Revise lecture 21 1

Reporting financial performance 2

Income statement and statement showing other comprehensive income The IAS 1 requirements is to produce income statement and statement showing other comprehensive income. 3

Exceptional items Exceptional items is the name often given to material items of income and expense of such size, nature or incidence that disclosure is necessary in order to explain the performance of the entity. 4

Exceptional items The accounting treatment is to: 1.Include the item in the standard income statement line. 2.Disclose the nature and amount in notes. 5

Exceptional items In some cases it may be more appropriate to show the item separately on the face of the income statement. Examples include: 1.Write down of inventories to net realisable value (NRV) 2.Write down of property, plant and equipment to recoverable amount 6

Exceptional items Examples include: 3. Restructuring 4. Gains / losses on disposal of non-current assets 5. Discontinued operations 6. Litigation settlements 7. Reversals of provisions 7

IFRS 5 Non-current assets held for sale and discontinued operations The objectives of IFRS 5 are to set out: Requirements for the classification, measurement and presentation of non- current assets held for sale, in particular requiring that such assets should be presented separately on the face of the statement of financial position. 8

IFRS 5 Non-current assets held for sale and discontinued operations The objectives of IFRS 5 are to set out: Updated rules for the presentation of discontinued operations, in particular requiring that the results of discontinued operations should be presented separately in the income statement. 9

IFRS 5 Non-current assets held for sale and discontinued operations Classification as held for sale A non-current asset should be classified as ‘held for sale’ if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. 10

Classification as held for sale For this to be the case, the following conditions must apply: 1. The asset must be available for immediate sale in its present condition. 2. The sale must be highly probable, meaning that: 11

Classification as held for sale Management are committed to a plan to sell the asset There is an active programme to locate a buyer The asset is being actively marketed 3. The sale is expected to be completed within 12 months of its classification as held for sale 4. It is unlikely that the plan will be significantly changed or will be withdrawn. 12

Measurement of non-current assets held for sale 13

Measurement of non-current assets held for sale Non-current assets that qualify as held for sale should be measured at the lower of: Their carrying amount Fair value less costs to sell 14

Measurement of non-current assets held for sale Held for sale non-current assets should be: Presented separately on the face of the statement of financial position under current assets Not depreciated 15

Question 1 On 1 st Jan 2001, Rimsha & Co bought a chicken processing machine for Rs20,000. It has an expected use life of 10 years and a nil residual value. On 30 Sept 2003, Rimsha & Co decides to sell the machine and starts actions to locate a buyer. The machines are in short supply, so Rimsha & Co is confident that the machine will be sold fairly quickly. I 16

Question 1 Its market value at 30 Sept 2003 Rs13500 and it will cost Rs500 to dismantle the machine and make it available to the purchaser. The machine has not been sold at the year end. Required: At what value should the machine be stated in Rimsha Co’s statement of financial position at 31 December

Answer 18

Discontinued operations A discontinued operation is a component of an entity that has either been disposed of, or is classified as held for sale, and: 1. Represents a separate major line of business or geographical area of operations 19

Discontinued operations 2. Is a part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations 3. Is a subsidiary acquired exclusively with a view to resale. Discontinued operations are required to be shown separately in order to help users to predict future performance, i.e. based upon continuing operations. 20

Discontinued operations Presentation in the income statement An entity must disclose a single amount on the face of the income statement, comprising the total of: 1.The post-tax profit or loss of discontinued operations 2.The post-tax gain or loss of recognised on the measurement to fair value less cost to sell, or on the disposal, of the assets constituting the discontinued operation 21

Discontinued operations Presentation in the income statement An analysis of this single amount must be presented, either in the notes or on the face of the income statement. 22

Discontinued operations The analysis must disclose: 1.The revenue, expenses and pre-tax profit or loss of discontinued operations 2.The related income tax expenses 3.The gain or loss recognised on the measurement to fair value less costs to sell, or on the disposal, of the assets constituting the discontinued operation 23