Scribd Logo
Upload

Welcome to Scribd!

  • 78 views

    1) Income Statement: Nature, Forms and Uses of Income Statement

    Uploaded by

    PaulineBirosel
    The document discusses key aspects of income statements, including: 1) The nature and components of income statements, including revenues, expenses, gains and losses. Income statements are formal statements that show a company's financial performance over a period of time. 2) There are two main forms of presenting income statements - functional and natural presentation. Functional presentation classifies expenses by function, while natural presentation groups expenses by nature. 3) Income statements must include minimum line items such as revenue, expenses, tax expense, and discontinued operations. Expenses can be analyzed by either nature or function.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    1) Income Statement: Nature, Forms and Uses of Income Statement

    Uploaded by

    PaulineBirosel
    78 views6 pages
    The document discusses key aspects of income statements, including: 1) The nature and components of income statements, including revenues, expenses, gains and losses. Income statements are formal statements that show a company's financial performance over a period of time. 2) There are two main forms of presenting income statements - functional and natural presentation. Functional presentation classifies expenses by function, while natural presentation groups expenses by nature. 3) Income statements must include minimum line items such as revenue, expenses, tax expense, and discontinued operations. Expenses can be analyzed by either nature or function.

    Original Title

    TOA.docx

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses key aspects of income statements, including: 1) The nature and components of income statements, including revenues, expenses, gains and losses. Income statements are formal statements that show a company's financial performance over a period of time. 2) There are two main forms of presenting income statements - functional and natural presentation. Functional presentation classifies expenses by function, while natural presentation groups expenses by nature. 3) Income statements must include minimum line items such as revenue, expenses, tax expense, and discontinued operations. Expenses can be analyzed by either nature or function.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    78 views6 pages

    1) Income Statement: Nature, Forms and Uses of Income Statement

    Uploaded by

    PaulineBirosel
    The document discusses key aspects of income statements, including: 1) The nature and components of income statements, including revenues, expenses, gains and losses. Income statements are formal statements that show a company's financial performance over a period of time. 2) There are two main forms of presenting income statements - functional and natural presentation. Functional presentation classifies expenses by function, while natural presentation groups expenses by nature. 3) Income statements must include minimum line items such as revenue, expenses, tax expense, and discontinued operations. Expenses can be analyzed by either nature or function.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 6

    1) Income statement: Nature, forms and uses of

    Income Statement:
    Introduction:
    The amended PAS 1, paragraph 10A provides that an entity has two options in
    presenting comprehensive income.
    Two. Statementes
    A. Income statement:
    Shows the components of profit and loss. Under PAS 1 it is also called "statement of
    profit or loss"
    B. Statement of Comprehensive Income
    This statement begins with profit or loss plus or minus the other comprehensive income
    What is an Income Statement and its nature?
    Income Statement is a formal statement showing the financial performance of an entity
    given period of time
    A company's financial performance is based in terms of level of income earned by the
    entity. It is also known as the results of operations of the entity.
    Income statement presents the income, expense , gain, losses and net income or loss
    recognized during the period from entity's profit-directed acitvities.
    What is income?
    From the conceptual framework, income is defined as "increase in economic benefit
    during the accounting period in the form of inflow or increase in asset". In other words,
    income is an inflow of future economic benefit that increases equity.
    Sources of income:
    *sales of merchandise to customer: includes all sales to customers during the period.
    (Sales - sales return/allowances/discounts = net sales)
    *Rendering of services: it is the income derived from a service rendered.
    (Ex: professional fee, media advertising fee)
    *Use of entity resources: income derived from the usage of resources of one's entity
    (Ex: rent, interest, dividend icome
    * disposal of resources ither than products: An income derived from selling or disposing
    an entity's resources.
    (Ex: selling of an equipment, gain on sale of intangible asset)

    What are the forms of Income


    Statement?
    Forms:
    There are 2 forms of presenting
    income statement:
    Functional presentation:
    -Traditional and common form of
    income statement
    - cost of sale method
    -classifies expenses according to
    their function as part of cost of
    sales, distribution cost and
    administrative activities
    (Entity classifying expenses by
    function shall disclose additional
    information on the nature of
    expense)
    Natural presentation:
    -Nature of expense method
    -expenses ate aggregated
    according to their nature
    - expenses which are of the same
    nature are grouped as one ite
    Which form of income
    statement is required by the
    standard?
    Under PAS 1 paragraph, there is NO prescribe type of format since each presentation
    has merit for different type of entities.
    Uses of income statement:
    The purpose of the income statement is to show managers and investors whether the
    company was profitable during the period being reported.
    KEY POINTS
    -An income statement reflects the revenues and expenses of a company for a specific
    period of time.
    -Business use these reports to understand the financial position of their business and
    where to make changes for future years.
    - Income statement information provides the basis for a variety of decisions.

    2. Approaches to income statement measurement:


    1. Capital maintenance approach
    This is also called as net asset approach meaning that the net income occurs
    only after the capital is used form the beginning if the period is maintained.
    This has 2 variations:
    Financial capital concept:
    It is the traditional concept based on historical cost.
    Financial capital is the monetary value of the net asset contributed.
    Under financial capital concept, Such capital is synonymous with net assers or
    equity of thr entity
    Under this concept: Net income = Net asset at the end of the year > net asset at
    the beginning of the year
    Physical concept:
    It is the quantitative measure of the physical productive capacity to produce
    goods & services
    This concept requires that productive assets must be valued at current cost
    Net income = Physical productive capital end of the year > Physical productive
    capital beg of the year
    2.Transaction approach
    The conventional or traditional reparation of income statement in comformity with PFRS
    In computing net income it requires the determination how much net income was
    esrned
    It is the direct result of the application of the principle of matching cost with revenue
    NI= income - expense

    3) Components of Income Statement


    Profit or loss section or statement
    The following minimum line items must be presented in the profit or loss section (or
    separate statement of profit or loss, if presented): [IAS 1.82-82A]
    -revenue
    -gains and losses from the de-recognition of financial assets measured at -amortized
    cost
    -finance costs
    -Share of the profit or loss of associates and joint ventures accounted for using the
    equity method
    -certain gains or losses associated with the reclassification of financial assets
    -tax expense
    -a single amount for the total of discontinued items
    Expenses recognized in profit or loss should be analyzed either by nature (raw
    materials, staffing costs, depreciation, etc.) or by function (cost of sales, selling,
    administrative, etc). [IAS 1.99] If an entity categorizes by function, then additional

    information on the nature of expenses at a minimum depreciation, amortization and


    employee benefits expense must be disclosed. [IAS 1.104]

    SAMPLE OF INCOME STATEMENT/COMPREHENSIVE INCOME STATEMENT

    4) Principles of income statement presentation


    5) Concept of Income Statement Preparation
    6) Irregular Items
    Discontinued operation
    http://www.iasplus.com/en/standards/ias/ias35
    Extra ordinary
    Unter IAS1 paragraph 87, (issued 1993) Extraordinary Items is required to be disclose in
    the income statement separately from the profit or loss from ordinary activities. These
    are the transactions that are clearly distinct from ordinary ones.
    In 2002, the board decided to eliminate the concept of extraordinary items. Therefore
    no items of income and expense are to be presented as arising from the outside the
    entitys ordinary activities or called as extraordinary items. The board decided that
    the nature or function of a transaction or other event rather than its frequency, should
    determine its presentation within the income statement. Eliminating this category also
    eliminated the need for random segregation of the effects of related external events.
    Today,
    Additional line items may be needed to fairly present the entity's results of operations.
    [IAS 1.85]
    Items cannot be presented as 'extraordinary items' in the financial statements or in the
    notes. [IAS 1.87]
    Certain items must be disclosed separately either in the statement of comprehensive
    income or in the notes, if material, including: [IAS 1.98]
    write-downs of inventories to net realisable value or of property, plant and
    equipment to recoverable amount, as well as reversals of such write-downs
    restructurings of the activities of an entity and reversals of any provisions for the
    costs of restructuring
    disposals of items of property, plant and equipment
    disposals of investments
    discontinuing operations
    litigation settlements
    other reversals of provisions

    Accounting Changes
    Under IAS8: An entity is permitted to change an accounting policy only if the change:

    is required by a standard or interpretation; or

    results in the
    financial
    statements
    providing
    reliable and
    more
    relevant
    information
    about the
    effects of
    transactions,
    other events
    or conditions
    on the
    entity's
    financial
    position,
    financial
    performance,
    or cash flows

    7) Interim
    Reporting:
    What is Interim
    financial reporting?
    Intrim Reporting
    Means that the preparation and presentation of financial information for a period of less
    than one year.

    8) Segment Reporting:
    http://www.iasplus.com/en/standards/ias/ias14

    You might also like