Module 2: Income statement and balance sheet presentation

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Module 2: Income statement and balance sheet presentation

Overview

In this module, you learn about the concept of income from both an accounting and an economic perspective, and how income is calculated under each. You also learn about the effect on the preparation of the income statement of special issues, such as discontinued operations and earnings per share.

As you work through each topic, you develop an understanding of comprehensive income, as well as the statement of changes in equity and its relationship to the income statement and prior year’s financial statements. You review the format and major classifications in the balance sheet and become familiar with the concepts underlying the GST (Goods and Services Tax) and its method of accounting.

Finally, you apply what you have learned about the income statement by preparing an unadjusted trial balance using an Excel worksheet.

Test your knowledge

Begin your work on this module with a set of test-your-knowledge questions designed to help you gauge the depth of study required.

Topic outline and learning objectives

2.1 Nature of income

Differentiate between economic income and accounting income. (Level 2) 2.2 Presentation of the income statement

Prepare an income statement in good form, including proper presentation of gains and losses, and discontinued operations. (Level 1)

2.3 Discontinued operations

Describe the accounting treatment of discontinued operations and calculate amounts involved. (Level 1)

2.4 Unusual items

Describe the accounting treatment of unusual gains and losses and calculate the amounts involved. (Level 1)

2.5 Predictive ability of the income statement: non-recurring items

Explain the possible impact of unusual items on the quality of earnings. (Level 1)

2.6 Earnings per share

Calculate the earnings per share figure and explain its relevance. (Level 2)

2.7 Statement of comprehensive income

Prepare a statement of comprehensive income in good form, including proper presentation of net income and other comprehensive income. (Level 1)

2.8 Statement of changes in equity

Prepare a statement of changes in equity in good form. (Level 1)

2.9 Restatements

Describe the proper presentation for accounting changes and accounting errors. (Level 2)

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2.11 Disclosure

Describe the type of information typically disclosed in the notes to financial statements. (Level 2) 2.12 Goods and Services Tax

Account for the Goods and Services Tax. (Level 2) 2.13 Computer illustration 2.13-1: Trial balance

Prepare an adjusted trial balance using a worksheet. (Level 1) Module summary

Print this module

Substantive differences between IFRS and the pre-IFRS CICA Handbook that apply to this module

You are likely familiar with pre-IFRS CICA GAAP and may have some concerns over the transfer to IFRS. To help you learn IFRS, review the following chart comparing IFRS and pre-IFRS GAAP.

IFRS standards

referenced Comparable pre-IFRS CICA Handbook sections Comments IAS 8 Accounting

Policies, Changes in Accounting

Estimates and Errors

1506 Accounting Changes Section 1506 and the

corresponding requirements of IAS 8 are converged, except that IAS 8 allows an entity to be exempt from the requirement to restate prior periods for the correction of an error on grounds of impracticability. The conflicts are slight — no significant conflicts.

IAS 1 Presentation of Financial

Statements

1520 Income Statement Section 1520 and the

corresponding requirements of IAS 1 are converged, except that Section 1520 provides more specific guidance on the items to be disclosed in the income statement.

The conflicts are slight — no significant conflicts.

IAS 1 Presentation of Financial

Statements

1530 Comprehensive Income These standards are converged

— no significant conflicts. IAS 1 Presentation

of Financial Statements

3240 Share Capital These standards are converged

3251 Equity These standards are converged

— no significant conflicts.

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IFRS 5

Non-current Assets Held for Sale and

Discontinued Operations

3475 Long-Lived Assets and Discontinued Operations Section 3475 and IFRS 5 are converged, except that IFRS 5 contains a more restrictive definition of a discontinued operation.

There may be significant differences for discontinued operations that would not qualify under the more

restrictive definition in IFRS 5. IAS 1 Presentation

3480 Extraordinary Items Section 3480 differs from IAS 1

as IAS 1 does not allow separate presentation of extraordinary items. There can be significant differences in limited

circumstances — could affect net income, but not likely to require new information to be determined.

IAS 33 Earnings

per Share 3500 Earnings per Share Section 3500 and IAS 33 are converged, except that IAS 33 does not allow rebuttal of the presumption of share settlement treatment on contracts that may be settled in shares or cash, based on past experience of contract settlements.

The differences are slight — conflict only in limited fact situations.

IAS 10 Events After the Balance Sheet Date

3820 Subsequent Events Section 3820 and IAS 10 are

converged, except that IAS 10 (i) requires reporting of

subsequent events to the date of authorization for issue of financial statements; and (ii) requires disclosure of the date of authorization for issue and who gave that authorization. The conflicts are slight — no significant conflicts.

IAS 39 Financial Instruments — Recognition and Measurement

3855 Financial Instruments — Recognition and

Measurement Comparison of accounting treatments: Section 3855 and IAS 39 are converged, except that IAS 39

(i) restricts the circumstances in which the option to measure a financial instrument at fair value through profit or loss is

available;

(ii) requires quoted loans to be measured at fair value through profit or loss, whereas Section 3855 classifies these as loans and receivables and accounts for them at amortized cost (other than debt securities, which may be classified as held for trading, held to maturity or available for sale);

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3855 requires non-quoted equity instruments classified as available for sale to be

measured at cost;

(iv) requires foreign exchange gains and losses on available-for-sale financial assets to be recognized immediately in net income;

(v) does not allow a choice of accounting policy for transaction costs;

(vi) does not address financial instruments exchanged or issued in related party transactions; and

(vii) requires reversal of impairment losses in some circumstances.

There can be significant differences for some entities with particular fact situations. IAS 32 Financial Instruments: Presentation and IFRS 7 Financial Instruments: Disclosures

3861 Financial instruments — disclosure and

presentation The presentation requirements of Section 3861 and IAS 32 are converged, except that IAS 32 (i) does not apply to insurance contracts (however, IFRS 4 requires disclosures similar to those specified in IAS 32); (ii) addresses the presentation of derivatives on an entity’s own equity;

(iii) does not allow for initial measurement of a compound financial instrument using the relative fair value method; and (iv) has no scope exceptions for non-publicly accountable

enterprises and not-for-profit organizations.

The disclosure requirements of IFRS 7 are generally more comprehensive than Section 3861 because IFRS 7

(i) requires only that entities disclose information that enables users of their financial statements to evaluate the significance of financial

instruments, rather than specific contractual terms and conditions of financial instruments;

(ii) requires disclosures about financial instruments classified into (as well as out of) a fair value classification;

(iii) requires more specific disclosures about collateral; (iv) requires disclosure of the existence of multiple embedded derivatives whose values are interdependent, when these are contained in an instrument having both a liability and an equity component;

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require) disclosures about average aggregate carrying amounts during the year, average aggregate principal during the year, or aggregate fair value during the year; (vi) requires disclosure of the disposition of any inception profit that might result from the use of a valuation technique used to measure a financial instrument that has no active market price;

(vii) requires extensive

disclosures about exposures to liquidity, currency and other price risks; and

(viii) requires an analysis of the sensitivity of net income to possible changes in market risk factors.

Significant effect on

presentation and disclosure of certain financial instruments. Note, however, that Section 3861 can be applied only to insurance contracts by entities choosing not to apply the disclosures required in Section 3862.

IFRS 7 Financial Instruments: Disclosures

3862 Financial instruments — disclosures The disclosure requirements of Section 3862 and IFRS 7 are converged, except that IFRS 7 (i) does not apply to insurance contracts, however IFRS 4 requires the disclosure as specified in IFRS 7; (ii) does apply to partially derecognized assets;

(iii) requires disclosure of any remedy or renegotiation on the terms of a loan in default obtained prior to the financial statements being "authorized for issue" versus "completed"; and

(iv) requires less specific disclosures about hedging transactions.

No significant conflicts.

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Test your knowledge Module 2

The questions below from the Online Learning Centre (OLC) for the FA2 textbook address some of the core issues for this module. You may find it useful to go through these questions before you attempt the module as it may aid you in assessing the areas that you need to focus on.

Chapter 3: Multiple Choice Quiz

Note: Please ignore questions 1, 2, 3, and 6 of the Chapter 3 Quiz because these questions are not IFRS compliant. Chapter 4: Multiple Choice Quiz

Note: Please ignore question 1 of the Chapter 4 Quiz because deferred charges do not normally meet the criteria of an asset.

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2.1 Nature of income

Learning objective

● Differentiate between economic income and accounting income. (Level 2)

Required reading

● Chapter 3, pages 80–83 up to "General Presentation Format" (Level 2) LEVEL 2

Income measurement and asset valuation are inseparable, interdependent concepts; a change in one almost invariably affects the other. For example, if accounts receivable are thought to be uncollectible or inventory becomes obsolete, the net asset values decrease with the offset to the credit being a debit to bad debt expense or cost of goods sold/inventory

shrinkage account respectively.

Accordingly, many transactions and valuations affect the balance sheet and the income statement simultaneously.

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2.2 Presentation of the income statement

● Prepare an income statement in good form, including proper presentation of gains and losses, and discontinued

operations. (Level 1) Required reading

● Chapter 3, pages 83–92 up to "Discontinued Operations" (Level 1) LEVEL 1

The chosen reading has been assigned more as a broad overview of some of the issues and options, for example, single-step versus multi-step, rather than a guide to the governing standards. In this respect, the text was written to reflect the pre-IFRS CICA Handbook . While there are many similarities between the pre-IFRS CICA

Handbook and IFRS, there are marked differences as well. One difference is that the pre-IFRS

CICA Handbook allowed entities to report extraordinary gains and losses providing that certain criteria were met, while IFRS does not. Accordingly, you should ignore the discussion of extraordinary items in the text. Another difference is with respect to mandatory disclosures on the income statement (bottom of page 83) because IFRS is much less prescriptive than the pre-IFRS CICA Handbook .

IAS 1 p10 establishes the following:

10 A complete set of financial statements comprises:

a. a statement of financial position as at the end of the period; b. a statement of comprehensive income for the period; c. a statement of changes in equity for the period; d. a statement of cash flows for the period;

e. notes, comprising a summary of significant accounting policies and other explanatory information; and

f. a statement of financial position as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements.

An entity may use titles for the statements other than those used in this Standard.

Of note in this topic is that they require a statement of comprehensive income, rather than an income statement. IAS 1 p81– 105 sets out the governing standards with respect to this statement (comprehensive income). A separate income statement may still be prepared, providing that the guidance in IAS 1 p81 is followed. Specifically:

Statement of comprehensive income:

81 An entity shall present all items of income and expense recognised in a period: a. in a single statement of comprehensive income, or

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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).

Keep these IFRS requirements in mind when we return to the discussion of the required components of the statement of comprehensive income in Topic 2.7.

Income statements are traditionally presented in one of two ways, the single step or multi-step format. While discontinued operations must be shown separately after income from operations in both formats, the presentation of other revenue, gains, expenses, and losses can vary considerably. Indeed, as you will observe in practice, income statements from the same general class (for example, multi-step) but from different companies often differ significantly. This is due to the fact that IFRS provides little guidance on formatting and does not suggest an appropriate level of aggregation of data. Rather, IAS 1 p81– 87 specifies certain information that must be disclosed separately.

The text fully describes the pertinent features of the single and multi-step formats and provides illustrations of each on pages 85 and 86.

LEVEL 2

Intraperiod income tax allocation

Income tax is a major expense for most profitable corporations. Accountants need to be concerned about two types of allocation — intraperiod tax allocation and interperiod tax allocation. Intraperiod means within the same period and involves allocating the tax expense for the year among operations: discontinued operations and the cumulative effect of a

retrospective change in accounting policy.

The other is interperiod tax allocation, which is required due to differences in the way the Income Tax

Act determines taxes payable and the way the CICA Handbook determines income tax expense. Interperiod means between different reporting periods and involves the creation of deferred tax assets and

liabilities to "hold" the accumulated difference between income taxes payable and income tax expense. Intraperiod tax allocation is covered in this course, while FA3 takes an in-depth look at interperiod tax allocation.

Exhibit 3-5 on page 97 illustrates the application of intraperiod tax allocation.

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2.3 Discontinued operations

● Describe the accounting treatment of discontinued operations and calculate amounts involved. (Level 1)

● Chapter 3, pages 92-96 up to "Extraordinary items" (Level 1) LEVEL 1

The reason for the rules on discontinued operations is to provide additional information to investors and other users of financial statements about the nature of income. Many users employ financial statements to forecast a company’s future results (predictive ability). For this reason, it is important to clearly delineate those cash flows that are likely to recur (income from continuing operations) and those that are not (income from discontinued operations).

The effect of IFRS 5 is that when a company can clearly distinguish the results of a segment of its business that it wishes to dispose of, those results must be reported separately in the income statement. For example, if a manufacturing concern decides to dispose of its retail division’s assets (assuming that separate financial records are maintained for the retail segment), then the income from the retail division would be reported separately as discontinued operations.

While the application of some of the underlying rules with respect to accounting for discontinued operations can be quite complex, the required reading summarizes and simplifies these regulations.

Note that discontinued operations are presented "net of tax." Net of tax means that the amount recorded is after the tax effects are taken into account. That is, the tax effects are considered and reported separately from those of taxes on continuing operations. This is an application of intraperiod tax allocation discussed earlier.

Example

Bob Co. is in the process of selling off its electrical group. Assume that a review of the facts determines that the electrical division’s results should be recorded as discontinued operations. Here are the pertinent details:

1. Bob Co.’s income before tax from continuing operations was $10,000,000. 2. Bob Co. paid $4,000,000 in tax on its income from continuing operations. 3. The electrical division lost $2,000,000 before taxes.

4. Due to the electrical division’s losses, Bob Co. paid $800,000 less in taxes than it otherwise would have. Alternatives for reporting these results include the following:

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Option A

Bob Co.

Partial Income Statement Year ended, xxxx

Income from continuing operations 6,000,000

Loss from operation of discontinued electrical

division ($2,000,000)

Income tax recovery 800,000 (1,200,000)

Income from operations $4,800,000

Option B

Loss from operation of discontinued electrical division (net of tax of $800,000) (1,200,000)

Option C

Loss from operation of discontinued electrical division (Note xx)1 _(1,200,000)

1 _{The details as to the distinct amounts of the loss and the tax recovery would be reported in the notes to the} financial statements.

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2.4 Unusual items

● Describe the accounting treatment of unusual gains and losses and calculate the amounts involved. (Level 1) LEVEL 1

Unusual items were described on page 87 of the text (assigned as reading in Topic 2.2). Recall that unusual items are transactions that impact on profitability, but are atypical of the entity's normal business operations. An example would be a $10,000,000 provision for severance costs in conjunction with a corporate restructuring. While unusual items can be presented separately on the income statement, they form part of income from continuing operations. There are few guidelines with respect to what constitutes an "unusual item" and as such there is a lack of uniformity in this area. The purpose of classifying a gain or loss as unusual should be to present additional information to the reader so as to assist them with determining the entity's quality of earnings.

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2.5 Predictive ability of the income statement: non-recurring items

● Explain the possible impact of unusual items on the quality of earnings. (Level 1) LEVEL 1

Discontinued operations are clearly shown on the income statement with the tax impact also evident so that there should be no confusion in predicting future income. Unusual items are not so clear cut. Unusual items represent transactions that are not expected to occur frequently over several years or those that do not typify normal business activities of the entity, but are in some way considered to be an expected part of the business of the entity. Unusual items are included as a separate item in the income statement as part of the income before discontinued operations, but are not shown net of taxes, which can sometimes make it difficult to assess the impact on the quality of earnings. The reporting of unusual items is often at the discretion of management and similar events could be treated differently depending on the circumstances.

Items that are included in net income are the basis for calculating basic earnings per share. If the items included in income are suspect as to the contribution to the value of the firm, then the evaluation of the quality of earnings would be difficult and could differ significantly from the quality reflected in the income statement. The income per the statement could reflect low quality if the reported income includes amounts or transactions that are misrepresented. In order to assess the value of earnings, fuller disclosure is needed to clearly identify the reason for such unusual items. Investors can then make their own judgments as to the impact on the quality of earnings represented by the income statement.

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2.6 Earnings per share

● Calculate the earnings per share figure and explain its relevance. (Level 2)

● Chapter 3, page 99 up to "Comprehensive Income" (Level 2) LEVEL 2

Earnings per share (EPS) is a widely quoted statistic that quantifies how much of a company’s stated profit "belongs" to each common shareholder. EPS is used by investors to quickly assess the market price of comparable companies’ common shares relative to their earnings (the P/E or price earnings ratio) for the purpose of determining which price represents better value.

EPS is a valuable tool when used as outlined above, but has its limitations. Specifically, EPS provides little insight into a company’s relative overall performance as it does not speak to the magnitude of profitability or the assets employed to earn those profits. Other ratios, such as return on equity (ROE), return on assets (ROA), return on sales (ROS), and gross profit margin (GPM) are more appropriate evaluative measures for assessing a company’s comparative performance. EPS is influenced by a number of factors, not the least of which is the number of shares a company has outstanding! For example, when a company declares a 2:1 stock split, the company’s EPS is halved. FA3 takes an in-depth look at EPS and addresses this and other related matters.

A company’s EPS is significantly influenced by its capital structure. Contrast a company that raises money by issuing

additional common shares to one that secures the additional capital by borrowing. Everything else being equal, the company that issues additional common shares will have more shares outstanding and higher net income, as dividends, if any, are charged directly to retained earnings. While the company that borrows will have fewer shares outstanding, the company's net income will also be lower because the interest costs represent an expense that flows through the income statement. There are numerous other factors that affect the choice of capital structure.

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2.7 Statement of comprehensive income

● Prepare a statement of comprehensive income in good form, including proper presentation of net income and other

comprehensive income. (Level 1) Required reading

● Reading 2.1 (Level 1) LEVEL 1

IAS 1 p7 defines other comprehensive income:

Other comprehensive income comprises items of income and expense (including reclassification adjustments) that are not recognised in profit or loss as required or permitted by other IFRSs.

The components of other comprehensive income include: a. changes in revaluation surplus;

b. actuarial gains and losses on defined benefit plans;

c. gains and losses arising from translating the financial statements of a foreign operation; d. gains and losses on remeasuring available-for-sale financial assets;

e. the effective portion of gains and losses on hedging instruments in a cash flow hedge.

Comprehensive net income thus represents the total of net income and other comprehensive income, with net income being computed in the usual fashion.

With certain exceptions, recognition of gains has historically been deferred until the gains are realized. For example, holding gains were not realized on investments in debt or equity securities until the underlying security was sold, although unrealized losses were recognized so as to comply with the conservatism criterion. IFRS now requires that a company include the five items above in the statement of comprehensive income. In FA2 , your studies are limited to other comprehensive income arising from holding gains and losses on financial assets available for sale.

In Topic 2.2, you learned that the income statement could be presented either separately or as part of the statement of comprehensive income. The assigned reading discusses the items that must be separately disclosed on the income statement (revenue; finance costs; profit or loss of associates1_{; tax expense; discontinued operations net of tax}2_{; and profit or loss (net} income). Exhibit 3-16 of the assigned reading summarizes the information that must be separately disclosed on the

statement of comprehensive income.

IAS 1 does not give specific guidance with respect to the formatting of the statement of comprehensive income, but does require that it be displayed with the same prominence as the other financial statements. Exhibit 3-17 in the assigned reading illustrates the presentation of the statement of comprehensive income as well as the EPS disclosures discussed in Topic 2.6.

1 _{“Associates” is the IFRS terminology for companies over which the investor has significant influence.}

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discontinued operations are shown separately on the income statement, however.

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2.8 Statement of changes in equity

● Prepare a statement of changes in equity in good form. (Level 1) LEVEL 1

Reading 2.1 assigned in Topic 2.7 also includes a discussion of the contents of a statement of changes in equity along with an illustration.

One of the required financial statements under IFRS is a statement of changes in equity. As the assigned reading discusses, this statement is much more comprehensive than a statement of retained earnings. The statement of changes in equity reconciles the changes in all equity accounts during the year, not just retained earnings. Exhibit 3-15 in the assigned reading illustrates the presentation of the statement of changes in equity.

Important: As previously outlined, the primary text for this course reflects the standards set out in the pre-IFRS

CICA Handbook . As such, the statement of retained earnings is discussed and illustrated rather than the statement of changes in equity. The statement of changes in equity is a very small part of the FA2 curriculum. Recognizing this and the limitations of the text, we will continue to refer to the statement of retained earnings from time to time. For developmental and assessment questions, read the question carefully. If you are asked for a statement of retained earnings, prepare a statement of retained earnings. If you are asked for a statement of changes in equity, prepare a

statement of changes in equity.

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2.9 Restatements

● Describe the proper presentation for accounting changes and accounting errors. (Level 2)

● Chapter 3, pages 104-111 (Level 2) LEVEL 2

It is sometimes necessary to restate financial statements when an error is discovered, or when an accounting policy is changed. This latter restatement is required so as to preserve the comparability of the financial statement information. Accounting changes, corrections of errors, and changes in estimates are studied in detail in FA3 .

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2.10 Balance sheet presentation

● Prepare a balance sheet in good form. (Level 1)

Required reading ● Reading 2.2 (Level 1) LEVEL 1

The material covered in this topic should be familiar to you as it covers the basic components and classifications in the balance sheet that you studied in FA1 .

As the assigned reading suggests, IFRS is not nearly as prescriptive as the pre-IFRS CICA

Handbook with respect to naming specific components of equity. The IASB's approach throughout IFRS is to refer to "equity" without specifying the class. It then requires entities to disclose the component parts so as to keep readers informed as to the nature of the changes in equity during the period. The IASB takes this approach because there are a large number of countries (100+) that use IFRS. Many of these countries have differing legal requirements with respect to the names and components of capital. By taking a less prescriptive approach, the IASB ensures that IFRS does not conflict with local regulations. By requiring adequate disclosure, the IASB ensures that the users have sufficient information to make informed decisions. Exhibit 3-15 in the assigned reading illustrates the presentation of equity on the balance sheet.

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2.11 Disclosure

● Describe the type of information typically disclosed in the notes to financial statements. (Level 2)

● Chapter 4, pages 158–160 up to "Specific Significant Disclosures" (Level 2) ● Reading 2.3 (Level 2)

LEVEL 2

Notes to financial statements fulfill several different purposes, ranging from providing further details of items mentioned on the financial statements to describing events such as contingencies that do not meet the conditions for recognition.

The assigned readings introduce some of the required disclosure items; you study these items in more detail in FA3 and

FA4 .

Subsequent events

There are two different types of subsequent events. The first type is events that provide further information of conditions existing at year end. These events require an adjustment to the financial statements. The second type is events that are indicative of conditions that arose subsequent to the financial statements date and that may require the inclusion of a note to the financial statements.

To distinguish between these two types of subsequent events, consider Example 2.11-1.

Example 2.11-1

Antler Company has a year end of December 31, 20X6. On February 2, 20X7, prior to finalizing the financial statements for 20X6, Antler is informed that Zebra Company, one of its customers, has declared bankruptcy and will not be able to pay the amount owing to Antler Company.

If the receivable from Zebra existed at December 31, 20X6, and Zebra was in financial difficulty for some time, then the news about the bankruptcy simply confirms a situation that existed at December 31, 20X6. The receivable at the end of December 20X6 would be written down to its net realizable value in light of the information received on February 2, 20X7.

On the other hand, if the receivable from Zebra arose in January 20X7, no adjustment would be required to the 20X6 financial statements. However, the bankruptcy would have to be disclosed in the notes to those financial statements if the event caused significant changes to assets or liabilities in the subsequent period, or if the event will or may have a significant effect on the future operations of the enterprise.

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2.12 Goods and Services Tax

● Account for the Goods and Services Tax. (Level 2) LEVEL 2

The federal government replaced the Federal Sales Tax (FST) with the Goods and Services Tax effective January 1, 1991. GST was originally calculated at the rate of 7% of the selling price of goods and services ("items"). The rate was reduced to 6% on July 1, 2006 and further reduced to 5% on January 1, 2008. The GST is designed to be paid only by the

final consumers of items and is therefore known as a consumption tax.

To ensure that all consumption is taxed, GST must be paid every time items are purchased from a vendor, and the vendor must remit the amounts collected to Canada Revenue Agency (CRA). If items pass through several distribution levels before reaching the final consumers, GST must be paid each time the items are sold.

To ensure that only the final consumers will pay GST on the purchase of items, registered businesses are permitted to claim a credit, called an Input Tax Credit (ITC), for GST paid on their purchases. This tax credit is deducted from GST collected on sales, and the balance is remitted to CRA. The ITC can also be claimed for GST paid on the purchase of items and capital assets that are used in the business; in this case, the business is not considered to be the final

consumer, since the cost of using these items and capital assets will be passed on to the final consumers through the cost of goods or services sold by the business.

Only 50% of the GST paid on business meals and entertainment may be claimed as an ITC. This restriction parallels the Income Tax Act , which allows a deduction for only 50% of meals and entertainment expenses. If an account receivable becomes a bad debt , the GST previously remitted can be claimed as an Input Tax Credit Adjustment. Similarly, for items that are returned for a refund or

credit , the GST is included in the refund or on the credit memo and is claimed on the supplier's next GST filing.

Businesses that have sales of GST-taxable items of more than $30,000 per year are required to register with CRA and collect GST on all sales of taxable items. Registered businesses are assigned a registration number, which must be shown on all sales invoices. Only registered businesses may collect GST. Businesses with annual sales of taxable items of $30,000 or less are not required to register but have the option of doing so.

The reporting periods and filing requirements for a business depend on the annual sales of taxable and zero-rated items and the fiscal year end of the business.

Example 2.12-1 demonstrates how the GST system generally operates.

Example 2.12-1

A distributor purchases 100 items from a manufacturer for $80 each and sells them to a wholesaler for $100 each. The wholesaler sells them to a retailer for $125 each. The retailer sells them to the final consumers for $170 each. For the purposes of this example, assume that the manufacturer does not have any taxable purchases.

Total sales GST collected IT claimed GST remitted

Manufacturer $ 8,000 $ 400 $ 400

Distributor 10,000 500 $ 400 100

Wholesaler 12,500 625 500 125

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A total of $2,375 GST was collected, $1,525 in Input Tax Credits was claimed, and a net amount of $850 was remitted to CRA. This result has the same effect as if the GST had been collected on the sales to the final consumers only (that is, $170 × 100 × 5% = $850).

Registered businesses must follow several regulations in accounting for the GST and for calculating the amount of the remittances to CRA. Separate general ledger accounts must be maintained for GST collected on sales and for GST paid on purchases. The GST collected general ledger account is set up as a current liability account and is used to record GST charged on sales. The GST paid general ledger account is usually set up as a contra account immediately following the GST collected account in the current liability section of the general ledger, and is used to record the GST paid on purchases. The GST paid is the Input Tax Credit. The remittances are the net amount of GST charged on all sales, whether collected or not, and the GST paid on all purchases, whether paid or not. This practice is consistent with the accrual method of accounting for transactions.

For financial statement presentation, the balances in the GST collected account and the GST paid account are netted and shown as a single amount. Since most businesses will normally have more revenue than expenses, the net amount will usually be a credit balance and will appear in the current liability section of the balance sheet. If the net amount is a debit balance, it will appear in the current asset section of the balance sheet.

Example 2.12-2 shows how transactions are recorded.

At date of writing, New Brunswick, Newfoundland, and Nova Scotia charged a single harmonized sales tax (HST), rather than independently assessing PST and GST. British Columbia and Ontario both proposed to implement HST on July 1, 2010.

Example 2.12-2 Sale: Accounts receivable/Cash 3,150 Revenue 3,000 GST collected 150 Purchase of office equipment:

Office equipment 2,500

GST paid 125

Accounts payable/Cash 2,625

It is appropriate that the asset account should not include the amount paid as GST, since this amount is ultimately recovered through an Input Tax Credit.

The general ledger accounts now contain a balance of $150 in GST collected and $125 in GST paid. A balance sheet would report $25 in GST payable in the current liabilities section.

The GST reporting form would show GST collected of $150 and Input Tax Credits of $125. The difference of $25 is the amount that must be remitted to CRA.

To calculate the amount of GST included in the selling price, multiply the total selling price by 5 ÷ 105. To obtain the pre-tax total, multiply the gross selling price by 100 ÷ 105.

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2.13 Computer illustration 2.13-1: Trial balance

● Prepare an adjusted trial balance using a worksheet. (Level 1) LEVEL 1

This computer illustration is designed to assist your review of the accounting cycle. In FA1 you learned to prepare a trial balance manually. This illustration demonstrates a computerized method (using Excel) of preparing a trial balance from the general ledger account balances of a manual accounting system. Use the file FA2M2P1. You can enter the adjusting entries and obtain the adjusted trial balance, a balance sheet, and an income statement without adding and re-adding columns and rows of numbers.

Material provided

● A pre-built worksheet suitable for the preparation of an adjusted trial balance. ● The unadjusted trial balance of a company at year end.

● A description of information applicable to year-end adjustments. (See CT2 for a review of Excel.)

Description

In this computer illustration, you will prepare the trial balance for J & B Appliances Inc. at year end. Although the trial balance in this case is simple, in real life, trial balances can be quite complicated and take hours to complete manually. Using a worksheet, the preparation of a trial balance can be a quick and satisfying experience.

You will enter adjusting entries into the trial balance worksheet that has been prepared for you. Then you will prepare an income statement and a balance sheet directly from the trial balance worksheet.

After J & B's first year of operation as a corporation, the trial balance shown below in Exhibit 2.13-1 was prepared in the first few columns of the worksheet.

Additional data

1. Accrued wages payable on December 31 were $300. 2. One-half of the supplies were used during the year.

3. Accounts receivable were analyzed, and the total allowance for doubtful accounts was estimated at $1,500 at year end.

4. Interest accrued on interest-bearing notes amounted to $300.

5. Of the $14,200 total for notes payable, one note, with a face amount of $5,000, was discounted at 12%. The note was non-interest-bearing with a one-year term and was issued on June 30 as part of a payment for acquisition of plant and equipment. The discount was correctly recorded on the same day. The corporation intends to use the effective rate method to amortize the discount.

6. Depreciation of plant and equipment was estimated at $800 and a goodwill impairment loss of $400 was recognized. 7. Appliances delivered to customers but not invoiced amounted to $1,600 on December 31.

8. The cost of goods sold for this sale was $800.

9. The income tax for the year was calculated to be $2,800. All figures are rounded to the nearest dollar.

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Exhibit 2.13-1

Trial balance

J&B APPLIANCES INC.

Worksheet for year ended December 31, 20X1

Unadjusted Trial Balance

Account Titles Debit Credit

Cash 4,500

Accounts receivable 15,400

Allow. for doubtful accts. 100

Inventory 11,250

Supplies 200

Plant and equipment 16,000

Accumulated depreciation 2,000

Land 7,000

Goodwill 2,400

Accounts payable 3,800

Notes payable 14,200

Discount on notes payable 536

Wages & salaries payable

Interest payable

Income tax payable

Dividends payable 500 Share capital 25,000 Dividends paid 2,000 Retained earnings Sales 90,000

Cost of goods sold 54,300

Wages & salaries expense 16,100

Advertising expense 3,450

Supplies expense

Delivery expense 1,400

Insurance expense 400

Telephone & utilities exp. 500

Bad debt expense

Interest expense 164

Depreciation expense

Income tax expense

135,600 135,600

Required

After identifying the required adjusting entries, complete the trial balance using the worksheet template FA2M2P1. Round all your figures to the nearest dollar. Note that the unadjusted trial balance has been pre-entered on the worksheet template.

Procedure

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1. Start Excel.

2. Open the file FA2M2P1. (Before you begin working on the data files in this course, you must first download them and save them to your hard drive. Click the Data files link in the navigation pane, then follow the instructions for

downloading and saving the files.) Move along row 9 of the worksheet. Notice that the columns for the Unadjusted Trial Balance and the Adjusting Entries do not contain any formulas. The data in the Unadjusted Trial Balance (columns B and C) have been pre-entered for you. The worksheet is set with both horizontal and vertical title lock at cell B9, which should enable you to view the column and row headings regardless of which part of the worksheet the cell pointer is at. If you find that the working area of your worksheet is too restricted, you can clear the title lock by choosing Window Remove Panes in Excel. (If you are using Office 2007, choose View, Freeze Panes, Unfreeze Panes). 3. Select cell H9 and review the formula:

=IF(B9–C9+E9–G9>0,B9–C9+E9–G9,0)

This formula checks whether the net of the debit and credit balances of the unadjusted trial balance and the adjusting entries for cash is greater than zero (that is, results in a debit balance). If it is, the net debit balance for cash is displayed in cell H9; otherwise, a zero balance should be displayed.

You may wish to set this worksheet to display zero values as blanks to avoid overcrowding the worksheet and to achieve a more professional look.

4. Move to cell I9, where the formula reads =IF(B9–C9+E9–G9<0,–(B9–C9+E9–G9),0)

This formula checks whether the net of the debit and credit balances of the unadjusted trial balance and the adjusting entries for cash is negative (that is, results in a credit balance). If it is, the credit balance displays as a positive number in cell I9; otherwise, a zero balance is displayed.

5. Move to the income statement and balance sheet columns and examine the formulas that have been pre-entered. Make sure you understand what these formulas achieve. Similarly, examine the formulas in other rows.

6. After you are familiar with the construction of the worksheet formulas and understand what they do, enter the adjusting entries. The alphabetic code for each adjusting entry has already been entered in the worksheet. Move to cell E31 and enter the debit figure for adjusting entry (a). Then enter the corresponding credit figure in cell G21. Continue until you have completed entering all the adjusting entries. The worksheet is designed so that the adjusted trial balance, income statement, and balance sheet will automatically be updated to reflect the effect of your

adjusting entries.

7. Save the file under your own initials, and print the completed worksheet. To view the solution, click the sheet tab M2P1S.

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Module 2 summary

Income statement and balance sheet presentation

This module introduces the concept of income from both an accounting and an economic perspective, and indicates how income is calculated under each. The effect on the preparation of the income statement of special issues, such as

discontinued operations and earnings per share, is detailed. Comprehensive income is introduced. The statement of changes in equity and its relationship to the income statement and prior year's financial statements are also explained. The format and major classifications in the balance sheet are reviewed. An introduction to GST (Goods and Services Tax) is provided. The module concludes with the preparation of an adjusted trial balance using Excel.

Differentiate between economic income and accounting income.

● Economic income is based on real value or real wealth, such as appreciation in the value of long-term investments. ● Accounting income/loss is the difference between revenues/gains and expenses/losses.

● Many changes in wealth (such as appreciation in value of land) are not usually recognized for accounting purposes

until realized.

Prepare an income statement in good form, including proper presentation of gains and

losses, and discontinued operations.

● The income statement is presented in either a single-step or multiple-step format.

● Gains, losses, and discontinued operations are presented separately on the income statement.

● Gains and losses are reported separately before income taxes and are included as part of regular net income.

Describe the accounting treatment of discontinued operations and calculate amounts

involved.

● Discontinued operations are reported net of tax after income from continuing operations.

Describe the accounting treatment of unusual gains and losses and calculate amounts

involved.

● Unusual items are reported separately before income taxes and are included as part of regular net income.

Calculate the earnings per share figure and explain its relevance.

● EPS for income or loss from continuing operations must be reported on the face of the statement of comprehensive

income. EPS from discontinued operations may be presented on the face of the statement of comprehensive income or disclosed in the notes to the financial statements.

● To be meaningful, the EPS figure must be compared to some other performance measure such as the market value

of the shares, the amount paid for the shares, and prior years' EPS.

● A comparison of EPS is difficult because of differences in market values and purchase prices for the shares, as well as

different accounting practices among companies.

Prepare a statement of comprehensive income in good form, including proper

presentation of net income and other comprehensive income.

● IAS 1 p7 states that “Other comprehensive income

comprises items of income and expense (including reclassification adjustments) that are not recognised in profit or loss as required or permitted by other IFRSs.”

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● Comprehensive net income is the total of net income and other comprehensive income. Net income is computed in

the same manner as before.

Prepare a statement of changes in equity in good form.

● The statement of changes in equity reconciles the changes in all equity accounts during the year.

Describe the proper presentation for accounting changes and accounting errors.

● Items related to prior years (such as changes in accounting policies and accounting errors) are not recorded in the

current year's income, but are reported retrospectively to the year to which they relate. The cumulative effect of each adjustment to prior years, net of tax, is shown as an adjustment to retained earnings at the beginning of the period.

Prepare a balance sheet in good form.

● The assets and liabilities are classified as current or non-current to aid in the evaluation of the entity's liquidity and

solvency.

● Current assets are usually presented in order of liquidity with the most liquid (cash) presented first. ● Owners' equity is segregated into share capital, reserves, and retained earnings.

Describe the type of information typically disclosed in the notes to financial statements.

● IFRS requires extensive disclosure, the details of which are studied in FA3 and FA4 .

Analyze the impact of unusual items on the quality of earnings.

● There are various alternative valuation methods and concepts used in the preparation of financial statements,

especially with respect to the category of unusual items.

● More information is needed to assess the impact of the unusual items on the quality of earnings.

Account for the Goods and Services Tax.

● GST collected is not part of the entity's revenue but is a liability to the government. GST paid is not part of the cost of

purchases but is a receivable from the government.

● The receivable and payable can be offset against each other to show either a net receivable or payable. ● The GST rate has been 5% since January 1, 2008.

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Financial Accounting: Assets Reading 2.1 · 1

Source: Pre-publication version of Lo Fisher Intermediate Financial Accounting, Vol. 1, by

George Fisher and Kin Lo. © 2010 by Pearson Canada Inc. All rights reserved.

Statement of changes in equity

One of the objectives of financial statements is to provide information on changes in financial

position. The statement of changes in equity aims to achieve this objective by identifying the

reasons for the change in total equity and its components from the beginning to the end of the

period. There are three components of equity that we will consider (a fourth component is

non-controlling interest, which is beyond the scope of this text).

1. Contributed capital – the amount of funds provided by owners, net of any repayments to the

owners or repurchases of ownership units (shares).

2. Retained earnings – the amount of cumulative profits recognized through the statement of

income less dividends.

3. Reserves – amounts accumulated from events or transactions increasing equity which are not

transactions with owners and which have not flowed through the income statement. There are

potentially up to five classes of transactions that explain the change in each of these three

components

a. Profit or loss – income and expenses as recognized on the statement of comprehensive

income, other than (2) below

b. Other comprehensive income

c. Dividends

d. Capital transactions – transactions with owners such as share issuances or repurchases

e. Effect of changes in accounting policy and correction of errors

Item b requires a brief explanation, as it will be unfamiliar to many students. The statement of

comprehensive income is a relatively recent development, being first included in IFRS in 2008.

This financial statement includes what was known as the income statement plus several specific

items. Those specific items are part of “other comprehensive income,” while the subtotal above

other comprehensive income is the net profit or loss. An example of other comprehensive

income arises from investments classified as “available-for-sale” and the changes in the value of

such investments prior to the date of sale. An investment in $25,000 of shares whose value rises

to $27,000 by the balance sheet date would result in $2,000 in unrealized gains reported in other

comprehensive income.

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Class of transaction

Component of equity affected

1. Profit or loss

Accumulated profit or loss component

of retained earnings

2. Other comprehensive income

Accumulated other comprehensive component

of reserves

Total comprehensive income (1 + 2)

3. Dividends

*

Retained earnings

4. Capital transactions

(e.g., share issuance or repurchase)

Contributed capital and

sometimes retained earnings

5. Effect of changes in accounting policy and

correction of errors

Contributed capital or

retained earnings

*

Dividends may be disclosed outside the statement of changes in equity.

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Financial Accounting: Assets Reading 2.1 · 3 Share capital Accumulated OCI on AFS securities* Accumulated profit or loss Total 2010 Total Profit for the year ‐ 2,393 2,393 1,387 Other comprehensive income Net gains on available for sale securities _‐ ₄₂₀ _‐ ₄₂₀ ₂₄₀ ‐ 2,393 2,813 1,627 Issuance of common shares 2,000 2,000 ‐ Dividends declared ‐ ‐ (200) (200) (200) Net change in equity 2,000 420 2,193 4,613 1,427 Balance at January 1 13,000 240 23,400 36,640 35,214 Balance at December 31 15,000 660 25,593 41,253 36,640 Total income and expense for the year Statement of Changes in Equity For the years ended December 31 In $000's 2011 Components of equity Classes of transactions: 1. Profit or loss 2. Other comprehensive income 3. Dividends 4. Capital transactions 5. Effect of changes in accounting policy and correction of errors

Statement of Comprehensive Income

The statement of changes in equity specifically separates total comprehensive income from other

changes in equity (items 1+2 in Exhibit 3-14). Comprehensive income for the period is a

measure of the return on capital and therefore the statement of comprehensive income provides a

measure of performance, which is one of the objectives of the financial statements in the IFRS

Framework. Useful measures of performance should distinguish results from operating activities

from financing activities because the effect of financial leverage significantly affects

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1. Revenue

Operating expenses

2. Finance costs

3. Share of profit or loss of associates

4. Tax expense

5. Profit or loss

6. Other comprehensive income

7. Total comprehensive income

IAS 1 does not specifically require the item “operating expenses” shown above. However, the

requirement to show profit or loss at the bottom of the income statement implies an amount for

operating expenses. Furthermore, IAS 1 paragraph 99 recommends including on the income

statement an analysis of expenses, although this information may be presented in the notes. The

analysis of expenses should classify expenses according to their nature or function.

“Nature” relates to the source of the expense (depreciation from equipment, labour costs

from employees, cost of raw materials, or other means of production)

“Function” refers to the use to which the expense has been put (cost of sales, distribution,

administration, or other activities).

Entities choosing the latter option must also provide information on the nature of expenses,

disclosing at a minimum employee benefits expense, and depreciation and amortization. In other

words, information on the nature of expenses is mandatory, but information about their function

is optional.

For many reporting entities, the profit for the entire enterprise may not be meaningful to an

owner who has 500 shares out of a total of 50 million shares. To help owners gauge the

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Financial Accounting: Assets Reading 2.1 · 5 Minimal line items: 1. Revenue 2. Finance costs 3. Share of profit or loss of associates 4. Tax expense 5. Profit or loss 6. Other comprehensive income 7. Total comprehensive income Earnings per share reported on statement of comprehensive income. EPS for discontinued operations may be shown in footnote. Operating expenses by use (alternative to presentation by nature) Separate reporting of continuing vs. discontinued operations Disclosure of operating expenses by their nature (either on statement or in footnote) Presentation of comparative figures. 2011 2010 Revenues 15,800 13,600 Cost of goods sold (8,000) (7,000) Gross margin 7,800 6,600 Delivery expenses (751) (649) Administration (1,357) (1,246) Operating profit 5,692 4,705 Interest expense (2,850) (3,450) Income from associates 500 550 Profit before tax 3,342 1,805 Income tax (1,003) (542) Profit from continuing operations 2,339 1,264 Income from discontinued operations 54 123 Profit for the year 2,393 1,387 Net gains from available‐for‐sale securities 420 240 Total comprehensive income 2,813 1,627 Basic earnings per share Continuing operations $ 2.34 $ 1.26 Profit for the year $ 2.39 $ 1.39 Diluted earnings per share Continuing operations $ 2.34 $ 1.26 Profit for the year $ 2.39 $ 1.39 Operating expenses categorized by nature Raw materials consumed 2,630 2,310 Employee benefits 4,458 3,913 Depreciation of property, plant, and equipment 3,400 3,050 Other 2,250 1,932 10,108 8,895 Statement of Comprehensive Income For the years ended December 31 In $000's except per share amounts

Cash flow statement

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The cash flow statement has three sections corresponding to the three cash cycles: operating,

investing, and financing. The amounts in three categories combined must fully explain the net

change in cash from the beginning to the end of the year. What types of items go into which of

the three categories of the cash flow statement will be discussed in detail in the module notes but

at this point, it suffices to make the following generalizations based on the nature of the three

cash flow cycles:

Exhibit 3-18 – Categories of cash flows

Cash flow

from:

General nature of cash flows

Examples

Operating

activities

Changes in current assets and

liabilities resulting from day‐to‐day

operations of the enterprise.

Cash received from customers.

Cash paid to suppliers.

Cash paid to employees.

Investing

activities

Purchases and sales of non‐current

assets.

Proceeds from sale of land.

Cash paid for purchase of equipment.

Financing

activities

Issuances and redemptions of the

reporting entity’s debt and equity.

Proceeds from issuance of common shares.

Repayment of long‐term debt.

Exhibit 3-18 presents example cash flows in terms of the direct method, which shows the

amounts attributable to each activity. Doing so satisfies the requirements in IAS 7 Cash Flow

Statements. For operating activities, IAS 7 allows an alternative presentation, called the indirect

method. This method uses the profit or loss from the income statement as a starting point and

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Financial Accounting: Assets Reading 2.1 · 7 Three types of activities: 1. Operating 2. Investing 3. Financing Indirect method reconciles profit to operating cash flow Separate reporting of discontinued operations Net cash flow reconciles opening and closing cash balances Presentation of comparative figures. 2011 2010 Cash flows from operating activities Profit before tax from continuing operations 3,342 1,805 Profit before tax from discontinuted operations ‐ 176 Profit before tax 3,342 1,981 Non‐cash items Depreciation of property, plant, and equipment 3,400 3,050 Income from associates (500) (550) Interest expense 2,850 3,450 Increase in liability for employee pension benefits 120 140 Working capital adjustments (Increase) decrease in trade and other receivables (2,220) (1,050) (Increase) decrease in inventories (950) (681) Increase (decrease) in trade and other payables 1,250 470 Increase (decrease) in warranty provision 10 ‐ Income tax paid (469) (244) Net cash from (used in) operating activities 6,833 6,566 Cash flows from investing activities Proceeds from net assets held‐for‐sale 1,267 ‐ Purchase of available‐for‐sale investments ‐ ‐ Purchase of property, plant, and equipment (6,900) ‐ Investment in grapevines (2,000) (1,500) Net cash from (used in) investing activities (7,633) (1,500) Cash flows from financing activities Payment of finance lease obligation (340) (320) Repayment of long‐term debt (8,000) (6,000) Proceeds from issuance of common shares 2,000 ‐ Interest paid (2,850) (3,450) Dividends paid (200) (200) Net cash from (used in) financing activities (9,390) (9,970) Net increase (decrease) in cash and cash equivalents (10,190) (4,905) Cash and cash equivalents, January 1 11,405 16,310 Cash and cash equivalents, December 31 1,215 11,405 Cash Flow Statement For the years ended December 31 In $000's Interest and dividends paid may be shown as an operating activity instead.

Note disclosures

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A statement of compliance with IFRS; a reporting entity must provide an unreserved

statement whether it complies with IFRS in its entirety

A summary of significant accounting policies, including the bases of measurement used in

preparing the financial statements

Disclosures required by specific standards in IFRS

Disclosures relevant to understanding the items reported on the face of the four financial

statements

IAS 1 also requires cross-referencing of items on the face of the financial statements and the

related note disclosures. While this is an obvious and sensible requirement to help readers locate

relevant information, it is not required in U.S. GAAP.

Discontinued operations and other non-current assets held for sale

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Source: Pre-publication version of Lo Fisher Intermediate Financial Accounting, Vol. 1, by

Equity

In the double entry system, equity is the residual amount after deducting total liabilities from

total assets. Aside from its residual nature, equity can be classified into several distinct

components that differ significantly in their nature:

i.

contributed capital

ii.

retained earnings

iii.

reserves

iv.

non-controlling interests

Reserves can arise from a number of sources such as the revaluation of land. The last item relates

to subsidiaries that the reporting entity does not own entirely; accounting for parents and

subsidiaries is a complex topic covered in advanced financial accounting and not addressed

further in these readings other than for a brief discussion on investments. While IAS 1 does not

specifically require the first three items to be separated on the balance sheet, in practice

companies will list them as separate line items because their natures significantly differ from

each other. It should be apparent that profits retained are different from capital contributed by the

owners.

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2011 2010 Current assets

Cash and cash equivalents 1,215 11,405 Trade and other receivables 15,820 13,600 Inventories 7,2308,180 25,215 32,235 Non-current assets Available-for-sale investments 3,620 3,200 Investments in associates 5,500 5,000 Grapevines 22,000 20,000 Property, plant, and equipment - net 34,000 30,500 Intangible assets 1 1 Deferred income tax 2427

65,148

58,725 Assets held for sale (discontinued operations) 2,630- Total assets 93,59090,363

Current liabilities

Trade and other payables 10,700 9,450 Provision for warranties 90 80 Taxes payable 280 250 Current portion of finance lease obligation 370 340 Current portion of long-term debt 8,00010,000

21,440

18,120 Non-current liabilities

Finance lease obligation 2,480 2,850 Long-term debt 20,000 30,000 Deferred income tax 3,720 3,190 Employee pension benefits 1,3501,470

27,670

37,390 Liabilities of discontinued operations 1,440- Total liabilties 56,95049,110

Equity

Share capital (1,000,000 issued and outstanding) 15,000 13,000 Reserves 660 240 Retained earnings 23,40025,593

Equity 36,64041,253

Total liabilities and equity 93,59090,363 Illustrator Ltd. Balance Sheet As at December 31 In $000's Current / non-current presentation Current / non-current presentation Minimum categories: - cash & equivalents - receivables - investments

(equity method) - financial assets not

above - inventories - biological assets - property, plant, and

equipment - investment property - intangible assets - deferred tax assets

Minimum categories: - payables - provisions - financial liabilities not above - taxes payable - deferred taxes Separate item for discontinued operations

Partition of debt into current and long-term portions Minimum categories: - contributed capital - retained earnings - reserves - Non-controlling interest Presentation of comparative figures for prior year.