Requirements of IAS 1 on statement of changes in equity
IAS 1 requires that all gains and losses are shown in the income statement , unless a specific rulestates otherwise (Integral [ "one- stop- shop" ] income approach ) . When the rules allow , then
the gain or loss should be included in the statement of changes in equity . examples include
revaluation / devaluation of gains / losses and currency translation gains / losses.
Accounting standards limit and control the nature of the changes in reserves , insisting that only a
limited number of prescribed items can be explained directly through reserves (ie , located in the
equity). This ensures that all but a few transactions (including extraordinary items / exceptional )
must hit the "bottom " of the income statement . Reserve accounting is not always transparent. the
purpose of the statement of changes in equity is to increase transparency , ensuring that full
disclosure is made of all gains and losses in the period, with no
income passed
statement , and have been addressed directly in reserves .
The statement of changes in equity shows separately the components of equity as
capital , share premium, revaluation reserves , translation reserves and retained earnings.
Minority interests in subsidiaries must be shown separately for the interests of the majority interest in these
balances .
The statement of changes in capital outflows , showing the balances of these accounts at the beginning of
the accounting period. Then at each balance sheet changes are detailed . Finally , the statement ends
with the closing balances . Heritage is therefore a balance reconcile to another.
Comparative provided . (A reconciliation is an explanation of the changes in the amounts expressed in
numerical terms why a balance (often the opening balance ) was transformed into another equilibrium (often
the final balance ) ) .
Following the requirements of IAS 1 Presentation of financial statements, the entity should present, as
June . Statement of changes in equity
primary statement, statement of changes in equity showing on the face
of the statement:
( 1) the income statement ;
(2) each item of income and expense that , as required by other standards or
Interpretations , is recognized directly in equity and the total of these items;
(3) Total income and expense for the period (calculated as the sum of ( a) and ( b ) ) , showing separately
the total amounts attributable to shareholders of the parent company and minority interests , and
(4 ) for each component of equity, the effects of changes in accounting policies and corrections of errors
recognized in accordance with IAS 8 .
An entity shall present, either in the
the statement of changes in equity or in the notes:
( 5) the amounts of transactions with shareholders acting in their capacity as shareholders , showing
separately distributions to shareholders ;
(6 ) the balance of retained earnings ( ie accumulated profit or loss ) at the beginning of the period and
at the balance sheet date , and changes during the period, and
(7 ) a reconciliation between the carrying amount of each class of contributed equity and each reserve
the beginning and end of the period , separately disclosing each change.
The changes in equity of the entity between two balance sheet dates reflect the increase or decrease in its net
assets during the period. This is because of the balance equation :
Assets - Liabilities (ie , net assets ) = Equity
If they increase the net assets , then equity must increase by the same amount , otherwise the balance is
nonequilibrium .
Except for changes resulting from transactions with owners acting in their capacity as equity
holders (such as equity contributions , re- acquisition of equity instruments of the entity and
dividends) and transaction costs directly related to such transactions , the overall change in net
during a period represents the total amount of income and expenses, including gains and losses ,
generated by the activities of the entity during the period ( whether those items of income and expenses are
recognized in profit or loss or directly as changes in equity ) .
Thus , changes in equity for three major reasons :
1. The company generated net income / loss , which increases / decreases the equity
Two . The company has net unrealized gains / losses , which increases / decreases the equity
Three . Shareholders provide more / less capital , or receive dividends
In summary, the changes in equity
Reveal
♦ Profit / loss for the period
♦ Each item of income , expenses recognized directly in equity ( reserve accounting )
♦ Cumulative effect of changes in accounting policies and correction of errors according to IAS 8
also disclose
♦ Operations with shareholders, distributions to shareholders
♦ Opening profits b / f ( advance) , the benefit of closing c / f ( Transport ) , changes on it to
period
♦ Reconciliation opening and closing balance for each class of share capital , share premium,
book , with each change disclosed
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