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Interim Financial Reporting

Interim financial reporting involves the preparation of financial statements for periods of less than one year, such as quarterly or semiannually. There are two main views on interim reporting - the integral view where annual expenses are allocated to interim periods, and the independent view where expenses are recognized when incurred in the interim period. The components of an interim financial report include condensed versions of the standard financial statements and selected explanatory notes. Basic principles include applying the same accounting policies as the annual financial statements and recognizing revenues and expenses in the periods they occur. [/SUMMARY]

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2K views17 pages

Interim Financial Reporting

Interim financial reporting involves the preparation of financial statements for periods of less than one year, such as quarterly or semiannually. There are two main views on interim reporting - the integral view where annual expenses are allocated to interim periods, and the independent view where expenses are recognized when incurred in the interim period. The components of an interim financial report include condensed versions of the standard financial statements and selected explanatory notes. Basic principles include applying the same accounting policies as the annual financial statements and recognizing revenues and expenses in the periods they occur. [/SUMMARY]

Uploaded by

Alexa Lee
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Objectives:

 To understand the

INTERIM
nature of interim
financial reporting in
contrast to annual
FINANCIAL financial reporting.
 To know the basic
REPORTING principles of interim
financial report.
 To identify the
components of an
interim financial
report.
 To be able to prepare
and present
PAS 34 comparative interim
financial statements.
Interim Financial Reporting
• The preparation and presentation of financial statements
for a period of less than one year.

• It may be presented monthly, quarterly or semiannually.

• Publicly traded entities are encouraged to provide interim


financial reports at least semiannually – not later than
60 days after the interim period.
Two views on Interim Financial
Reporting
Integral view
- Annual operating expenses are estimated and then allocated to the
interim period based on forecasted revenue or sales volume.
- Estimation and allocation are necessary to avoid creating misleading
fluctuations in interim period income.

Independent view
- Each interim period is considered as discrete or separate accounting
period with status equal to a fiscal year.
- Annual operating expenses are recognized in the interim period when
incurred.
Components of an Interim Financial Report
a) Condensed Statement of Financial Position
b) Condensed Statement of Comprehensive income
c) Condensed Statement of Changes in Equity
d) Condensed Statement of Cash Flows
e) Selected explanatory notes

Condensed means that each of the headings and subtotals


presented in the entity’s most recent annual FS is required but
there is no requirement to include greater detail unless this is
specifically required.
BASIC PRINCIPLES:
• An entity shall apply the same accounting policies
in the interim financial statements are applied in
the annual financial statements.

• Revenues from products sold or services rendered


are generally recognized for interim reports on
the same basis as for the annual report.
BASIC PRINCIPLES:
• Costs and expenses are recognized as incurred in an
interim period.
• Expenses associated directly with revenue
• Expenses not associated directly with revenue

• Seasonal business – the entity is encouraged to disclose


financial information:
a) for the latest 12mos;
b) comparative information for the prior comparable 12-month
period
TAKE NOTE OF THIS:
Inventories
- Measured for interim financial reporting by the same
principles as at financial year-end.

Seasonal, cyclical or occasional revenue; Uneven costs


- Shall not be anticipated or deferred as of an interim
date if anticipation or deferral would not be
appropriate at the end of the entity’s reporting
period.
TAKE NOTE OF THIS:
•Year-end bonuses
•Irregular costs
•Depreciation & Amortization
•Paid vacation and holiday leave
•Gain and loss
• Income tax
ILLUSTRATION 1:

An entity has the following income before tax and annual


effective tax rate for the first three quarters of the
current year:
Income before tax Tax rate
First quarter 5,000,000 30%
Second quarter 6,000,000 30%
Third quarter 8,000,000 25%
Total income 19,000,000
Income Tax Expense Computation:
Income tax for the two quarters:
First quarter 5,000,000 x 30% = 1,500,000
Second quarter 6,000,000 x 30% = 1,800,000
Total income tax = 3,300,000

Cumulative income tax for 3Quarters


25% x 19,000,000 = 4,750,000
Income tax for first two quarters 3,300,000
Income tax expense – third quarter 1,450,000
Illustration 2:
An entity’s financial reporting year ends June 30 and it reports quarterly.
This means that the financial reporting is from July 1 of one year to June 30
of next year. The tax year ends December 31.

The income before tax for the financial year from July 1, 2020 to June
30,2021 is as follows:
First quarter July 1 to Sept. 30, 2020 1,000,000
Second quarter Oct. 1 to Dec. 31, 2020 2,000,000
Third quarter Jan. 1 to March 31, 2021 2,500,000
Fourth quarter Apr. 1 to June 30, 2021 4,000,000

The effective income tax rate is 30% for 2020 and 25% for 2021.
Income Tax Expense Computation:
Income tax expense for each quarter of the financial
reporting year is computed as follows:

First quarter 5,000,000 x 30% = 300,000


Second quarter 6,000,000 x 30% = 600,000
Third quarter 2,500,000 x 25% = 625,000
Fourth quarter 4,000,000 x 25% = 1,000,000
TOTAL INCOME TAX EXPENSE = 2,525,000
Illustration 3:
Farr Company had the following transactions during the quarter
ended March 31, 2021.

Loss from typhoon 700,000


Payment of the fire insurance
premium for the calendar year 2021 100,000

What total amount of expenses should be included in the income


statement for the quarter ended March 31, 2021?
SOLUTION:
*Gains and losses are not allocated over the interim
periods. Thus, the loss from typhoons is reported in the
quarter when incurred.

Casualty loss 700,000


Insurance expenses 25,000
TOTAL EXPENSES 725,000

**Insurance expense (100,000/4)


Illustration 4:

Vilo Company has estimated that the total depreciation


expense for 2021 will amount to P600,000 and the
year-end bonuses to employees for 2021 will total
P1,200,000.

In the interim income statement for the six months


ended June 30,2021, what total amount of expenses
should be reported?
SOLUTION:

Depreciation 300,000
Bonuses 600,000
TOTAL EXPENSES 900,000

***Depreciation (600,000 x 6/12)


Bonuses (1,200,000 x 6/12)
“We don’t grow when things
are easy, We grow when we
face challenges.”
END OF PRESENTATION
THANK YOU!!!

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