Академический Документы
Профессиональный Документы
Культура Документы
statements
Income statement
1
Example - Jody
2
What cash movements
took place?
3
How much profit was
generated?
Income statement
£
Sales revenue 80
Cost of goods sold (80 x 50p) (40)
Profit 40
4
What is the accumulated
wealth at the end of day 1?
Statement of financial
position
£
Cash (closing balance) 80
Inventories of cakes for resale (20 x 50p) 10
Total assets 90
5
Jody – Day 2
6
Day 2 results
Income statement
£
Sales revenue 130
Cost of goods sold (130 x 50p) (65)
Profit 65
7
Statement of financial position
£
Cash (closing balance) 150
Inventories of cakes for resale (10* x 50p) 5
Total assets 155
8
Statement of financial
position
It shows how the business is financed
and how these funds are deployed
9
Assets
• A resource held by the company
– A probable future benefit must
exist
• Inventories will be sold for cash
– Must be exclusively controlled by
the business
• Scotrail runs a railway, but tracks
are owned by Network Rail
– Benefit from a past transaction or
event
• Factory must have been purchased,
not just agreement to buy
– Must be measurable in monetary
terms
• Value of workforce cannot be
included as an asset
10
Classification of assets
Current assets
• Held for the short-term (< 1 year)
• Used as part of normal business
cycle
12
Circulation of current
assets
Inventories
(stock)
Trade
Cash receivables
(debtors)
Valuation of assets
• Usually included at historic cost
• Non-current assets
– depreciated each year, over their
expected useful lives
– Can be revalued to current
market value
• Eg rise in property prices
– If significant drop in value,
reduce figure to recoverable
amount
• Drop in value of shares owned by a
company
14
Equity
• Owner’s claim against the business
• Remember business entity
convention
• Comprises funds paid into the
business by the owners, less funds
taken out by owners plus any
profits made by the business
Liabilities
• Claims of anyone else against the
business, such as:
– Loans
– Trade payables
– Tax due
15
Classification of
liabilities
• Current liabilities
– Due for settlement in the short-
term (<1 year)
• Non-current liabilities
– Due for settlement in the long-
term (>1 year)
16
Brie Manufacturing
Statement of financial position as at 31
December 2008
£000
Non-current assets
Property 45
Motor vans 19
94
Current assets
Inventories 23
Trade receivables 18
Cash at bank 12
53
£000
Opening balance 50
Profit 10
60
Non-current liabilities
Long-term borrowings 50
Current liabilities
Trade payables 37
• Income statement
• Profit (or loss) = total revenue
for the period minus total
expenses for the period
• Provides information on:
– how effective the business has
been in generating wealth
– how the profit was made
19
Better-Price Stores
Income statement for the year ended 31
October 2008
£
MANUFACTURING
Opening inventories
+ Raw materials
+ manufacturing wages
+ manufacturing expenses
- closing inventories
= Cost of sales
21
Grouping types of
expenses
• Cost of sales
• Selling and distribution costs
– Selling costs
– Advertising
– Delivery costs
• Administrative expenses
– Telephone
– Electricity
– Insurance
– Legal fees
– Any other expenses that are not
allocated elsewhere
22
Recognising expenses
• Accrued expenses (accruals)
– Arise when the expense for the
period is more than the cash paid
during the period
– Example :
Company A paid £4,000 electricity in
the year to 31 Dec 2010. At the year
end, it had not paid its final
electricity bill which arrived in
January 2011, amounting to £1,500.
23
• Prepaid expenses (prepayments)
– Arise when the amount paid for
the period is more than the
expense for the period
– Example :
Company B also has a year end of 31
December 2010. During the year, it
paid £24,000 for an annual
insurance premium, which covers
the period 1 April 2010 until 31
March 2011.
24
Depreciation
• Spreads the cost of an asset over
its estimated useful life
• Avoids under or over stating
profit
• Example: company usually
makes £10,000 profit each year.
It buys a lorry costing £30,000
in year 4.
15
10
0
1 2 3 4 5 6
-5
-10
-15
-20
-25
25
Calculating depreciation
27
• If the asset has a residual
(scrap) value, that should be
deducted from the cost of the
asset (straight-line method only)
• intangible assets are amortised
rather than depreciated –
technique identical
• Selecting a depreciation method
– Each business can choose an
appropriate method
– Best to match depreciation
expense with economic benefits
provided by asset
• Building – straight-line
• Motor vehicle – reducing balance
28
The following balances have been extracted from
the books of Tigger Ltd, at 31 March 2010:
€000
Advertising 3
Cash in bank 11
Trade payables 12
Trade receivables 118
Furniture and fittings – cost 20
Furniture and fittings – depreciation at
31.3.09 9
Directors’ fees 6
Equity 78
Purchases 124
Rent and rates 10
Sales 270
Inventories at 31.3.09 16
Telephone and stationery expense 5
Travelling expenses 2
Delivery vehicles – cost 40
Delivery vehicles - depreciation at
31.3.09 10
Wages and salaries 2429
Additional information:
• Inventories at 31 March 2010 were
valued at €14,000
• Furniture and fittings and the vehicles
are to be depreciated at the rate of 15%
and 25% respectively, on cost
• Wages and salaries are to be split
equally between selling and distribution ,
and administration expenses
• Tax based on the year’s profits is
estimated at €25,000
Required
Prepare an income statement and
statement of financial position for Tigger
Ltd for the year ended 31 March 2010 30