Acca f3 Financial Accounting (int) Study Text

380

21: Preparation of financial statements for companies   Part F  Preparing basic financial statements 

Quick Quiz 

1 

According to IAS 1, entities have to produce their accounts within what period? 

 

A 

Within 6 months of the reporting date 

 

B 

Within 9 months of the reporting date 

2 

Managers' salaries are appropriations of profit. 

 A True 

 B False 

 

3 

Which of the following items are non-current assets? 

 (i) 

Land 

 (ii) 

Machinery 

 

 (iii) 

Bank 

loan 

 (iv) 

Inventory 

 A (i) 

only 

 

B 

(i) and (ii) 

 

C 

(i), (ii) and (iii) 

 

D 

(ii), (iii) and (iv) 

4 

How is a bank overdraft classified in the statement of financial position? 

 A Non-current 

asset 

 B Current 

asset 

 C Current 

liability 

 

D 

Non-current liability  

5 

In the published accounts of XYZ Co, the profit for the period is $3,500,000. The balance of retained 

earnings at the beginning of the year is $500,000. If dividends of $2,500,000 were paid, what is the 

closing balance of retained earnings? 

 A $4,000,000 

 B $1,500,000 

 C $500,000 

 D 

$1,000,000 

 

  

Answers to Quick Quiz 

1 A 

2 

B 

False. Managers' salaries are an expense charged to the income statement. 

3 

B 

Item (iii) is a liability and item (iv) is a current asset.  

4 

C 

A bank overdraft is strictly payable on demand and so it is a current liability. 

5 B  

$'000

Retained earnings

Opening balance

500

Profit for the period

3,500

4,000

Dividends paid

(2,500)

Closing balance

 1,500

Now try the question below from the Exam Question Bank

Number

Level

Marks

Time

Q45

Examination

2

2 mins 

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381

Events after the 

reporting period 

Introduction

We will now examine a statement that applies very much to limited liability 

companies, IAS 10. 

You will see in IAS 10 the application of the concept of prudence, which you 

learnt about in 

Chapter 3

. This IAS is very important for your auditing studies. It 

is more straightforward in theory than in practice.

Topic list 

Syllabus reference 

1 IAS 10 (Revised) Events after the reporting period F3(a)–(c) 

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382

22: Events after the reporting period   Part F  Preparing basic financial statements  

Study guide 

Intellectual level

F3 

Events after the reporting period 

(a) 

Define an event after the reporting period in accordance with IFRSs. 

1

(b) 

Classify events as adjusting or non-adjusting 

1

(c) 

Distinguish between how adjusting and non-adjusting events are reported in 

the financial statements. 

1

Exam guide 

These are extremely important topics that could well be examined.

1 IAS 10 (Revised) Events after the reporting period 

 

Events after the reporting period which provide additional evidence of conditions existing at the 

reporting date, will cause 

adjustments to be made to the assets and liabilities in the financial statements. 

The financial statements are significant indicators of a company's success or failure. It is important, 

therefore, that they include all the information necessary for an understanding of the company's position. 

IAS 10 (Revised) Events after the reporting period requires the provision of additional information in order 

to facilitate such an understanding. IAS 10 deals with events 

after the reporting date which may affect the 

position at the reporting date.

1.1 Definitions 

The standard gives the following definition. 

Events after the reporting period are those events, both favourable and unfavourable, that occur between 

the reporting date and the date on which the financial statements are authorised for issue. Two types of 

events can be identified: 

 

those that provide further evidence of conditions that existed at the reporting date; and 

 

those that are indicative of conditions that arose subsequent to the reporting date. 

(IAS 10) 

1.2 Events after the reporting period 

Between the reporting date and the date the financial statements are authorised (ie for issue outside the 

organisation), events may occur which show that assets and liabilities at the reporting date should be 

adjusted, or that disclosure of such events should be given.

1.3 Events requiring adjustment 

The standard requires adjustment of assets and liabilities in certain circumstances. 

An entity shall adjust the amounts recognised in its financial statements to reflect adjusting events after 

the reporting period. 

(IAS 10) 

Where events indicate that the 

going concern concept is no longer appropriate, then the accounts may 

have to be restated on a break-up basis. 

Key terms 

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