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Fma3 Presentation Transcript

  • 1. General Purpose Financial Statements• Contains historical information• Comprises – • Balance Sheet • Profit & Loss Account • Cash Flow Statement• Includes annexure, footnotes, schedules, etc.
  • 2. Balance Sheet• A statement of financial position of an Entity as of f p y a certain date• Describes – • Assets e.g. Cash, Land & Bldg., P&M, etc. • Liability e.g. Loans, Advances, creditors, etc e g Loans Advances creditors etc. • Equity i.e. Initial Investment + Accumulated Earnings
  • 3. Profit & Loss Account• A statement of financial performance of an f p f entity over a period of time• Describes – • Revenues i.e. Sales & other Gains • Expenses i.e. Direct & Indirect spending ie
  • 4. Cash Flow Statement• A statement of change in financial positions g f p at two points in time• Describes generation & application of cash as classified under – • Operating Activities • Investing Activities • Financing Activities
  • 5. Asset• An asset is a resource controlled by the entity y y as a result of past events from which future economic benefits are expected to flow to the f p entity• Fixed Assets, Investments, Current Assets & Advances, Miscellaneous Expenditures
  • 6. Liability• A liability is a present obligation of the entity y p g y arising from past events, the settlement of which is expected to result in an outflow from p f the entity, of resources embodying economic benefits.• Secured Loans, Unsecured Loans, Current Liabilities & Provisions
  • 7. Owner’s Equity• Owner’s equity is the residual interest in the assets of the entity after deducting all its liabilities• Sh C it l Reserves & Surplus Share Capital, R S l E=A–L or A = L + E or A = TL
  • 8. Check d t diCh k understandingIdentify Asset, Liability & Equity Equipment Depreciation Retained Earningsg Prepaid Rent Goodwill Preference Shares Goods in Stores y Dividend Payable Patents Factory Debtors Freehold Land Land value appreciation Perks payable to employee Suit filed by for indemnity
  • 9. Recognition of Assets & Liabilities• Assets & Liabilities arise from recording of g Transactions & Other Events• Recording of T&OE – • Exchange with other Entities • Maintain the Accounting Equation
  • 10. Illustration1. Mr. X contributes Rs. 10000 in cash2.2 The company borrows Rs. 3000 from bank Rs3. Co. purchases equipment for Rs. 5000 in cash4. Co. gives consultancy services worth Rs. 12000 but customers have paid Rs. 8000 so far5. Co. pays Rs. 4500 each for salaries, maintenance6. Co. gives dividend of Rs. 1000
  • 11. Initial P bl I iti l Problem Accounting Equation Approach ASSETS = LIABILITIES + EQUITY Cash Equipment Debtors Bank Loan Capital Earnings1. +10,000 +10,0002. +3,000 , +3,000 ,3. -5,000 +5,0004. +8,000 +4,000 +12,0005.5 -9,000 9 000 -9,000 9 0006. -1,000 -1,000 6,000 5,000 4,000 3,000 10,000 +2,000
  • 12. Class Exercise1. Mr. Z started business with Rs. 20000 as capital2. He purchased furniture for cash Rs. 500 p3. He purchased goods for cash Rs. 10004.4 He purchased goods on credit for Rs. 2000 p rchased Rs5. He sold goods on credit for Rs. 4000 costing Rs. 25006. He paid Rs. 1000 of Rent & Rs. 2000 for Salaries
  • 13. Class Exercise solution• Cash balance: Rs. 15500• Furniture: Rs. 500 Rs• Goods: Rs. 500• Debtors: Rs. 4000• Creditors: Rs. 2000• Capital: Rs. 20000• Retained earnings: Rs ( ) 1500 Rs.(-)
  • 14. Exercise 1 E i1.1 A company issues 50 000 shares of Rs 10 face 50,000 Rs. value Equity Shares at par value for cash.2. The2 Th company acquires L d & B ildi costing i Land Building i Rs. 2,25,000 with the payment of Rs. 50,000 in cash and the b l h d h balance i settled b raising 8% is l d by i i Mortgage for 20 years.3. Purchases a used JCB for Rs. 13,200 cash.4. Acquires Raw Material costing Rs. 8,600 on q g , account from Mr. X.
  • 15. Exercise 15. Returns defective Raw Material purchased above and costing Rs. 900 to the supplier.6. Pays the supplier in (4) and (5) the amount due, less a 2% discount for the prompt payment. p p p y7. Obtains a fire insurance policy providing Rs. 5,00,000 5 00 000 coverage beginning next month. It pays month the Insurance Premium of Rs. 4,950 for the current year. year
  • 16. Exercise 18. Pays Rs. 1,800 for 3 month Rent for the office space.9. Purchases a Patent on a machine process for Rs. 90,000 cash .10. Purchases Office Equipment from Mr. R for 0. u c ases O ce qu p e t o . o Rs. 2,700 making a down payment of Rs. 250 and agreeing to pay the balance in 30 days. d g ee g o p y e b ce d ys.11. The company makes sale of all the goods for Rs. 16,000 Rs 16 000 out of which only Rs 12 000 could Rs. 12,000 be Realised from Mr. Y
  • 17. Solution to Exercise 1 Income Statement Profit & Loss A/c ….. for the period ending …. for the year ending ……. y g Expenses IncomesInsuranceI 4,950 Sales Revenue 4 950 S l R 16,000 16 000Rent 1,800 Cash Discount gain 154Net Goods purchased 7,700Profit 1,704 16,154 16,154
  • 18. Solution to Exercise 1 Balance Sheet of ….. as on ……. Liabilities AssetsCreditors - R 2,450 Land & Building 2,25,0008% M t Mortgage 1,75,000 Equipments 1 75 000 E i t 15,900 15 900Equity Shares 5,00,000 Patent 90,000Profit & Loss A/C 1704 Debtors - Y 4,000 Cash 3,44,254 6,79,154 6,79,154
  • 19. Solution to Exercise 1 Cash Flow Statement for th f the period ending … i d diCash Flow from operations Receipt from sales 12,000 payment to insurer 4,950 payment to creditors 7,546 payment for rent 1,800Net cash outflow from operations 2,296Cash Flow from investments Land B ildi b L d & Building bought h 50,000 50 000 JCB bought 13,200 Patent bought 90,000 Office Equipment bought 250 narain@fms.eduNet cash outflow from investments 1,53,450
  • 20. Solution to Exercise 1 Continued …….Cash Flow from financing Issue of E it Shares I f Equity Sh 5,00,000 5 00 000Net cash inflow from financing 5,00,000Increase in cash balance 3,44,254Cash balance at the beginning of the period 0Cash balance at the end of the period 3,44,254