This document summarizes key elements of preparing and analyzing financial statements according to IFRS standards. It outlines the components and purpose of income statements, statements of retained earnings, balance sheets, and cash flow statements. It also discusses the bases of preparation for cash flow statements and analyzes operating, investing and financing cash flows. Finally, it reviews methods of financial statement analysis including horizontal analysis, vertical analysis and various ratio analyses, and lists some countries that use IFRS standards.

1. MODULE 5
• Preparation of financial statement
• Elements of financial statements as per IFRS
• Methods of financial statements evaluation

2. Preparing the Financial Statements

3. Preparation of financial statements
I. Income statements – accrual basis
Components are revenue, cost of sales, other income,
distribution cost, administrative expenses, other expenses,
finance charges, income tax
• Purpose and use:
- Change in sales revenue over the period in comparison to
industry growth
- Change in gross profit margin, operating profit margin and
net profit margin
- Increase or decrease in NP,OP and GP
- Comparison with other organisation
- Change in earnings per share
- Analysis of working capital in comparison to similar income
elements
- Analysis of interest cover and dividend cover

4. II. Statement of retained earnings
• Elements / components are
- net P&L attributable to shareholders
- Increase or decrease in share capital reserves
- Dividend payment to shareholders
- Gains or losses recognised directly in equity
- Effect of changes in accounting policies
- Effect of correction of prior period error
- Closing balance
• Purpose and importance – identify the factors
that cause changes in owners equity, gives
information about equity reserves

5. III. Balance sheet
• Balances of all assets
• Balances of all liabilities
• Capital stock
• Retained earnings
IV. Cash flow statement
• Direct method – subtracting cash disbursement
from cash receipts
• Indirect method – adding or subtracting non cash
items from net income
Basis of preparation – cash in hand, cash at bank, ST
investments, Bank OD

6. Operating activities
- eliminate non cash expense
- elimination of non cash income
- removal of expense classified elsewhere
- removal of income classified elsewhere
- working capital changes
Investing activities
- cash outflow expended on purchase of
investments and fixed assets
- cash inflow from income from investments
- cash inflow from disposal of investment and
fixed assets

7. Financing activities
- proceeds from issuance of share capital,
debentures and bank loans
- cash outflow expended on cost of finance
(dividend and interest)
- cash outflow on repurchase of share capital and
repayment of debentures and loans
Purpose And Use
- insights about liquidity and solvency
- use information about historic cash flow to form
projection of future cash flow
- highlights the priority of management

8. Elements of Financial Statements
Assets
- Tangible and intangible, inventories, trade
receivables, cash and cash equivalents
Liabilities
- Trade liabilities, ST borrowings, LT
borrowings, current tax payable
Future outflow of economic resources
Equity

9. Methods of Financial Statement
Analysis
• Horizontal Analysis
- $ and % analysis
• Vertical Analysis
• Ratio Analysis
- Liquidity ratio
- Profitability ratio
- Activity ratio
- Capital structure
- Capital market ratio

10. IFRS are used in many parts of the world, including
• South Korea
• European Union
• India
• Hong Kong
• Australia
• Malaysia
• Pakistan
• Russia
• Chile
• Philippines
• South Africa
• Singapore
• Turkey

11. Thank you