BUU33532 - Financial Accounting II - HT - 25.01.22

Notes for live lecture 1 on 25th January 2022
1 hour live in person on Tuesday 1-2, 1 hour pre-recorded uploaded by Thursday. Try to
watch the recorded lecture before the next week’s live lecture on Tuesday.
IFRS: International Financial Recording Standards

IAS: International Accounting Standards (we’ve seen a few last term, for example inventory)
We do not need to know every single number and what it relates to, but we do need to know
how it affects accounting treatment.
IAS 1 regards the rules and presentation for a complete set of financial statements,
comprising:
• A statement of financial position at the end of the reporting period (SOFP)
• A statement of profit or loss and other comprehensive income for the period (SPLOCI*)
• A statement of changes in equity for the period (SOCE)
• A statement of cash flows for the period (SOCF, further detailed in IAS 7)
• Accounting policies note and other explanatory notes
Revenue - IFRS 15 says we must include ‘revenue’ in the SPL not ‘sales’ or ‘turnover’, and
must only include the revenues from our day to day activities.
Cost of sales and purchases are not the same thing, as cost of sales includes inventory
(opening inventory is added to purchases and closing inventory is subtracted).
In later examples, depreciation on plant and machinery used in production of the goods
we’re selling as well as carriage inwards will be included in inventory as well.
Profit before interest and tax (PBIT) is also called the operating profit, and is found by
subtracting operating expenses (distribution costs and administrative expenses put together)
from and adding other income to gross profit.
 To understand what the distribution costs and administrative expenses are made up
of, we must go to the notes to the statements
The default for companies talking about profit earned is often PBIT.
Once we subtract finance costs (like loan interest, lease), we get profit before tax.
IAS 12 deals with tax, and subtracting income tax brings us to the profit for the year.
*SPL regards the part of the statement detailing the profit or loss for the year, while OCI is
other comprehensive income. It would be at the bottom of the statement as can be seen on
the “IAS Presentation of Financial Statements' pdf in the lecture materials. It would look like:
The main thing we’re focusing on is IAS 16 property, plant and equipment - the revaluation
of assets based on it’s fair value (dealt with in IFRS 13). We do not have to carry out
revaluation every year, but we do need to make sure our statements reflect market value at
a point in time.
Debit property, credit revaluation gain.
The reason this goes into other comprehensive income is because it is an “unrealised profit”,
we have not earned this profit yet so it cannot go in our SPL section until we actually sell the
property. IAS 16 says it must go to the OCI.
If we make a revaluation loss, it is an unrealised loss. However, because of the principle of

the “prudence” concept, we would show it as a loss in the SPL.
Not every company will have a revaluation policy but those that do will have to determine
how often and have to represent it under other comprehensive income.
In the SOFP:
 To increase assets, Dr and to decrease assets, Cr
 To increase liabilities, Cr and to decrease liabilities, Dr
 To increase equity, Cr and to decrease equity, Dr
In the SPL
 To increase incomes, Cr and to decrease incomes, Dr
 To increase expenses, Dr and to decrease expenses, Cr
Intangible assets (including goodwill) relate to IAS 38, and will be shown under non-current
assets along with physical assets like property, plant and equipment and financial assets like
equity investments and investments in associates.
A company is seen as a separate legal entity to the owners, so equity is what’s owned by the
shareholders. Profit for the year (shown under retained earnings) and revaluation gain both
increase equity but are treated separately.
The practice question will be detailed in the recorded lecture uploaded on Thursday.

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Notes for live lecture 1 on 25th January 2022

IFRS: International Financial Recording Standards

If we make a revaluation loss, it is an unrealised loss. However, because of the principle of

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