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CIMA F1 - Financial Reporting and Taxation

11 important questions on CIMA F1 - Financial Reporting and Taxation

Describe the items listed on the P&L by functions of expenses

-Revenue
-Cost of Sales
=Gross Profit

-Other Income
-Distribution Costs
-Administrative Costs
-Other Expenses
-Finance Costs
=Profit before Tax

-Income Tax Expense
=Profit for the year

Name 3 items that can require separate disclosure to the P&L

Separate disclosure is required based on the nature and amount of items. Examples are:

-Write downs of inventories or PPE
-Disposal of PPE
-Disposal of investments
-Discontinued Operations
-Litigation settlement

Explain the nature of expenses method

In this method, expenses are aggregated in the P&L according to their nature (e.g. purchase of materials, depreciation, wages & salaries, transport costs).

This way is by far the easiest method, especially for small entities.

Explain the function of expenses method

This method is more common than the nature of expenses method, because it gives the user more relevant information. It groups expenses by its function, rather than nature.

However, the allocation of expenses is arbitrary.

Explain the statement of changes in equity

The statement of changes in equity presents the movements in an entity's capital and reserves balances.

Changes in an entity's equity over a period should reflect the increase in decrease in its net assets, therefore its wealth, for the period.

What is purpose of notes to the FSs? What functions should they perform?

Notes to the FSs provide more detailed analysis and narrative information.

Functions:
-Information on the basis the FSs was prepared and which specific accounting policies were applied
-Disclose any information, not shown elsewhere, which is required by IFRS
-Any additional information relevant for understanding.

What kind of structure should notes adhere to and what does IAS1 suggest?

Notes should be presented in a systematic manner and cross reference to other related information.

IAS1 suggest:
-Statement of Compliance
-Summary of significant accounting policies
-Supporting information for items in the FS

What should the accounting policies section disclose?

-the measurement basis used in preparing the FSs
-The other accounting policies used, as required to understand the FSs

In addition to the financial statements, what does IAS 1 encourage management to do?

IAS1 encourages, but does not require, a financial review by management.

Explain the fair presentation of FSs?

Financial statements should present fairly the financial position, performance and cashflows of an entity. This requires:

-Representing transactions in accordance with the recognition criteria for assets, liabilities, incomes, expenses and equity set out in the framework
-Compliance with applicable IFRSs and statement of compliance
-Selection, application and disclosure of accounting policies
-Presentation of information in a way that provides relevant, reliable, comparable and understandable information
-Presentation of additional disclosures when the disclosures required by IFRSs are insufficient to the a full understanding.

What does IAS1 say about the frequency, consistently, materiality and comparatibility of FSs?

Frequency: at least annually and within six month of the end of the reporting period
Consistent: presentation and classification of items in the FS should be consistent from year to year.
Materiality:material items should be presented separately. Immaterial items can be aggregated with similar items
Assets and liabilities and incomes and expenses should not be offset except for when it is permitted or required by another IFRS
Comparative information should be disclosed for the previous period for all numerical information, unless another IFRS permits or requires otherwise.

The question on the page originate from the summary of the following study material:

F1 - Financial Reporting and Taxation

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CIMA F1 - Financial Reporting and Taxation

11 important questions on CIMA F1 - Financial Reporting and Taxation

Describe the items listed on the P&L by functions of expenses

Name 3 items that can require separate disclosure to the P&L

Explain the nature of expenses method

Explain the function of expenses method

Explain the statement of changes in equity

What is purpose of notes to the FSs? What functions should they perform?

What kind of structure should notes adhere to and what does IAS1 suggest?

What should the accounting policies section disclose?

In addition to the financial statements, what does IAS 1 encourage management to do?

Explain the fair presentation of FSs?

What does IAS1 say about the frequency, consistently, materiality and comparatibility of FSs?

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