20XX Note $ Revenue X XXXX Cost of sales (XXX) Gross profit XXXX Other income XXXX Distribution costs (XXX) Administrative expenses (XXX) Finance costs (XXX) Profit before tax X XXX Income tax expense X (XXX) Net profit for the period W Other comprehensive income: Items that will not be reclassified subsequently to profit or loss: Surplus in revaluation of fixed assets (Note XX) Y Items that may be reclassified subsequently to profit or loss: AFS investments valuation gains / (losses) Z Other comprehensive income for the period Y+Z Total comprehensive income for the period W+Y+Z The annexed notes form an integral part of the financial statements. For RFA examination purposes, a blank template for the preparation of this statement will be given to you. 2 Statement of Changes in Equity Format adapted from FRS 1 Guidance on Implementing XYZ Pte Ltd Statement of Changes in Equity for the year ended 31 December 20XX Share Reval Other Accum General Total Capital uation Reserves ulated Reserve Reserve Profits $ $ $ $ $ $ Balance at 1 January A1 A2 A3 A4 A5 A6 20XX Ref* Total comprehensive Y Z W Y + Z income for the period + W Dividends (Note XX) (H) (H) Issue of share capital B B (Note XX) Transfer to general (C) C reserve Balance at 31 A1 + B A2 + Y A3 + Z A4 + W A5 + C E December 20XX H C Ref @ The annexed notes form an integral part of the financial statements. Ref *: A6 = A1 + A2 + A3 + A4 + A5 Ref @: E = A6 + Y + Z + W – H + B (add vertically) or E = A1 + B + A2 + Y+ A3 + Z + A4 + W – H – C + A5 + C (add horizontally) For RFA examination purposes, a blank template for the preparation of this statement will be given to you. 3 Statement of Financial Position Format adapted from FRS 1 Guidance on Implementing XYZ Pte Ltd Statement of Financial Position as at 31 December 20XX Note $ ASSETS NonCurrent Assets Fixed assets X X,XXX Investment property X X,XXX Investments X X,XXX XX,XXX Current Assets Inventories X X,XXX Trade receivables less allowance XXX Investments X X,XXX Other receivables and prepayments X,XXX Loan to a director X X,XXX Bank and cash balances X,XXX X,XXX Total Assets X,XXX,XXX EQUITY AND LIABILITIES Share Capital and Reserves Share capital X X,XXX Reserves X X,XXX XX,XXX NonCurrent Liabilities Deferred taxation X,XXX Longterm bank loan X X,XXX XX,XXX Current Liabilities Trade payables X,XXX Other payables and accruals X,XXX Longterm bank loan X X,XXX Provision for taxation X,XXX XX,XXX Total Equity and Liabilities X,XXX,XXX The annexed notes form an integral part of the financial statements. For RFA examination purposes, a blank template for the preparation of this statement will be given to you. PURPOSE & HOW TO PREPARE 1 Statement of Comprehensive Income The main rationale or purpose for the Statement of Comprehensive Income is to allow users to review the operating performance of the business. Information to be presented on the face of the Statement of Comprehensive Income: (FRS 1 #81A, 82) (a) Revenue (b) Finance costs (c) Tax expenses (d) Net profit or loss for the period (e) Each component of other comprehensive income (f) Total comprehensive income for the period FRS 1 #82A also requires that amounts of other comprehensive income in the period to be classified by nature and grouped into those that: (a) will not be reclassified subsequently to profit or loss [recognise as equity]; and (b) will be reclassified subsequently to profit or loss when specific conditions are met. Other comprehensive income comprises items of income and expense for the period not recognised in profit and loss. They are instead recognised directly in equity. These items are classified and presented by type on the face of the Statement of Comprehensive Income. Examples include changes in revaluation surplus of fixed assets and gains/losses in fair value of availablefor sale (AFS) financial instruments: I. Revaluation of fixed assets (Also covered in the earlier RFA topic of FRS 16) Example: Freehold land, originally carried at cost of $600,000, was revalued to $800,000. The journal entry is: Dr Land 200,000 Cr Revaluation Reserve 200,000 II. Valuation for Availableforsale (AFS) securities (Also covered in the earlier RFA topic of FRS 39) Example: Increase in AFS security values from $10,000 (last year end) to $15,000 (this year end). The journal entry is: Dr Investment in AFS securities 5,000 Cr Investment Reserve 5,000 Additional line items, headings and subtotals should be shown when required by an FRS. According to FRS 1 Guidance on Implementing, these headings include: (a) Gross profit (b) Profit before tax (c) Total of other comprehensive income for the period For classification of expenses, an enterprise should use one of two approaches: “nature of expense” approach or “function of the expense” approach. [preferred] The Function of Expense Approach (examinable) (FRS 1 #103 104) The function of expense approach involves the allocation of individual expenses into common categories. This allows analysis of such results. Only the totals of each category are reported on the face of the Statement of Comprehensive Income. An entity classifying expenses by function shall disclose additional information on the nature of expenses, including depreciation and amortisation expense and employee benefits expense. Functional income & expense categories include: Account Description Balances Revenue Sales from sale of goods CR Sales from services CR Cost of Sales Cost of goods sold DR Inventory obsolescence DR Other Income Interest income CR Dividend income CR Rental income CR Gain on disposal of fixed assets CR Gain on disposal of investments CR Gain in valuation of investment property CR Gain in fair value of trading securities CR Foreign exchange gain CR Writeback of impairment loss CR Distribution Costs/Expenses Advertising DR Delivery / transportationout DR Sales salaries DR Sales commissions DR Specified items e.g. Depreciation of delivery vehicles DR Administrative Costs/Expenses Auditors remuneration / fees DR Directors’ remuneration (salaries, allowances, bonuses, fees, gratuities, pensions etc) DR Bank charges DR Foreign exchange loss DR Preliminary expenses written off DR Depreciation of office related items (or nondesignated depDRciation) Telephone DR Electricity DR Stationery DR Entertainment DR Insurance DR Professional and legal fees DR Utilities DR Office rental, office repairs etc DR Stamp duties DR Loss on disposal of fixed assets DR Loss in fair value of investment property DR Loss in fair value of trading securities DR Impairment loss of accounts receivable DR Finance Costs Interest on loans/debentures/overdrafts DR Taxation Expenses Current DR Current –under provision for previous year DR Current –(over) provision for previous year CR Deferred tax expense DR Income Tax Expense The following information relating to income tax is to be disclosed (FRS 12 #79 80): Current income tax for the year Adjustment of prior year i.e. relating to over/under provision of prior years’ income tax Deferred taxation i.e. amount attributable to succeeding years Things to look out for: Know where & how to get information for OCI items (ie from additional info), and not from TB XYZ Pte Ltd Statement of Comprehensive Income for the year ended 31 December 20XX (Extract) $ Net profit for the period XXXX Other comprehensive income: Items that will not be reclassified subsequently to profit or loss: Surplus in revaluation of fixed assets (Note XX) 200,000 Items that may be reclassified subsequently to profit or loss: AFS investments valuation gains taken to equity 5,000 Other comprehensive income for the period 205,000 Total comprehensive income for the period XXXX The annexed notes form an integral part of the financial statements. Note: “Profit and Loss” and “Other Comprehensive Income” can be presented in two separate statements. However, for purpose of the RFA module, we will adopt the singlestatement presentation. 2 Statement of Changes In Equity The statement of changes in equity (SCE) is a separate statement showing: a) the total comprehensive income for the period (computed in the Statement of Comprehensive Income as above) b) the cumulative effect of changes in accounting policy and the correction of prior period errors dealt with under FRS 8 c) capital transactions with owners and distributions to owners (e.g. share issue and dividend payment) d) a reconciliation between each class of equity capital each reserve at the beginning and end of the period, separately disclosing each movement. Examples of types of movements to the equity accounts and reserves: I . Share capital – Issue If 100,000 shares are issued at $1.50 each, the journal entry is: Dr Cash 150,000 Cr Share Capital 150,000 II . Share capital – Rights Rights are given to existing shareholders to take up shares at discounted prices, lower than the market price i.e. shareholders have to pay for rights issue taken up. Issue is also proportionate to existing shares held e.g. rights of 1 share for every 2 held or a rights issue of “1 for 2”. E.g. A company issued 100,000 rights share at $1.30 each. The journal entry is: Dr Cash 130,000 Cr Share Capital 130,000 III . Share capital – Bonus Shares issued to shareholders free of charge i.e. no money is received. Issue is in proportion to existing shares owned e.g. one share for every five shares held or “1for5” issue. If the bonus issue is issued from a reserve, for example, the journal entry is: Dr ZZZ Reserve XX Cr Share Capital XX ($XX being the value assigned to the bonus shares issued) IV . Interim dividends The company may pay part of dividends during the year (usually midyear). This payment is known as interim dividend. The journal entry is: Dr Interim dividend XXX Cr Bank XXX ($XX = No. of issued shares X dividend rate per share) Movements in Reserves presented as “Other Comprehensive Income” Example 1 The following balances as at 31 December 20X9 had been extracted from the books of Data Source Pte Ltd: Debit Credit $’000 $’000 Freehold land, at revaluation 2,500 Revaluation reserve 2,200 Additional information The freehold land was revalued during the year by a firm of professional valuers from $1,300,000 to $2,500,000. Solution Data Source Pte Ltd Statement of Comprehensive Income for the year ended 31 December 20X9 (extract) $’000 Net profit for the period XXXX Other comprehensive income: Items that will not be reclassified subsequently to profit or loss: Surplus in revaluation of fixed assets (Note XX) 1,200 Other comprehensive income for the period 1,200 Total comprehensive income for the period XXXX The annexed notes form an integral part of the financial statements. Data Source Pte Ltd Statement of Changes in Equity for the year ended 31 December 20X3 (extract) Revaluation Retained Total Reserve Earnings $’000 $’000 $’000 Balance at 1 January 20X9 1,000 XXXX XXXX Total comprehensive income for the period 1,200 XXXX XXXX Balance at 31 December 20X9 2,200 XXXX XXXX The annexed notes form an integral part of the financial statements. Share Capital and/or Capital Reserves Example 2 Euro Vox Pte Ltd is a GST registered company incorporated in Singapore. The following balances were extracted as at 31 December 20X9: Debit Credit $’000 $’000 Share capital (issued and fully paid) 350 Additional information In July 20X9, the company issued and accounted for 100,000 ordinary shares for cash at $1.50 each to provide additional working capital. Solution Euro Vox Pte Ltd Statement of Changes in Equity for the year ended 31 December 20X9 (extract) Share Total Capital $ $ Balance at 1 January 20X9 200 200 Issue of share capital (Note XX) 150 150 Balance at 31 December 20X9 350 350 The annexed notes form an integral part of the financial statements. Interim Dividends Directors may approve an interim dividend after the 6monthly profit performance is known. Directors can approve an interim dividend during the board of directors meeting. Disclosure is required of distribution to owners e.g. interim dividends [FRS 1 #107]. Example 3 Home Appliances Pte Ltd is a GST registered company incorporated in Singapore. The following balances were extracted as at 31 December 20X9: Debit Credi $ $ Interim dividends (paid on 18 July 20X9) 1,950 Share capital (issued and fully paid) 100,000 Accumulated profits, 1 January 20X9 30,560 Solution Home Appliances Pte Ltd Statement of Changes in Equity For the year ended 31 December 20X9 (extract) Accumulated Total Profits $ $ Balance at 1 January 20X9 30,560 30,560 Dividends (Note XX) (1,950) (1,950) Balance at 31 December 20X9 28,610 28,610 The annexed notes form an integral part of the financial statements. Final Proposed Dividends Final dividends are generally declared or proposed after the end of reporting period. According to FRS 10 #1213, the amount of final dividends declared or proposed after the end of reporting period is regarded as a nonadjusting event after the end of the reporting period. In the interest of prudence, the directors may approve an amount equivalent to the proposed final dividend to be set aside to a dividend reserve at the end of reporting period. The journal entry for the amount transferred from accumulated profits to a dividend reserve, equivalent to final proposed dividends is: Dr Cr $’000 $’000 Dr B/S Accumulated Profits XXX C B/S Dividend Reserve XXX r (Being amount transferred to dividend reserve) Example 4 Home Appliances Pte Ltd is a GST registered company incorporated in Singapore. The following balances were extracted as at 31 December 20X9: Debit Credit $ $ Share capital (100,000 shares) 100,000 Transfer from accumulated profits to dividend reserve 5,000 Accumulated profits, 1 January 20X9 30,560 Dividend reserve 5,000 Additional Information: (a) A final dividend of 5 cents per share was proposed by the directors. (b) As at 31 December 20X9, the directors approved a transfer from accumulated profits to dividend reserve, an amount equivalent to the proposed final divided, in the interest of prudence. This amount has been reflected in the accounts. Solution Net final dividends = dividend rate per share x no. of shares issued = $0.05 x 100,000 = $5,000 Home Appliances Pte Ltd Statement of Changes in Equity for the year ended 31 December 20X9 (extract) Accumulated Dividend Total Profits Reserve $ $ $ Balance at 1 January 20X9 30,560 30,560 Transfer to Dividend Reserve (5,000) 5,000 Balance at 31 December 20X9 25,560 5,000 30,560 The annexed notes form an integral part of the financial statements. Things to look out for: For the ending figures, which items can be extracted from TB? [All values no need to be adjusted as the value given will be the final value that have already adjusted with the additional information except for accumulated profit. The opening balance of the accumulated profit is given but not the year-end value.] Order of the columns from left to right: Share Capital Capital reserve (Asset Revaluation Reserve / Investment Reserve) Revenue reserve (Retained Earnings / Dividend Reserve) 3 Statement of Financial Position The Statement of Financial Position reflects the financial position of an enterprise by reflecting its assets, liabilities and equity. Information on the face of the Statement of Financial Position FRS 1 provides that, as a minimum, the face of the Statement of Financial Position should include line items, which present the following amounts (#54): property, plant and equipment intangible assets investment property investments inventories trade and other receivables cash and cash equivalents trade and other payables liabilities and assets for current tax deferred tax liabilities and deferred tax assets provisions financial liabilities issued share capital and reserves FRS 1 provides that additional line items, headings and subtotals should be presented on the face of the Statement of Financial Position when a FRS requires it, or when such presentation is necessary to present fairly the enterprise’s financial position (#55). FRS 1 also provides that an enterprise should disclose, either on the face of the Statement or in the notes, further subclassification of the line item presented (#77). Current / Noncurrent distinction (FRS 1 #60) An entity shall distinguish between current and noncurrent assets or liabilities in its Statements of Financial Position. The decision to classify assets and liabilities into current and noncurrent categories is based on the nature of the operations of a business. Assets FRS 1 #66 provides that an asset should be classified as a current asset when it: (a) is expected to be realised in, or is held for sale or consumption in the normal course of the enterprise’s operation cycle; or (b) is held primarily for trading purposes or for the short term and expected to be realised within twelve months of the Statement of Financial Position date; or (c) is cash or cash equivalent asset, which is not restricted in its use. All other assets should be classified as noncurrent assets. In general, noncurrent assets include: Freehold land and buildings Leasehold properties Investments Intangibles In general, current assets include: Inventories Investment in trading securities Trade receivables Other receivables and prepayments Loans to directors or other related parties Cash and cash equivalents Assets are normally presented above in increasing order of liquidity in the Statement of Financial Position. Liabilities FRS 1 #69 states that a liability should be classified as a current liability when it: (a) is expected to be settled in the normal course of the enterprise’s operating cycle; or (b) is due to be settled within twelve months of the Statement of Financial Position date. All other liabilities should be classified as noncurrent liabilities. The portion of longterm liabilities due within 12 months from the end of reporting period is to be shown as a current liability. Example 5 Venture Pte Ltd is a distributor of automotive components in Singapore. The following trial balance was extracted at the year ended 31 December 20X8: $ $ DR CR Longterm bank loan 400,000 Additional Information: The longterm bank loan obtained from the Citibank bears interest at 6% per annum. This loan is secured by a charge on the company's freehold land and is repayable by equal twiceyearly instalments of $40,000 commencing 1 February 20X9. Solution Venture Pte Ltd Statement of Financial Position as at 31 December 20X8 (extract) NonCurrent Liabilities Note $ Longterm bank loan 8 320,000 Current Liabilitie Longterm bank loan 8 80,000 The annexed notes form an integral part of the financial statements. In general, noncurrent liabilities include: Deferred taxation [always noncurrent] (FRS 1 #56) Debentures (due more than a year from end of reporting period) Portion of longterm bank loan due more than a year from end of reporting period In general, current liabilities include: Trade payables and bills payables Other payables and accruals Longterm loan due within 12 months Obligation under hire purchase contracts (portion due within 12 months) Provisions e.g. provision for warranties Provision for taxation Bank overdraft Short term bank loans Types of Statement of Financial Position items and their description Freehold land and Freehold land normally has infinite useful life and is not regarded as a building depreciable asset. Buildings are depreciable assets. Land and building balances are presented separately. Fixed assets On the Statement of Financial Position, reflect the total net book value of (Refer also to FRS the different classes of fixed assets. 16) [Net book value = Cost / Valuation less Accumulated Depreciation] Investment Company holding an investment property should either measure it using properties the (FRS 40 #30): (a) fair value model; or (b) cost model Intangibles Intangible assets are longlived assets that are generally characterised by a lack of physical existence and a high degree of uncertainty concerning future benefits. Examples: Patent – exclusive right to produce and sell an invention. The invention may be a product or a process. Copyright – exclusive right to reproduce and sell a book, musical composition, computer software, film or other work of art. Trademark or brand name – distinctive identifications of products or services. If relevant, major items among intangibles should be shown separately (FRS 38 #119). Investments Investments may be classified as noncurrent or current assets depending on their categories. Heldfortrading securities (also known as trading securities) are held for shortterm purposes and are thus classified as current assets. Availableforsale securities are noncurrent assets. Classification of heldtomaturity investments is dependent on the maturity dates of the investments. Financial assets that are not carried at fair value through profit and loss are subjected to an impairment test at the end of each reporting period (FRS 39 #58). If impaired, an “Allowance for impairment loss” contra asset account will be created and this is a disclosure item. On the Statement of Financial Position, present the net value of the investment (i.e. after subtracting the value of the allowance account.) Should a company own more than 50% of the shares in another company, then the former is the holding company and the latter the subsidiary. If a company owns between 20% and less than 50% of the shareholdings of another company, the latter company is known as an associate. (Investments in Subsidiaries and Associates will be covered in detail in the AFA module.) Loan to directors Loans to directors are illegal (per Companies Act), unless the loan is made to a director: a) to enable him to perform his duties as an officer of the company; b) to acquire a house (for fulltime directors) – one loan only; c) under the same scheme of loan also offer to other employees approved at a general meeting; d) in the ordinary business of the company to lend money e.g. banks, finance companies subject to the supervision of MAS. Allowance for To be disclosed, and its account balance deducted from Trade impairment of Receivables account. For purposes of RFA, this account balance is trade receivables presented on the face of the Statement of Financial Position, presented as “Trade receivables less allowance XX”. Allowance for To be disclosed (generally in the Notes to financial statements), account impairment in balance to be deducted from Investment account. investments Inventories Reflect the total net carrying amount (after deducting any allowance for inventory obsolescence) of all categories of inventories on the face of the Statement of Financial Position. Trade receivables Reflect the net amount (after deducting any allowances for impairment) on the face of the Statement of Financial Position. Share capital This represents paidup capital which is the total contribution that the shareholders have contributed to the company. Reserves On the face of the Statement of Financial Position, present the consolidated value of all the reserves. Reserves comprise both capital and revenue reserves. Capital reserves are presented first in the SFP. These reserves, which for statutory reasons or because of the provisions in the Memorandum of Articles of a company, are not available for distribution to the shareholders. Examples are “Revaluation Reserve”, “Foreign Currency Translation Reserve”, “AFS/Investment Reserve”. Revenue reserves are retentions of distributable profits available for general use in the business. Examples are “Accumulated Profits” (also known as Retained Earnings or Unappropriated Profits), “Dividend Reserve” and “General Reserve”. Deferred tax asset FRS 1 #56 states that deferred tax assets and liabilities should not be / liability classified as current assets and liabilities. GST payable / At the end of the year, compute the net GST payable or net GST GST receivable receivable balance. The net amount due to or from the revenue authorities (i.e. IRAS) in respect of GST should be included as part of trade accounts payable or trade accounts receivable and does not require separate disclosure. [i.e. for a net GST payable position, add the account balance to “Trade Payables”. For a net GST receivable position, add the account balance to “Trade Receivables”.] The different classes of Statement of Financial Position items include: Account Description Balances NonCurrent Assets Fixed Assets – property, plant and equipment DR Investments (including HTM or AFS) DR Investment Properties DR Patents, copyrights DR Current Assets Inventories (net) DR Allowance for inventory obsolescence CR Trade receivables DR Allowance for impairment of trade receivables CR Other receivables and prepayments DR Loan to a director DR Investments (including trading securities or HTM) DR Bank and cash balances DR Share Capital and Reserves Share capital CR Capital reserve – revaluation reserve CR Capital reserve – investment reserve CR Revenue reserve – general reserve CR Revenue reserve – dividend reserve CR Revenue reserve – accumulated profits CR NonCurrent Liabilities Deferred taxation CR Debentures CR Longterm bank loan CR Current Liabilities Trade payables CR Other payables and accruals CR Longterm bank loan CR Bank overdraft CR Provision for taxation CR Offsetting Balances – No Legal Right of Offset Assets and Liabilities should not be offset unless offsetting is prescribed by a FRS (FRS 1 #32). Example 6 XYZ Ltd has two bank accounts with OCBC and UOB. The yearend balances are: OCBC: $500,000 (Dr) UOB: $120,000 (Cr) Solution XYZ Ltd cannot report a net bank balance of $380,000 as there is no legal right of offset. Things to look out for: GST receivable or GST payable (netting allowed) Bill receivable/payables (no netting) & add to trade receivables/payables accordingly Allowance for impairment of trade receivables Current or Non-current Asset: Investments, Loan to director Current or Non-current Liability: Long-term loan [Loan can be current and non-current. Deferred taxation is always non-current regardless whether it is a asset or liability.] 4 STANDARD PROCEDURES/APPROACH TO DISCLOSURE NOTES Minimum Disclosure Requirement Emphasis The format and presentation of items with proper disclosure with appropriate classifications and subtotals in accordance with Companies (Accounting Standards) Regulations 2002 Act is the key emphasis. Students will be penalised for additional disclosures beyond the requirements of FRS and Companies Act. Students should be advised that balancing of statement of financial position is not critical in the examination. Accounting Policies Only relevant accounting policies given in the question need to be stated. If FULL details are given, state the details. Depreciation Expenses If depreciation charge for current year is given, students need not check accuracy. Depreciation charge could not be checked without details of movements and extent to which various assets have been subjected to depreciation. No errors are to be assumed unless indicated. Materiality Items requiring disclosure are assumed to be material regardless of amount. It is not necessary to prove materiality. For items where disclosure is not required, even if the amounts are material, disclosure would not be required. Comparative Information Although FRS 1 requires comparative information to be presented, due to time constraints, students will not be required to prepare such information when doing the practice questions and for the exams. No adjusting entries required as FINAL trial balance is given and additional information provided to enable you to prepare the SCI, SCE, SFP and the relevant notes to the statements. GENERAL FRS 1 #51 requires each component of financial statements to be clearly identified. The following should be clearly displayed and repeated when necessary: (a) name of company (b) the date of the end of the reporting period or the period covered by the statement (c) level of precision (i.e. expressed in dollars, thousands or millions of dollars) and currency type used in presentation of amounts in financial statements. REFERENCE TO THE NOTES TO FINANCIAL STATEMENTS The notes to the financial statements: present information about the basis of accounting and the significant accounting policies adopted; disclose information required by FRS that is not presented elsewhere in the financial statements; provide additional information which is not presented on the face of the financial statements but that is necessary for a fair presentation; disclose information pertinent to the financial statements with cross referencing in the financial statements (FRS 1 #113); should be read in conjunction with the financial statements; should have an indication as a last sentence to the financial statements: "The annexed notes form an integral part of the financial statements."
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