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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://www.frs102.com/members/premium-toolkit/” type=”big” color=”red”] Return to Main Index[/button] [/et_pb_text][/et_pb_column][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”https://uk.frs102.com/members/premium-toolkit/section-1/” type=”big” color=”red”] Return to Section 1 Home[/button] [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_text admin_label=”Main Body Text” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]Example 1: Disclosure example for a qualifying entity applying reduced disclosure exemptions
‘FRS 102 sets out a reduced disclosure framework for a ‘qualifying entity’ as defined in FRS 102 which addresses the financial reporting requirements and disclosure exemptions in the financial statements of qualifying entities that otherwise apply the recognition, measurement and disclosure requirements of FRS 102.
The company is a qualifying entity for the purposes of FRS 102. Note X gives details of the company’s parent and from where its consolidated financial statements prepared in accordance with (insert GAAP) GAAP may be obtained. The company has notified its shareholders in writing about, and they do not object to, the use of disclosure exemptions availed of by the company in these financial statements.’
Example 2: Disclosure detailing application of July 2015 amendments
NOTE: the below is only applicable to uk companies at this time as republic of ireland entities cannot adopt these amendments at this time as the eu directive 2013/34 has not been adopted in ireland
‘The FRC issued amendments to FRS 102 called ‘Amendments to FRS 102-Small entities and other minor adjustments’ which can be applied for accounting periods beginning on or after 1 January 2016 with early adoption permitted. The company has adopted these amendments in these financial statements.’
Example 3: Prior period error
During the 31 December 2015 year end, Company A noticed that the prior year financial statements omitted stock of CU100,000 which was material to the financial statements. Stock in the same location was also omitted at year ended 31 December 2013. The inventory in this location at that time was CU95,000. Given the materiality, this error requires a prior year adjustment. Assume a corporation tax rate of 10%. The adjustments required to correct this error are:
In the 31 December 2014 accounts to restate the opening balance
|
|
CU |
CU |
|
Dr Inventory |
95,000 |
|
|
Cr Profit and Loss Reserves (CU95,000-CU9,500 of current tax) |
|
85,500 |
|
Cr Corporation Tax Liability (CU95,000*10%) |
|
9,500 |
Being journal to reflect adjustment in respect of prior years’ including the additional tax payable
|
|
CU |
CU |
|
Dr Inventory |
5,000 |
|
|
Cr Cost of Sales |
|
5,000 |
|
Dr Current Income Tax in P&L (CU5,000*10%) |
500 |
|
|
Cr Corporation Tax Liability |
|
500 |
Being journal to reflect movement on stock incorrectly excluded from 2013 to 2014 and the related corporation tax payable as a result
See below an example of how this should be disclosed so as to meet the disclosure requirements.
Profit and Loss Account
|
|
2015 |
2014 Restated |
|
|
CU |
CU |
|
|
|
|
|
Turnover |
1,600,000 |
1,500,000 |
|
|
|
|
|
Cost of sales |
(1,220,000)
|
(1,100,000)
|
|
|
|
|
|
Operating profit |
380,000 |
400,000 |
|
|
|
|
|
Interest receivable |
5,000 |
5,000 |
|
|
|
|
|
Interest payable |
(1,000)
|
(10,000)
|
|
|
|
|
|
Profit on ordinary activities before taxation |
384,000 |
395,000 |
|
|
|
|
|
Tax on profit on ordinary activities |
(38,400)
|
(39,500)
|
|
|
|
|
|
Profit for the financial year |
345,600
|
355,500
|
|
Balance Sheet
|
2015 |
2014 Restated |
|
|
CU |
CU |
|
|
|
|
|
Fixed assets |
|
|
|
Tangible assets |
190,000
|
150,000
|
|
|
|
|
|
Current assets |
|
|
|
Inventory |
400,000 |
300,000 |
|
Cash at bank and in hand |
360,000
|
150,000
|
|
|
760,000
|
450,000
|
|
|
|
|
|
Creditors – amounts falling due within one year |
(99,700)
|
(95,300)
|
|
|
|
|
|
Net current assets |
660,300
|
354,700
|
|
|
|
|
|
Total assets less current liabilities |
850,300
|
504,700
|
|
|
|
|
|
Capital and reserves |
|
|
|
Called up share capital |
100 |
100 |
|
Profit and loss account |
850,200
|
504,600
|
|
Shareholders’ funds |
850,300
|
504,700
|
|
Prior year adjustment |
|
|
Prior year adjustment – material error
The prior year adjustment is due to the omission of inventory located in an outside warehouse being excluded from the inventory at 31 December 2014 and 31 December 2013. The value of the inventory at 31 December 2014 was CU100,000 and the value of the inventory at 31 December 2013 was CU95,000. The financial statements for 2014 has been restated to correct this error.
The prior year adjustment resulted in an increase to the inventory balance at 31 December 2013 and 2014 of CU95,000 and CU100,000 respectively. This has resulted in the cost of sales for 31 December 2014 year end decreasing by CU5,000 and the profit and loss reserves increasing by CU85,500 being the net of tax adjustment and the tax charge for 2014 increasing by CU500. The effect of the restatement on each financial statement line item affected is shown below.
|
Analysis of prior year adjustments |
2014 |
|
|
CU |
|
Cost of sales for year ended 31 December 2014 |
|
|
Cost of sales as previously stated |
1,005,000 |
|
Adjustment for inventory previously excluded |
(5,000)
|
|
Cost of sales as restated |
1,100,000
|
|
Inventory for year ended 31 December 2014 |
|
|
Inventory at 31 December 2014 as previously stated |
200,000 |
|
Adjustment for inventory previously excluded |
100,000
|
|
Inventory as restated |
300,000
|
|
Income tax expense for year ended 31 December 2014 |
|
|
Income tax expense as previously stated |
39,000 |
|
Tax effect on adjustment for inventory previously excluded |
500
|
|
Income tax expense as restated |
(39,500) |
|
Income tax payable |
|
|
Income tax payable at 31 December 2014 as previously stated |
(39,000) |
|
Tax effect on adjustment for inventory previously excluded |
(9,500) |
|
Tax effect on adjustment for inventory previously excluded |
(500)
|
|
Income tax payable as restated |
(49,000) |
|
Profit and loss reserves at 31 December 2014 |
|
|
Profit and loss reserves at 31 December 2014 as previously stated |
414,600 |
|
Adjustment for inventory previously excluded net of tax at 31 December 2013. |
85,500 |
|
Adjustment for movement of inventory previously excluded net of tax in the 31 December 2014 year |
4,500
|
|
Profit and loss reserves at 31 December 2014 as restated |
504,600 |
|
Profit and loss reserves at 1 January 2014 |
|
|
Profit and loss reserves at 1 January 2014 as previously stated |
63,600 |
|
Adjustment for inventory previously excluded net of tax |
85,500
|
|
Profit and loss reserves at 1 January 2014 as restated |
149,100 |
|
Profit for the year after taxation for year ended 31 December 2014 |
|
|
Profit after tax for year ended 31 December 2014 as previously stated |
351,000 |
|
Movement on inventory previously excluded net of tax |
4,500
|
|
Profit after tax for year ended 31 December 2014 as restated |
355,500 |
|
Profit for the year after taxation for year ended 31 December 2013 |
|
|
Profit after tax for year ended 31 December 2013 as previously stated |
63,600 |
|
Inventory previously excluded net of tax |
85,500
|
|
Profit after tax for year ended 31 December 2013 as restated |
149,100 |
Note the lines ‘Prior year adjustment – change in accounting policy (see note X)’ is just included for illustrative purposes
|
|
Equity Share |
Retained |
Total |
|
|
|||
|
|
Capital |
Earnings |
Equity |
|
|
CU |
CU |
CU |
|
|
|
|
|
|
Balance at 1 January 2014 as previously reported |
100 |
63,600 |
63,600 |
|
Prior year adjustment – change in accounting policy (see note X) |
– |
– |
– |
|
Prior year adjustment – correction of material error (see note X) |
|
85,500 |
85,500 |
|
Balance at 1 January 2014 as restated |
100 |
149,100 |
149,100 |
|
Profit for the year as previously reported |
|
351,000 |
351,000 |
|
Prior year adjustment – change in accounting policy (see note X) |
– |
– |
– |
|
Prior year adjustment – correction of material error (see note X) |
|
4,500 |
4,500 |
|
Profit for the year as restated (see note X) |
|
355,500 |
351,000 |
|
|
|
|
|
|
Balance at 31 December 2014 |
100 |
504,600 |
504,700 |
|
Balance at 1 January 2015 |
100 |
504,600 |
504,700 |
|
Profit for the year |
|
345,600 |
345,600 |
|
Balance at 31 December 2015 |
100 |
850,200 |
850,300 |
Note the inventory comparative figures would also be update and the word ‘Restated’ would be included under the comparative year as was done for the profit and loss and balance sheet above.
Example 4: Statement of compliance with FRS 102
‘This is the first set of financial statements prepared by XXXXX Limited in accordance with accounting standards issued by the Financial Reporting Council, including the FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”). The company transitioned from previously extant Irish and UK GAAP to FRS 102 as at 1 January 2014. An explanation of how transition to FRS 102 has affected the reported financial position and financial performance is given in note 2.
The FRC issued amendments to FRS 102 called ‘Amendments to FRS 102-Small entities and other minor adjustments’ which can be applied for accounting periods beginning on or after 1 January 2016 with early adoption permitted. The company has adopted these amendments in these financial statements on the basis that it meets the conditions for a small company.
NOTE: Going concern assumption to be included in the basis of preparation paragraph in the accounting policy notes
The Financial Statements are prepared on the going concern basis (NOTE CHANGE THIS HERE IF THE BASIS IS NOT GOING CONCERN AND PROVIDE THE BASIS FOR WHY THEY HAVE NOT BEEN PREPARED ON A GOING CONCERN), under the historical cost convention, [as modified by the revaluation of land and buildings and intangibles] and the measurement of certain assets and liabilities measured at fair value and comply with the financial reporting standards of the Financial Reporting Council [and promulgated by Chartered Accountants in the UK] and the Companies Act 2006.
Example 5: Dividend declared/paid disclosure
|
Statement of Comprehensive Income |
|
|
|
|
For the year ended 31 December 2015 |
|
|
|
|
|
Notes |
2015 |
2014 |
|
|
|
CU |
CU |
|
Turnover |
1 |
XXXXX |
XXXXX |
|
Cost of sales |
|
(XXXX)
|
(XXXX)
|
|
|
|
|
|
|
Gross profit |
|
XXXX |
XXXX |
|
Selling and distribution costs |
|
(XXX) |
(XXX) |
|
Administrative expenses |
|
(XXX) |
(XXX) |
|
Other operating income |
|
XXX
|
XXX
|
|
Operating profit |
3 |
XXX |
XXX |
|
Income from shares in group undertakings |
|
XXX |
XXX |
|
Income from shares in other financial assets |
|
XXX |
XXX |
|
Income from shares in participating interests |
|
XXX |
XXX |
|
|
|
|
|
|
Profit on ordinary activities before interest and taxation |
|
XXXX |
XXXX |
|
Interest receivable and similar income |
|
XXX |
XXX |
|
Interest payable and similar income |
|
(XXX)
|
(XXX)
|
|
Profit on ordinary activities before taxation |
|
XXXX |
XXXX |
|
Tax on profit on ordinary activities |
|
(XXX)
|
(XXX)
|
|
Profit on ordinary activities after taxation and profit for the financial year |
|
100,000 |
355,500 |
|
Retained earnings brought forward at 1 January 2015 (1 January 2014) as previously reported |
414,600 |
63,600 |
|
Prior period adjustment – change in accounting policy |
9 XXX |
XXX |
|
Prior period adjustment – correction of error |
10 90,000 |
85,500 |
|
Retained earnings brought forward at 1 January 2015 (1 January 2014) as restated |
11 504,600 |
504,600 |
|
Dividend paid |
12 XXX |
(XXX) |
|
Retained earnings brought forward at 1 January 2015 (1 January 2014) |
604,600 |
504,600 |
Note the payment of the dividend can also be shown in the statement of changes in equity. A note similar to the below should be included.
Dividends
|
|
2015 |
2014 |
|
|
CU |
CU |
|
|
|
|
|
Interim dividend of CU0.01 (2014: CUNil) paid on XXX ordinary shares of CU1 each |
2,250
|
–
|
Transition to FRS 102
Details of possible items to be disclosed as a result of the transition is discussed in Section 35 of this manual. Section 35.10(u-v) exemptions allow a small entity to:
- Not restate the comparative figures disclosed in the first set of financial statements prepared under FRS 102 for the following (instead the opening reserves for the current year is adjusted):
(For example, assume Company A has a year end of 31 December. The date of transition would then be 1 January 2014 and the comparatives would be for the year ended 31 December 2014. In this case the 2014 comparatives would not need to be adjusted instead the adjustments would be posted to reserves st the beginning of the 2015 year)
- Financial instruments required to be held at fair value under Section 11 and Section 12 of FRS 102. Examples of what would need to be fair valued under these sections are:
- Fair valuing forward foreign exchange contracts
- Fair valuing interest rate swaps
- Investments where the entity does not hold a significant influence (usually less than 20% owned) which can be measured reliably (i.e. publically traded shares
- Sales and purchases to/from related parties (as defined in Section 33) where payment is beyond normal business terms
- Loan to/from related parties which are at non-market rates and are not repayable on demand.
The small entity will measure the above assets/liabilities in line with the accounting policy adopted under old GAAP at the date of transition and in the comparative year.
Where this exemption is claimed the small entity will post the carrying amount through the current year by posting it to opening retained earnings. When measuring the assets/liabilities at that date, a small company can determine the market rates on the related party loan based on the market date at that date. There is no requirement to try to determine these rates at the time the loan was initially entered into.
See below an example of the disclosure to be included within the accounting policy notes detailing the disclosure exemption claimed:
Other financial assets (note)
Other financial assets include investments which are not investments in subsidiaries, associates or joint ventures. Investments are initially measured at fair value which usually equates to the transaction price and subsequently at fair value where investments are listed on an active market or where non listed investments can be reliably measured. Movements in fair value are measured in the profit and loss.
When fair value cannot be measured reliably or can no longer be measured reliably, investments are measured at cost less impairment.
The entity has taken advantage of the exemption contained in Section 35.10(u) not to comply with the fair value measurement requirements of Section 11-Basic Finance Instruments and Section 12-Other Financial Instruments Issues on the date of transition to FRS 102 of 1 January 2014 or in the comparative financial period presented. Instead the entity has continued to apply the accounting policy requirements for these financial instruments under old UK GAAP. A transition adjustment has been posted to equity on 1 January 2015 so as to comply with the requirements of Section 11 and Section 12 for the current financial year as required by Section 35.10(u). As a result of availing of this exemption, listed investment have been carried at cost less impairment in the comparative financial period presented and any forward exchange contracts are disclosed as required under old UK GAAP accounting rules.
(I) Trade and other debtors (note – note where applicable this should be included in creditors note also)
Trade and other debtors including amounts owed to group companies are recognised initially at transaction price (including transaction costs) unless a financing arrangement exists in which case they are measured at the present value of future receipts discounted at a market rate. Subsequently these are measured at amortised cost less any provision for impairment. A provision for impairment of trade debtors is established when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. All movements in the level of provision required are recognised in the profit and loss.
The entity has elected to adopt the exemption contained in Section 35.10(v) and to apply the rules detailed in Section 11 to debt instruments with related parties where a financing arrangement existed on the 1 January 2015 as opposed to the date of transition on 1 January 2014. As a result, a transition adjustment was posted to recognise the loans due to/from related parties at the present value of the minimum future payments and amortised cost utilising the prevailing market rate on the 1 January 2015 as permitted by Section 35.10(v)(c). For the comparative year presented these balances are carried at the amount recognised under old UK GAAP that being the amounts received/advanced less repayments.
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