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The income statement of financial statement for the prior year was presented in nature type, and it has been changed to functional type in current year. As accordance to IAS1, the entity shall discloses the

(a) the nature of the reclassification;

(b) the amount of each item or class of items that is reclassified; and

(c) the reason for the reclassification.

Does anyone here has any sample of wording on this? Especially on (c), changes made to align with the industry practice and etc.

in IAS 1 - Presentation of Financial Statements by

1 Answer

0 votes
The nature type income statement can be classified as old simple calculation of income and expense which is understandable by the layman also. There is no hard and fast rule neither any type of accounting standard is applied. The income and expense shown on nature income statement are written as their original category and they are not classified into sub-standard headings. The transaction is written according to the happening of an event directly. A standard format for nature income statement can be;
Transport expense
Pen Purchased
Chair Purchased
Donation Paid
Net Income
The main drawback of this type of income statement is that it does not show the gross profit and neither any tax calculation. The calculations are also not accurate due to lack of accounting technique.
While on the other hand; Functional Income Statement is a standard format of Income Standard used in today's modern world of accounting. The IAS 1 is applied to the functional income statement and it comprises of specific standard headings to classify expense to give further categories them to make it easier to understand. It also shows the gross profit and tax calculation. The standard format of Functional Income Statement is
Income / Sales
Cost of Good Sold
Gross Profit
Administrative Expenses
Selling Expenses
Financial Expenses
Net Income Before Tax
Less: Income Tax
Income After Tax is the final income of the year
by Level 2 Member (4.9k points)