STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

The published statement of profit or loss and other comprehensive income does not have to detail every single overhead or expense incurred by the company – to do so would be to disclose important management information to competitors. Instead, the main items are summarised; however, IAS 1 requires that certain items must be detailed on the face of the statement, including:

·         revenue

·         finance costs

·         share of the profit or loss of associates

·         tax expense

·         other comprehensive income for the year (eg the revaluation of property)

Further detail may be needed to give information relevant to an understanding of financial performance.

Note that items of income and expense are not to be presented as extraordinary items, either on the face of the income statement or in the notes. When items are material, their nature and amount is to be disclosed separately.

·         The statement of profit or loss and other comprehensive income shows the:

·         profit or loss

·         total other comprehensive income

·         comprehensive income for the year, ie the total of profit or loss and other comprehensive income (which is taken to the statement of changes in equity)

Expenses in the statement of profit or loss and other comprehensive income must be analysed either by nature (raw materials, employee costs, depreciation, etc) or by function (cost of sales, distribution costs, administrative expenses, etc) – depending on which provides the more reliable and relevant information. The analysis by nature is often appropriate for manufacturing companies, while the analysis by function is commonly used by trading companies. The example statement of comprehensive income of ABC PLC (with sample figures) shows an analysis by function.

Cost of sales
Expenditure classified under cost of sales will typically include direct costs, overheads,

depreciation and amortisation expense and adjustments. The items that might appear under

each heading are:

·         Direct costs: direct materials purchased; direct labour; other external charges that comprise production costs from external sources, e.g. hire charges and subcontracting costs.

·         Overheads: variable production overheads; fixed production overheads.

·         Depreciation and amortisation: depreciation of non-current assets used in production and impairment expense.

·         Adjustments: capitalisation of own work as a non-current asset. Any amount of the costs listed above that have been incurred in the construction of non-current assets for retention by the company will not appear as an expense in the statement of comprehensive income: it will be capitalised. Any amount capitalised in this way would be treated for accounting purposes as a non-current asset and depreciated.

Distribution costs

These are costs incurred after the production of the finished article and up to and including

transfer of the goods to the customer. Expenditure classified under this heading will

typically include the following:

·         warehousing costs associated with the operation of the premises, e.g. rent, rates, insurance, utilities, depreciation, repairs and maintenance and wage costs, e.g. gross wages and pension contributions of warehouse staff;

·         promotion costs, e.g. advertising, trade shows;

·         selling costs, e.g. salaries, commissions and pension contributions of sales staff; costs associated with the premises, e.g. rent, rates; cash discounts on sales; travelling and entertainment;

·         transport costs, e.g. gross wages and pension contributions of transport staff, vehicle costs, e.g. running costs, maintenance and depreciation.

Other operating income or expense

Under this heading a company discloses material income or expenses derived from ordinary activities of the business that have not been included elsewhere. If the amounts are not material, they would not be separately disclosed but included within the other captions. Items classified under these headings may typically include the following:

·         income derived from intangible assets, e.g. royalties, commissions;

·         income derived from third-party use of property, plant and equipment that is surplus to the current productive needs of the company;

·         income received from employees, e.g. canteen, recreation fees; payments for rights to use intangible assets not directly related to operations, e.g. licences.

Finance costs

In order to arrive at the profit for the period interest received or paid and investment income

is disclosed under the Finance cost heading.

IAS 1 – PRESENTATION OF FINANCIAL STATEMENTS

Complete set of financial statements

IAS 1 states that a complete set of financial statements comprises:

·         Statement of financial position

·         Statement of profit or loss and other comprehensive income

·         Statement of changes in equity

·         Statement of cash flows

·         Accounting policies and explanatory notes

Note that IAS 1 states that:

·         all of the financial statements are to be given equal prominence

·         the statement of profit or loss and other comprehensive income can be presented:

Ø either as a single statement

Ø or as a profit or loss section, immediately followed by a separate statement of comprehensive income

Overall considerations

The financial statements must present fairly the financial position, financial performance, and cash flows of an entity. The application of international financial reporting standards – supported by appropriate additional IAS 1 specifies disclosures of certain items in certain ways.

disclosures – is presumed to result in financial statements that achieve a fair presentation.

IAS 1 requires that an entity whose financial statements comply with the standards should make an explicit and unreserved statement of such compliance in the notes.

IAS 1 requires compliance with a number of accounting concepts (see also pages 20-21) and other considerations:

·         going concern – when an entity’s financial statements are prepared in accordance with international financial reporting standards, the presumption is that the entity is a going concern, ie it will not cease to trade in the immediate future

·         accrual basis of accounting – financial statements, except for cash flow information, are prepared under the accruals concept, ie income and expenses are matched to the same accounting period

·         materiality and aggregation – each material class of similar items is to be presented separately in the financial statements, eg the classification of assets as non-current and current

·         offsetting – generally it is not permitted to set off assets and liabilities, or income and expenses against each other in order to show a net figure, eg cash at bank is not netted off against a bank overdraft

·         frequency of reporting – financial statements are prepared at least annually; however, when the reporting period changes, the financial statements will be for a period longer or shorter than one year and the entity must give the reason for the change and disclose that the amounts in the financial statements are not entirely comparable with those of previous periods

·         comparative information – a requirement to show the figures from previous periods for all amounts shown in the financial statements in order to help users of the statements

IAS 1 sets out the detailed disclosures to be shown on the face of the statement of profit or loss and other comprehensive income, statement of financial position, and statement of changes in equity.

There are some general principles that the standard requires. These include the identification of:

·         Some items must appear on the face of the statement of financial position or statement of profit or loss

·         Other items can appear in a note to the financial statements instead

·         Recommended formats are given which entities may or may not follow, depending on their circumstances

Obviously, disclosures specified by other standards must also be made. Disclosures in both IAS 1 and other standards must be made either on the face of the statement or in the notes unless otherwise stated, ie disclosures cannot be made in an accompanying commentary or report.

structure and content – general principles

IAS 1 sets out the detailed disclosures to be shown on the face of the statement of profit or loss and other comprehensive income, statement of financial position, and statement of changes in equity.

There are some general principles that the standard requires. These include the identification of:

·         The financial statements, which are to be distinguished from other information in the corporate report

·         The name of the reporting entity

·         Whether the financial statements are for an individual entity or for a group

·         The period covered by the financial statements, eg for the year ended 31 december 20-6

·         The currency of the financial statements, £s, €s, etc

·         The level of rounding used for money amounts, thousands, millions, etc

IFRS 15 - Revenue from Contracts with Customers

IFRS 15 was issued in May 2014 and applies to an annual reporting period beginning on or after 1 January 2018. For the syllabus between September 2017 and August 2018, IFRS 15 will be examined and IAS 18 Revenue will no longer be examined.

This new standard considers there to be a five step approach when recognising revenue:

Step 1: Identify the contract with the customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

The significant area in which the F3/FFA syllabus will be affected is the recognition of revenue for sales where a cash/settlement discount allowed is offered to the customer.

ACCOUNTING FOR DISCOUNTS

Prompt payment discounts (also known as settlement or cash discounts) are offered to credit customers to encourage prompt payment of their account. It is not guaranteed that customers will take advantage of prompt payment discounts at the point of sale as it is dependent upon whether or not credit customer pays within the settlement window.

Historically, and in accordance with IAS 18 Revenue, income from a credit sale in which a settlement discount has been offered has been recognised in full at the point of sale. Accounting for the settlement discount only takes place if the customer pays within the required settlement period (thus accepting the discount). The discount allowed would be recorded as an expense in the seller’s statement of profit or loss and revenue would remain at the full amount.

Example: Freezy Ltd sold goods with a list price of $2,000 on credit to a customer. A Ltd has a 30-day payment period and has offered the customer a 5% prompt payment discount if payment is made within 14 days.

Solution: In accordance with IAS 18 Revenue, the initial sale would have been recorded as debit Receivables $2,000 credit Revenue $2,000. If the customer pays within the 14-day settlement period, the accounting entry would be Debit Cash $1,900 Debit Discounts Allowed $100 Credit Receivables $2,000. If the customer pays out with the 14-day period, Freezy Ltd would record the receipt as Debit Cash $2,000 Credit Receivables $2,000.

IMPACT OF IFRS 15 ON ACCOUNTING FOR PROMPT PAYMENT DISCOUNTS

The five step approach to recognising revenue as outlined above will change the way in which prompt payment discounts are accounted for. In order to recognise revenue, an entity must determine the amount of consideration it expects to be entitled to in accordance with the criteria of IFRS 15.

Per IFRS 15, the third step of the five step approach requires an entity to 'Determine the transaction price', which is the amount to which an entity expects to be entitled in exchange for the transfer of goods and services. When making this determination, an entity will consider past customary business practices. [IFRS 15:47]

When prompt payments discounts are offered, it means that the expected consideration is variable (variable consideration) as the amount the entity will actually receive is dependent upon the customer choice as to whether it will take advantage of the discount.

Where a contract contains elements of variable consideration, the entity should estimate the amount of variable consideration to which it will be entitled under the contract. [IFRS 15:50]

The standard deals with the uncertainty relating to variable consideration by limiting the amount of variable consideration that can be recognised. Specifically, variable consideration is only included in the transaction price if, and to the extent that, it is highly probable that its inclusion will not result in a significant revenue reversal in the future when the uncertainty has been subsequently resolved. [IFRS 15:56]

When an entity enters into a sale with a customer and a prompt payment discount has been offered, the amount of revenue to be recognised initially will need to be estimated taking into account the probability of the discount being accepted. When the entity expects that the customer will accept the discount, revenue should be recorded net of the discount.

Example: J Ltd sold goods with a list Price of $2,000 on credit to a customer. J Ltd has a 30 day payment period and has offered the customer a 3% prompt payment discount if payment is made within 15 days. Based on past experience the customer is expected to take up the 3% discount.

Solution:

The initial sale will be recorded as

	$	$
Receivables	1,940
Revenue		1,940

If the customer pays within the 14-day settlement period, the accounting entry would be

	$	$
Cash	1,940
Receivables		1,940

If the customer does not pay within the 14-day period,

	$	$
Cash	2,000
Receivables		1,940
Revenue		60

Refer to same example if based on past experience the customer is not expected to take up the 3% discount.

Solution:

The initial sale will be recorded as

	$	$
Receivables	2,000
Revenue		2,000

If the customer pays within the 14-day settlement period, the accounting entry would be

	$	$
Cash	1,940
Revenue	60
Receivables		2,000

If the customer pays as expected date

	$	$
Cash	2,000
Receivables		2,000

As the above example highlights, the introduction of IFRS 15 will have a significant impact on the reported revenue. Offering prompt payment discounts will result in lower revenue being recognised (when the discount is accepted). This will have an impact on entities’ gross profit margins. However, the net impact on profit as a whole will be the same as, by recording revenue net of the prompt payment discount, there is no longer a requirement to record a discount allowed expense in the statement of profit or loss. Prompt payment discounts are examined in FA1, FA2 and FA and so an appreciation of this impact is important.

source;

https://www.accaglobal.com/my/en/student/exam-support-resources/fundamentals-exams-study-resources/f3/technical-articles/discounts.html

IFRS 15 is concerned with reporting the nature, amount, timing and uncertainty of revenue and cash flows resulting from contracts with customers.

revenue from contracts with customers arises from fairly common transactions:

• the sale of goods
• the rendering of services.

Generally revenue is recognised when the entity has transferred control over goods and services to the buyer. Control of an asset is  described in the standard as 'the ability to direct use of, and obtain substantially all the remaining benefits from, the asset' (IFRS 15)

Revenue is generally recognised as earned at the point of sale, because at that point four criteria will generally have been met

• the product or service has been provided to the buyer
• the buyer has recognised his liability to pay for the goods or services provided. The converse of this is that the seller has recognised that the ownership of goods has passed from himself to the buyer.
• the buyer has indicated his willingness to hand over cash or other assets in settlement of his liability
• The monetary value of the goods or services has been established

Key definitions [IFRS 15: Appendix A]

Contract	An agreement between two or more parties that creates enforceable rights and obligations.
Customer	A party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.
Income	Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity, other than those relating to contributions from equity participants.
Performance obligation	A promise in a contract with a customer to transfer to the customer either: ·         a good or service (or a bundle of goods or services) that is distinct; or ·         a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.
Revenue	Income arising in the course of an entity’s ordinary activities.
Transaction price	The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

source: bpp interative text

[IFRS 15: Appendix A]

An agreement between two or more parties that creates enforceable rights and obligations.

A party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.

Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity, other than those relating to contributions from equity participants.

A promise in a contract with a customer to transfer to the customer either:

• a good or service (or a bundle of goods or services) that is distinct; or
 
• a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.

Income arising in the course of an entity’s ordinary activities.

The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

Happy birthday, happy birthday.

Its 11 January again but at different year. I looked my face in the mirror. Were there any addition wrinkles on my face? I was getting older now, another one year already passed and my age had reached to another number. Oh! I should have thanked to Allah due to his blessing I was able to breathe in this world. My mouth slowly said Alhamdulillah at barakah day, yaumul Jumaat.

I continued my way to KMS performing my duty here, attending my AC1T3 student answering progressive test 1. What a surprise when I opened the door, simultaneously the student sang to me “ Happy birthday to you, happy birthday to you, happy birthday to madam Ismah, happy birthday to you”. I was like to cry but pretended to be calmed and entered the class. They started to say many things and as always I responded to their conversation, but yet they needed to answer the test. I was so happy Nazri had got highest mark for the test, followed by Iqmal and Uwais. They really fulfilled their promised to me and I said to Nazri, ‘I had already full with you mark and no need the treat me anymore’.

Later at my cubical Zikri yang Izham came and we talked about blog with madam Sumayyah. Zikry showed us his family blog. Nice blog and full of his family moment. Then Hassan, Hafizi and Nukman came with a plastic bag. Another surprised from them, Hassan baked for me Batik cake. Hafizi open the container and at the same time girls came with other cake that was bought by Nazri. They sang birthday song to me and I was very happy. Hafizi took the batik cake on the spoon and feed me, hahaha no photo for this. Lucky for a girl who will be Hafizi’s future wife. He is gentle and romantic person, hahaha. Then I continued received birthday wish from all my JPPro students by WhatsApp. How nice my students! And I Iove them very much.

Thanks Hafizi, Ammar, Hassan, Izaz, Isma, Azyyati, Raja, Anis, Aqilah, Nawal, Farhada, Tasneem, Lina, Fatihin, Haziqah, Nisa, Azzam, Harith, Iqmal, Nazri, Uwais, Herita, Hidayah, Alisa, Fatin, Hussna, Intan, Aniza, Maisarah, Nabilah, Amirah, Syazana, Hakim, Hannah, Zikry, Izham, Danial, Nukman, Azra, Azrin, Balqis, Izzah, Nadrah, Nurin, Asyiqin, Syarifah, Farah and Azzarul Ruqiya for made my day.

💗💗💗💗💗💗💗💗💗💗💗💗💗💗💗💗💗💗💗💗💗💗💗

💕💕💕💕💕💕💕💕💕💕💕💕💕💕💕💕💕💕💕💕💕💕💕💕

My new journey as JPPro lecturer

On 23 May 2018 I reported my duty as JPPro lecturer in Kolej Matrikulasi Selangor. It reminds me the first day that I came here for interviewing as Matriculation lecturer. Thanks to Allah, with Allah bless I was able to enter Kolej Matrikulasi Kedah as Accounts lecturer. I struggled a lot to upgrade my knowledge on content and pedagogy of Financial and Management Accounting because previously my core subject in school was Maths and Add Maths. Alhamdulillah within 3 and half year I was able to improve my skill in teaching Financial and Management Accounting. I gained so many experience in handling class and lecture, matriculation systems and many other things.

As times goes on, accounting units of KMS has spread its wings and new programme was offered by BMKPM namely ‘Jurusan Perakaunan Professional’ with the glamorous name JPPro.  JPPro is offered to bumiputera student only. It is a special program of cooperation between BMKPM, Uitm and ACCA. The program will lead the students the be Professional Accountants in shorter period than programme being practised by ACCA  currently with the lowest cost. JPPro offered only three (3) fundamental paper of ACCA which F1, F2 and F3. The other papers will be thought in UITM Shah Alam. I was entrusted to teach F3 subject (Financial Accounting).

On 23 May 2018, the first intake of this programme had registered. 56 students were successful enrolled to the programme. Later only 49 students left for the programme. Some of them have received better offered with full sponsorship. 49 of them have been divided into 3 classes of AC1T1, AC1T2 and AC1T3. Now they are on semester 2 of 2018/2019 session. They are about to complete their matriculation course and preparing for ACCA computer base examination. May Allah ease their and all JPPro lecturer effort . amin