Advanced Financial Accounting FIN-611 Mian Ahmad Farhan Lecture-26 IASB Frame-Work

Financial Statements Balance sheet Income statement Statement of changes in equity Cash-flow statement Notes

Financial Statements Balance sheet Financial position Income statement Financial performance or Profit / Loss Statement of changes in equity Movement In different heads of owner’s equity Cash-flow statement Movement in cash inflow and cash outflow Notes Significant accounting policies and explanatory notes

Qualitative Check Materiality Relevancy Reliability Comparability Understanding Qualitative characteristics that make financial information useful Qualitative characteristics that make financial presentation useful

Relevancy The financial statement are relevant for decision making Purpose for the use of financial statement. Values to be relevant Predictive value Confirmative value

Five Characteristics of Reliability Faithful representation Substance over form Neutralability Prudence Completeness

Constraints / Limitations relating to Relevancy & Reliability Timeliness Balance between the benefit and cost Balance among the different characteristics

Types of Financial Information Assets Liabilities Owner’s equity Incomes Expenses

Assets Assets are resources Arising from past event Probability of inflow of economic benefit to the entity in future

Liabilities A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

Important points Present obligation Arises/Result from past event

Owner’s Equity It is the residual interest in the assets after deducting all its liabilities. In other words, equity is what is left when all liabilities have been settled.

Income Revenue Gain Sale of goods Sale of services Return on investment Gain By selling its assets at an amount which is greater than book value. By settlement of its liabilities at an amount that is lesser than its book value.

Income Income is the increase in economic benefits during the accounting period, in the form of inflows of assets, enhancement of assets or decreases in liabilities, that results in an increase in equity. Other than those relating to contribution from equity participation.

Expenses Expenses is the decrease in economic benefits during the accounting period, in the form of outflows, depletion of assets or increase in liabilities, that results in an decrease in equity. Other than those relating to contribution / distribution from equity participation.

General Recognition Criteria An item should be recognized in the Financial statements if: It means one of the definitions of element; It is probable that any future economic benefit, associated with the item will flow to or from the entity (for example, Income is recognized when a Sales is made, not when an order is received). The item has a cost or value that can be measured with reliability.

Four Bases of Financial Instrument Measurement Historical cost Current cost Realizable value Present value

Capital Maintenance Financial capital maintenance Physical capital maintenance

Capital Maintenance Financial capital maintenance Physical capital maintenance