Lecture2Topic2parts1and22015
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(b) actuarial gains and losses on defined benefit plans recognised in accordance with paragraph 93A of AASB 119 Employee Benefits
(c) gains and losses arising from translating the financial statements of a foreign operation (see AASB 121 The Effects of Changes in Foreign Exchange Rates)
Disclosures on the statement of comprehensive income
AASB 101 requires that the following minimum information be disclosed as line items on the face of the statement of comprehensive income:
• Determination of income (revenues and gains) and expenses depends on the measurement models adopted. – Currently we have a ‘mixed approach’, as various valuation approaches are used (e.g., cost model vs revaluation model or historical cost vs market value/fair value)
Recognition of income and expenses
• AASB101 (para 88) requires entities to recognise all items of income and expense in a period in profit or loss unless a particular accounting standard requires or permits otherwise.
• There are a number of accounting standards that specifically stipulate that certain expenses (such as those relating to the correction of prior period accounting errors) and certain gains (such as those relating to asset revaluations) are not to be included in the ‘profit or loss’ of the reporting period, hence their disclosure further down.
estimates; 4. Understand the role of professional judgment in the
determination of the profits and total comprehensive income for a given period and on the particular model that has been adopted.
Revenues: a class of income relating typically to an entity’s ordinary activities.
Gains: a class of income that need not relate to an entity’s ordinary activities.
Other comprehensive income
Components of other comprehensive income
According to AASB 101, components of ‘other comprehensive income’ would include:
(a) changes in revaluation surplus (see AASB 116 Property, Plant and Equipment and AASB 138 Intangible Assets)
• Two specific exceptions are:
– The correction of prior period errors – The effect of changes in accounting policies
Recognition of income and expenses
(a) revenue; (b) finance costs; (c) share of the profit or loss of associates and joint ventures accounted for using the equity method; (d) tax expense;
Recognition criteria (AASB Framework)
• The AASB Framework sets the following recognition criteria for the elements of accounting: – It must be probable that any future economic benefit will flow to or from the entity – The item must have a cost or value that can be measured reliably.
Expenses
AASB Framework: Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity other than those relating to distributions to equity participants.
(b)in two statements:
a statement displaying components of profit or loss (separate income statement)
and a second statement beginning with profit or loss and displaying components of other comprehensive income (statement of comprehensive income).
ACF2491 Company Reporting
Topic 2 (Part 1)
Chapter 16 The statement of comprehensive income and
statement of changes in equity
The following slides adapted from PPTs to accocial Accounting 6e, Copyright 2010 McGraw-Hill Australia Pty Ltd
Learning Objectives
1. Understand how profit or loss and total comprehensive income are calculated and disclosed;
2. Understand how to account for prior period errors; 3. Understand how to account for changes in accounting
Applying professional judgment
• Where professional judgment is used, an entity should disclose assumptions made and the basis of those assumptions.
• Different accountants might determine different levels of profit or loss or total comprehensive income, but the various calculations could still be judged to be true and fair: – if they provide all relevant information and comply with applicable accounting standards.
Income
AASB Framework: Income represents increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity other than those relating to contributions from equity participants. Income is broken into two categories:
AASB101 (para 81) states:
An entity shall present all items of income and expense recognised in a period:
(a)in a single statement of comprehensive income; or
AASB 101: Statement of comprehensive income
• The statement of comprehensive income includes both ‘profit or loss’ and ‘other items of comprehensive income’ — it will include various gains and expenses that are not incorporated within ‘profit or loss’.
(d) gains and losses on remeasuring available-for-sale financial assets (see AASB 139 Financial Instruments: Recognition and Measurement), and
(e) the effective portion of gains and losses on hedging instruments in a cash flow hedge (see AASB 139)
The difference between expenses and income will be reflected in either:
– profit or loss, or – other comprehensive income
‘Total comprehensive income’ is the aggregate of ‘profit or loss’ and ‘other comprehensive income’
(c) gains and losses arising from translating the financial statements of a foreign operation (see AASB 121 The Effects of Changes in Foreign Exchange Rates)
Disclosures on the statement of comprehensive income
AASB 101 requires that the following minimum information be disclosed as line items on the face of the statement of comprehensive income:
• Determination of income (revenues and gains) and expenses depends on the measurement models adopted. – Currently we have a ‘mixed approach’, as various valuation approaches are used (e.g., cost model vs revaluation model or historical cost vs market value/fair value)
Recognition of income and expenses
• AASB101 (para 88) requires entities to recognise all items of income and expense in a period in profit or loss unless a particular accounting standard requires or permits otherwise.
• There are a number of accounting standards that specifically stipulate that certain expenses (such as those relating to the correction of prior period accounting errors) and certain gains (such as those relating to asset revaluations) are not to be included in the ‘profit or loss’ of the reporting period, hence their disclosure further down.
estimates; 4. Understand the role of professional judgment in the
determination of the profits and total comprehensive income for a given period and on the particular model that has been adopted.
Revenues: a class of income relating typically to an entity’s ordinary activities.
Gains: a class of income that need not relate to an entity’s ordinary activities.
Other comprehensive income
Components of other comprehensive income
According to AASB 101, components of ‘other comprehensive income’ would include:
(a) changes in revaluation surplus (see AASB 116 Property, Plant and Equipment and AASB 138 Intangible Assets)
• Two specific exceptions are:
– The correction of prior period errors – The effect of changes in accounting policies
Recognition of income and expenses
(a) revenue; (b) finance costs; (c) share of the profit or loss of associates and joint ventures accounted for using the equity method; (d) tax expense;
Recognition criteria (AASB Framework)
• The AASB Framework sets the following recognition criteria for the elements of accounting: – It must be probable that any future economic benefit will flow to or from the entity – The item must have a cost or value that can be measured reliably.
Expenses
AASB Framework: Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity other than those relating to distributions to equity participants.
(b)in two statements:
a statement displaying components of profit or loss (separate income statement)
and a second statement beginning with profit or loss and displaying components of other comprehensive income (statement of comprehensive income).
ACF2491 Company Reporting
Topic 2 (Part 1)
Chapter 16 The statement of comprehensive income and
statement of changes in equity
The following slides adapted from PPTs to accocial Accounting 6e, Copyright 2010 McGraw-Hill Australia Pty Ltd
Learning Objectives
1. Understand how profit or loss and total comprehensive income are calculated and disclosed;
2. Understand how to account for prior period errors; 3. Understand how to account for changes in accounting
Applying professional judgment
• Where professional judgment is used, an entity should disclose assumptions made and the basis of those assumptions.
• Different accountants might determine different levels of profit or loss or total comprehensive income, but the various calculations could still be judged to be true and fair: – if they provide all relevant information and comply with applicable accounting standards.
Income
AASB Framework: Income represents increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity other than those relating to contributions from equity participants. Income is broken into two categories:
AASB101 (para 81) states:
An entity shall present all items of income and expense recognised in a period:
(a)in a single statement of comprehensive income; or
AASB 101: Statement of comprehensive income
• The statement of comprehensive income includes both ‘profit or loss’ and ‘other items of comprehensive income’ — it will include various gains and expenses that are not incorporated within ‘profit or loss’.
(d) gains and losses on remeasuring available-for-sale financial assets (see AASB 139 Financial Instruments: Recognition and Measurement), and
(e) the effective portion of gains and losses on hedging instruments in a cash flow hedge (see AASB 139)
The difference between expenses and income will be reflected in either:
– profit or loss, or – other comprehensive income
‘Total comprehensive income’ is the aggregate of ‘profit or loss’ and ‘other comprehensive income’