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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” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”]
Section 10 – Example 1 – Change in accounting policy disclosure
Example 4: Change in accounting policy disclosure
During the year ended 31 December 201X the company changed its depreciation method for freehold buildings and leasehold improvements to depreciating same over 50 years on a straight line basis as opposed to 10 years. The effect of same was to reduce the depreciation charge by €680,000 for the current year. In future years the depreciation charge will be extended whereby the depreciation charge will be lower but will go on for a longer period of time as it is being depreciated over its useful economic life. The depreciation charge will reduce by €XXX per year in future years as a result. The reason for the change in depreciation method is that the new policy more correctly reflects the useful economic life of these assets.
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Section 10 – Example 2 – Change in functional currency
Example 5: Change in functional currency
| Extract from notes to the financial statements: 1) Change in functional currency |
|
|
| The company changed functional currency from Sterling (“£”) to United States Dollar (“US$”) on 31 December 2014. This change arose as a result of the acquisition of the company by a larger group. As a result a change was made to the cost and funding structure such that the primary economic environment in which the company operates resulted in a change in functional currency to US$. |
| |
|
|
| The 2014 results and financial position for comparative purposes were retranslated to US$ as follows: |
| |
|
|
| – Assets and liabilities at the closing rate of 1.6184 as at 31 December 2014 |
| |
|
|
| – Income and expenses for 2014 are retranslated at the 2014 average rate of 1.6259 |
| |
|
|
| – All resulting exchange differences were recognised as a separate component of equity, described as the exchange rate reserve. |
| |
Restated |
|
| |
2014 |
2014 |
| |
US$ |
GBP |
| |
|
|
| Turnover |
237,601 |
146,134 |
| |
|
|
| Cost of sales |
(220,264) |
(135,471) |
| |
|
|
| Gross profit |
17,337 |
10,663 |
| |
|
|
| Administrative expenses |
(16,066) |
(9,882) |
| Other operating income |
– |
– |
| |
|
|
| Operating profit |
1,270 |
781 |
| |
|
|
| Interest receivable |
– |
– |
| Interest payable and similar charges |
(355) |
(218) |
| |
|
|
| |
|
|
| Profit on ordinary activities before taxation |
916 |
563 |
| |
|
|
| Tax on profit |
(416) |
(256) |
| |
|
|
| |
|
|
| Profit / (loss) for the financial period after taxation |
499 |
307 |
| |
|
|
|
|
| |
| Balance sheet |
Restated |
|
|
| |
2014 |
2013 |
|
| |
US$ |
GBP |
|
| Fixed assets |
|
|
|
| Tangible assets |
5,637 |
3,483 |
|
| Investments |
8,810 |
5,443 |
|
| |
14,447 |
8,927 |
|
| Current assets |
|
|
|
| Debtors |
387,831 |
239,641 |
|
| Cash at bank and in hand |
32,999 |
20,390 |
|
| |
420,831 |
260,031 |
|
| |
|
|
|
| Creditors: amounts falling due within one year |
(255,617) |
(157,946) |
|
| |
|
|
|
| Net current assets |
165,214 |
102,086 |
|
| |
|
|
|
| Creditors: amounts falling due after more than one year |
(5,273) |
(3,258) |
|
| Provision for liabilities |
(1,900) |
(1,174) |
|
| |
|
|
|
| Net assets |
172,488 |
106,581 |
|
| |
|
|
|
| Capital and reserves |
|
|
|
| Called-up share capital |
6 |
3 |
|
| Other reserve |
64,548 |
39,884 |
|
| Profit and loss account |
107,935 |
66,693 |
|
| |
|
|
|
| Equity shareholder’s funds |
172,488 |
106,581 |
|
| |
|
|
|
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Section 10 – Example 3 – Disclosure requirements
| |
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 retained for the year |
345,600 |
355,500 |
| |
2015 |
2015 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 – 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.
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Section 10 – Example 4 – Disclosure of prior year Adjustment
Example 7: Example disclosure of a prior year adjustment
| |
Profit for the |
Total equity |
Total equity |
| |
year ended |
as at |
as at |
| |
31-Dec |
01-Jan |
31-Dec |
| |
2014 |
2014 |
2014 |
| |
CU |
CU |
CU |
| |
|
|
|
| As reported under Irish GAAP |
132,818 |
587,000 |
719,818 |
| Accounting policy changes |
|
|
|
| Impact of: |
|
|
|
| – Holiday pay accrual |
(12,000) |
(62,000) |
(74,000) |
| – Reversal of intangible asset |
|
(75,000) |
(75,000) |
| – Revaluation of freehold premises |
– |
XXXX |
– |
| – Additional depreciation on uplift as a result of revaluation of freehold premises |
(XXXX) |
– |
– |
| – Rent free period for operating leases |
(32,000) |
|
(32,000) |
| – Pension – recognition of group scheme |
|
|
|
| – Restatement of previous business combination – goodwill derecognised and reversal of amortisation |
|
|
|
| – Restatement of previous business combination – intangibles recognised and additional amortisation |
|
|
|
| – Recognition of deferred tax on business combinations entered into prior to transition |
|
|
|
| – Present valuing non-market rate loans/ financing transactions |
|
|
|
| – Pension unrecognised service costs |
|
|
|
| – Derivatives |
|
|
|
| Deferred tax impact of: |
|
|
|
| – Holiday pay accrual |
1,000 |
6,000 |
7,000 |
| – Reversal of intangible asset |
|
9,375 |
9,375 |
| – Rent free period for operating leases |
4,000 |
0 |
4,000 |
| – Revaluation of freehold premises |
|
|
|
| – Pension adjustments |
|
|
|
| – Revaluation of freehold premises |
– |
(25,000) |
25,000 |
| |
93,818 |
440,375 |
534,193 |
| Correction of material errors (x) |
XXXX |
XXXX |
XXXX |
| Current tax effect on the correction error |
(XXXX) |
(XXXX) |
(XXXX) |
| |
XXXX |
XXXX |
XXXX |
| As reported under FRS 102 |
93,818 |
440,375 |
534,193 |
| |
|
|
|
(a) 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 increasing by CU5,000 and the profit and loss reserves increasing by CU85,500 being the net of tax adjustment. The current tax liability in the comparative year has increased by CUXXX as a result of this adjustment.
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