Unformatted Attachment Preview
Hafidha Haj Jan Al Balushi
ST07223
1
1.1:
Financial statements are a collection of company data. The financial statements have an income
statement, a balance sheet, a statement of changes in financial position and a statement of
retained earnings. While looking at the balance sheet, it highlights the company's financial
condition and shows the assets or liabilities or interests of the business.
Financial statements are used for data, and individuals who use these financial statements have
their own specific information in order to understand and analyze them. This analysis is useful
for business decisions. Individuals who use financial statements can be internal users or
external users.
Financial statements are critical to any business or partner, such as top groups, individual
investors, suppliers, governments, money lenders, customers and workers. Everyone needs this
different reason.
Investors and owners: The shareholders of company need financial information to aid them
decide how to handle their investment (stock stock), hold, sell or buy more. Potential investors
need information that can assess the company's chances of success and profitability. Likewise,
small business owners need financial information to determine whether a business is
profitable. All data is analyzed to check whether the company is doing well and checking the
financial strengths.
Management: In small company, administration could incorporate the proprietors. In immense
associations, however, Management is normally comprised of contracted experts who are
depended with the obligation of working the business or a part of the business. They go about
as operators of the owners.
Managers are recruiting owners who face economic decisions and many other issues and
business decisions that require regular analysis of accounting information. Requirements The
2
annual financial statements manage the company's business by evaluating its financial
performance and position and making important business decisions.
Employees: are individuals who work for a company for compensation and there is a required
between a company and workers. Employees are occupied with the organization's benefit and
dependability. They are after the capacity of the organization to pay salaries and give workers
advantages. They could likewise be occupied with its budgetary position and performance to
evaluate organization extension conceivable outcomes and profession development openings.
Lenders: are people, companies or different organizations that give loan or credit to a business.
Lenders of funds, for example, banks and other monetary institutions are keen on the
organization's capacity to pay liabilities upon development (dissolvability). Credits are given in
return of interest and mortgage of property which is security. The lender interest depends on
what security the association has and if that they can pay off the loan.
Suppliers: are individuals who give products or services to a company and this depends on an
agreement for administrations of products or services. Their interest in company is to see of the
business could be able to pay what is due of them, so they don't go through loss.
Government: Governing assortments of the state, particularly the tax powers, are keen on an
element's budgetary data for tax assessment and administrative purposes. Taxes are figured in
view of the aftereffects of operations and other tax bases. By and large, the state might want to
know how much the citizen makes to decide the tax due consequently.
Customers: At the point when there is a long term inclusion or contract between the
organization and its clients, the clients get to be occupied with the organization's capacity to
proceed with its reality and keep up steadiness of operations. Use the annual accounts to
assess whether the supplier has the resources to ensure that the goods are delivered in the
future. This is particularly important when the customer relies on the vendor to provide
specialized components. This need is likewise increased in situations where the clients rely on
the element.
3
For instance, a wholesaler, the client for this situation, is needy upon the assembling
organization from which it buys the things it exchanges.
Financial institutions: Use the financial statements to determine whether to provide loans or
loans to companies. Financial institutions to assess the company's financial position to
determine the possibility of non-performing loans. Each decision must have sufficient assets
and liquidity support.
Competitors: Compare their performance with those of the competitors to learn and develop
strategies to improve their competitiveness.
•
Internal users are managers who use decision-making accounting information related to
a company's operations.
•
External users, on the other hand, participate in the operation of the company, but do
not maintain a certain economic benefits. External users can be further categorized as
users with financial interests - owners, investors, creditors and users interested in
indirect financing - governments, employees, customers and others.
Different Financial Statements:
Financial statements have three types of which company is use and those are:
Income statement: The income statement highlights all income and expenses for all businesses
and is recorded for a specific period. This is investigated quarterly and shows the full case at the
end of the year. This statement demonstrates profit and loss and emphasizes everything that is
important to ensure that income is less or less. If the income is higher than the cost, the net
profit is emphasized. If the cost is higher than the income, it is a net loss.
Balance Sheet: The balance sheet is based on the dual input system of the accounting
framework. For each entry in the book, there is a reverse and equivalent entry. The balance
sheet highlights the trend of the business starting from the earliest starting point.
Assets = Liabilities + equity.
4
Statement of Cash Flows: in this statement the money which flows into the business within
reporting period is seen. This sheet of statement investigates the income statement and
balance sheet for a timeframe.
The purpose of the Financial Statement Guidance Definition is to help investors to read and
understand the financial statements and reports issued by the Company even though these
companies can invest enough information to make your investment a basis to see some of the
niche financial and accounting terms can be Companies.
On the other hand, financial statements are financial statements that provide the users of these
lists with the necessary financial information, including the management of companies,
shareholders and bondholders, suppliers, banks and regulators, and financial analysts and
potential investor institutions.
1.2
Financial statements are known as income and expense statements and report on the net
income and comprehensive income portion of this report. Some statements can make the right
decisions in formal courts for other reasons. For example, if the divorce settlement
investigation is a divorce situation. Such financial statements can keep track of other records
(e.g. family fighting or pre-marriage arrangements). Financial statements are also referred to as
information provided to external users.
The financial statements showcase all the accounting policies, details of the financial
statements and other data. At the point we are making a financial account for any business, for
example, accounting principles international and direction.
Company Law:
Limited liability agencies are required to annually publish annual financial statements that
define the format of national legislation and should have the right financial reporting standards.
The 2006 Declaration of Organization has the right declarations in place. In the United Kingdom,
accounting principles are governed by organizational laws and are additionally issued by the
5
board of directors' accounting standards. Organizations listed under the organization must
prepare their financial statements in accordance with International Accounting Standards
issued in accordance with the Board's accounting standards.
International Influences:
International and Local impacts are the most important and most importantly, the most
important of these are the bookkeeping measures. They must have the right procedures for the
right disclosure. Although, the international influence investigates the participation in the
European Union and the taking of union's legislation, this is known directives. The financial
reporting is in the fourth and seventh directives.
Legal and regulatory implications for the financial statements. All of our companies meet the
activity standards of internal and external financial information to provide meaningful and
acceptable financial statements because it is suitable for a variety of business owners, because
in the past the use of financial statements in the UK base even development.
Balances and audits included in the registration under the Act, which required the
establishment of a joint-stock company, such as the 1894, 1844 and 1855 books, LLC in 1900 as
a unification of the 1929 legal requirements established in 1855 CEJA Balance sheets and audits
of the Companies Act, the 1948 Act, faithful and lower-level, and so on, so that they know the
balance and account, no loss.
The International Accounting Standards Board (IASB) was established by the International
Accounting Standards Board (IASB). These arrangements are based on standards such as the
International Accounting Standards Board, the International Financial Reporting Interpretations
Committee and the Standards Advisory Council. These are an arrangement of standards which
is clear and gives the right data.
At the point when the International Accounting Standards Board (IAS) was started, it was an
aggregate of 41 things that the International Accounting Standards (IAS) In any case, then some
of the standards were taken off, for example, IAS 22 and so on.
6
Benefits and problems of having standardized Accounting standards:
As the business world turns out to be nearer in its financial and trade ties, numerous nations
are moving towards International Financial Reporting Standards (IFRS), basic bookkeeping
decides that characterize how exchanges must to be accounted for and what data must to be
uncovered in financial statements. This unitary arrangement of standards has tackled numerous
problems while making others.
Greater Comparability:
Organizations which using similar standards to set up their financial statements could be
contrasted with each other all the more precisely, this is particularly essential when contrasting
organizations situated in various nations, or they use distinctive principles and methodologies
to set up their statements. This expansion in likeness has aided to investors better figure out
where their investment cash must to go.
Not Globally Accepted:
The United States has not yet received International Financial Reporting Standards and
different nations keep on holding out also. That could be making the accounting by foreignbased organizations that work together in America troublesome as they frequently need to plan
financial statements utilizing IFRS and another set using American Generally Accepted
Accounting Principles.
More Flexibility:
IFRS uses standards-based rather than philosophy-based guidelines. A standards-based
philosophy means that the goal of each criterion is to reach the foundations at a reasonable
valuation, and there are many ways to arrive. This gives the organization the opportunity to
tailor IFRS to its own specific circumstances, thereby facilitating all easier reading and useful
presentations.
Manipulation:
There is a drawback to the adaptability that IFRS permits: organizations can use just the
strategies they wish to, permitting the financial statements to demonstrate just craved results.
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This may prompt to income or benefit control, could be utilized to cover up monetary issues in
the organization and could even empower misrepresentation. For instance, changing the
strategy for stock valuation may bring more income into the present year's profit and loss
statement, making the organization seem more gainful than it truly is. While IFRS requires that
progressions to the utilization of the standards must be legitimate, it is frequently feasible for
organizations to "invent" explanations behind rolling out the improvements. Stricter tenets
would guarantee that all organizations are valuing their statements a similar way.
Cost:
Small organizations would be affected by a nation's reception of IFRS similarly a bigger one
would. However, small organizations don't have the same number of assets available to them
to execute the progressions and prepare staff. These outcomes in small organizations acquiring
accountants or other outside advisors to make the changeover. These small businesses will bear
to a greater degree financial burden than bigger ones around there.
I recommended, that financial reporting standards on their own are insufficient their own to
administer the reporting of organizations and there should be some legal and market based
control. Regulatory structures incorporate national financial reporting standards, national laws,
showcase directions, security trade rules. For instance, the UK has its own financial reporting
power, the Accounting Standards Board that issues financial reporting standards in the UK.
The major piece of regulatory influencing organizations in the UK is the Businesses Act, 2006.
There are additionally various trade particular controls that influence accounting in the UK.
These legal and regulatory structures influence the arrangement and substance of the financial
statements and the financial statements must be set up as per them.
1.3:
Financial accounting and business units will create and integrate the entire concept of external
investors, useful creditor information and other decision makers. However, it should be
understood that the financial information of the decision making process is a useful solution.
8
Investment decisions and investor and creditor credit can be understood with financial
information available for quality information. All companies do not understand, do not
understand, you can use this week to publish financial information. It would be a waste of time.
Rather, it is not designed for all financial information. GAAP requires that people communicate
reasonably understandable financial information. This means that the average person can not
understand this set of financial statements. Investors and lenders, however, must have a clear
understanding of the information contained in the financial statements for entrepreneurs and
women.
Accounting concepts are the right principles of any accounting concepts and which are essential
to be readied highlight everybody of the bookkeeping and financial statement.
The following are four central concepts in Accounting and in finance:
Accruals Concept: The Accrual concepts showcase all income and expenses, which are recorded
in a very convenient way. Accrual is when things are amassed and is paid for amid the
completing of any accounting period. I do not know what to expect, but I do not know what to
expect.
For instance; any insurance payment will be recorded in a specific month and will be accrued in
the light of the 2011 accounting and will be recorded as an accrued payment.
Consistency Concept: This is a great place to stay. The hotel is located in the heart of the city.
The concept of coherence accounting principles suggests that the same accounting method
should be used to record changes in similar transactions in the business over time. In other
words, entities should not bounce back between accounting rules and manipulations of profits
or other elements of the financial statements. You should use accounting methods on a regular
basis.
Going Concern: An entity is presumed to be in a going concern in the absence of significant
information to the contrary. The value of an entity, which is assumed to be a going concern, has
a value since it’s going to be a concern. Having concepts like going concern which is in a similar
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line of company and the accounting policies and aids the company development and what's to
come. The concept of going concern means the financial statements that the entity will be
continuing with its operations in the future. It implies that their interests are secure.
Dual aspect Concept: In a single entry framework, just a single part of a transaction is
perceived. For example, if a sale is made to a client, just sales income will be recorded. Be that
as it may, the opposite side of the exchange identifies with the receipt of money or allow of
credit to the client is not perceived. Single entry bookkeeping system has been superseded by
double entry accounting. You may in any case discover constrained utilization of single entry
accounting frameworks by people and little associations that keep a casual record of receipts
and installments.
At the point when Capital is checked by the two individuals, John and Joe are working in the
real-money and things that demonstrate increased proprietors value.
The separation of expenditure between capital and income stems from this concept. That is,
whether a particular expenditure item will appear in the income / income statement (income
statement), or the statement of accounts is determined by the accountant based on this
concept. That is why the concept of the accounting period plays a very important role in
representing the financial statements.
Users of financial statements need to regularly report on accounting for business activities at
specific time intervals to understand the performance of the business. This is possible for the
user because of the accounting period concept. This concept represents valuation of assets and
liabilities, an analytical description of financial transactions, estimates of profits, and a true and
fair view of the financial statements. This information is critical to financial reporting users who
will make decisions based on these data.
3.1:
Accounting Policy: Accounting Policy are the particular standards, bases, traditions, rules and
practices connected by a substance in get ready and exhibiting financial statements (IAS 8).
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Occasions after Reporting Period are those that happen between the end of the reporting time
frame and when the financial statements are approved for issue.
Here some examples of accounting policies as following:
•
Evaluation of inventory utilizing FIFO, Average Cost or other reasonable premise
according to IAS 2
•
Basis of estimation of non-current assets, for example, historical cost and revaluation
premise
•
Classification, presentation and estimation of financial assets and liabilities under
classifications determined under IAS 32 and IAS 39, for example, held to development,
accessible available to be purchased or reasonable value through profit and loss.
•
Accruals basis of planning of financial statements
•
Timing of recognition of assets, liabilities, expenses and income
Management should reliably audit its bookkeeping account policies to guarantee they agree to
the most recent declarations by IASCF and that the embraced arrangements result in
presentation of most significant and dependable financial information for users.
Changes in Accounting Policies
Accounting Policies must be connected reliably to advance similarity between financial
statements of various bookkeeping periods. Nonetheless, a change in in accounting policy
might be important to improve the significance and reliability of data contained in the financial
statements. Such changes might be required as a consequence of changes in IFRS or might be
connected willfully by the administration.
As a general rule, changes in Accounting Policies should be connected reflectively in the
financial statements. Review application implies that substance executes the change in
accounting policy just as it had dependably been connected.
Subsequently, business might modify every single relative sum introduced in the financial
statements influenced by the change in accounting policy for each earlier period exhibited.
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At the point of taking the cost of inventories, it is the cost of purchasing, transformation and
different costs. There is a lot of money to do with this. The company utilizes a similar formula
for the inventories and is the same in nature. There are inventions which are of various nature
and have different cost.
Depreciation of fixed assets in the use of accounting period or part of the period has expired.
The costs incurred during the accounting period reflect the principle of matching with the
account to match the revenue received during the accounting period. The asset also indicates
the number of accounting periods used in the depreciation of the income statement, the
accounting period, and the accounting period used in the useful life of the plant.
- The life of the asset (IAS 16.51) should be periodically charged to the cost of stainless steel
consumption (residual value).
- In accordance with IAS 8 (IAS 16.51), the estimated changes are calculated on the basis of
future changes, although each financial period must be reexamined at least at the end of the
residual value of the asset and at the end of its useful life, although it is different from
previously estimated expectations.
The style must reflect its assets and consume the economic benefits of the depreciation
method used by the enterprise (IAS 16.51).
3.2:
1. Group Structure:
D Ltd acquired 80% share of Z Ltd.
D
80%
Z
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2. Net Assets Pre/ Post:
capital
Premium
Profit
Total
Pre
Post
20,000
10,000
12,500
42,500
20,000
10,000
25,000
55,000
3. Good will:
OMR
Investment
(-) net asset (42,500*80%)
Good will
60,000
(34,000)
26,000
4. N.C.I:
20% of share not acquired by Z Ltd
Net asset post Acq:
55,000-20%= 11,000 NCI
5. Group Interest:
OMR
Retained Earnings of D Ltd
100%
Retained Earnings of Z Ltd 80%
{25,000 – 12,500}*80% =
70,000
Total
80,000
10,000
6. Consolidated Statement Balance Sheet of D Ltd as at 31st December 2016
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Descriptions
OMR
OMR
Non-Current Assets
Plant & Equipment (70,000+16,000) =
Land & Building (15,000+2,000) =
Good will ( W3)
86,000
17,000
26,000
129,000
Current Assets
Inventory (90,000 + 40,000)
Debtors (50,000 + 24,000-5000)
Cash (20,000 + 20,000)
Bills receivable
130,000
69,000
40,000
239,000
239,000
Total Asset
368,000
Liabilities
N.C.I (45,000+20,000)
Payable (60,000+20,000-5,000)
Accruals (30,000+7,000)
65,000
75,000
37,000
177,000
11,000
N.C.I (W4)
Equity and Non-current Liabilities
capital
Premium
R.E (W5)
65,000
35,000
80,000
Total
180,000
368,000
3.3:
B Ltd income statement of year 31st Dec, 2015
Description
OMR
Sales
OMR
196,748
(-) cost of sales
Opening Inventory
23,428
(+) Purchases
90,620
14
(-) Closing Inventory
(6,426)
(107,622)
Gross Profit
89,126
(+) Other Income
Rent Received
2,390
Rent Receivable
130
2,520
Total Income
91,646
(-) Other Expenses
Bad debt (601+2700)
3,301
Wages & Salary
29,820
Insurance (693-86)=
607
Off Expenses
4,142
Rates
2010
Directors Remuneration
26,000
General Expenses
11,246
bad debt Provision (850-711)
(139)
Deprecation: Machinery (13,000-750*20%)
2,450
Total Expenses
(79,437)
PBIT
12209
Interest (20,000*8%)
(1600)
10,609
Tax
(2,121)
Dividend
(12,000)
Net Profit
C. O. S
P &M
3,512
D.E
Admin EXP
3162
Bad debt
2010
15
General Expense
11,246
Directors
26,000
Remuneration
Off Expenses
4142
Insurance
607
Wages & salary
29,820
Deprecation
2,450
107,622
Total
139,892
3,162
Description
44,005
OMR
Sales
OMR
196,748
(-) cost of sales
139,892
Gross Profit
56,856
(+) Other Income
2,520
Total Income
59,376
Distribution Exp
3162
Admin Expense
44,005
PBIT
(47,167)
12,209
Interest (20,000*8%)
(1600)
10,609
Tax
(2,121)
PAT ( Profit Distributable to share Holders)
Dividend
8,488
(12,000)
Net Profit
(3512)
Balance sheet of B Ltd as on 31st Dec, 2015
16
Descriptions
OMR
Non-Current Assets
Land at cost
Plant & Equipment (W1)
OMR
59,600
69,400
Current Assets
Trade Receivables (16,923-2700-711)
Cash at Bank
Closing Stock
Prepaid in advance
Rent Receivable
13512
29,544
6,426
86
130
Current Liabilities
Trade Payables
Dividend
Tax
Bank Interest Outstanding (20,000*8%)
Non-current Liabilities
Loan
12,989
12,000
2,121
1600
49,698
119,098
28710
20,000
48710
Equity
Capital
60,000
General Reserve (10,000 + 7,000)
Open profit (3900 – 7000)
Profit
17,000
(3100)
(3512)
70388
119,098
Working:
1) Plant & E
= 13,000
Accumulated = (750)
12250
2450
9800
The financial statements help users of the financial statements to assess the financial status of
the installation. If you analyze multiple accounting periods, your budget identifies potential
17
trends in your company's financial situation. Business needs to determine business liquidity
risk, financial risk, and credit risk are very useful. Used in conjunction with competitors and
other financial statements in companies and financial statements, you can identify trends that
represent potential problems or areas to improve your balance. The same is true of the balance
sheet analysis. It helps users of financial statements to forecast future amounts, dividend
timing and volatility.
References:
➢ Banerjee, B K (2008) Financial Accounting: A Dynamic Approach: PHI Learning
Pvt. Ltd
➢ http://ec.europa.eu/internal_market/accounting/docs/consolidated/ias16_en.pdf
➢ http://www.readyratios.com/reference/ifrs/
➢ http://accounting-simplified.com/standard/ias-8/changes-in-accountingpolicies.html#sthash.UGHu5luN.dpuf
➢ http://www.readyratios.com/reference/accounting/inventories_international_accounting_stan
dard_ias_2_overview_.html
18
➢ Banerjee, B K. (2010) Financial Accounting: Concepts, Analyses, Methods and
Uses. PHI Learning Pvt. Ltd.
19
Hafidha Haj Jan Al Balushi
ST07223
1
1.1:
Financial statements are a collection of company data. The financial statements have an income
statement, a balance sheet, a statement of changes in financial position and a statement of
retained earnings. While looking at the balance sheet, it highlights the company's financial
condition and shows the assets or liabilities or interests of the business.
Financial statements are used for data, and individuals who use these financial statements have
their own specific information in order to understand and analyze them. This analysis is useful
for business decisions. Individuals who use financial statements can be internal users or
external users.
Financial statements are critical to any business or partner, such as top groups, individual
investors, suppliers, governments, money lenders, customers and workers. Everyone needs this
different reason.
Investors and owners: The shareholders of company need financial information to aid them
decide how to handle their investment (stock stock), hold, sell or buy more. Potential investors
need information that can assess the company's chances of success and profitability. Likewise,
small business owners need financial information to determine whether a business is
profitable. All data is analyzed to check whether the company is doing well and checking the
financial strengths.
Management: In small company, administration could incorporate the proprietors. In immense
associations, however, Management is normally comprised of contracted experts who are
depended with the obligation of working the business or a part of the business. They go about
as operators of the owners.
Managers are recruiting owners who face economic decisions and many other issues and
business decisions that require regular analysis of accounting information. Requirements The
2
annual financial statements manage the company's business by evaluating its financial
performance and position and making important business decisions.
Employees: are individuals who work for a company for compensation and there is a required
between a company and workers. Employees are occupied with the organization's benefit and
dependability. They are after the capacity of the organization to pay salaries and give workers
advantages. They could likewise be occupied with its budgetary position and performance to
evaluate organization extension conceivable outcomes and profession development openings.
Lenders: are people, companies or different organizations that give loan or credit to a business.
Lenders of funds, for example, banks and other monetary institutions are keen on the
organization's capacity to pay liabilities upon development (dissolvability). Credits are given in
return of interest and mortgage of property which is security. The lender interest depends on
what security the association has and if that they can pay off the loan.
Suppliers: are individuals who give products or services to a company and this depends on an
agreement for administrations of products or services. Their interest in company is to see of the
business could be able to pay what is due of them, so they don't go through loss.
Government: Governing assortments of the state, particularly the tax powers, are keen on an
element's budgetary data for tax assessment and administrative purposes. Taxes are figured in
view of the aftereffects of operations and other tax bases. By and large, the state might want to
know how much the citizen makes to decide the tax due consequently.
Customers: At the point when there is a long term inclusion or contract between the
organization and its clients, the clients get to be occupied with the organization's capacity to
proceed with its reality and keep up steadiness of operations. Use the annual accounts to
assess whether the supplier has the resources to ensure that the goods are delivered in the
future. This is particularly important when the customer relies on the vendor to provide
specialized components. This need is likewise increased in situations where the clients rely on
the element.
3
For instance, a wholesaler, the client for this situation, is needy upon the assembling
organization from which it buys the things it exchanges.
Financial institutions: Use the financial statements to determine whether to provide loans or
loans to companies. Financial institutions to assess the company's financial position to
determine the possibility of non-performing loans. Each decision must have sufficient assets
and liquidity support.
Competitors: Compare their performance with those of the competitors to learn and develop
strategies to improve their competitiveness.
•
Internal users are managers who use decision-making accounting information related to
a company's operations.
•
External users, on the other hand, participate in the operation of the company, but do
not maintain a certain economic benefits. External users can be further categorized as
users with financial interests - owners, investors, creditors and users interested in
indirect financing - governments, employees, customers and others.
Different Financial Statements:
Financial statements have three types of which company is use and those are:
Income statement: The income statement highlights all income and expenses for all businesses
and is recorded for a specific period. This is investigated quarterly and shows the full case at the
end of the year. This statement demonstrates profit and loss and emphasizes everything that is
important to ensure that income is less or less. If the income is higher than the cost, the net
profit is emphasized. If the cost is higher than the income, it is a net loss.
Balance Sheet: The balance sheet is based on the dual input system of the accounting
framework. For each entry in the book, there is a reverse and equivalent entry. The balance
sheet highlights the trend of the business starting from the earliest starting point.
Assets = Liabilities + equity.
4
Statement of Cash Flows: in this statement the money which flows into the business within
reporting period is seen. This sheet of statement investigates the income statement and
balance sheet for a timeframe.
The purpose of the Financial Statement Guidance Definition is to help investors to read and
understand the financial statements and reports issued by the Company even though these
companies can invest enough information to make your investment a basis to see some of the
niche financial and accounting terms can be Companies.
On the other hand, financial statements are financial statements that provide the users of these
lists with the necessary financial information, including the management of companies,
shareholders and bondholders, suppliers, banks and regulators, and financial analysts and
potential investor institutions.
1.2
Financial statements are known as income and expense statements and report on the net
income and comprehensive income portion of this report. Some statements can make the right
decisions in formal courts for other reasons. For example, if the divorce settlement
investigation is a divorce situation. Such financial statements can keep track of other records
(e.g. family fighting or pre-marriage arrangements). Financial statements are also referred to as
information provided to external users.
The financial statements showcase all the accounting policies, details of the financial
statements and other data. At the point we are making a financial account for any business, for
example, accounting principles international and direction.
Company Law:
Limited liability agencies are required to annually publish annual financial statements that
define the format of national legislation and should have the right financial reporting standards.
The 2006 Declaration of Organization has the right declarations in place. In the United Kingdom,
accounting principles are governed by organizational laws and are additionally issued by the
5
board of directors' accounting standards. Organizations listed under the organization must
prepare their financial statements in accordance with International Accounting Standards
issued in accordance with the Board's accounting standards.
International Influences:
International and Local impacts are the most important and most importantly, the most
important of these are the bookkeeping measures. They must have the right procedures for the
right disclosure. Although, the international influence investigates the participation in the
European Union and the taking of union's legislation, this is known directives. The financial
reporting is in the fourth and seventh directives.
Legal and regulatory implications for the financial statements. All of our companies meet the
activity standards of internal and external financial information to provide meaningful and
acceptable financial statements because it is suitable for a variety of business owners, because
in the past the use of financial statements in the UK base even development.
Balances and audits included in the registration under the Act, which required the
establishment of a joint-stock company, such as the 1894, 1844 and 1855 books, LLC in 1900 as
a unification of the 1929 legal requirements established in 1855 CEJA Balance sheets and audits
of the Companies Act, the 1948 Act, faithful and lower-level, and so on, so that they know the
balance and account, no loss.
The International Accounting Standards Board (IASB) was established by the International
Accounting Standards Board (IASB). These arrangements are based on standards such as the
International Accounting Standards Board, the International Financial Reporting Interpretations
Committee and the Standards Advisory Council. These are an arrangement of standards which
is clear and gives the right data.
At the point when the International Accounting Standards Board (IAS) was started, it was an
aggregate of 41 things that the International Accounting Standards (IAS) In any case, then some
of the standards were taken off, for example, IAS 22 and so on.
6
Benefits and problems of having standardized Accounting standards:
As the business world turns out to be nearer in its financial and trade ties, numerous nations
are moving towards International Financial Reporting Standards (IFRS), basic bookkeeping
decides that characterize how exchanges must to be accounted for and what data must to be
uncovered in financial statements. This unitary arrangement of standards has tackled numerous
problems while making others.
Greater Comparability:
Organizations which using similar standards to set up their financial statements could be
contrasted with each other all the more precisely, this is particularly essential when contrasting
organizations situated in various nations, or they use distinctive principles and methodologies
to set up their statements. This expansion in likeness has aided to investors better figure out
where their investment cash must to go.
Not Globally Accepted:
The United States has not yet received International Financial Reporting Standards and
different nations keep on holding out also. That could be making the accounting by foreignbased organizations that work together in America troublesome as they frequently need to plan
financial statements utilizing IFRS and another set using American Generally Accepted
Accounting Principles.
More Flexibility:
IFRS uses standards-based rather than philosophy-based guidelines. A standards-based
philosophy means that the goal of each criterion is to reach the foundations at a reasonable
valuation, and there are many ways to arrive. This gives the organization the opportunity to
tailor IFRS to its own specific circumstances, thereby facilitating all easier reading and useful
presentations.
Manipulation:
There is a drawback to the adaptability that IFRS permits: organizations can use just the
strategies they wish to, permitting the financial statements to demonstrate just craved results.
7
This may prompt to income or benefit control, could be utilized to cover up monetary issues in
the organization and could even empower misrepresentation. For instance, changing the
strategy for stock valuation may bring more income into the present year's profit and loss
statement, making the organization seem more gainful than it truly is. While IFRS requires that
progressions to the utilization of the standards must be legitimate, it is frequently feasible for
organizations to "invent" explanations behind rolling out the improvements. Stricter tenets
would guarantee that all organizations are valuing their statements a similar way.
Cost:
Small organizations would be affected by a nation's reception of IFRS similarly a bigger one
would. However, small organizations don't have the same number of assets available to them
to execute the progressions and prepare staff. These outcomes in small organizations acquiring
accountants or other outside advisors to make the changeover. These small businesses will bear
to a greater degree financial burden than bigger ones around there.
I recommended, that financial reporting standards on their own are insufficient their own to
administer the reporting of organizations and there should be some legal and market based
control. Regulatory structures incorporate national financial reporting standards, national laws,
showcase directions, security trade rules. For instance, the UK has its own financial reporting
power, the Accounting Standards Board that issues financial reporting standards in the UK.
The major piece of regulatory influencing organizations in the UK is the Businesses Act, 2006.
There are additionally various trade particular controls that influence accounting in the UK.
These legal and regulatory structures influence the arrangement and substance of the financial
statements and the financial statements must be set up as per them.
1.3:
Financial accounting and business units will create and integrate the entire concept of external
investors, useful creditor information and other decision makers. However, it should be
understood that the financial information of the decision making process is a useful solution.
8
Investment decisions and investor and creditor credit can be understood with financial
information available for quality information. All companies do not understand, do not
understand, you can use this week to publish financial information. It would be a waste of time.
Rather, it is not designed for all financial information. GAAP requires that people communicate
reasonably understandable financial information. This means that the average person can not
understand this set of financial statements. Investors and lenders, however, must have a clear
understanding of the information contained in the financial statements for entrepreneurs and
women.
Accounting concepts are the right principles of any accounting concepts and which are essential
to be readied highlight everybody of the bookkeeping and financial statement.
The following are four central concepts in Accounting and in finance:
Accruals Concept: The Accrual concepts showcase all income and expenses, which are recorded
in a very convenient way. Accrual is when things are amassed and is paid for amid the
completing of any accounting period. I do not know what to expect, but I do not know what to
expect.
For instance; any insurance payment will be recorded in a specific month and will be accrued in
the light of the 2011 accounting and will be recorded as an accrued payment.
Consistency Concept: This is a great place to stay. The hotel is located in the heart of the city.
The concept of coherence accounting principles suggests that the same accounting method
should be used to record changes in similar transactions in the business over time. In other
words, entities should not bounce back between accounting rules and manipulations of profits
or other elements of the financial statements. You should use accounting methods on a regular
basis.
Going Concern: An entity is presumed to be in a going concern in the absence of significant
information to the contrary. The value of an entity, which is assumed to be a going concern, has
a value since it’s going to be a concern. Having concepts like going concern which is in a similar
9
line of company and the accounting policies and aids the company development and what's to
come. The concept of going concern means the financial statements that the entity will be
continuing with its operations in the future. It implies that their interests are secure.
Dual aspect Concept: In a single entry framework, just a single part of a transaction is
perceived. For example, if a sale is made to a client, just sales income will be recorded. Be that
as it may, the opposite side of the exchange identifies with the receipt of money or allow of
credit to the client is not perceived. Single entry bookkeeping system has been superseded by
double entry accounting. You may in any case discover constrained utilization of single entry
accounting frameworks by people and little associations that keep a casual record of receipts
and installments.
At the point when Capital is checked by the two individuals, John and Joe are working in the
real-money and things that demonstrate increased proprietors value.
The separation of expenditure between capital and income stems from this concept. That is,
whether a particular expenditure item will appear in the income / income statement (income
statement), or the statement of accounts is determined by the accountant based on this
concept. That is why the concept of the accounting period plays a very important role in
representing the financial statements.
Users of financial statements need to regularly report on accounting for business activities at
specific time intervals to understand the performance of the business. This is possible for the
user because of the accounting period concept. This concept represents valuation of assets and
liabilities, an analytical description of financial transactions, estimates of profits, and a true and
fair view of the financial statements. This information is critical to financial reporting users who
will make decisions based on these data.
3.1:
Accounting Policy: Accounting Policy are the particular standards, bases, traditions, rules and
practices connected by a substance in get ready and exhibiting financial statements (IAS 8).
10
Occasions after Reporting Period are those that happen between the end of the reporting time
frame and when the financial statements are approved for issue.
Here some examples of accounting policies as following:
•
Evaluation of inventory utilizing FIFO, Average Cost or other reasonable premise
according to IAS 2
•
Basis of estimation of non-current assets, for example, historical cost and revaluation
premise
•
Classification, presentation and estimation of financial assets and liabilities under
classifications determined under IAS 32 and IAS 39, for example, held to development,
accessible available to be purchased or reasonable value through profit and loss.
•
Accruals basis of planning of financial statements
•
Timing of recognition of assets, liabilities, expenses and income
Management should reliably audit its bookkeeping account policies to guarantee they agree to
the most recent declarations by IASCF and that the embraced arrangements result in
presentation of most significant and dependable financial information for users.
Changes in Accounting Policies
Accounting Policies must be connected reliably to advance similarity between financial
statements of various bookkeeping periods. Nonetheless, a change in in accounting policy
might be important to improve the significance and reliability of data contained in the financial
statements. Such changes might be required as a consequence of changes in IFRS or might be
connected willfully by the administration.
As a general rule, changes in Accounting Policies should be connected reflectively in the
financial statements. Review application implies that substance executes the change in
accounting policy just as it had dependably been connected.
Subsequently, business might modify every single relative sum introduced in the financial
statements influenced by the change in accounting policy for each earlier period exhibited.
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At the point of taking the cost of inventories, it is the cost of purchasing, transformation and
different costs. There is a lot of money to do with this. The company utilizes a similar formula
for the inventories and is the same in nature. There are inventions which are of various nature
and have different cost.
Depreciation of fixed assets in the use of accounting period or part of the period has expired.
The costs incurred during the accounting period reflect the principle of matching with the
account to match the revenue received during the accounting period. The asset also indicates
the number of accounting periods used in the depreciation of the income statement, the
accounting period, and the accounting period used in the useful life of the plant.
- The life of the asset (IAS 16.51) should be periodically charged to the cost of stainless steel
consumption (residual value).
- In accordance with IAS 8 (IAS 16.51), the estimated changes are calculated on the basis of
future changes, although each financial period must be reexamined at least at the end of the
residual value of the asset and at the end of its useful life, although it is different from
previously estimated expectations.
The style must reflect its assets and consume the economic benefits of the depreciation
method used by the enterprise (IAS 16.51).
3.2:
1. Group Structure:
D Ltd acquired 80% share of Z Ltd.
D
80%
Z
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2. Net Assets Pre/ Post:
capital
Premium
Profit
Total
Pre
Post
20,000
10,000
12,500
42,500
20,000
10,000
25,000
55,000
3. Good will:
OMR
Investment
(-) net asset (42,500*80%)
Good will
60,000
(34,000)
26,000
4. N.C.I:
20% of share not acquired by Z Ltd
Net asset post Acq:
55,000-20%= 11,000 NCI
5. Group Interest:
OMR
Retained Earnings of D Ltd
100%
Retained Earnings of Z Ltd 80%
{25,000 – 12,500}*80% =
70,000
Total
80,000
10,000
6. Consolidated Statement Balance Sheet of D Ltd as at 31st December 2016
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Descriptions
OMR
OMR
Non-Current Assets
Plant & Equipment (70,000+16,000) =
Land & Building (15,000+2,000) =
Good will ( W3)
86,000
17,000
26,000
129,000
Current Assets
Inventory (90,000 + 40,000)
Debtors (50,000 + 24,000-5000)
Cash (20,000 + 20,000)
Bills receivable
130,000
69,000
40,000
239,000
239,000
Total Asset
368,000
Liabilities
N.C.I (45,000+20,000)
Payable (60,000+20,000-5,000)
Accruals (30,000+7,000)
65,000
75,000
37,000
177,000
11,000
N.C.I (W4)
Equity and Non-current Liabilities
capital
Premium
R.E (W5)
65,000
35,000
80,000
Total
180,000
368,000
3.3:
B Ltd income statement of year 31st Dec, 2015
Description
OMR
Sales
OMR
196,748
(-) cost of sales
Opening Inventory
23,428
(+) Purchases
90,620
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(-) Closing Inventory
(6,426)
(107,622)
Gross Profit
89,126
(+) Other Income
Rent Received
2,390
Rent Receivable
130
2,520
Total Income
91,646
(-) Other Expenses
Bad debt (601+2700)
3,301
Wages & Salary
29,820
Insurance (693-86)=
607
Off Expenses
4,142
Rates
2010
Directors Remuneration
26,000
General Expenses
11,246
bad debt Provision (850-711)
(139)
Deprecation: Machinery (13,000-750*20%)
2,450
Total Expenses
(79,437)
PBIT
12209
Interest (20,000*8%)
(1600)
10,609
Tax
(2,121)
Dividend
(12,000)
Net Profit
C. O. S
P &M
3,512
D.E
Admin EXP
3162
Bad debt
2010
15
General Expense
11,246
Directors
26,000
Remuneration
Off Expenses
4142
Insurance
607
Wages & salary
29,820
Deprecation
2,450
107,622
Total
139,892
3,162
Description
44,005
OMR
Sales
OMR
196,748
(-) cost of sales
139,892
Gross Profit
56,856
(+) Other Income
2,520
Total Income
59,376
Distribution Exp
3162
Admin Expense
44,005
PBIT
(47,167)
12,209
Interest (20,000*8%)
(1600)
10,609
Tax
(2,121)
PAT ( Profit Distributable to share Holders)
Dividend
8,488
(12,000)
Net Profit
(3512)
Balance sheet of B Ltd as on 31st Dec, 2015
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Descriptions
OMR
Non-Current Assets
Land at cost
Plant & Equipment (W1)
OMR
59,600
69,400
Current Assets
Trade Receivables (16,923-2700-711)
Cash at Bank
Closing Stock
Prepaid in advance
Rent Receivable
13512
29,544
6,426
86
130
Current Liabilities
Trade Payables
Dividend
Tax
Bank Interest Outstanding (20,000*8%)
Non-current Liabilities
Loan
12,989
12,000
2,121
1600
49,698
119,098
28710
20,000
48710
Equity
Capital
60,000
General Reserve (10,000 + 7,000)
Open profit (3900 – 7000)
Profit
17,000
(3100)
(3512)
70388
119,098
Working:
1) Plant & E
= 13,000
Accumulated = (750)
12250
2450
9800
The financial statements help users of the financial statements to assess the financial status of
the installation. If you analyze multiple accounting periods, your budget identifies potential
17
trends in your company's financial situation. Business needs to determine business liquidity
risk, financial risk, and credit risk are very useful. Used in conjunction with competitors and
other financial statements in companies and financial statements, you can identify trends that
represent potential problems or areas to improve your balance. The same is true of the balance
sheet analysis. It helps users of financial statements to forecast future amounts, dividend
timing and volatility.
References:
➢ Banerjee, B K (2008) Financial Accounting: A Dynamic Approach: PHI Learning
Pvt. Ltd
➢ http://ec.europa.eu/internal_market/accounting/docs/consolidated/ias16_en.pdf
➢ http://www.readyratios.com/reference/ifrs/
➢ http://accounting-simplified.com/standard/ias-8/changes-in-accountingpolicies.html#sthash.UGHu5luN.dpuf
➢ http://www.readyratios.com/reference/accounting/inventories_international_accounting_stan
dard_ias_2_overview_.html
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➢ Banerjee, B K. (2010) Financial Accounting: Concepts, Analyses, Methods and
Uses. PHI Learning Pvt. Ltd.
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