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Interim Financial Reporting

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13 views13 pages

Interim Financial Reporting

Uploaded by

lorenfavia99
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Continuation...

Interim
Financial
Reporting
Inventories
• Paragraph 25 of Appendix B of PAS 34 provides that inventories are
measured for interim financial reporting by the same principles as at
financial year-end.

• Inventory shall be measured at the lower of cost or net realizable value.

Seasonal, cyclical or occasional


revenue
• Seasonal, cyclical or occasional revenue if shall not be anticipated or
deferred as of an interim date o anticipation or defeated would not be
appropriate at the end of the entity, reporting period.
Uneven cost
• Costs that are incurred unevenly during an entity's financial year shall
be anticipated or deferred for interim purposes only if it is also
appropriate to anticipate or defer that type of cost at the end of the
financial year.

Year-end bonuses
• The nature of year-end bonuses varies widely.
Recognition of bonus
A bonus is anticipated for interim purposes if and only if:

a. The bonus is a legal obligation or past practice would make the bonus a
constructive obligation for which the entity has no realistic alternative but
to make the payment.

b. A reliable estimate of the obligation can be made. Irregular costs

Irregular cost
• Certain costs are expected to be incurred irregularly during the financial
year, such as charitable contribution and employee training cost.
Depreciation Paid vacation Gain and loss
and and holiday Gain or loss from
amortization leave disposal of property,
gain or loss from
Depreciation and Paid vacation and discontinued operation
amortization for an holiday leave shall be and other gain or loss
interim period shall be accrued for interim shall not be allocated
based only on assets purposes because these over the interim periods.
owned during are enforceable as legal
that interim period. commitments.
Income tax
• Interim period income tax expense shall reflect the same general
principles of income tax accounting applicable to annual reporting.
• Paragraph 12 of Appendix B of PAS 34 states that the interim period
income tax expense is accrued using the annual effective income tax rate
applied to the pretax income of the interim period.
Illustration
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


The income tax for each quarter is computed as follows:

(30% x
First Quarter 1,500,000
5,000,000)

(30% x
Second Quarter 1,800,000
6,000,000)

Total income tax for first two quarters 3,300,000

Cumulative income tax for three (25% x


4,750,000
quarters 19,000,000)

Income tax for first two quarters (3,300,000)

Third quarter income tax expense 1,450,000


Difference in financial reporting year and
tax year
• If the financial reporting year and the income tax year differ, Paragraph
17 of Appendix B of PAS 34 states that the income tax expense for
interim periods of that financial year is measured using separate
effective tax rates for each of the tax years applied to the portion of
pretax income earned in each of those tax years.

• Simply stated, the effective tax rate of a particular tax year is - applied
to the pretax income of the interim period in the same tax year.
Illustration
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, 2020 to September 30,2020 1,000,000

Second Quarter October 1, 2020 to December 31, 2020 2,000,000

Third Quarter January 1, 2021 to March 31, 2021 2,500,000

Fourth Quarter April 1, 2021 to June 30, 2021 4,000,000


The effective income tax rate is 30% for 2020 and 25% for 2021. The income
tax expense for each quarter of the financial reporting year is computed as
follows:
(30% x
First Quarter 300,000
1,000,000)

(30% x
Second Quarter 600,000
2,000,000)

(25% x
Third Quarter 625,000
2,500,000)

(25% x
Fourth Quarter 1,000,000
4,000,000)

Total income tax expense 2,525,000


Change in accounting policy
• A change in accounting policy other than one for which the transition is
specified by a new standard shant be reflected by restating the financial
statements of prior interim periods of the current year and the
comparable interim periods of the prior financial year. The objective of
this requirement is to ensure that a single accounting policy is applied
to a particular class of transactions throughout the entire financial year.
Thank
you!

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