CertIFR Module-2

Module 2:
Presentation, Revenue And

Profit
What you will learn?
 Presentation of financial statements – IAS 1
 Accounting policies, changes in accounting

estimates, and errors – IAS 8
 Revenue from contracts with customers – IFRS 15

IAS 1: Presentation of financial statements
General features of financial statements
Fair Materiality and

Going concern Accrual basis aggregation
presentation
FS present fairly FS should be FS other than Each material
financial prepared on cash flow class of similar
position, going concern information items should be
performance basis should be presented
and cash flow of prepared on separately
an entity accrual basis
Frequency of Comparative Consistency of

Offsetting
reporting information presentation
Assets and A complete set Comparative Consistent
liabilities and of FS should be information presentation
income and prepared at should be and classification
expenses should least annually presented for should be
not be offset the preceding retained
period
Content of financial statements
Statement of Financial Position (SOFP)
Statement of Profit or Loss and Other

Comprehensive Income (SPLOCI)
Financial Statement of Cash Flows (SOCF)

Statements see details in module 6
Statement of Changes in Equity (SOCIE)
Notes to the Financial Statements

Statement of Financial Position
Assets and liabilities should be

presented: Information should be
current items and non-current disclosed
items
expected to be
Classes of property, plant
realized in normal
and equipment
operating cycle
held for purpose of

Classifications of inventory
trading
expected to be
Current
realized within 1 Types of provision
items
year
unrestricted cash or Details of classes of share

cash equivalent capital
a liability has to be A description of reserves

settled within 1 year within equity
Statement of Profit or Loss and Other Comprehensive Income
SPLOCI may be presented as one statement or two

seperate statements
Other comprehensive income

Profit or loss includes
includes
Items of income Revaluation surplus arising on PPE
Remeasurement of defined
Items of expenses pension schemes
Cash flow hedges
Change in fair value of financial

instruments
Exchange differences arising on

translation of foreign subsidiary
2019 2018
$’000 $’000
Revenue 43,000 26,000
Cost of sales (28,000) (18,000)
Gross profit 15,000 8,000
Other income 2,000
Distribution costs (2,000) (800)
Administrative expenses (4,000) (2,200)
Finance costs (500) (300)
Profit before tax 10,500 4,700
Income tax expense (1,400) (900)
Profit for the year 9,100 3,800
Other comprehensive income
Gain on property revaluation 2,000
Investment in equity instrument 200
Toal comprehensive income for the year 9,300 5,800

Expenses in profit or loss may be analysed using: “nature of

expense” or “function of expense”
Nature of expense Function of expense

Revenue X Revenue X
Other income X Cost of sales (X)
Change in inventories (X) Gross profit X
Raw materials used (X) Other income X
Employee benefit
(X) Distribution costs (X)
expense
Administrative
Depreciation expense (X) (X)
expenses
Other expense (X) Other expenses (X)
Profit before tax X Profit before tax X
Items in Other Comprehensive Income
Items can be reclassified Items cannot be reclassified
Share of OCI OCI will not Share of OCI

OCI may be of associate be of associate
reclassified may be reclassified will not be
to profit or reclassified subsequently reclassified
loss to profit or to profit or to profit or
loss loss loss
Disclosure requirement
Share of profit or loss of

Revenue
associates/joint ventures
Gains/losses on Gains/losses on
derecognition of financial reclassification of financial
assets assets
Finance costs Tax expense
Impairment losses (and Single amount for

reversals) discontinued operations
Statement of changes in equity (SOCIE)
SOCIE includes
Total comprehensive income for the period
The effects of changes in accounting policies and

corrections of errors recognised in accordance with IAS 8
A reconciliation between the carrying amount at the

beginning and end of the period
Statement of changes in equity (SOCIE)
Share Share Retained Revaluatio

Total
capital premium Earnings n surplus
$
$ $ $ $
Balance at 1 January 100,000 250,000 567,000 210,000 1,127,800
20X8
Changes in accounting - - (20,400) - (20,400)
policy
Restated balance at 1 100,000 250,000 547,400 210,000 1,107,400
January 20X8
Dividends - - (40,000) - (40,000)
Total comprehensive - - 76,500 42,000 118,500
income
Balance 31 December 100,000 250,000 583,900 252,000 1,185,900
20X8
Issue of shares 20,000 60,000 - - 80,000
Dividends - (45,000) - (45,000)
Total comprehensive - 82,300 (26,000) 56,300
income
Balance 31 December 120,000 310,000 621,200 226,000 1,277,200
20X9
Notes to the financial statements
SOCIE should
Present information about the basis of basic of

preparation and accounting policies
Disclose information required by IFRS Standards that is

not disclosed elsewhere
Provide other relevant information not presented

elsewhere
IAS 8: Accounting Policies, Changes in
Accounting Estimates and Errors
Definition of accounting policy
principles
bases Preparing and

Accounting presenting
conventions
Policies financial
rules
statements
practices
Selection of accounting policies
Existence of relevant
IFRS Standard or Use that standard or interpretation
Interpretation
Use management’s judgement

Absence of relevant
IFRS Standard or
Interpretation referred to
Definitions,
Standards recognition
dealing with criteria,
similar issues measurement
in framework
Changes in accounting policies
Adopting an accounting policy for a new

Types of type of transaction or event not dealt
events which with previously by the entity
do not
constitute
changes in
Adopting a new accounting policy for a
accounting
transaction or event which has not
policy
occurred in the past or which was not
material
Changes in accounting policies
Accounting policies should be applied consistently
Required by a
new Standard or
Interpretation
Accounting
practicable
policies only Apply
Provide more retrospectively
change if
relevant and Retrospective
impracticable applied to the
reliable
earliest period
information that is
practicable
Definition of accounting estimates
An approximation of the amount to be

debited or credited on items for which no
precise means of measurement are available
Based on specialized knowledge and

Accounting
judgement derived from experience and
Estimates
training
Used in financial statements to determine

amounts cannot measured with precision and
certainly
Accounting estimates
Changes in accounting
Accounting estimates
estimates
Methods of An adjustment
depreciation resulting from
reassessing the
expected future
Residual values benefits/obligations
associated
Amounts of provisions
Apply prospectively
Errors
Mathematical
mistakes
Mistakes in applying Correct errors

accounting policies retrospectively
Errors
Oversights and Restate the
misinterpretation comparative
amounts
Fraud
Example
A company has always valued inventory on a FIFO basis. In 20X9 it

decided to switch to the weighted average method of valuation. Gross
profit in the 20X8 financial statements was calculated as follows
$’000
Revenue 869
Cost of sales
Opening inventory 135
Purchasing 246
Closing inventory (174) (207)
Gross profit 662
It is necessary to recalculate the amounts for 20X7, so that opening

inventory for 20X8 is valued on a weighted average basis.
Example
 Opening inventory for 20X8 based on WA method = $122,000

 Closing inventory = $143,000
$’000
Revenue 869
Cost of sales
Opening inventory 122
Purchasing 246
Closing inventory (143) (225)
Gross profit 644
 Gross profit for 20X8 decrease $18,000  reduce net profit and RE
 Adjustment to opening RE in 20X9 = $18,000
IFRS 15: Revenue from Contracts with
Customers
Five-step model
Model for recognising and measuring revenue
STEP
Identify the contract
1
STEP
Identify the performance obligations
2
STEP
Determine the transaction price
3
STEP Allocate the transaction price to each

4 performance obligation
STEP
Recognise revenue
5
Customers
Five-step model
STEP 1
Identify the contract
Approved by all parties
Rights can be identified
Features of a
Payment terms can be identified
“contract”
Commercial substance
Consideration is probable
Customers
Five-step model
STEP 2
Performance obligation
Series of distinct
Distinct goods/services
goods/services
Entity's
A
Customer promise to
performanc
can benefit transfer the A single
e obligation
from the good or method of
that is
good or service is measuring
satisfied
service separately
over time
identifiable
Customers
Five-step model
STEP 2
Example
Steadman Construction Co is contracted to build an office for a

customer. It will design the building, purchase materials, prepare the
site, construct the property, install wiring and air conditioning and finish
the property.
Although each element of the construction process is capable of being

distinct, in the context of the contract, the company provides a
significant service in integrating the input processes to produce a
property.
Therefore there is a single performance obligation, being the
construction of the property.
Customers
Five-step model
STEP 3
Elements for considering

TRANSACTION PRICE the transaction price
The amount of Significant financing

components
consideration an entity
Variable consideration
expects to be entitled to in
exchange for transfering the Non-cash consideration
promised goods/services
Consideration payable to
a customer
Customers
Five-step model
STEP 3
Example
Taplop Co supplies laptop computer to businesses.

1/7/20X8: entered contract with Trill Co – Trill Co purchases latop $500/unit
If Trill Co purchase more than 500 laptops/year, price reduces to $450/unit
Taplop year end on 30/6.
a, At 30/9/20X8, Trill Co bought 70 laptops. Taplop Co estimates Trill Co
purchase would not exceed 500 in the year to 30/6/20X9, and Trill Co would
not be entitled to the volume discount.
b, During quarter ended 31/12/20X8, Trill Co purchased an additional 250
laptops. Taplop estimates Trill Co purchases would exceed the threshold for
the volume discount in the year to 30/6/20X9.
Customers
Five-step model
STEP 3
Example
a, Recognized revenue in Taplop Co in quarter ended 30/9/20X8

Taplop recognized revenue of 70 x $500 = $35,000
b, Recognize revenue in Taplop Co in quarter ended 31/12/20X8

Taplop should recognize revenue of $109,000
Calculation: $112,500 (250 laptops x $450) less change in transaction
price of $3,500 (70 laptops x $50 price reduction) for the the reduction of
price in the laptop sold in the quarter ended 30/9/20X8.
Customers
Five-step model
STEP 4
Allocate the transaction price
Allocate base on stand-alone price
Stand-alone price of each performance obligation

Customers
Five-step model
STEP 5
Recognise revenue
Entity has a present right to payment for the asset
Customer has legal title to asset
Revenue
at a point Entity has transferred physical possession of the asset
in time
Customer has significant risks and rewards related
to ownership of the asset
Customer has accepted the asset

Customers
Five-step model
STEP 5
Recognise revenue
Customer simultaneously receives and

consumes all the benefits provided
If any of 3
criterias
Revenue are met The entity’s work creates or enhances an
asset controlled by the customer
overtime
Entity's performance does not create an

asset with an alternative use & has an
enforceable right to payment for
performance completed to date
Customers
Five-step model
Example
Lingard Co sells a cable TV system to Monica under the following terms

on January 20X5:
 Monica has to pay a monthly fee of $80 for 12 months. Monica
receives a cable TV set top box and access to all the TV channels.
 The contract does not contain any other conditions and, once signed,
the receipt of the consideration is unconditional.
 Lingard Co sells the set top box by itself for $250 and charges monthly
access to the TV service without the set top box for $65 a month.
What amount of revenue should Lingard Co recognise in the year ended
31 March 20X5?
Customers
Five-step model
Example
STEP 1
A contract is in place between Lingard
Identify the
Co and Monica for a 12 month period
contract
STEP 2 Lingard Co has two separate

Identify the performance obligations:
performance  Deliver a set top box
obligation  Deliver cable TV access for 12 months
STEP 3
Determine the
12 x $80 = $960
transaction
price
Customers
Five-step model
Example
STEP 4 Standalone
%Total Revenue
Allocate price
transaction Box $250 24.3% $233
price to Monthly $780
75.7% $727
performance access to TV (= $65 x 12)
obligations Total $1,030 $960
 Box - performance obligation is already transfered on 1.1.X5 – Total TV

revenue is recognised
 Monthly access to TV – performance obligation satisfied overtime so on
31.03.X5 recognised revenue is $181 (=$727/4)
Debit Credit
STEP 5 Cash ($80 x 3) $240
Recognise Receivable $174
revenue Revenue $414
($233 + $181)
Customers
Five-step model
Practice question
EF Co provides a wireless router and 12 months’ superfast broadband

package to a customer for $220 payable in advance. A customer buying
the router separately would pay $30 and a customer buying the
broadband package separately would pay $20 per month.
a, How much of the transaction price is allocated to the performance
obligation to provide the router, the broadband package?
b, When is the transaction price allocated to the broadband package
recognised?
Customers
Five-step model
Practice question
a, How much of the transaction price is allocated to the performance

obligation to provide the router, the broadband package?
The total transaction price is allocated prorate to standalone selling
price. The sum of the standalone selling prices is $270 ($30 + (12 x $20))
b, When is the transaction price allocated to the broadband package
recognised?
Recognize over the 12 month period
Customers
Recognition of revenue over time
calculate the work completion on the basis of

Input method the entity’s inputs (labor hours, resources
consumed...)
Cost incurred
% work completion =
Cost incurred + further estimated cost to
complete contract
calculate the work completion on the basis of

Output method the value of the goods/services transfered
Work certified
% work completion =
Total contract price
Customers
Recognition of revenue over time
Revenue recognized = % work completion x Total contract price

in the period
Total contract price – Cost incurred –
Total contract = Further estimated cost to complete contract
profit
Total contract profit > 0 :

COGS = (Cost incurred + further estimated cost) x % work
completion
Profit recognised = Total contract profit x % work completion
Total contract profit < 0 : loss

Loss in the period = Total contract loss
COGS recognised = Revenue recognised – loss in the period
Customers
Example: Contract profits
Peppa Co has the following contract in progress:
$m
Total contract price 750
Costs incurred to date 225
Estimated costs to completion 340
Payments invoiced and received 290

Customers
Example: Contract profits
Estimated profit $m Statement of profit or loss $m
Total contract price 750 Revenue (40% x $750) 300
Cost of sales
Less costs incurred to
(225) (40% x (225 + 340)) (226)
date
Profit (40% x 185) 74
Less estimated costs
(340)
to completion Statement of financial
$m
position
Estimated profit 185
Percentage complete
Recognised profits 74
Cost to date/total estimated Less receivable (290)
costs:
225/(225+340) = 40% Contract asset 9
Customers
Example: Contract loss
Peppa Co has the following contract in progress:
$m
Total contract price 550
Estimated costs to completion 340
Payments invoiced and received 290

Customers
Example: Contract loss
Estimated loss $m Statement of profit or loss $m
Total contract price 550 Revenue (40% x $550) 220
Cost of sales
Less costs incurred to
(225) (balancing figure) (235)
date
Loss (15)
Less estimated costs
(340)
to completion Statement of financial
$m
position
Estimated loss (15)
Percentage complete
Recognised loss (15)
Cost to date/total estimated Less receivable (290)
costs:
225/(225+340) = 40% Contract liability (80)
Customers
Example: Output method
The main business of Santolina Co is building work. At the end of Sep 20X3
there is an uncompleted contract on the books, details as follows
Date commenced 1.4.X1
Expected completion date 23.12.X3
$m
Total contract revenue 290,000
Costs to 30.9.X3 210,450
Value of performance obligations satified to 30.9.X3 230,000
Amounts invoiced for work certified to 30.9.X3 210,000
Cash received to 30.9.X3 194,000
Estimated costs to completion at 30.9.X3 20,600
Santolina Co calculates satisfaction of performance obligations based on

work certified as a percentage of contract price.
Customers
Example: Output method
$ SOPL $
Final contract Revenue (work cer) 230,000

290,000
price Cost of sales
Less: costs to date (210,450) ((210,450 + 20,600) x
(183,247)
79.31%)
Estimated future
(20,600) Gross profit 46,753
costs
Estimated final SOFP

58,950 $
profit Contract asset
Costs to date 210,450

The recognised profit is
found as follows: Attributable profit 46,753
Estimated x Work certified
final profit Total contract price 257,203
230,000 Amounts invoiced (210,000)
$58,950 x
290,000
= $58,950 x 79.31% Contract asset 47,203
Profit recognised = $46,753 Contract receivables

16,000
(210 -194)
Customers
Presentation of contracts with customers
Contracts with customers are presented in the SOFP

depending on the relationship between the entity’s
performance and the customer’s payment
An entity’s right to consideration in

exchange for goods or services that the
Contract
entity has transferred to a customer when
asset
that right is conditioned on something
other than the passage of time
An entity’s right to consideration that is

Receivable
unconditional
An entity’s obligation to transfer goods or

Contract
services to a customer for which the entity
liability
has received consideration from the customer

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Module 2:

Presentation, Revenue And

 Presentation of financial statements – IAS 1

 Accounting policies, changes in accounting

 Revenue from contracts with customers – IFRS 15

Fair Materiality and

Frequency of Comparative Consistency of

Statement of Financial Position (SOFP)

Statement of Profit or Loss and Other

Financial Statement of Cash Flows (SOCF)

Statement of Changes in Equity (SOCIE)

Notes to the Financial Statements

Assets and liabilities should be

held for purpose of

unrestricted cash or Details of classes of share

a liability has to be A description of reserves

SPLOCI may be presented as one statement or two

Other comprehensive income

Items of income Revaluation surplus arising on PPE

Cash flow hedges

Change in fair value of financial

Exchange differences arising on

Revenue 43,000 26,000

Cost of sales (28,000) (18,000)

Gross profit 15,000 8,000

Other income 2,000

Distribution costs (2,000) (800)

Administrative expenses (4,000) (2,200)

Finance costs (500) (300)

Profit before tax 10,500 4,700

Income tax expense (1,400) (900)

Profit for the year 9,100 3,800

Other comprehensive income

Gain on property revaluation 2,000

Investment in equity instrument 200

Toal comprehensive income for the year 9,300 5,800

Expenses in profit or loss may be analysed using: “nature of

Nature of expense Function of expense

Items in Other Comprehensive Income

Items can be reclassified Items cannot be reclassified

Share of OCI OCI will not Share of OCI

Share of profit or loss of

Finance costs Tax expense

Impairment losses (and Single amount for

Total comprehensive income for the period

The effects of changes in accounting policies and

A reconciliation between the carrying amount at the

Share Share Retained Revaluatio

Present information about the basis of basic of

Disclose information required by IFRS Standards that is

Provide other relevant information not presented

bases Preparing and

Use management’s judgement

Adopting an accounting policy for a new

Accounting policies should be applied consistently

An approximation of the amount to be

Based on specialized knowledge and

Used in financial statements to determine

Mistakes in applying Correct errors