Company Financial Statements and Presentation of Financial Statements
What the exam tests
This domain tests company financial statements under IAS 1 and CAMA 2020: statement of profit or loss and other comprehensive income, statement of changes in equity, statement of financial position, and disclosure of share capital, reserves and dividends.
Core rules
- Present fairly and comply with IFRS; apply going concern, accrual, consistency and materiality.
- Classify assets and liabilities as current or non-current; present a current/non-current distinction unless liquidity presentation is more relevant.
- Share capital is recorded at nominal value; excess proceeds go to share premium. Dividends are distributions of equity, not expenses.
- Income tax is an expense; dividends paid and proposed are shown in the statement of changes in equity when appropriately authorised.
- Retained earnings: opening balance + profit after tax - dividends = closing balance.
Worked example
Profit before tax is N5m; tax is N1.5m; dividend declared is N0.8m; opening retained earnings are N2m. Profit after tax = 5 - 1.5 = N3.5m. Closing retained earnings = 2 + 3.5 - 0.8 = N4.7m. The dividend is not deducted in arriving at profit; it is a debit to retained earnings. If a transfer to a general reserve of N0.5m is made, retained earnings become N4.2m and the reserve increases by N0.5m; total equity is unchanged by the transfer.
Traps
Do not treat dividends as an expense or as a liability before authorisation. Do not credit share premium to profit. Do not classify the current portion of a long-term loan as non-current. A revaluation surplus goes to other comprehensive income, not profit.