The Presentation Of Financial Statements Accounting Essay


Bioquell is a Public Limited Company from United Kingdom, the world leader in bio-decontamination equipment and services, which deals with problematic issues such as bacteria, viruses and fungi. The company is also specialised in the design, manufacture and application of complete bio-decontamination solutions for airborne and surface contamination in the healthcare, life sciences or food production sectors.

Bioquell PLC is listed at the London stock exchange, the Health Care Equipment & Services sector and the Medical Equipment sub-sector. The financial reporting framework that has been used in order to prepay the consolidated financial statements is in compliance with the International Financial Reporting Standards (IFRS).

IAS 1: Presentation of financial statements

Bioquell PLC's financial statements:

give a true and fair view of the state of the company's affairs as at 31 December 2011 and of its profit for the year ended;

have been properly prepared in accordance with IFRSs as adopted by the European Union; and

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have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation. [1] 

Bioquell PLC presents its financial statements in full compliance with IAS 1 and consists of: the statement of financial position, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows, as well as the notes. The financial statements are expressed in pounds sterlin, since that is the currency in which the majority of the company's transactions and are made up to 31 December each year. Furthermore, the company adopts the going concern basis of accounting in preparing the financial statements.

The company's statement of financial position is designed in accordance to the IAS 1 and includes the minimum required items. Thereby, current, non-current assets and the liabilities are distinguished and presented according to their liquidity in order to present relevant and reliable information. Moreover, if certain items are utterly important and relevant, extra information is provided in the notes.

Bioquell PLC presents separately the income statement and the statement of comprehensive income and both meet the requirements of IAS 1. The income statement shows the components of profit and loss, and a statement of comprehensive income, which reflects the profit or loss of the period, shows the components of other comprehensive income. Moreover, the expenses are classified by nature.

IAS 8: Accounting Policies, changes in accounting estimates and errors

The following new and revised Standards and Interpretations have been adopted in the current year. However, their adoption didn't have a significant impact on the amounts reported in these financial statements but may have an impact on the accounting of future transactions.

IFRS 1 (amended) Limited exemption from comparative IFRS 7 disclosures for first-time adopters.

IAS 24 (2009) Related Party Disclosures; the revised standard has a new, clearer definition of a related party, with inconsistencies under the previous definition having been removed.

IAS 32 (amended) Classification of Rights Issues. Under the amendment, rights issues of instruments issued to acquire a fixed number of an entity's own non-derivative equity instruments for a fixed amount in any currency and which otherwise meet the definition of equity are classified as equity. [2] 

After analysing the financial reports, I concluded that neither changes in accounting estimates were reported nor correction of possible errors incurred.

IAS 16: Property, plant and equipment

Property, plant and equipment (PPE) are non-current assets, which amount 13,440 million pounds sterling in 2011, expressing an increase of 1,387 million pounds sterling since the previous financial year. PPE include property, fixtures and equipment and short-term leasehold improvements.

Initial recognition

The PPE of Bioquell PLC are measured initially at their cost, which includes the purchase price, all non-refundable duties and taxes and the costs directly attributable to bringing the asset to working condition for its intended use, minus any trade discounts and rebates.

The component approach

Bioquell PLC applies 'the component approach' according to IAS 16, because assets such as equipments are made of components with different useful lives. Therefore, these components need to be recognized as separate assets and they must be depreciated by using the same method as the assets they belong to. An equipment's engine, for example, must be separately accounted because its useful life differs from the useful life of the total equipment. On top of this, when a component of an equipment is replaced or restored, the old component is written off and the new component is capitalized (if it meets the recognition criteria), in order to avoid double counting.

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Moreover, according to the same standard, repair and maintenance costs are expensed by the company, when incurred. Also,no separate component for major maintenance and dismantling obligations were identified in the Bioquell PLC's 2011 annual report.

Measurement subsequent to initial recognition

After recognition, the tangible assets, also including properties or assets in the course of construction for production, supply or administrative purposes, or for purposes not yet determined are presented in the financial statement according to the cost model, meaning that the company computes the cost less acumulated depreciation and/or impairment for each PPE. Depreciation is determined according to the assets' estimated useful lives by using the straight-line method, on the following bases:


25 years


leasehold improvements

10 to 15 years

Fixtures and equipment

3 to 8 years

Freehold property

not depreciated

Residual value is calculated on prices prevailing at the date of acquisition or revaluation. Therefore, estimated useful lives and the depreciation method are reviwed at each year end, with the effect of any changes in estimate accounted for a prospective basis. After analyzing the financial reports for 2011, I concluded that, the company didn't use the revaluation model. Nevertheless, in the notes, the fair value of different PPE which can be related to an active market, can be identified. In the same way, no changes in depreciation methods, residual values or useful lifes were observed.

The gain or loss obtained on the disposal or retirement of property, plant and equipment is calculated as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income statement, according to IAS 16.

IAS 2: Inventories

Inventories consist of raw materials, spare parts and consumables, work in progress and finished goods and goods for resale. The value of inventory for 2011 was 1,283 million pounds sterling, which reflects an decrease of 28 million pounds sterling from the previous financial year.

Inventories are evaluated at the lower of cost and net realizable value. Cost of inventories comprise all costs of material purchased, labor, an appropiate ammount of factory overheads and other costs incurred in bringing the inventories to their present location and condition. The cost of inventories for Bioquell PLC is determined on a moving wighted average basis and has an impact on both the cost of goods sold - in the income statement and the inventories - in the statement of financial position.

The company calculates the net realisable value by the estimating the selling price in the ordinary course of business, less all estimated costs of completion and selling expenses.

The entity didn't have to reduce the value of its inventory to their net realisable value in the analysed year 2011, because the NRV didn't exceed the cost.

IAS 38: Intangible assets

Bioquell PLC holds intangible assets amounting 9,839 million pounds sterling, registering an increase of 1,134 million pounds sterling from the previous financial year. The company's intangible assets consist of goodwill and other intangible assets. The latter refer to of customer relationships, internally-generated intangible assets and patents and trademarks.

Goodwill - the company's intangible assets with an indefinite useful life, is defined by IFRS 3 ("Business Combinations") as "the future economic benefits arising from assets that are not capable of being individually identified and separately recognized". If we refer to Bioquell PLC, goodwill arisis on consolidation and shows the excess of the cost of aquisition over the group's interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of aquisition.

The financial treatement applied by the company, states that goodwill is initially recognised as an asset and measured at cost. After recognition, a test is made in order to determine if there is a sign of impairment. This test is made anually or whenever there is an indication of impairement. The assumptions are based on estimated future cash flows and the value is discounted at a rate that reflets the time value of money specific to the current market and the risks related to the actual business sector. An impairment charge should be recognised in the consolidating statements of income if recoverable amount is less than carrying amount. For example, the table below shows the modifications in terms of goodwill for year 2011.

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Cost at 1 January 2011 and

31 December 2011


Accumulated impairment at 1 January 2011 and 31 December 2011


Carrying amount at 31 December 2011


Other intangible assets

Internally-generated intangible assets - research & development expenditure

Any expenditure on research activity performed by Bioquell PLC, is recognised as an expense in the period in which it is incurred. In case the group undertakes development activity, which gives rise to an internally-generated intangible asset, the asset will be recognise only if all of the following criteria are met: an identified asset is created (for example products and new processes related to bio-decontamination solutions), it is probable that the asset will generate future economic benefits to the company and the cost related to the development activity can be measured reliably.

In case the asset meets the above mentioned conditions, then an internally-generated intangible will be recognised and will be amortised on a straight-line basis over its useful life, which in the company's case is 15 years. Development expenditure is expensed in the period in which it is incurred if there is no internally-generated intangible asset can that be recognised.

Patents and trademarks

Patents and trademarks are measured initially at their purchase cost and are depreciated over their estimated useful lives. Trademarks are amortised over their estimated useful lives, which is on average five years, although patent protections extends to twenty years, on a straight-line basis.

Customer relationships

Customer relationships are acquired in a business combination and are initially measured at fair value, based on discounted cash flows, and amortised over their estimated useful lives of five years on a straight-line basis.

IAS 37: Provisions, contingent liabilities and contingent assets

Recognition- provisions are recognized when the company has a present obligation (legal or constructive) as a result of a past event, it is probable that the company will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation, according to IAS 37.

The amount registered for the provision, is the best estimate of the expenditure required to settle the obligations, taking into account the risks and uncertainties of the obligation. In order to register the provisions, the company also discounts the value of provisions, whenever the effect of the time value of money is significant, by computing the present value of the cash flows.

Provisions for restructuring costs are recognised whenever the company has created a detailed plan for the restructuring procedure. However, no provisions for restructering were registered during the analyzed year.

Other type of provisions, provisions for warranty are recognised at the date of sales of the company's products and amout Ł93,000. The amount of such provisions is determined according to the management's best estimate of the expenditure required to settle the company's liability, based on past experience. Furthermore, Bioquell PLC doesn't have either contingent assets or contingent liabilities.

I believe that the disclosures regarding provisions give sufficient information to have a fair view of the company; for example the warranty provisions give the management's best estimates according to company's past experience, of liability under twelve month warranties granted on products and services.

IAS 17: Leases

IAS 17 distinguishes between two types of lease agreements: finance and operating lease. The company recognizes, according to IAS 37, the finance leases whenever the lease transfers substantially all the risks and rewards of ownership to the lessee. Other lease arrangements are considered as operating leases by the company, according to the same international accounting standard.

Assets held under finance leases by the company (fixtures and equipment, for example) are recognised as assets in the balance sheet, at their fair value or, if lower, at the present value of the minimum lease payments determined at the begining of the finance lease. The liability which coresponds to the lessor is recognized as a finance lease obligation and included in the balance sheet. The carrying amount of the comapny's fixtures and equipment held under finance leases amounts Ł356,000.

If we refer to the finance charges, the company transfers them directly into the income statement, unless they are directly attributable to qualifying assets. In this case, they are capitalised according to the general policy regarding the borrowing costs.

Operating lease payments refer to rentals payable by the company for some of its office properties. Leases are negotiated for an average term of four years and rentals are generally fixed during the lease period. Moreover, there are no options to purchase the items within the agreements.

Rentals payable under operating leases affect the income statement and it is calculated on a straight-line basis, function of the term of the lease. Benefits received and receivable as an incentive when entering into an operating lease are also spread on a straight-line basis over the lease term. The minimum lease payments under operating leases, according to the financial reports, amount Ł1,090,000.

After analyzing the financial reports for 2011, I concluded that the fair value of the company's lease obligations approximates their carrying amount and the average effective borrowing rate was 6.75%.

IAS 36: Impairment of assets

IAS 36 ensures that assets are not carried in the balance sheet at a value that exceeds recoverable amounts. The company determines the recoverable amount of an asset annually or in case there are some indications of impairment. Therefore, if the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount.

The value in use is determined by using discounted cash flow in order to take into account the significant time value of money. The company prepares discounted cash flows using the most recent financial budgets approved by the management and assumes an estimated extrapolated growth rate of 2% per year over three years.

In order to compute the impairment losses, the company allocates its goodwill and other assets to the corresponding cash-generating units that are expected to benefit from that business combination. The CGU's is tested then by the company for impairment annually or when there are indications of impairment. If any impairment is recognized, a provision for impairment is immediately expensed in the period. Any impairment loss reduces firstly the carrying amount of the goodwill. After, the impairment loss is allocated to the other assets of the CGU according to their individual carrying amount.

After analyzing the financial reports, at the end of 2011, the accumulated impairment amounts Ł14,000.

IAS 18: Revenue

The company determines whether revenue should be recognized or not and how should measure it, according to the standard. Bioquell PLC mainly generates revenue through the sale to retail customers. If we refer to the financial year 2011, the company recorded a total gross revenue amounting 41,256 million Ł.

Revenue is measured by the company at the fair value of the consideration received or receivable and represents amounts receivable for goods and/or services provided in the normal course of activity, net of discounts, VAT and other sales-related taxes.

Revenue from the sale of goods is if all of the following conditions are verified:

the company has transferred to the buyer the significant risks and rewards of ownership of the goods;

the company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

the amount of revenue can be measured reliably;

it is probable that the economic benefits associated with the transaction will flow to the entity; and

the costs incurred or to be incurred in respect of the transaction can be measured reliably. [3] 

Revenue from a contract that refers to services provided is recognised according to the stage of completion of the contract, meaning that the contract is generally calculated function of the costs incurred, as a proportion of contract costs and revenue from time and material contracts is recognised at the contractual rates as labour hours are delivered and direct expenses incurred.

Revenue which refers to externally funded research and development is recognised as costs andincurred on a cost basis, according to the terms of the contract.

IAS 12: Income taxes

The effective tax rate for Bioquell PLC is 26.5%. Moreover, the company takes into consideration tax rates that have been enacted or substantively enacted by the balance sheet date, according to IAS 12.

The compay computes the amount of the income tax expense as the sum of the tax currently payable and deferred tax. However, taxable profit differs from accounting profit reported in the income statement because it doesn't take into account the items taxable or deductible in other years or items that are never taxable or deductible.

Deferred tax takes into consideration the timing differences at the rate of tax anticipated to apply when these differences actually occur. When measuring the deferred tax, the company takes into account the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, accordind to tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

The financial reports for 2011 show that at the balance sheet date, the company had an unrecognised deferred tax asset of Ł41,000 and that at 31 December 2011 a deferred tax liability of Ł2,690,000 has been recognised.

IAS 19: Employee benefits

Pensions are a type of provisions and fall which refer to post-employment benefits. Bioquell PLC has various pension plans specific to each sector.

Therefore, the company contributed to a pension plan with a maximum of 12% of base salary up to 31 March 2011 and a maximum of 15% thereafter. Moreover, bonus payments are not included in the contribution calculations. The financial reports show that during 2011, the company contributed Ł39,000 into a pension scheme.

Financial assets

Financial assets are recognised and de-recognised by the company on the trade date and are initially measured at fair value, net of transaction costs, except from the financial assets classified as fair value through profit or loss, which are initially measured at fair value.

Other financial assets are classified into financial assets as 'at fair value through profit and loss' and 'loans and receivable', according to their nature and purpose at the time of initial recognition.

Impairment of financial assets

The company asees for impairment the financial assets, other than those at fair value through profit or loss, at each balance sheet date. Moreover, the company concludes that there is an impairement where there is objective evidence that the estimated future cash flows of the investment have changed. For loans and receivables, for example, the amount of the impairment is computed by diminishing the asset's carrying amount with the present value ofestimated future cash flows, discounted at the original effective interest rate.

When impairemnt is detected, the carrying amount of the financial asset is diminished with the value of the impairment loss for all financial assets, except from trade receivables whose carrying amount is reduced through the use of an allowance account.

In case subsequent recoveries are recorded, amounts previously written off are credited against the allowance account and any changes regarding the carrying amount of the allowance account are recognised as a profit or loss.

Except from available-for-sale equity instruments, if, in a following period, the company detects a decrease of the amount of the impairment los, the value of the impairment loss is reversed but it should not exceed the amortised cost that would have been registered if the impairment had not been recognised.

De-recognition of financial assets

The company de-recognises a financial asset whenever the contractual rights to the cash flows related to the asset expire or if it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.


The director's report shows that the company faces a broad number of risks and uncertainties associated with its activities. However, the managers have adopted several risk-review structures and mechanisms in order to monitor such risks and uncertainties;

Unfortunetely, it is not possible to identify or anticipate al risks and uncertainties that might incur during the activity.

Thus, the analysis made on the report over Bioquell PLC financial statements shows that the company is engaging in those activities that are expected to bring higher returns in the future activity and are trying to prevent the risk associated. Therefore, the company is trying to sustain the investment activities and take an overall lower risk for the overall business.