Financial Accounting and Reporting
Learning Outcomes
1 Understand the regulatory framework for financial reporting
2 Be able to prepare financial statements from complete or incomplete records
3 Be able to present financial information in accepted formats for publication
4 Be able to interpret financial statements.
BUSINESS SCENARIO
You are a newly appointed consultant in XYZ Financial Consultant Company.
You provide financial consultancy to multiple different companies.
Below are financial statements of different clients and your Manager has requested you to provide suitable financial statements for different types of companies.
The types of companies vary from sole trader, partnership and limited liability.
TASK 1:
Individual Report -
The senior management of the company have requested you to provide a report on the following
LO 1.1 Select one or more companies that you want to invest in Dubai stock exchange.
Provide justification as to WHY you want to invest in this company or companies
Who will be the company's stakeholders?
Why would they be interested in this company?
LO 1.1-1 Describe the different users of financial statements and their needs LO 1.2 Explain the legal and regulatory influences on financial statements
LO 1.3 Assess the implications for users.
What are the advantages for this global harmonisation?
LO 1.4 Explain how different laws/regulations are dealt with by accounting and reporting standards. Please provide examples.
TASK 2: - IN CLASS ASSESSMENT
LO - 2.1 Prepare financial statements for a variety of businesses from trial balance, making appropriate adjustments
Q - 1 As at 30.3.20X7 ABC Ltd has the following balances on the ledger account
|
Account
|
Balance in $
|
|
Bank Loan
|
12,000
|
|
Cash
|
11,700
|
|
Capital
|
13,000
|
|
Rent
|
1,880
|
|
Trade Payables
|
11,200
|
|
Purchases
|
12,400
|
|
Sales
|
14,600
|
|
Sundry Payable
|
1,620
|
|
Receivables
|
12,000
|
|
Interest on Bank loan
|
1,400
|
|
Other expense
|
11,020
|
|
Vehicles
|
2,020
|
On 31.3.x7 the business made the following transactions
1. Bought material for $1,000 half for cash and half on credit
2. Made $1,040 sales $800 of which was for credit
3. Paid wages to shop assistants of $260 in cash
Please prepare the following financial statements
L.O 2.1 - Draw up a trial balance showing the balances as at the end of 31.3. 20x7
L.O 2.2 - Prepare a profit and loss
Q-2
Prepare a statement of financial position for the Ted Hills Hardware Store as at 31 December 20X6, This is a sole trader.
Capital as at 1 January 20X6 $ 47,600
Profit for the year to 31 December 20X6 $8,000
Freehold premises, net book value at 31 December 20X6 $50,000
Motor vehicles, net book value at 31 December 20X6 $9,000
Fixtures and fittings, net book value at 31 December 20X6 $8,000
Long-term loan (mortgage) $25,000
Bank overdraft* $2,000
Goods held in inventory for resale $ 16,000
Receivables $500
Cash in hand* $100
Payables $1,200
Taxation payable $3,500
Drawings $4,000
Accrued costs of rent $600
Prepayment of insurance $300
A shop might have cash in its cash registers, but an overdraft at the bank.
Q3 - Prepare a trial balance, P&L and a Balance sheet for Consulting Company
Cash $7,000
Accounts Receivable $3,000
Office supplies $3,000
Office Equipment $5,000
Bank Loan $5,000
Accounts payable $ 1,000
Capital $10,000
Consulting revenue $ 7,000
Rent $600
Salaries $2,500
Stationery $1,200
Utilities expenses $700
L.O 2.3 - Prepare consolidated profit or loss and Balance sheet for a company
M Ltd acquired 75% of the share capital of N Ltd on its incorporation. The Balance Sheets of the two entities as at 31 December 20X7 are as follows:
| |
M Ltd
|
N Ltd
|
|
Non - current assets
|
50,000
|
25,000
|
|
Investment in Minor Ltd at cost
|
15,000
|
|
|
Inventory
|
13,000
|
7,000
|
|
Other current assets
|
10,000
|
6,000
|
|
Total assets
|
88,000
|
38,000
|
|
Share capital - 1$ shares
|
45,000
|
20,000
|
|
Retained earnings
|
30,000
|
15,000
|
|
Current liabilities
|
13,000
|
3,000
|
|
Total equity and liabilities
|
88,000
|
38,000
|
M Ltd had not paid N Ltd for goods purchased therefore the sum of $6,000 is included in M's payables and in N's receivables.
Prepare a Consolidated Balance Sheet at 31 December 20X7. Show all workings.
BUSINESS SCENARIO
You are a newly appointed consultant in XYZ Financial Consultant Company. You provide financial consultancy to multiple different companies.
One of your clients is a very successful retail company that has a company structure. The board is contemplating an adaption of IFRS and more formal reporting as they are expanding the business.
The company is in retail business in the UK and has shops that sell food, clothing and house hold items.
Task 3 - LO3
Consolidated Financial Statements
LO 3.1- Explain how the information needs of different user groups vary
LO - 3.2 Prepare financial statements in a form suitable for publication by a sole trader, partnership & Limited company Below is trial balance of a sole trader
NICO is a sole trader
NICO
Trial balance as at 31 July 20x9 is given below
|
|
Debit
|
Credit
|
|
Capital
|
|
100,000 |
|
Plant and Machinery Cost
|
155,000 |
|
|
Accumulated Deprecation to 1 Aug 20x8
|
|
50,000 |
|
Trade Receivables
|
15,000 |
|
|
trade Payables
|
|
3,000 |
|
Inventories 1 Aug 20x8
|
10,000 |
|
|
Cash at bank
|
3,400 |
|
|
Sales
|
|
150,000 |
|
Drawings
|
35,000 |
|
|
Allowance for receivables at 1 Aug 20x8
|
|
2,000 |
|
Bank loan repayable 2015
|
|
20,000 |
|
Purchases
|
40,000 |
|
|
Selling and Distribution
|
50,000 |
|
|
Admin expenses
|
15,000 |
|
|
Interest
|
1,600 |
|
|
Total
|
325,000 |
325,000 |
NICO is a sole trader
The following final adjustments are required
1. Inventories at 31 July 20x9 were valued at $12,000
2. Selling and distribution expenses of $4,000 are to be accrued
3. Administration expenses of $6,000 were prepaid
4. The allowance for the receivables is to be adjusted to 5% of the receivables
5. Depreciation on the plan and machinery is $15,000 for the year to 31 July 20x9
Prepare the Profit and Loss for the year end 31 Jul 20X9 and the Balance sheet as at 31 Jul 20x9 in a suitable for publication.
Below is a trial balance of a limited company
Prepare the financial statement suitable for publication
Paul's Guitar Shop, Inc.
Adjusted Trial Balance
December 31, 2015
| |
Paul's Guitar Shop, Inc.
Adjusted Trial Balance
December 31, 2015
|
|
Account
|
Debit |
Credit |
|
Cash
|
$32,800 |
|
|
Accounts Receivable
|
300 |
|
|
Prepaid Rent
|
1,000 |
|
|
Inventory
|
39,800 |
|
|
Leasehold Improvements
|
100,000 |
|
|
Accumulated Depreciation
|
|
2,000 |
|
Accounts Payable
|
|
$49,000 |
|
Accrued Expenses
|
|
450 |
|
Unearned Income
|
|
1,000 |
|
Long-term Liabilities
|
|
99,500 |
|
Common Stock
|
|
10,000 |
|
Dividends
|
1,000 |
|
|
Revenues
|
|
27,800 |
|
Cost of Goods Sold
|
10,200 |
|
|
Depreciation Expense
|
2,000 |
|
|
Rent Expense
|
500 |
|
|
Supplies Expense
|
500 |
|
|
Utilities Expense
|
400 |
|
|
Wages Expense
|
750 |
|
|
Interest Expense
|
500 |
|
|
Totals
|
$189,750 |
$ (189,750) |
Un-urned income - is where the company collects money from the customer prior to the sale taking place example - deposit
The entries are DR - Cash
Cr - Unearned income
Partnership accounting
Crossly, Steel and Nabs are partners in a business sharing profits in the ratio 5:3:2 respectively. Their capital and current account balances on 1 Jan 20X1 were as follows
|
Capital |
Current |
| Crossly |
24,000 |
2,000 |
| Steel |
18,000 |
1000 |
| Nabs |
13,000 |
1500 |
Interest at 10% per annum is given on the fixed capital Salaries of 8000 per annum per paid to Crossly and Steel
Crossly made a personal loan of 20,000 on the partnership on 1 July 20X1
Above loan to be paid in full on 30 June 20X4 - interest rate for this loan is 15% per annum and was credited to Crossly's account every half year
The partnership profit before charging loan interest for the year ended 31 Dec 20X1 was 63,000 and partners have made the following drawings
|
Crossly
|
16,000
|
|
Steel
|
16,500
|
|
Nabs
|
19,000
|
Prepare appropriate accounts and partner's capital and current accounts and the partnership statements of financial position in the respect of the year ended 31 Dec 20X1
LO 3.2 - P Co. acquired 75% of the ordinary shares of S co on that company's incorporate in 1 Jan 20x3
Q1. The summarised statements of provide and loss of the two companies for the year ended 20X3
|
|
P company
|
S company
|
|
Revenue
|
75,000
|
38,000
|
|
Cost of sales
|
30,000
|
20,000
|
|
Gross profit
|
xxxxx
|
xxxxx
|
|
Distribution and Admin
|
14,000
|
9,000
|
|
Income tax expenses
|
10,000
|
2,000
|
|
Net Profit
|
xxxx
|
xxx
|
|
|
|
|
Require d to prepare the consolidated statement of profit and loss for the year ending 31 March.
TASK 4:
Interpretation of Financial Statements
Individual Report - submission due: 29 May 2016
calculate accounting ratios to assess the performance and position of a business
prepare a report incorporating and interpreting accounting ratios, including suitable comparisons.
Statements of Financial Position and Profit or Loss for Marks and Spencer are given below
(4.1, 4.2) You are required to calculate accounting ratios which reflect profitability, liquidity, efficiency, and gearing of the company for the financial years 2013, 2014 and 2015 Compare the ratios between two accounting periods and comment on the company's performance.
|
In millions of GBP (except for per share items)
|
|
Annual data Interim data
|
|
Fluid data as 41 Mar 28 2015
|
2015
|
2014
|
2013
|
|
REVENUE AND GROSS PROFIT
|
|
|
|
|
Total revenue
|
10,311
|
10,310
|
10,027
|
|
OPERATING EXPENSES
|
|
|
|
|
Cost of revenue total
|
6,326
|
6,439
|
6,230
|
|
Selling, general and admin. expenses, total
|
2,755
|
2,747
|
2.647
|
|
Depredation/amortization
|
550
|
478
|
463
|
|
Unusual expense(income)
|
61
|
47
|
101
|
|
Other operating expenses, total
|
(82)
|
(96)
|
(92)
|
|
Total operating expense
|
9,610
|
9,615
|
9,349
|
|
Operating income
|
701
|
695
|
678
|
|
Other, net
|
(6.50)
|
(1.40)
|
(11)
|
|
INCOME TAXES, MINORITY INTEREST AND EXTRA ITEMS
|
|
|
|
Net income before taxes
|
600
|
580
|
547
|
|
Provision for income taxes
|
118
|
74
|
102
|
|
Net income after taxes
|
482
|
506
|
445
|
|
Minority interest
|
4.80
|
19
|
8.70
|
|
Net income before extra. Items
|
487
|
525
|
454
|
|
Total extraordinary items
|
-
|
-
|
-
|
|
Net income
|
487
|
525
|
454
|
|
Inc.avail. to common excl. extra. Items
|
487
|
525
|
454
|
|
Inc.avail. to common incl. extra. Items
|
487
|
525
|
454
|
Balance Sheet
|
In millions of GBP (except for per share items)
|
|
Annual data Interim data
|
|
Fiscal data as of Mar 28 2015
|
2015
|
2014
|
2013
|
|
ASSETS
|
|
|
|
|
Cash And Short Term Investments
|
218
|
200
|
210
|
|
Total Receivables, Net
|
177
|
181
|
141
|
|
Total Inventory
|
798
|
846
|
767
|
|
Prepaid expenses
|
145
|
129
|
108
|
|
Other current assets. total
|
118
|
14
|
43
|
|
Total current assets
|
1,455
|
1,369
|
1,268
|
|
Property, plant & equipment, net
|
5,031
|
5,140
|
5,034
|
|
Goodwill, net
|
95
|
95
|
93
|
|
Intangibles, net
|
763
|
713
|
602
|
|
Long term investments
|
31
|
31
|
34
|
|
Note receivable - long term
|
57
|
83
|
30
|
|
Other long term assets
|
76
|
41
|
65
|
|
Total assets
|
8,196
|
7,903
|
7,611
|
|
LIABILITIES
|
|
|
|
|
Accounts payable
|
968
|
929
|
973
|
|
Accrued expenses
|
675
|
764
|
531
|
|
Notes payable/shod-term debt
|
0
|
0
|
0
|
|
Current portion long-term debt/capital leases
|
279
|
449
|
559
|
|
Other current liabilities, total
|
190
|
208
|
176
|
|
Total current liabilities
|
2,112
|
2,349
|
2,238
|
|
Total long term debt
|
1.746
|
1,655
|
1,727
|
|
Total debt
|
2,025
|
2,104
|
2.286
|
|
Deferred income tax
|
315
|
243
|
241
|
|
Minority interest
|
(0.80)
|
(0.60)
|
(19)
|
|
Other liabilities, total
|
825
|
949
|
885
|
|
Total liabilities
|
4,997
|
5,196
|
5,072
|
SHAREHOLDERS EQUITY
|
Common stock
|
412
|
408
|
404
|
|
Additional paid-in capital
|
392
|
356
|
315
|
|
Retained earnings (accumulated deficit)
|
8,873
|
8,528
|
8,353
|
|
Treasury stock - common
|
-
|
-
|
-
|
|
Unrealized gain (loss)
|
-
|
-
|
-
|
|
Other equity, total
|
(6,478)
|
(6,584)
|
(6,533)
|
|
Total equity
|
3,200
|
2,707
|
2,539
|
|
Total liabilities & shareholders' equity
|
8,196
|
7,903
|
7,611
|
|
Total common shares outstanding
|
1,648
|
1,632
|
1,614
|
|
Treasury shares - common primary issue
|
0
|
0
|
0
|
Cash flow
|
In millions of GBP (except for per share items)
|
|
Annual data - Interim data
|
|
Sisal data as of Mu 28 2015
|
2015
|
2014
|
2013
|
|
|
|
|
|
|
OPERATIONS
|
|
|
|
|
Net income
|
482
|
506
|
445
|
|
Depredation/depletion
|
550
|
505
|
467
|
|
Non-Cash items
|
197
|
189
|
339
|
|
Cash taxes paid. supplemental
|
71
|
46
|
106
|
|
Cash interest paid, supplemental
|
115
|
133
|
135
|
|
Changes in working capital
|
49
|
(70)
|
(111)
|
|
Total cash from operations
|
1,278
|
1,130
|
1,140
|
|
INVESTING
|
|
|
|
|
Capital expenditures
|
(700)
|
(642)
|
(830)
|
|
Other investing and cash flow items, total
|
51
|
27
|
249
|
|
Total cash from investing
|
(649)
|
(615)
|
(580)
|
|
FINANCING
|
|
|
|
|
Financing cash flow items
|
(170)
|
(183)
|
(207)
|
|
Total cash dividends paid
|
(281)
|
(274)
|
(271)
|
|
Issuance (retirement) of stock. net
|
17
|
44
|
23
|
|
Issuance (retirement) of debt net
|
(181)
|
(86)
|
(140)
|
|
Total cash from financing
|
(615)
|
(498)
|
(596)
|
|
NET CHANGE IN CASH
|
|
|
|
|
Foreign exchange effects
|
(2.30)
|
(1.60)
|
0.90
|
|
Net change in cash
|
12
|
15
|
(35)
|
|
Net cash-begin balance/reserved for future use
|
176
|
161
|
196
|
|
Net cash-end balance/reserved for future use
|
188
|
176
|
161
|
|
SUPPLEMENTAL INCOME
|
|
|
|
|
Depredation, supplemental
|
550
|
505
|
467
|
|
Cash interest paid, supplemental
|
115
|
133
|
135
|
|
Cash taxes paid, supplemental
|
71
|
46
|
106
|