Question

1). Explain the different presentations in the income statement and balance sheet under IFRS.

2). Name the five components under the Revenue Recognition Statement and explain their interrelationship

3. Name three differences between GAAP and IFRS in handling accounting issues

Answer 1

Answer to the above accounting question: (1)

Presentation in the income statement and balance sheet under IFRS:

Presentation of financial statements helps in comparing entity's financial statements of previous periods and also with the financial statements of other entities.

Presentation of financial statements provides information about the financial position of the entity, its cash flow and the management results. It helps various users to take informed decisions.

Financial statements represent true and fair view of the business entity.

It provides information about the assets, liabilities, expenditure and revenues, net worth, other changes in equity and cash flow of the entity to the various users. Therefore, it should be easily understandable, reliable, comparable and relevant.

Income statement is a statement of profit and loss.

Presentation of income statement includes:

Revenue, finance cost, impairment losses, Share of profit and loss, tax expense.

Items disclosed on the notes of income statement:

Written down value of inventories to net realisable value, or property, plant and equipment to recoverable value,

Gain or losses on disposal of items of property, plant and equipment,

Gain or loss on disposal of investment,

Litigation settlements.

Balance is a statement of financial position. It reports on company assets, liabilities and ownership at a given point of time.

Balance Sheet include items:

Property, plant and equipment

Investment

Intangible assets

Inventories

Trade and other receivables,

Cash and cash equivalents,

Trade and other payables,

Provisions,

Financial liabilities,

Issued capital and reserves.

(2) 5 components under revenue recognition statement:

(A) contract: it is an agreement between two parties that creates enforceable rights and obligations. It should be approved by the parties in relation to the goods and the services.

(B) customer: customer is a party who contracts entity to obtain goods or services in exchange for consideration.

(C) income: income helps in increasing the economic benefits during the accounting period in the form of inflows or decrease of liabilities.

(D) Revenue: it is the income that arises from the ordinary course of business.

(E) transaction price: it is the amount of consideration that the entity expects from the customer by transferring the goods and services.

(3) differences between GAAP and IFRS in handling Accounting issues:

(i) GAAP is rule-based while IFRS is principle-based.

(ii) GAAP allows last-in-first-out (LIFO) method which is not allowed under IFRS.

(iii) GAAP prohibits reversal of impairment losses for all types of assets while IFRS allows impairment losses to be reversed for all type of assets except goodwill.