Entities A and B are identical in all respects, except for their application of IAS 16 Property, Plant and Equipment. Entity A accounts for buildings using the cost model whereas Entity B uses the revaluation model. Property prices have risen recently and so Entity B recorded a revaluation gain at the beginning of the current reporting period. Extracts from the financial statements of both entities are provided below: Statements of profit or loss (extracts) Revenue Operating costs (including depreciation) Profit from operations Statements of financial position (extracts) Share capital Retained earnings Other components of equity Total equity Borrowings A $000 220 (180) 40 A $000 50 90 140 100 B $000 220 (210) 10 B $000 50 60 210 320 100
Entities A and B are identical in all respects, except for their application of IAS 16 Property, Plant and Equipment. Entity A accounts for buildings using the cost model whereas Entity B uses the revaluation model. Property prices have risen recently and so Entity B recorded a revaluation gain at the beginning of the current reporting period. Extracts from the financial statements of both entities are provided below: Statements of profit or loss (extracts) Revenue Operating costs (including depreciation) Profit from operations Statements of financial position (extracts) Share capital Retained earnings Other components of equity Total equity Borrowings A $000 220 (180) 40 A $000 50 90 140 100 B $000 220 (210) 10 B $000 50 60 210 320 100
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Entities A and B are identical in all respects, except for their application
of IAS 16 Property, Plant and Equipment.
Entity A accounts for buildings using the cost model whereas Entity B
uses the revaluation model. Property prices have risen recently and so
Entity B recorded a revaluation gain at the beginning of the current
reporting period.
Extracts from the financial statements of both entities are provided
below:
Statements of profit or loss (extracts)
Revenue
Operating costs (including depreciation)
Profit from operations
Statements of financial position (extracts)
Share capital
Retained earnings
Other components of equity
Total equity
Borrowings
Total equity and liabilities
A
$000
220
(180)
40
A
$000
50
90
140
100
240
B
$000
220
(210)
10
B
$000
50
60
210
320
100
420
Required:
Using ratio analysis, compare the financial statements of Entity A
and Entity B and explain how the differences may impact
stakeholder perception.
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