Beruflich Dokumente
Kultur Dokumente
Lesson Description
This lesson explains about corporate financial reporting. On the
completion of this lesson, the student will be able obtain
knowledge on the preparation and presentation of key financial
statements, analysis and interpretation of them.
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Topics:
Capital instruments
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Topics:
Capital instruments
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4. Income: This is the recognition of the inflow of economic benefit to the entity
in the reporting period. This can be achieved, e.g. by earning sales revenue or
through the increase in value of an asset.
5. Expenses: This is the recognition of the outflow of economic benefit from an
entity in the reporting period. This can be achieved, e.g. by purchasing goods or
services off another entity or through the reduction in value of an asset.
Source: Kaplan Financial Knowledge Bank (2012)
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Categorisation of Assets
Assets
CURRENT ASSETS
Assets which are expected to be
realised during the normal course of
business trading are current assets.
Disclosed in the statement of
financial position with the least
liquid item first (usually inventory,
Receivables, Cash in hand)
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Categorisation of Liabilities
LIABILITIES
Liabilities are business
obligations to outside parties
NON-CURRENT LIABILITIES
Long term liabilities are
payable after an year of the
reporting date.
e.g. Long term loan
CURRENT LIABILITIES
These are payable within 12
months of the reporting date.
e.g. Payables, Bank overdraft,
Short term loans
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Topics:
Capital instruments
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Topics:
Capital instruments
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If information is reliable, then it should have been a faithful representation, free from
material misstatements, neutral, complete and prudent.
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3. Comparability:
It should be possible for users to compare financial information relating to the
entity over time and against other business entities. To this end accounting
treatments should be applied consistently from year to year and should be
disclosed in the financial statements.
4. Understandability:
This means that the financial statement users can understand them. The
assumption is that these users have a reasonable knowledge of business and
economic activity. Even so, the information must be understood by the audience to
be of any use.
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Topics:
Capital instruments
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Revenue
(-) Cost of sales
Gross profit
(-) Distribution costs
Administrative expenses
Profit from operations
+ Investment income
(-) Finance costs
Profit before tax
(-) Tax expenses
Net profit for the period
xx
(x)
xx
(x)
(x)
xx
x
(x)
xx
(x)
xx
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Topics:
Capital instruments
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Due to this reason, it shouldnt be included in the net profit for the period
which reflects profits earned through realised sales. Instead, the unrealised
gains are added to the income statement.
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xx
(x)
Gross profit
xx
(x)
Administrative expenses
(x)
xx
+ Investment income
(x)
xx
(x)
xx
xx
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Income Statement
Statement of
Comprehensive Income
Profit/Loss
Cash in
Cash out
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Topics:
Capital instruments
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$m
Non-current assets
Property, plant and equipment
Investments
Intangibles
x
x
Current assets
Inventories
Prepayments
Cash
x
x
Total assets
xx
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Share premium
Reserves
Retained earnings
x
x
Non-current liabilities
Loan notes
Current liabilities
Trade and other payables
Overdrafts
Tax payable
x
x
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Current Liabilities
The rules for current liabilities are similar to those for current assets.
A liability should be classified as a current liability if:
It is expected to be settled in the normal course of the enterprises operating
cycle
It is held primarily for the purpose of being traded
It is due to be settled within 12 months of the statement of financial position
date or
The company does not have an unconditional right to defer settlement for at
least 12 months after the statement of financial position date.
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Topics:
Capital instruments
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$000
Interest paid
(x)
Dividends paid
(x)
(x)
(x)
Interest received
Dividends received
(x)
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$000
Repayment of loans
(x)
Dividends paid
(x)
(x)
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Cash sales
x
x
Less:
Cash purchases
Cash expenses
x
(x)
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Inventory
At the end of the year, two basic adjustments are required to recognise opening &
closing inventories in the correct place.
1. Inventory brought forward from the previous year is assumed to have been used to
generate assets for sale. It must be removed from inventory assets and recognised
as an expense in the year.
Dr Opening inventory in costs of sales
Cr Inventory assets
2. The unused inventory at the end of the year is removed from purchase costs and
carried forward as an asset into the next year
Dr Inventory assets
Cr Closing inventory in cost of sales
Once these entries have been completed, the cost of sales account contains both
opening and closing inventory and the inventory ledger account shows the closing
inventory for the asset remaining at the end of the year.
Sample Report Title Sample Report Subtitle
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Valuation of Inventory
Inventory consists of:
Goods purchased for resale
Consumable stores (such as oil)
Raw materials and components (used in the production process)
Partly- finished goods (usually called work in progress- WIP)
Finished goods (which have been manufactured by the business)
IAS 2 Inventories
Inventory is included in the statement of financial position at:
COST
THE LOWER OF
NET REALISABLE VALUE
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Topics:
Capital instruments
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Capital Instruments
A capital instrument is any contract that gives rise to a financial asset of one entity and
a financial liability or equity instrument of another entity. They are the securities used
to obtain equity or loan capital for a company.
FINANCIAL
LIABILITIES
FINANCIAL
ASSETS
FINANCIAL
INSTRUMENTS
EQUITY CAPITAL
DEBT
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Financial Asset
An asset that is:
-cash
-a contractual right to receive cash or another financial asset from another entity
-a contractual right to exchange financial assets/liabilities with another entity under
conditions that are potentially favourable .
-an equity instrument of another entity.
e.g. Trade receivables, options, investment in equity shares
Financial Liability
It is any liability that is a contractual obligation:
-to deliver cash or another financial asset to another entity, or
-to exchange financial instruments with another entity under conditions that are
potentially unfavourable, or
-that will or may be settled in the entitys own equity instruments
e.g. Trade payables, Debenture loans, Redeemable preference shares
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Topics:
Capital instruments
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X 100
Operating profit margin= Profit Before Interest and Tax (PBIT) X 100
Sales Revenue
ROCE= Operating Profit
X 100
Capital Employed
Net Asset Turnover=
Sales Revenue
Capital Employed (Net assets)
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:1
:1
x 365 days
x 365 days
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PBIT
Interest Payable
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Thank You
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