Advanced Financial Accounting FIN611 Mian Ahmad Farhan Lecture22

Methods of Preparing Income Statement Two methods of Income Statement as per IAS-1: •

Income Statement (Nature of Expenses Method) Total Income: Sales Other income Profit on disposal

Functions of Expenses 1. 2. 3. 4. 5. Cost of sales Administration expenses Selling

Income Statement (Functions of expenses method) Sales Less Cost of goods sold Gross profit

Statements of Changes in Equity Opening balance b/f xxx Add Profit for the year

Simple Ltd Co. Trial Balance As at 31 st December 2005 Debit Rs. (000)

Additional Information: • Closing inventories have been counted and valued at Rs. 978, 000.

Simple Ltd Co. Income statement For the year ending 31 st August 2005 Sales

Provision For Tax Journal Entry: Income tax expense account To Provision for tax account

Statements of Retained Earning Rs. 000 Opening balance b/f 1, 132 Profit for the

Capital Redemption Reserve Rs. 000 Opening balance ---- Profit for the year ---- Reserve

Contra items 1. Provision for depreciation 2. Sales return 3. Purchases return 4. Provision

Simple Ltd Co. Balance sheet As on 31 st August 2005 Assets Rs. (000)

Simple Ltd Co. Balance sheet As on 31 st August 2005 Equity & Liabilities

Simple Ltd Co. Statement of changes in equity For the year ended on 31

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Advanced Financial Accounting FIN-611 Mian Ahmad Farhan Lecture-22 Limited Companies

Company Accounts

Methods of Preparing Income Statement Two methods of Income Statement as per IAS-1: • • Nature of expenses method Function of expenses method

Income Statement (Nature of Expenses Method) Total Income: Sales Other income Profit on disposal of assets Interest on deposits Less: Total Expenses: Changes in inventory Raw material purchased Staff cost Depreciation expenses Operating expenses: Selling and distribution Advertisement Interest on loan Income tax expenses Profit xxx xxx xxx xxx (xxx) xxx

Functions of Expenses 1. 2. 3. 4. 5. Cost of sales Administration expenses Selling expenses Financial expenses Income tax expenses

Income Statement (Functions of expenses method) Sales Less Cost of goods sold Gross profit Less Operating expenses Administrative expenses Selling & distribution Profit from operations Add: other income Less: Financial expenses Income before tax Less: Income tax Profit after tax xxx (xxx) xxx

Statements of Changes in Equity Opening balance b/f xxx Add Profit for the year xxx Less Dividend payment xxx Less transfer to reserves xxx Closing balance c/f xxx

Simple Ltd Co. Trial Balance As at 31 st December 2005 Debit Rs. (000) Sales Opening inventories Purchases Manufacturing wages Other manufacturing costs Selling & distribution costs Administration expenses Interest expenses Interim dividend paid Long term investments Non current assets at cost Depreciation (Provision) Trade receivables Prepayments Staff loans Credit Rs. (000) 14, 345 1, 456 4, 239 2, 386 646 1, 895 998 400 900 6, 579 2, 756 1, 923 489 12

Simple Ltd Co. Trial Balance As at 31 st December 2005 Debit Rs. (000) 267 Credit Rs. (000) Bank and cash balances Bank overdraft Trade payables Accruals Debenture redeemable in 2009 Two million ordinary shares of 25 paisa each Share premium Retained profits (1 st January 2005) -----23, 090 450 534 123 3, 000 500 250 1, 132 -----23, 090 ------

Additional Information: • Closing inventories have been counted and valued at Rs. 978, 000. • The tax charge for the year has been estimated at Rs. 879, 000. • An interim dividend of 45 paisa per share was paid. A final dividend of 75 paisa per share has been proposed. • Transfer Rs. 600, 000 to Debenture Redemption Reserve. • All other routine adjustments have been made (e. g. , depreciation, bad debts)

Simple Ltd Co. Income statement For the year ending 31 st August 2005 Sales Cost of goods sold Gross profit Sales and distribution expenses Administration expenses Profit from operations Interest received/paid and similar items Profit before tax Income tax expenses Profit for the year Rs. 000 14, 345 (7, 749) 6, 596 (1, 895) (998) 3, 703 (400) 3, 303 ( 879) 2, 424

Provision For Tax Journal Entry: Income tax expense account To Provision for tax account xxx

Statements of Retained Earning Rs. 000 Opening balance b/f 1, 132 Profit for the year 2, 424 Dividend payment (900) Transfer to reserves (600) Closing balance c/f 2, 056

Capital Redemption Reserve Rs. 000 Opening balance ---- Profit for the year ---- Reserve 600 Dividend ---- Closing balance 600

Contra items 1. Provision for depreciation 2. Sales return 3. Purchases return 4. Provision for doubtful debts 5. Payment against dividend or drawings

Simple Ltd Co. Balance sheet As on 31 st August 2005 Assets Rs. (000) Non-current Assets: Investment Tangible non-current assets 900 3, 823 4, 723 Current Assets: Inventories Trade and other receivables 978 1, 935 Prepayments 489 Cash 267 3, 669 ---- Total Assets 8, 392 ----

Simple Ltd Co. Balance sheet As on 31 st August 2005 Equity & Liabilities Rs. (000) Equity: Share capital 500 Share premium 250 Debenture redemption reserve 600 Retained earnings 2, 056 3, 406

Simple Ltd Co. Balance sheet As on 31 st August 2005 Equity & Liabilities Rs. (000) Total equity 3, 406 Non-current Liabilities 3, 000 Current Liabilities: Bank overdraft 450 Trade and other payables 534 Accruals 123 Income tax 879 1, 986 ---- Total Equity & Liabilities 8, 392 ----

Simple Ltd Co. Statement of changes in equity For the year ended on 31 st August 2005 Share capital Opening Profit for the year Dividend payment Transfer to reserves --Closing (Rs. 000) 500 Share Debenture premium redemption reserve (Rs. 000) 250 Retained earnings Total (Rs. 000) 1, 132 1, 882 2, 424 600 (600) -(900) -------------------------------------------- 500 250 600 2, 056 3, 406 ----------------------------------------------