CMA Intermediate · Corporate Accounting and Auditing

Presentation of Financial Statements (Ind AS 1): formula sheet

Full chapter guide

Key formulas

Total comprehensive income: Total comprehensive income = Profit or loss for the period + Other comprehensive income; OCI items are those that other Ind AS require or permit to be kept outside profit or loss. Show OCI net of reclassification adjustments where applicable.
Material (definition test): Material if omitting, misstating or obscuring the information could reasonably be expected to influence decisions of primary users; Judge by size, nature, or both. Do not rely on a fixed percentage. Obscuring information can also make it material.
Complete set of financial statements: Balance sheet + Statement of profit and loss (including OCI) + Statement of changes in equity + Statement of cash flows + Notes (with material accounting policy information and other explanatory information); Comparative information for the preceding period is also needed. Learn the statement names as used in Ind AS 1.
Objective of Ind AS 1: Comparability with the entity's own earlier statements and with other entities' statements; Use this line to open any objective question.
Complete set of financial statements: Balance sheet + Statement of profit and loss (with OCI) + Statement of changes in equity + Statement of cash flows + Notes + Comparatives; Add a third balance sheet (start of the preceding period) when there is a material retrospective application, restatement or reclassification.
Compliance statement: Explicit and unreserved statement of compliance with Ind AS, only if all requirements are met; Partial compliance cannot be described as compliance with Ind AS.
Departure rule (Ind AS 1 as modified in India): Departure from Ind AS is not permitted. If compliance appears misleading: comply + disclose the misleading aspects; The IAS 1 override (departure where the regulatory framework requires or does not prohibit it) is only a contrast with IAS 1. It does not apply under Ind AS 1.
Underlying assumptions: Going concern + Accrual basis (except cash flow information); Assess going concern for at least, but not limited to, twelve months from the end of the reporting period.
Going concern basis: Prepare on going concern unless management intends to liquidate or cease trading, or has no realistic alternative; Disclose material uncertainties that cast significant doubt. Assessment covers at least 12 months from the end of the reporting period.
Accrual basis: Recognise items when definitions and recognition criteria are met, not when cash is received or paid; Cash flow statement information is the exception.
Materiality test: Material if omission or misstatement could influence users' economic decisions; Judged by size, nature or both. Do not hide material items through aggregation.
Offsetting: No offsetting of assets and liabilities, or income and expenses, unless an Ind AS requires or permits it; Valuation allowances (e.g. for doubtful debts) are not offsetting.
Frequency: Present a complete set of financial statements at least annually; If the period changes, disclose the period, reason and lack of comparability.
Comparative information: Give previous period comparatives for all numerical amounts in the current period statements; Include narrative comparatives when relevant to understanding.
Consistency of presentation: Retain presentation and classification from period to period; Change only for a significant change in operations, a review showing a more appropriate presentation, or an Ind AS requirement.
Current asset tests (para 66): Current if: (a) realised, sold or consumed in normal operating cycle; (b) held primarily for trading; (c) expected to be realised within 12 months after the reporting period; (d) cash or cash equivalent, unless restricted for at least 12 months; Any one test is enough. All other assets are non-current.
Current liability tests (para 69): Current if: (a) expected to be settled in normal operating cycle; (b) held primarily for trading; (c) due within 12 months after the reporting period; (d) no right at the end of the reporting period to defer settlement for at least 12 months; Any one test is enough. All other liabilities are non-current.
Unclear operating cycle: Operating cycle not clearly identifiable ⇒ assumed 12 months; Stated in paras 68 and 70.
Deferred tax (para 56): Deferred tax assets (liabilities) are not classified as current; Always non-current when the current/non-current split is used.
Likelihood of deferral (para 75A): Classification is unaffected by the likelihood that the entity will exercise its right to defer; Intention to settle early does not make a non-current liability current.
Minimum balance sheet line items (para 54): PPE; investment property; intangible assets; financial assets; investments by equity method; biological assets; inventories; trade and other receivables; cash and cash equivalents; assets held for sale; trade and other payables; provisions; financial liabilities; current tax; deferred tax; liabilities of held-for-sale groups; non-controlling interests; issued capital and reserves; This is a shortened list. Para 54 also has Ind AS 117 portfolio items (da) and (ma).
Expense classification: Ind AS 1 = nature of expense method only; Paragraph 99 and Appendix 1. The function-wise (cost of sales) method of IAS 1 is not permitted.
Extraordinary items: No item presented as extraordinary; Paragraph 87. Applies to the statement of profit and loss and the notes.
Total comprehensive income: Total comprehensive income = Profit or loss for the period + Other comprehensive income (net of tax); OCI is grouped into items not reclassified and items reclassified to profit or loss.
Profit before tax (nature method): PBT = Revenue + Other income − (Changes in inventories of FG and WIP + Raw materials and consumables used + Employee benefits expense + Finance costs + Depreciation and amortisation + Other expenses); The paragraph 102 layout lists only revenue, other income, changes in inventories, raw materials and consumables used, employee benefits expense, depreciation and amortisation, and other expenses. Finance costs is not part of that layout. It is a separate line item required by paragraph 82, and you show it among the expenses before PBT. Treat an increase in inventory as a credit to expenses (reduction) and a decrease as an addition.
OCI grouping: (i) Will not be reclassified to P&L; (ii) Will be reclassified to P&L when specific conditions are met; Paragraph 82A. Same split for share of OCI of associates and joint ventures.
Material items: Material income or expense: disclose nature and amount separately; Paragraph 97.
Closing balance of each equity component: Opening balance ± Restatement/policy-change effect + Profit/(loss) + OCI + Issues of shares − Dividends − Buy-back ± Transfers = Closing balance; Work column by column or row by row. Each component must tie to the balance sheet.
Total comprehensive income: Total comprehensive income = Profit or loss for the period + Other comprehensive income; Both amounts are shown in the statement; OCI items go to their own reserve or to retained earnings as the relevant Ind AS requires.
Retained earnings roll-forward: Closing retained earnings = Opening + Profit for the year − Dividends − Transfers to reserves (± remeasurement items taken directly); Transfers between components of equity do not change total equity.
Order of notes: Statement of compliance → Basis of preparation → Significant accounting policies → Supporting information → Other disclosures; Ind AS 1 requires notes to be presented in a systematic manner and cross-referenced.
Total income: Total income = Revenue from operations + Other income; Interest and dividend received, and gains not part of main activity, go under Other income.
Change in inventories: Changes in inventories = Opening inventory − Closing inventory; A positive figure is an expense. If closing is higher, the figure is negative and reduces total expenses.
Profit before tax: PBT = Total income − Total expenses − Exceptional items (if loss); Show profit before exceptional items and tax first, then the exceptional item, then PBT.
Profit for the period: Profit for the period = PBT − (Current tax + Deferred tax); Tax expense is split into current tax and deferred tax on the face of the statement.
Total comprehensive income: Total comprehensive income = Profit for the period + Other comprehensive income; OCI items are shown net of tax or with the tax shown separately, split into items that will not and will be reclassified to profit or loss.
Closing retained earnings: Closing retained earnings = Opening balance + Profit for the period − Dividends paid and transfers; Shown under Other Equity in the balance sheet.
Balance sheet identity: Total assets = Equity + Non-current liabilities + Current liabilities; Use this as your final check.
Current classification test: Current if realised or settled within the operating cycle or within 12 months of the reporting date, or held for trading; Current maturities of long-term borrowings are shown under other current financial liabilities.

Quick revision

A complete set has: Balance Sheet, Statement of Profit and Loss, Statement of Changes in Equity, Statement of Cash Flows, and Notes, plus comparative information.
Fair presentation is the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses in the Framework. Compliance with Ind AS is presumed to achieve it.
Going concern and accrual basis of accounting are general features; cash flow information is the exception to accrual.
Each material class of similar items is presented separately; immaterial items may be aggregated.
Assets and liabilities, and income and expenses, are not offset unless an Ind AS requires or permits it.
An asset is current if it is expected to be realised, sold or consumed in the normal operating cycle, it is held primarily for trading, it is expected to be realised within twelve months after the reporting period, or it is cash or a cash equivalent that is not restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
A liability is current if it is expected to be settled in the normal operating cycle, it is held primarily for trading, it is due to be settled within twelve months after the reporting period, or the entity has no right at the end of the reporting period to defer settlement for at least twelve months after the reporting period.
Deferred tax assets and liabilities are always shown as non-current.
Ind AS 1 does not permit extraordinary items to be shown in the Statement of Profit and Loss or in the notes.
OCI items are split into those that will be reclassified to profit or loss later and those that will not.
Total comprehensive income is profit or loss plus other comprehensive income for the period.
The Statement of Changes in Equity shows movements in equity share capital and in other equity such as retained earnings and reserves.

Common mistakes

Saying an item is material only if it crosses a fixed percentage of profit or turnover. Fix: Remember that Ind AS 1 uses a judgement test: could it influence users' decisions. Size and nature both matter.
Believing materiality is judged on size alone. Fix: State that a small item can still be material because of its nature, for example a related party transaction.
Leaving out the statement of changes in equity or the notes from the complete set. Fix: Use the six-item list every time: BS, P&L with OCI, SOCE, cash flows, notes, comparatives.
Treating OCI as a separate statement outside the statement of profit and loss. Fix: Ind AS 1 presents profit or loss and OCI in one statement of profit and loss, with profit or loss and total comprehensive income shown.
Saying offsetting is always prohibited, even for doubtful debt allowances. Fix: Remember that the prohibition applies unless an Ind AS requires or permits it, and that valuation allowances are not offsetting.
Applying the accrual basis to the Cash Flow Statement. Fix: State that the accrual basis applies to all statements except cash flow information.
Treating inventory or trade receivables as non-current because they will take more than twelve months to realise. Fix: Remember the operating cycle test. Items sold or realised within the normal operating cycle are current even beyond twelve months.
Showing deferred tax asset or liability as current. Fix: Para 56 bars this. Deferred tax is always non-current; current tax is the one that can be current.
Presenting expenses by function, such as cost of goods sold and administrative expenses. Fix: Under Ind AS 1 only the nature of expense method is allowed. Show materials, employee benefits, depreciation and other expenses.
Showing an item as extraordinary. Fix: Paragraph 87 prohibits it. Disclose a material unusual item separately with its nature and amount instead.

Exam tips

Open objective and scope answers with the word comparability. It is the key idea examiners look for.
Write definitions almost word for word for material, notes and OCI. These are common 2-mark MCQ sources.
In case-based questions on materiality, always discuss both size and nature before you conclude.
Keep presentation and measurement apart. If a question asks how to value an item, the answer lies in another Ind AS.
Check your arithmetic on percentages in short cases. A wrong ratio can lose step marks even if the concept is right.
Write the complete set as a bullet list of six items. It earns easy marks in short notes.
In departure questions, state clearly that Ind AS 1 as modified in India does not permit departure, then say the entity complies and discloses the misleading aspects.
Mention the IAS 1 override only as a contrast, and label it clearly as IAS 1.