ACCA Applied Knowledge · Financial Accounting

Disclosure notes: formula sheet

Full chapter guide

Key formulas

Three purposes of the notes (IAS 1): Basis of preparation and policies + information required by IFRS but not shown on the face + other relevant information; Use this list for any 'purpose of the notes' question.
Typical order of the notes: Compliance statement → significant accounting policies → supporting notes in face order → other disclosures; IAS 1 asks for a systematic order, as far as practicable, with cross-references from the face statements.
Judgements versus estimates: Judgements in applying policies + sources of estimation uncertainty; Estimation uncertainty is disclosed where there is a significant risk of material adjustment to carrying amounts within the next financial year.
Materiality rule: No specific disclosure required if the information is immaterial; This applies to disclosures required by IFRS Standards, not to correcting misstatements.
Closing cost or valuation: Opening cost + additions − cost of disposals ± revaluation surplus/deficit adjustment; Do this for each class of asset. Transfers between classes, if any, are also included.
Closing accumulated depreciation: Opening accumulated depreciation + charge for the year − accumulated depreciation on disposals; On a revaluation where depreciation is eliminated against cost, remove the accumulated depreciation to date from this row.
Carrying amount: Cost or valuation − accumulated depreciation; This must agree to the figure in the statement of financial position.
Profit or loss on disposal: Proceeds − carrying amount at disposal date; A positive result is a profit, a negative result is a loss. It is not shown in the PPE note.
Revaluation surplus: Fair value − carrying amount before revaluation; Credited to other comprehensive income and held in the revaluation surplus in equity.
Intangible asset carrying amount: Carrying amount = Cost − Accumulated amortisation (and impairment); Show cost, amortisation and carrying amount in the note, at both year ends.
Straight-line amortisation: Annual charge = (Cost − Residual value) ÷ Useful life; Residual value is usually nil for intangibles. Start amortising when the asset is ready for use.
Closing balance reconciliation: Opening carrying amount + Additions − Disposals − Amortisation − Impairment = Closing carrying amount; Use only the items that apply in the question. Check the total agrees to the statement of financial position.
Development cost rule: Research = expense. Development = capitalise only if all IAS 38 criteria are met; If criteria are not met, expense it all in profit or loss.
Inventory measurement: Inventory = Lower of cost and net realisable value; Disclose the policy and the carrying amount by classification.
Net receivables: Trade receivables (net) = Gross receivables − Allowance for receivables; Irrecoverable debts are written off first. The allowance applies to the remaining balance.
Closing retained earnings: Opening retained earnings + profit for the year − dividends declared in the year = closing retained earnings; Use dividends declared by the reporting date, not those proposed afterwards.
Share capital on a share issue: Number of shares × nominal value = credit to share capital; The rest of the cash received is credited to share premium.
Share premium on a share issue: Number of shares × (issue price − nominal value) = credit to share premium; Issue costs are normally deducted from share premium (or equity), not expensed.
Revaluation surplus movement: Opening surplus + revaluation gain (via OCI) − transfers = closing surplus; A gain goes to OCI. A revaluation loss first reduces any existing surplus on that same asset.
Dividend rule (IAS 10): Declared on or before year end = liability; declared after year end = disclosure only; Applies to equity dividends. Dividends on irredeemable preference shares are usually finance costs.
Provision recognition tests: Present obligation from a past event AND outflow probable (> 50%) AND reliable estimate → recognise a provision; All three conditions are needed. If one fails, treat as a contingent liability.
Contingent liability treatment: Possible obligation, or present obligation not probable or not measurable → disclose; if outflow remote → no disclosure; Never recognise in the statement of financial position.
Contingent asset treatment: Inflow virtually certain → recognise as an asset; inflow probable → disclose; otherwise → ignore; Be more cautious with assets than with liabilities.
Provision note reconciliation: Closing balance = Opening balance + Additions − Amounts used − Unused amounts reversed; Shown for each class of provision. Unwinding of discount is also included where discounting applies.
Measurement: Provision = best estimate of the expenditure needed to settle the obligation at the reporting date; Discount to present value if the effect is material.
Period covered: Reporting date → date financial statements are authorised for issue; Events outside this window are not IAS 10 events.
Adjusting event: Evidence of conditions existing at the reporting date → adjust the amounts; Examples: a customer's bankruptcy confirming a receivable was impaired; a court case settled for a different amount than the provision; discovery of fraud or errors; finalising the price of assets bought or sold before year end.
Non-adjusting event: Conditions arising after the reporting date → do not adjust; disclose if material; Examples: a fire destroying inventory after year end, a major business combination, a fall in market value of investments, announcing a restructuring after the reporting date (where no obligation existed at year end). A restructuring provision is recognised under IAS 37 only if, by the reporting date, there is a detailed formal plan and a valid expectation in those affected (through announcement or by starting to implement the plan) that the entity will carry it out.
Disclosure for non-adjusting events: Nature of the event + estimate of financial effect (or statement that it cannot be estimated); Only required where the event is material.
Dividends declared after the reporting date: Declared after year end → no liability at year end → disclose the dividend in the notes; The obligation does not exist at the reporting date, so no liability is recognised. The notes give the amount of the dividend proposed or declared after the reporting period but before authorisation.
Going concern exception: Decision to liquidate or cease trading after the reporting date → do not use the going concern basis; This applies even if the decision was made after the reporting date.

Quick revision

Notes give accounting policies, breakdowns of figures and extra information on uncertain items.
The PPE note reconciles cost and accumulated depreciation from opening to closing balance.
Land is not depreciated; buildings and equipment are depreciated over their useful lives.
Research costs are always expensed; development costs are capitalised only when all criteria are met.
Capitalised intangibles with finite lives are amortised; goodwill is not amortised under IFRS.
Revaluation gains go to OCI and the revaluation surplus, except to the extent they reverse an earlier revaluation loss on the same asset that was charged to profit or loss; that part is recognised in profit or loss.
A dividend is recognised as a liability only when declared; a proposed final dividend after the year end is not a liability.
IAS 37 provision needs a present obligation, a probable outflow and a reliable estimate.
Possible obligations are contingent liabilities: disclose them, do not recognise them; remote ones need no disclosure.
A contingent asset is disclosed when an inflow is probable. When the inflow is virtually certain it is not a contingent asset and is recognised as an asset.
Adjusting events give evidence of conditions at the reporting date and change the figures.
Non-adjusting events arise after the reporting date: disclose them if material, do not change the figures.

Common mistakes

Saying the notes are optional extras that are not part of the financial statements. Fix: Remember the notes are an integral part of the financial statements and are covered by the auditor's opinion.
Confusing a judgement with an estimate. Fix: A judgement is a choice in applying a policy (for example whether a lease is a lease). An estimate relates to an uncertain amount (for example useful life or receivable recoverability).
Removing only the carrying amount of a disposed asset from the cost row. Fix: Remove the full original cost from the cost row and the accumulated depreciation on that asset from the depreciation row.
Forgetting to include the depreciation charge in the year on assets that are disposed of. Fix: Follow the question's policy. If depreciation is charged in the year of disposal, include it up to disposal before working out the carrying amount sold.
Capitalising research costs. Fix: Research is always an expense. Only development spend after the criteria are met is capitalised.
Amortising from the date of purchase instead of when the asset is ready for use. Fix: Read the dates. Amortisation begins when the asset is available for use, not when it is bought or when spending starts.
Putting the whole issue proceeds into share capital. Fix: Always compute nominal value × shares first. The excess goes to share premium.
Treating a revaluation gain as profit. Fix: Credit it to other comprehensive income and revaluation surplus.
Recognising a provision for future operating losses or for a planned repair. Fix: Check for a past event creating an obligation. Future losses and repairs the entity could avoid have no present obligation, so no provision.
Recognising a contingent asset because the lawyer says a win is likely. Fix: A probable gain is only disclosed. Recognise it only when it is virtually certain.

Exam tips

Learn the three purposes of the notes as a short list; they are tested directly.
In multiple response questions, count the options you must select and do not choose more than stated.
Separate judgements from estimates carefully. Examiners often give a scenario and ask you to classify it.
Watch for distractors that put face-statement items or directors' report content into the notes.
Remember materiality: if an option says a disclosure is always required whatever its size, treat it with suspicion.
Write the column headings first. A clean layout stops you losing figures when you work several classes.
Check whether the question gives accumulated depreciation or carrying amount at the start. Mixing them up is the commonest error.
Read the depreciation policy for the year of purchase and the year of sale. Apply it exactly as stated.