IAS Conversion Document Mar12

internationalenquiries@ediplc.
com
+44 (0) 2476 518951 www.lcci.org.uk
International Accounting Standards

(IAS) Guidance:
Terminology and Presentation
International Accounting Standards (IAS) Guidance: Terminology and Presentation
Contents
Introduction 3
1 First Level 4 4 Fourth Level
1.1 Terminology 4 4.1 Preface 16

Format of the Income Components of financial
4.2 16
1.2 Statement and Statement of 4 statements
Financial Position
4.3
Format of the Statement of 16
Financial Position
1.3 Treatment of discount 5
4.4
Statement of Comprehensive 17
Income
1.4 Summary 5
4.5
Statement of Changes in 17
Equity
2 Second Level
4.6 Financial statements 18
2.1 Preface 6
4.7 IAS Standards 20
2.2 Partnerships 6
2.3 Limited liability companies 8
2.4 Manufacturing Accounts 10

2
2.5 Non-trading organisations 11
Statement of Comprehensive
2.6
Income
11
2.7 Summary 11
3 Third Level
3.1 Preface 12
3.2 Terminology 12
Accounting treatment of
3.3
goodwill
12
Format of Consolidated
Income Statement and
3.4
Consolidated Statement of
13
Financial Position
3.5 Cash flows 14
3.6 IAS standards 15
3.7 Summary 15
Introduction
The International Accounting Standards (IAS) and the International Financial Reporting Standards (FRS)
are widely used throughout the world. Since 2001, almost 120 countries have required or permitted the
use of IFRS. All remaining major economies have established time lines to converge with or adopt IFRS in
the near future.
3
1. First Level
1.1 Terminology
UK IAS
Fixed Assets Non-current Assets
Stock Inventory
Trade Debtors Trade Receivables
Prepayments Other Receivables
Trade Creditors Trade Payables
Accruals Other Payables
Trading Profit and Loss Account Income Statement
Sales Revenue
Balance Sheet Statement Of Financial Position
Provision for Doubtful Debts Allowance For Doubtful Debts
Net Book Value Carrying Amount
Creditors amounts falling due within 1 year Current Liabilities
Creditors amounts falling due after more than 1 year Non-current Liabilities
4 Long term Debenture Loan Note
1.2 Format of the Income Statement and the Statement

of Financial Position
Whilst there are no compulsory requirements for the presentation of the accounts of sole traders, it is
recommended that candidates become familiar with preparing accounts in the IAS format.
1.2.1 Format of Financial Statements for a sole trader
Peter Piper Peter Piper

Income Statement for the year ended Statement of Financial Position at
31 March 20x0 31 March 20x0
$ $ $ $
Revenue 18,300 Non-cuurent Assets
Cost of goods sold Plant and equipment 4,560
Opening inventory 2,200 Motor vehicles 2,500
Add Purchases 13,100 7,060
15,300 Current Assets
Less Closing inventory (2,100) 13,200 Inventories 2,100

Gross profit 5,100 Trade receivables 4,200
Less Expenses: Other receivables 150
Motor expenses 1,000 Cash 70 6,520
Rent and rates 1,500 Total Assets 13,580
Light and heat 1,300
Loan interest 50 Capital
Sundry expenses 200 (4,050) Opening balance 4,150
Profit for the year 1,050 Add Profit for the year 1,050
5,200 5
Less Drawings ( 400 )
4,800
Non-current Liabilities
Bank loan 5,000
Current Liabilities
Trade payables 2,400
Other payables 400
Bank overdraft 980 3,780
Total equity and liabilities 13,580
1.3 Treatment of Discount

Discount allowed should be deducted from revenue,
Discount received should be deducted from purchases.
1.4 Summary
The impact of international accounting standards at this level is mainly presentational. Candidates
preparing accounts under recognisable formats will not be penalised as IAS does not apply to sole traders.
However, candidates wishing to progress to higher levels would be encouraged to use these formats.
2. Second Level
2.1 Preface
Practices and principles raised at the First Level will be relevant at the Second Level, reflecting the
cumulative requirements of the LCCI syllabuses.
2.2 Partnerships
2.2.1 Terminology
UK IAS
Trading, Profit and Loss and Appropriation Account Income Statement and Appropriation Account
Balance Sheet Statement of Financial Position
6
2.2.2 Format of Financial Statements for a partnership
Peter and Pope Peter and Pope

Income Statement and Appropriation Statement of Financial Position at
Account for the year ended 31 March 20x0
31 March 20x0
$ $ $ $

Loan interest 50 Capital Accounts
Sundry expenses 200 (4,050) Peter 1,550
Profit for the year 1,050 Pope 1,550 3,100
7
Interest on Drawing
Peter 100 Current Accounts
Pope 50 150
Peter 1,000
1,200
Pope 700 1,700
Salary-Pope ( 500 )
4,800
Interest on capital
Peter 100
Pope 100 ( 200 ) Non-current Liabilities
500 Bank loan 5,000
Share of Profits Current Liabilities
Peter (1/2 x 500) 250 Trade payables 2,400
Pope (1/2 x 500) 250 ( 500 ) Other payables 400
Bank overdraft 980 3,780
2.3 Limited liability companies

The accounts of limited liability companies are affected much more substantially, and candidates
preparing for examinations under IAS will be expected to comply with the basic layouts to be given in
sections 2.3.2 and 2.6.
2.3.1 Terminology
UK GAAP IAS equivalent

Limited Company (Ltd) Private Company
Public Limited Company Public Company
Preference share Capital Preferred share capital
Ordinary shares Equity shares
Profit & loss/Accumulated profits Retained earnings
2.3.2 Treatment of prefered share capital
UK GAAP IAS equivalent

Redeemable preferred share capital Shown in Non Current liability
8 Irredeemable preferred share capital Shown in Shareholders equity

2.3.2 Format of Financial Statements for companies
Hill Traders Hill Traders

Income Statement for the year ended Statement of Financial Position at
31 March 20x0 31 March 20x0
$ $ $ $
Revenue 18,300 Non-current Assets

Loan interest 50 Equity and Liabilities $ $
Less: Sundry expenses 200 (4,050) Capital and reserves
Profit for the year 1,050 Ordinary share capital 10,000

Share premium 5,000
9
Retained earnings 4,000
Equity 19,000
Bank loan 3,000
Current Liabilities
Other payables 400
Bank overdraft 1,820 4,620
2.3.3 Presentation of Dividends

Dividends paid by limited companies are no longer reported in the Income Statement. They are included
in the Statement of Changes in Equity, as shown in 2.5. Only dividends paid before the yearend are
included.
2.3.4 Statement of Changes in Equity

The Statement of Changes in Equity reports information about the increase/decrease in net assets or
wealth of equity shareholders. The items that are likely to appear in the Statement of Changes in Equity at
this level are:
Profit for the year
Additional shares issued during the year
Dividends paid during the year
Transfers between reserves (for example , transfer from retained earnings to general reserve)
2.3.5 Format of the Statement of Changes in Equity of

companies
Trotters
10
Statement of Changes in Equity
For the year ended 31 March 20x0
Share Share Retained General Total

capital Pre miu m earning reserve equity
$000 $000 $000 $000 $000

Balance at 1 April 1,000 200 500 100 1,800
Changes in Equity for 20x0

Issue of share capital 200 200
Transfers (200) 200
Profit for the period 600 600
Dividends (300) (300)
Balance at 31 March
1,200 200 600 300 2,300
2.4 Manufacturing accounts

The layout of manufacturing accounts will be unchanged, however, although the terminology will be
consistent with IAS, and for example stock will be referred to as inventory.
2.5 Non-trading organisations

The layout of the accounts of non-trading organisations will remain unchanged, although the terminology
will be consistent with IAS.
However, the Statement of Financial Position will be laid out similarly to Hill Traders, in the Statement of
Financial Position shown in 2.3.2. The Accumulated Fund will be shown above Non Current Liabilities.
2.6 Statement of Comprehensive Income

The Statement of Comprehensive Income will be examined at Level 4.
2.7 Summary
Changes at this level are mainly presentational and specific formats only apply to company accounts.
However, once again, candidates wishing to progress to higher levels would be encouraged to become
used to the formats.
11
3. Third Level
3.1 Preface
Practices and principles raised at the First and Second Levels will be relevant at the Third Level, reflecting
the cumulative requirements of the LCCI syllabi.
3.2 Terminology
UK IAS
Minority interest Non-controlling interest
3.3 Accounting treatment of goodwill

There are two methods of calculating goodwill, the partial and full methods. The partial method is the
method that is currently examined in the syllabus and is therefore currently the only method that is
examined.
3.3.1 Accounting treatment of positive goodwill

Goodwill arising from the acquisition of a subsidiary is not amortised. After the initial measurement and
recognition, the group is expected to measure the goodwill at cost less any accumulated impairment
12 losses since acquisition. The goodwill impairment loss should be charged to the Income Statement.
3.3.2 Accounting treatment of negative goodwill

Negative goodwill should be credited to the Income Statement. It does not appear in the Consolidated
Statement of Financial Position.
3.4 Format of the Consolidated Income Statement and

Consolidated Statement of Financial Position
Peter Pope Group Peter Pope Group

Consolidated Income Statement Consolidated Statement of Financial Position
for the year ended 31 March 20x0 at 31 March 20x0
$ $ $ $
Cost of sales 13,200 Goodwill 5,000
Gross profit 5,100 Plant and equipment 17,600
Less: Distibution costs Motor vehicles 2,500

1,200
25,100
Less: Administrative expense 1,000 (2,200 )
Current Assets
2,900
Other operating income Inventories 2,100
1,100
Profit from operations Trade receivables 4,200
4,000
Interest payable Other receivables 150
500
Profit for the year Cash 70 6,520
3,500
Total Assets 31,620
Profit attributable to: $

Owners of the Parent Equity and Liabilities
3,200
Non-controlling interest 300 Capital and reserves $ $
Ordinary share capital
13
3,500 10,000
Share premium 5,000
Retained earnings 2,000
17,000
Non-controlling Interest 1,000

Equity 18,000
Redeemable preferred share
5,100
capital
Bank loan 5,000 10,100
Current Liabilities
Other payables 400
Bank overdraft 1,720 3,520
3.5 Cash Flows (IAS 7)

3.5.1 Format of the Statement of Cash Flow
IAS 7 requires reporting of cash flows to be shown under three headings. These are Operating activities;
investing activities and Financing activities.
Whellars
Statement of Cash flows for the year ended 31 March 20x1
$ $
Cash flows from operating activities
Profit for the year 7,600
Adjustments for:
Depreciation of non-current assets 120
Interest expense 10
Investment income ( 12 )
Operating profit before working capital changes 7,718
Decrease in trade receivables 4,210
Increase in inventories ( 1,100 )
Decrease in trade payables ( 1,800 ) 1,310
cash generated from operations 9,028
Interest paid ( 80 )
14 Net cash flow from operating activities 8,948
Cash flows form investing activities

Cash paid for non-current assets (4,000 )
Cash received from the sale of non-current assets 1,400
Interest received 300
Dividends received 200
Net cash used in investing activities (2,100 )
Cash flows from financing activities

Proceeds from issue of shares 100
Proceeds from long term borrowing 200
Dividends paid ( 400 )
Net cash used in financing activities ( 100 )
Net increase in cash and cash equivalents 6,748
Cash and cash equivalents at 1 April 20x0 1,200
Cash and cash equivalents at 31 March 20x1 7,948
The example is designed to show the possibilities likely in an LCCI examination and contains more figures
than a typical question. However, as in previous sittings, examiners may ask for separate calculations of
the cash flow from operating activities, cash flow from investing activities and cash flow from financing
activities.
3.6 Relevant international accounting standards

3.6.1 IAS 2 (Inventories)
Inventories are valued at the lower of cost and net realisable value. Costs include purchase cost,
conversion costs and other costs incurred in bringing the inventory to its present location and condition.
No different from the UK standards.
3.6.2 IAS 7 (Statement of Cash Flows)

Cash flows are reported under three main headings: operating activities, investing activities and financing
activities
3.6.3 IAS 16 (Non-current Assets)

Tangible non-current assets are assets that have a physical substance and are held for use in the
production or supply of goods or services, for rental to others or for administrative purposes and
are expected to be utilised in more than one reporting year. A tangible non-current asset should be
depreciated over its useful economic life. No different from the UK standards.
3.6.4 IAS 27 (Consolidated Financial Statements)

Consolidated financial statements are financial statements of a group (parent and subsidiary) presented
as those of a single entity. Non-controlling interests are reported in equity in the Consolidated Statement
of Financial Position. This standard will be superseded by IFRS 10 from 2013.
15
3.6.5 IFRS 3 (Business Combinations)
Goodwill arising from consolidation is measured as the difference between the cost (fair value of
the purchase consideration) of an acquired entity and the aggregate of the fair values of the entitys
identifiable assets and liabilities. No different to the UK standards.
3.7 Summary
Changes at this level are once again mainly presentational, most notably with regards to the Statement of
Cash Flow.
4. Fourth Level
4.1 Preface
The issues raised in the First, Second and Third Levels will be relevant at the Fourth Level, reflecting as
such, the cumulative requirements of LCCI syllabi.
4.2 Components of financial statements

IAS 1, states that a complete set of financial statements should include the following:
A Statement of Financial Position at the end of the reporting period.
A Statement of Comprehensive Income for the period.
A Statement of Changes in Equity for the period
A Statement of Cash Flows for the period.
Notes to the accounts, which include accounting policies and relevant explanatory notes.
4.3 Format of the Statement of Financial Position

IAS 1 does not prescribe a format of the statement of financial position. However, it stipulates the
minimum information that has to be disclosed on the face of the statement of financial position.
16 This information is:

Cash and cash equivalents
Intangible assets
Inventories
Issued capital and reserves attributable to the owners of the firm
Non-controlling interest (minority interest) presented within equity
Payables (trade and other)

Provisions
Property, plant and equipment
Receivables (trade and other)
4.4 Statement of Comprehensive Income

Comprehensive Income for a period includes profit or loss for that period and Other Comprehensive
Income recognised during the period. The only item reported under Other Comprehensive Income that
is examinable at this level is a gain/loss on the revaluation of a non-current asset during the reporting
period.
4.4.1 Minimum Information required on the Statement of

Comprehensive Income
The minimum information on the face of the statement of comprehensive Income required by IAS 1
includes:
Revenue
Finance costs
Profit or loss for the period
Each component of other comprehensive income classified by nature
Total comprehensive income
Profit or loss attributable to non-controlling
Profit or loss attributable to equity holders of the parent company
Total comprehensive income attributable to non-controlling interests
Total comprehensive income attributable to the parent company
17
4.5 Statement of Changes in equity
The Statement of Changes in Equity reflects information about the increase or decrease in net assets or
wealth of equity shareholders. The minimum information on the face of the statement of changes in equity
includes:
Profit or loss for the period
Each item of other comprehensive income
Additional shares issued during the period
Dividends paid during the year
Purchase of shares during the period
Effects of changes in accounting policy
Effects of correction of errors

4.6 Financial statements Hayes Metals

Statement of Comprehensive Income
4.6.1 Statement of for the year ended 31 March 20x0
Comprehensive Income $ $
classifying expenses by Revenue 18,300
function Cost of sales 13,200
Gross Profit 5,100
Less: Distribution costs 1,200
2,900
Other operating income 1,000
Profit from operations 3,900
Finance costs ( 200 )
Other comprehensive income
Gains on revaluation of property 1,000
Total comprehensive income 4,700
18
4.6.2 Statement of Hayes Metals
Comprehensive Income Statement of Comprehensive Income
for the year ended 31 March 20x0
classifying expenses by
nature $ $
Revenue 18,300
Change in inventories of finished
1,000
goods and WIP
Own work capitalised 1,500
Other operating income 1,000 3,500
21,800
Raw materials and consumables 3,000
Staff costs 5,000
Depreciation and amortisation 6,900
Other operating expenses 3,000 (17,900 )
Finance costs ( 200 )
Gains on revaluation of property 1,000
4.6.3 Consolidated Statement of Comprehensive Income
Hayes Metals
Consolidated Statement of
Comprehensive Income
for the year ended 31 March 20x0
$ $
Revenue 18,300
Cost of sales 13,200
Gross Profit 5,100
Less: Distribution costs 1,200
2,900
Other operating income 1,100
Interest payable ( 600 )
Gains on revaluation of property 200
Profit attributale to:
19
Owners of the Parent 3,100
Non-controlling interest 300
3,400
Total comprehensive income

attributable to:
Owners of the Parent 3,250
Non-controlling interest 350
3,600
Questions at this level would not combine group accounts with the presentation of accounts in
accordance with IAS 1, although candidates would be expected to prepare their answers in a clear and
well-presented way.
4.7 Relevant international accounting standards

4.8.1 IAS 8 - Accounting policies
Accounting policies
Accounting policies are specific principles, bases, conventions and practices used by an entity in preparing
and presenting its financial statements. They explain the way a firm treats items within its financial
statements.
Changes in accounting policies
Accounting policies should only be changed where a new accounting standard requires such a change or
where the new policy will result in more relevant and reliable information being presented.
Changes in accounting estimates
An example of a change in accounting estimate is a change in the percentage used to estimate allowance
for doubtful debts. The effect of the change is recognised in the income statement for the year in which
the change takes place. Another example of a change in accounting estimate is a change in the useful
economic life of an asset.
Prior period errors
A prior period error is where an error has occurred even though reliable information was available when
those financial statements were authorised for issue. Examples are mathematical errors, mistakes in
applying accounting policies, misinterpretation of facts and fraud.
4.7.2 IAS 10 - Events after the reporting period

IAS 10 with events that occur between the year-end date and the date the financial statements are
authorised for issue by the directors. The events that occur are either adjusting events or non-adjusting
20 events. Adjusting events are those that provide evidence about conditions that existed at the end of
the reporting date. Non-adjusting events are those that are indicative of conditions that arose after the
reporting date.
4.7.3 IAS 11 Construction contracts

There are minor differences between IAS 11 and SSAP 9, but they will not affect examination questions set
at this level.
4.7.4 IAS 16 Accounting for property, plant and

equipment
IAS 16 deals with the recognition of non-current assets, initial measurement, subsequent measurement
and depreciation. There are no major differences between IAS 16 and FRS 15, the equivalent UK standard.
4.7.5 IAS 20 - Government grants

Grants must not be recognised until conditions have been complied with and there is reasonable
certainty that the grant will be received (prudence). Government grants received must be matched with
expenditure for which the grant is intended (accruals). This standard is not materially different from the
equivalent UK standard.
4.7.6 IAS 37 - Provisions, contingent liabilities and assets

A liability is an obligation of an entity to transfer economic benefits as a result of past transactions or
events. A provision is a liability of uncertain timing or amount. A provision should be recognised when:
A firm has a present obligation as a result of a past event. The obligation may be legal or constructive
It is probable that an outflow of resources will be required to settle the obligation
A reliable estimate can be made of the amount
If a firm through its future actions can avoid an obligation, a provision cannot be set up
Contingent liability
If one or more of the conditions required for a provision is not met a contingent liability may exist. A
contingent liability should be disclosed unless the possible outflow to meet the obligation is remote. If
outflow of resources is remote do not disclose in the accounts.
Contingent assets
A contingent asset is a possible asset that arises from past events and whose existence will be confirmed
only by the occurrence of one or more uncertain future events not wholly within the entitys control. A
contingent asset should be disclosed when the expected inflow of economic resources is probable.
4.7.7 IAS 38 Intangible assets

Intangible non-current assets are identifiable non-monetary assets that do not have a physical substance.
IAS 38 deals with all intangible non-current assets, including development expenditure. Under SSAP 13
development expenditure may be capitalised after certain conditions have been satisfied. However, under
IAS 38, development expenditure must be capitalised after certain conditions have been satisfied.
21
Tel. +44 (0) 2476 518951
Email. internationalenquiries@ediplc.com
www.lcci.org.uk

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International Accounting Standards

1 First Level 4 4 Fourth Level

1.1 Terminology 4 4.1 Preface 16

2.3 Limited liability companies 8

2.4 Manufacturing Accounts 10

3.5 Cash flows 14

3.6 IAS standards 15

4 Long term Debenture Loan Note

1.2 Format of the Income Statement and the Statement

1.2.1 Format of Financial Statements for a sole trader

Peter Piper Peter Piper

15,300 Current Assets

Less Closing inventory (2,100) 13,200 Inventories 2,100

1.3 Treatment of Discount

2.2.2 Format of Financial Statements for a partnership

Peter and Pope Peter and Pope

15,300 Current Assets

Less Closing inventory (2,100) 13,200 Inventories 2,100

2.3 Limited liability companies

UK GAAP IAS equivalent

2.3.2 Treatment of prefered share capital

UK GAAP IAS equivalent

8 Irredeemable preferred share capital Shown in Shareholders equity

2.3.2 Format of Financial Statements for companies

Hill Traders Hill Traders

Add Purchases 13,100 20,100

15,300 Current Assets

Less Closing inventory (2,100) 13,200 Inventories 2,100

Gross profit 5,100 Trade receivables 4,200

Less Expenses: Other receivables 150

Motor expenses 1,000 Cash 70 6,520

Rent and rates 1,500 Total Assets 26,620

Light and heat 1,300

Profit for the year 1,050 Ordinary share capital 10,000

2.3.3 Presentation of Dividends

2.3.4 Statement of Changes in Equity

2.3.5 Format of the Statement of Changes in Equity of

Share Share Retained General Total

$000 $000 $000 $000 $000

Changes in Equity for 20x0

2.4 Manufacturing accounts

2.5 Non-trading organisations

2.6 Statement of Comprehensive Income

3.3 Accounting treatment of goodwill

3.3.1 Accounting treatment of positive goodwill

3.3.2 Accounting treatment of negative goodwill

3.4 Format of the Consolidated Income Statement and

Peter Pope Group Peter Pope Group

Less: Distibution costs Motor vehicles 2,500

Profit attributable to: $

Non-controlling Interest 1,000

3.5 Cash Flows (IAS 7)

Cash flows form investing activities

Cash flows from financing activities

3.6 Relevant international accounting standards

3.6.2 IAS 7 (Statement of Cash Flows)

3.6.3 IAS 16 (Non-current Assets)

3.6.4 IAS 27 (Consolidated Financial Statements)

4.2 Components of financial statements

4.3 Format of the Statement of Financial Position

16 This information is:

Non-controlling interest (minority interest) presented within equity

Payables (trade and other)