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Adoption of New and Revised Accounting Standards Basis of Preparation of The Financial Statements
Adoption of New and Revised Accounting Standards Basis of Preparation of The Financial Statements
Adoption of New and Revised Accounting Standards Basis of Preparation of The Financial Statements
For the case of Mkombozi commercial bank, a number of new standards and amendments to standards and
interpretations are effective for annual periods beginning after 1 January 2017, and have not been applied in preparing
these financial statements. None of these is expected to have a significant effect on the financial statements of the
Bank, except the following set out below:
IFRS 9-Financial instruments, IFRS 15 - Revenue from contracts with customers, IFRIC22 - Foreign Currency
Transactions and Advance Consideration. IFRS 16 Leases. IAS 12 Income Taxes
From the preliminary assessment of the banks, all of the above standards will impact the bank and manag
Both Banks have Property and equipment stated at cost less accumulated depreciation and imparement in value.
Depreciation is calculated in strainght-line basis; however there’s a difference in depreciation charge for the following
classes of assets.
Table I
S/N ASSET CLASS MKOMBOZI COMMERICAL BANK PLC MWALIMU COMMERCIAL BANK PLC
1 Leasehold Improvements 20% 10%
2 Furniture and Fittings 12.5% 20%
3 Computer Equipment 33.3% 33%
As illustrated from the table above, In terms of performance the profit reported by Mkombozi Commercial Bank is
highly impacted with the depreciation compared to Mwalimu Commercial Bank. However depreciation is a non-cash
expense, therefore it will have no impact on cash flow of both companies only performance of the two companies will
be affected.
The internal tools to assist management in determining whether objective evidence of impairment exists under IAS 39
for Mwalimu Commercial Bank, The criteria set are many compared to those of Mkombozi as per table II below; Hence
the provisions value set by Mwalimu will be higher with negative impact to the income statement compared to
Mkombozi Bank.
Table II.
Inventory valuation
Assume that company A uses the FIFO inventory method and company B uses the LIFO inventory method for valuing
its inventory. All else being equal, company B’s financial statements would most likely show less income because of a
higher cost of goods sold. Company A would conversely have a lower income but higher inventory. These two
companies don’t have comparable financial statements. They use different methods of accounting. In order to
compare these statements properly, you must convert one of their inventory methods to match the other.
Currency is another form of comparability. Financial statements presented in different currencies can’t be compared at
face value. They must be converted into the same currency in order to be compared meaningfully.