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Technical Knowledge
Financial statements are the means by which the information accumulated and processed in financial
accounting is periodically communicated to the users.
The financial statements are the end product or main output of the financial accounting process
General purpose financial statements or simply referred to as financial statements are those intended
to meet the needs of users who are not in a position to require and entity to prepare reports
tailored to their particular information needs.
In other words, general purpose financial statements are directed to all common users and not to
specific users.
The objective of financial statements is to provide information about the financial position, financial
performance and cash flows of an entity that is useful to a wide range of users in making economic
decisions.
To meet this objective, financial statements provide information about the following:
d1. Assets
An asset is defined as resource controlled by the entity as a result of past events and from which
future economic benefits are expected to flow to the entity.
Assets are classified into two : current assets and noncurrent assets
dd1. Current assets
a. The asset is cash or cash equivalent unless the asset is restricted from being exchanged
or used to settle a liability for at least twelve months after the reporting period.
b. The entity holds the asset primarily for the purpose of trading.
c. The entity expects to realized the asset within twelve months after the reporting period.
d. The entity expects to realized the asset or intends to sell or consume it within the entity's
normal operating cycle.
Example : a. Cash and cash equivalent
b. Financial assets at fair value such as trading securities and other
investments
c. Trade and other receivables
d. Inventories
e. Prepaid expenses
Property, plant and equipment are tangible assets which are held by an entity for use in
production or supply of goods or services, for rental to others, or for administrative purposes
and are expected to be used during more than one period.
Examples: Land, building, machinery, equipment, furniture and fixtures, patterns, mold,
dies, tools
Most plant, property and equipment, except land, are presented at cost less accumulated
depreciation.
Long-term investments are assets held by an entity for the accretion of wealth through
capital distribution, such as interest, royalties, dividends and rentals, for capital appreciation or
for other benefits to the investing entity such as those obtained through trading relationship.
Intangible assets is simply defined ad an identifiable nonmonetary asset without physical
substance.
Other noncurrent assets are those assets that do not fit into the definition of the previously
mentioned noncurrent assets.
d2. Liabilities
A liability is defined as present obligation of an entity arising from past events, the settlement of
which is expected to result in an outflow from the entity of resources embodying economic
benefit.
a. The entity expects to settle the liability within the entity's normal operating cycle.
b. The entity holds the liability primarily for the purpose of trading.
c. The liability is due to be settled within twelve months after the reporting period.
d. The entity does not have an unconditional right to defer settlement of the liability for at
least twelve months after the reporting period.
Noncurrent liabilities is the residual definition, meaning that all liabilities not classified as
current are classified as noncurrent.
The term equity is the residual interest in the assets of the entity after deducting all of its liabilities.
Simply stated, equity means net asset or total asset minus total liabilities.
The terms used in reporting the equity of an entity depending on the form of business organization
are:
a. Owner's equity in a proprietorship.
b. Partners' equity in a partnership.
c. Shareholders' equity in a corporation.
Shareholders' equity is the residual interest of owners in the net asset of a corporation
measured by the excess of assets over liabilities.
Notes contain information in addition to that presented in the statement of financial position,
income statement, statement of comprehensive income, statement of changes in equity and
statement of cash flows.
In other words, notes to financial statement are used to report information that does not fit into
the body of financial statements in order to enhance the understandability of the financial
statements..
The purpose of the notes to financial statements is "to provide the necessary disclosures
required.
a. Report form
This form sets forth the three major sections in a downward sequence of asset, liabilities and
equity
b. Account form
The presentation follows of an account, meaning the assets are shown on the left side and
liabilities and equity on the right side of the statement of financial position
Report Form
SINGLE COMPANY
Statement of Financial Position
December 31, 2017
(in USDollar)
ASSETS
Note
Current Assets:
Cash and cash equivalent (1) 500,000
Financial asset at fair value 200,000
Trade and other receivables (2) 700,000
Inventories (3) 900,000
Prepaid expenses (4) 50,000
Total current assets 2,350,000
Noncurrent Assets:
Plant, property and equipment (5) 5,000,000
Investment in associate, at equity 1,000,000
Long-term investments (6) 5,100,000
Intangible assets (7) 2,000,000
Other noncurrent assets (8) 100,000
Total noncurrent assets 13,200,000
TOTAL ASSETS 15,550,000
Current Liabilities:
Trade and other payables (9) 750,000
Note payable-short-term debt 400,000
Current portion of bonds payable 200,000
Warranty liability 50,000
Total current liabilities 1,400,000
Noncurrent Liabilities:
Bonds payable-remaining portion 1,800,000
Note payable-due July 1, 2019 600,000
Deferred tax liability 100,000
Total noncurrent liabilities 2,500,000
TOTAL LIABILITIES 3,900,000
Shareholders' Equity
Share capital, $100 par 5,000,000
Reserves (10) 3,000,000
Retained earnings 3,650,000
Total SHAREHOLDERS' EQUITY 11,650,000
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 15,550,000
Note 3 - Inventories
Finished goods 300,000
Goods in process 400,000
Raw materials 150,000
Manufacturing supplies 50,000
Total inventories 900,000
Land 1,500,000
Building 4,500,000
Machinery and equipment 1,000,000
Furniture and fixtures 300,000
Patterns, molds, dies and tools, (net) 100,000
Total 7,400,000
Accumulated depreciation (2,400,000)
Carrying amount 5,000,000
Accumulated depreciation:
Building 1,900,000
Machinery and equipment 350,000
Furniture and fixtures 150,000
Total accumulated depreciation 2,400,000
Patent 500,000
Franchise 1,500,000
Total intangible assets 2,000,000
Note 10 - Reserves
Share premium 2,000,000
Retained earnings appropriated for contingencies 1,000,000
Total reserves 3,000,000
Account Form
SINGLE COMPANY
Statement of Financial Position
December 31, 2017
(in USDollar)
(9) 750,000
Note payable-short-term debt 400,000
Current portion of bonds payable 200,000
50,000
1,400,000
5,000,000
(10) 3,000,000
3,650,000
11,650,000
5. What are the classification of assets? Define each. Assets are classified into two : c
all the assets of a company that
company's long-term invest
6. What are the essential characteristics of a liability? a. The liability is the present obl
b. The liability arises from past t
c. The settlement of the liability
b. Account form
The presentation follows of an ac
liabilities and equity on the right
arize about what happend in the company
ctive of financial statements is to provide information about the financial position, financial
nce and cash flows of an entity that is useful to a wide range of users in making economic
ntity expects to settle the liability within the entity's normal operating cycle.
ability is due to be settled within twelve months after the reporting period.
ent liabilities
urrent portion of long-term debt
ce lease liability
red tax liability
term obligations to company officers
term deferred revenue
e. Share premium
ribed share capital f. Accumulated profit (loss)
ence share capital g. Appropriation reserve
ary share capital h. Revaluation reserve
i. Treasury share
tatements provide narrative description or disaggregation of items presented in
ments and information about items that do not qualify for recognition.
m sets forth the three major sections in a downward sequence of asset, liabilities and
entation follows of an account, meaning the assets are shown on the left side and
and equity on the right side of the statement of financial position
gh standard business operations with one year.
unting year.
3 problems
Problem 3-1
The following account balances are available from the records of Simple Company
at December 31, 2017:
Required:
Prepare a properly classified statement of financial position on December 31, 2017.
Problem 3-3 Multiple Choice
1. Which of the following is a current asset?
a. Cash surrender value of a life insurance policy of which the company is the
beneficiary.
b. Investment in marketable securities for the purpose of controlling the issuing
company.
c. Cash designated for the purchase of tangible fixed assets.
d. Trade installments receivable normally collectible in 18 months. yes
2. Working capital is
3. The basis for classifying assets as current or noncurrent is the period of time
normally elapsed from the time the accounting entity expends cash to the time it
converts
4. The distinction between current and noncurrent assets and liabilities is now based
primarily on
6. Which of the following items should never be included in the current sections of
the statement of financial position?
a. Premium paid over the face amount of bond investment.
b. Receivable from customer not collectible for over one year.
c. Deferred income taxes resulting from interperiod income tax allocation
d. Funded serial bonds. yes
a. Coincides with the economy's business cycle which runs from one of the
economy's business activity to the next.
b. Corresponds with its natural business year which runs from one of the
particular firm's business activity to the next.
c. Is set by the industry's trade association usually on an average length of time
of all firms which are members of the association.
d. Runs from cash disbursement for items of inventory through theiryes
realization of cash from sale.
9. For accounting purposes the term "current assets" is used to designate cash and
and other assets or resources commonly identified as:
a. Those which can be liquidated in the normal course of business during the
following fiscal year.
b. Those which will realized in cash or sold or consumed during the normal
operating cycle of the business.
c. Those which are reasonably expected to be realized in cash or soyes
consumed during the normal operating cycle of the business.
d. those which can be used for the payment of current liabilities or consumed
during the normal operating cycle of the business.
Problem 3-4
Following where taken from the books and records of Sussex Company as of December
31, 2017:
Problem 3-5
The following data were provided by Adele Company:
Problem 3-6
The December 31, 2017 trial balance of Triple Company among others, includes the following:
Notes payable, which are trade notes with the exception of $20,000
note payable to bank on June 30, 2018 60,000
Accounts payable, which include accounts with debit balance of $1,000 40,000
Required:
What is the amount of current liabilities on December 31, 2017?
Problem 3-7
The statement of financial position of Cindy Company on December 31, 2017 contained
the following data:
Problem 3-8
The following data were taken from the December 31, 2017 trial balance of Amex Company:
Required:
Based on the foregoing, prepare shareholders' equity section on statement of financial
position as of December 31, 2017.
Problem 3-9
The following information pertains to Island company on December 31, 2017:
Required:
What is the correct amount of liabilities for accounting purposes on December 31, 2017?
Assets liabilities
Current Assets Serial bonds payable ($500,000 due every July
Notes receivable 150,000 Employees income tax payable
Cash 420,000 Note payable
Claim receivable 20,000 Accrued expenses payable
Finished goods 400,000 Accrued interest on note payable
Goods in process 600,000 Income tax payable
Prepaid insurance 20,000 Advances from customers
Raw materials 200,000 Accounts payable
Trading securities 250,000
Tools 40,000
Factory supplies 50,000
Accounts receivable 500,000 Equity
Allowance for doubtful accounts (50,000) Share capital
Total curent assets 2,600,000 Share premium
Retained earnings
non current assets
Plant, Pr Building 4,000,000
Plant, Pr Accumulated d (1,600,000)
Plant, Pr Land 1,500,000
Plant, Pr Machinery 2,000,000
Plant, Pr Accumulated depreciation-machinery (1,300,000) non current liabilities
long term Investment in bonds 1,500,000 Note payable
IntangibleGoodwill 100,000 Serial bonds payable ($500,000 due every July
IntangibleFranchise 200,000
Total non current assets 6,400,000
other assets
Plant expansion fund 500,000
total other assets 500,000
40,000 60
27,000
15,000
105,000 95,000
3 dash 1
3 dash 2
60,000
8,000
60,000
41,000 plus 1000
CA = 566,000
14,000
5,000
150,000
no decrelation still in arrears
10,000
100,000
15,000
280,000
al bonds payable ($500,000 due every July 1 2,500,000
ployees income tax payable 20,000
100,000
rued expenses payable 30,000
rued interest on note payable 10,000
ome tax payable 60,000
ances from customers 100,000
ounts payable 300,000
$ 5,000,000
re premium $ 500,000
ained earnings $ 880,000
current liabilities
12,900,000
Rp 375,000
Rp 50,000
Rp 75,000
Rp 10,000
Rp 200,000
Rp 100,000
Rp 810,000
Rp 40,000
Rp 770,000
tgnotes.blogspot.com/2011/06/last-month-i-was-looking-for-complete.html
tgnotes.blogspot.com/2011/06/non-current-assets.html