Balance Sheet & Profit & Loss Account Overview of Financial Statements
Financial Statements <ul><ul><li>Financial Statements show summarized information about the financial position (as on a pa...
Balance Sheet: <ul><ul><li>True & Fair View </li></ul></ul><ul><ul><li>Prepared in accordance with Part 1 of Schedule VI o...
Balance Sheet <ul><ul><li>Presentation is in a balanced format. </li></ul></ul><ul><li>Accounting Equation </li></ul><ul><...
Illustration <ul><ul><li>A Company has cash in the bank of $ 850000, inventory of $ 50000 and a building worth $ 100000. T...
Profit & Loss Account: Profit & Loss Account shows the result of operation of the company during a certain period. There a...
Profit & Loss Account Revenue :  Cash inflows during the period from rendering of services or other  activities. Expenditu...
Profit & Loss Account <ul><ul><li>Summarized Financial Results of TCS for the FY 2008-09 </li></ul></ul>2008-09 (Rs in cro...
Profit & Loss Account <ul><ul><li>Revenue from Operations  </li></ul></ul><ul><ul><li>Information Technology & Consultancy...
Profit & Loss Account <ul><ul><li>Operating Expenses </li></ul></ul><ul><ul><li>Salaries to staff </li></ul></ul><ul><ul><...
Points to be noted in preparation of P&L A/c <ul><ul><li>Shall be debited only with revenue expenditure </li></ul></ul><ul...
Examples of Capital & Revenue Expenditures <ul><li>CAPITAL  </li></ul><ul><ul><li>Acquisition cost of asset </li></ul></ul...
Deferred Revenue Expenditure <ul><ul><li>Incurred during one accounting year but benefit from this is likely to be enjoyed...
Illustration <ul><ul><li>Classify the below expenses into capital, revenue & deferred revenue expenditure (put Tick mark) ...
Capital & Revenue Receipts Receipts Capital  Revenue Do not arise out of normal course of business Arise out  of  normal c...
Profit & Loss Account <ul><li>Main principles of preparing P& L A/C </li></ul><ul><ul><li>Only revenue receipts and expens...
Statutory Contents of the Balance Sheet: <ul><ul><li>Liabilities </li></ul></ul><ul><li>1.   Owner’s Equity:  Share Capita...
Liabilities: Note: The Authorized Share Capital is shown only as a total amount by way of information & NOT added to the l...
Liabilities Reserves Revenue Capital Created out of revenue profits <ul><li>Created out of capital profits </li></ul><ul><...
Liabilities Revenue Reserves General   Specific Purpose is to meet any unforeseen  contingency or to utilize the same for ...
Liabilities: …..cont Reserves & Surplus:  1. Capital Reserve. 2. Capital Redemption Reserve. 3.Share Premium Account. 4. D...
Liabilities: ......cont <ul><li>Secured Loans :  Nature of security given for each loan to be disclosed  </li></ul><ul><li...
Contingent Liability: <ul><ul><li>The liability which will EXIST or NOT will depend on any FUTURE UNCERTAIN incident </li>...
Contingent Liability <ul><ul><li>TCS position </li></ul></ul><ul><ul><li>Company is contesting claims made by lessors for ...
Assets : <ul><li>Fixed Assets – Disclosure requirements : </li></ul><ul><ul><li>Different assets to be shown separately. <...
Assets: ……cont - 25 - Investments Govt. & Trust Securities Shares, debentures & bonds of various cos. Shares, debentures &...
Assets : ……cont Current Assets, Loans & Advances : Assets which are likely to be converted into cash within a year.   Curr...
Assets: ……cont Miscellaneous Expense : That part of expenses which are not written off up to the date of Balance Sheet. Eg...
Notes to Accounts <ul><ul><li>Shall contain additional information </li></ul></ul><ul><ul><li>Shall provide narrative desc...
Balance Sheet Prescribed format – as per Part 1 Schedule VI - 29 - Schedule Amt (Rs) Sources of Funds: 1 SHAREHOLDER’S FUN...
Part 1 Schedule VI ……..cont - 30 - Schedule Amt(Rs) Application of funds: 4 FIXED ASSETS (a) Gross Block F xxxx (b) Less :...
Part 1 Schedule VI ……..cont - 31 - Schedule Amt(Rs) (c) Unbilled Revenues xxxx (d) Sundry Debtors I xxxx (e) Cash & bank B...
Prescribed format of Profit & Loss Account – Part 2,Schedule VI - 32 - Schedule Amt(Rs) INCOME: 1 Information technology &...
Part 2,Schedule VI …..cont - 33 - Schedule Amt(Rs) Profit before additional performance incentive, interest, depreciation,...
Part 2,Schedule VI …..cont - 34 - Schedule Amt(Rs) 12 APPROPRIATIONS (a) Interim dividend xxxx (b) Proposed final dividend...
Exercise <ul><ul><li>Share Premium Account </li></ul></ul><ul><ul><li>Preliminary Expenses </li></ul></ul><ul><ul><li>Good...
Exercise <ul><li>2. Re- arrange the following items under the three headings: Fixed Assets, Current Assets, Loans & Advanc...
Thank You 20 October 2009
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Financial Statements_Presentation

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  • Financial Statements_Presentation

    1. 1. Balance Sheet & Profit & Loss Account Overview of Financial Statements
    2. 2. Financial Statements <ul><ul><li>Financial Statements show summarized information about the financial position (as on a particular date) & performance (for a period) of a business concern. </li></ul></ul><ul><ul><li>Enables the users in making economic decisions </li></ul></ul><ul><ul><li>Financial statements include: </li></ul></ul><ul><li>1.Balance sheet – shows financial position as on a particular date. </li></ul><ul><li>2.Profit & Loss Account – shows operating results for a particular period. </li></ul><ul><li>3.Cash Flow Statement – summarizes sources & uses of cash. </li></ul>
    3. 3. Balance Sheet: <ul><ul><li>True & Fair View </li></ul></ul><ul><ul><li>Prepared in accordance with Part 1 of Schedule VI of the Companies Act, 1956. </li></ul></ul><ul><ul><li>The Act has laid down two forms of Balance Sheet : </li></ul></ul><ul><li>Horizontal Form </li></ul><ul><li>& </li></ul><ul><li>Vertical Form </li></ul>- 2 -
    4. 4. Balance Sheet <ul><ul><li>Presentation is in a balanced format. </li></ul></ul><ul><li>Accounting Equation </li></ul><ul><ul><ul><li>Assets = Liabilities + Owners Equity </li></ul></ul></ul>Claims on Assets (Liabilities) (CR) Assets (DR) <ul><li>What the Company Owes . </li></ul><ul><ul><li>Share Capital </li></ul></ul><ul><ul><li>Reserves & Surplus </li></ul></ul><ul><ul><li>Long term borrowings </li></ul></ul><ul><ul><li>Current Liabilities & Provisions </li></ul></ul><ul><li>What the Company Ownes </li></ul><ul><ul><li>Land & Building </li></ul></ul><ul><ul><li>Plant & Machinery </li></ul></ul><ul><ul><li>Furniture </li></ul></ul><ul><ul><li>Investment </li></ul></ul><ul><ul><li>Current assets & Loans & Advances. </li></ul></ul>
    5. 5. Illustration <ul><ul><li>A Company has cash in the bank of $ 850000, inventory of $ 50000 and a building worth $ 100000. These are the only assets for the Company. The Company has liabilities that amount to $ 925000.What will be the Owner’s equity in this case? </li></ul></ul><ul><ul><li>$ 1000000 </li></ul></ul><ul><ul><li>$ 75000 </li></ul></ul><ul><ul><li>$ 925000 </li></ul></ul><ul><ul><li>None of the above. </li></ul></ul>
    6. 6. Profit & Loss Account: Profit & Loss Account shows the result of operation of the company during a certain period. There are two forms in which a Profit & Loss Account can be prepared: Horizontal Format & Vertical Format Profit & Loss Account Vs Balance Sheet : Profit & Loss Account represents the period of time whereas the Balance Sheet represents a single moment in time. - 5 -
    7. 7. Profit & Loss Account Revenue : Cash inflows during the period from rendering of services or other activities. Expenditure: Cash outflows or incurrence of liability during the period from rendering of services or other activities. Includes employee cost, General & administration expenses, Selling & distribution expenses, etc. Net Income = Revenue (Less) Expenses - 6 -
    8. 8. Profit & Loss Account <ul><ul><li>Summarized Financial Results of TCS for the FY 2008-09 </li></ul></ul>2008-09 (Rs in crore) Total Income 21947.76 Total Expenditure (Operating Expenditure, Interest, Depreciation, Taxes etc.,) 16834.09 Net Profit for the Year (Unconsolidated) 4696.21
    9. 9. Profit & Loss Account <ul><ul><li>Revenue from Operations </li></ul></ul><ul><ul><li>Information Technology & Consultancy Services </li></ul></ul><ul><ul><li>Sale of Equipments & Software Licenses </li></ul></ul><ul><ul><li>Other Income </li></ul></ul><ul><ul><li>Interest on deposits with Banks </li></ul></ul><ul><ul><li>Dividend received on investments in subsidiaries </li></ul></ul><ul><ul><li>Dividends from mutual funds </li></ul></ul><ul><ul><li>Foreign Exchange Fluctuations (Gain / Loss) </li></ul></ul><ul><li>Note: </li></ul><ul><ul><li>Net ‘Other Income’ in 2007-08 – Rs. 689.82 cr (gain) </li></ul></ul><ul><ul><li>Net ‘Other Income’ in 2008-09 – Rs.456.24 cr (loss) </li></ul></ul><ul><ul><li>Primary reason is Exchange Loss of Rs. 746.11 cr </li></ul></ul>
    10. 10. Profit & Loss Account <ul><ul><li>Operating Expenses </li></ul></ul><ul><ul><li>Salaries to staff </li></ul></ul><ul><ul><li>Contribution to PF </li></ul></ul><ul><ul><li>Contribution to Gratuity Fund 52% of Revenue. </li></ul></ul><ul><ul><li>Staff Welfare Expenses. </li></ul></ul><ul><ul><li>Overseas business expenses </li></ul></ul><ul><ul><li>Other operating expenses </li></ul></ul><ul><ul><li>Software, Hardware & Material cost </li></ul></ul><ul><ul><li>Software Licenses </li></ul></ul><ul><ul><li>Communication </li></ul></ul><ul><ul><li>Electricity </li></ul></ul><ul><ul><li>Traveling & Conveyance </li></ul></ul><ul><ul><li>Repairs & Maintenance </li></ul></ul><ul><ul><li>Others </li></ul></ul>
    11. 11. Points to be noted in preparation of P&L A/c <ul><ul><li>Shall be debited only with revenue expenditure </li></ul></ul><ul><ul><li>Shall be credited only with revenue receipts </li></ul></ul><ul><ul><li>Distinction between Capital & Revenue Expenditure </li></ul></ul>Expenditure Capital Revenue <ul><ul><li>Incurred for acquiring fixed assets </li></ul></ul><ul><li>OR </li></ul><ul><ul><li>Incurred for increasing the earning capacity of business </li></ul></ul>Incurred in the course of regular business transactions
    12. 12. Examples of Capital & Revenue Expenditures <ul><li>CAPITAL </li></ul><ul><ul><li>Acquisition cost of asset </li></ul></ul><ul><ul><li>Wages paid for installation of machinery </li></ul></ul><ul><ul><li>Extension or improvement of fixed asset </li></ul></ul><ul><ul><li>Major repairs of old asset. </li></ul></ul><ul><li>REVENUE </li></ul><ul><ul><li>Purchase of Raw materials </li></ul></ul><ul><ul><li>Day to day running expenses like salaries, rent, office expenses </li></ul></ul><ul><ul><li>Upkeep of an asset </li></ul></ul>
    13. 13. Deferred Revenue Expenditure <ul><ul><li>Incurred during one accounting year but benefit from this is likely to be enjoyed over a number of years. </li></ul></ul><ul><ul><li>Expensing will be done over the years during which benefit will accrue. </li></ul></ul><ul><ul><li>Examples </li></ul></ul><ul><ul><li>Heavy Advertisement expenditure for introducing a product </li></ul></ul><ul><ul><li>Research & Development Expenditure </li></ul></ul><ul><ul><li>Expenditure on shifting business to a convenient place. </li></ul></ul>
    14. 14. Illustration <ul><ul><li>Classify the below expenses into capital, revenue & deferred revenue expenditure (put Tick mark) </li></ul></ul>Expenditure Capital Revenue Deferred Revenue <ul><ul><li>Salaries </li></ul></ul><ul><ul><li>Legal Charges </li></ul></ul><ul><ul><li>Wages for installing a machinery </li></ul></ul><ul><ul><li>Advertisement for introducing a new product </li></ul></ul><ul><ul><li>Office expenses </li></ul></ul><ul><ul><li>Expenditure on construction of an additional room </li></ul></ul>
    15. 15. Capital & Revenue Receipts Receipts Capital Revenue Do not arise out of normal course of business Arise out of normal course of business <ul><li>Examples </li></ul><ul><ul><li>Receipts from sale of Fixed Assets </li></ul></ul><ul><ul><li>Additional capital introduced </li></ul></ul><ul><ul><li>Loans raised </li></ul></ul><ul><li>Examples </li></ul><ul><ul><li>Income from sale of goods </li></ul></ul><ul><ul><li>Dividend received </li></ul></ul><ul><ul><li>Interest received </li></ul></ul><ul><ul><li>Rent received. </li></ul></ul>
    16. 16. Profit & Loss Account <ul><li>Main principles of preparing P& L A/C </li></ul><ul><ul><li>Only revenue receipts and expenses should be transferred to this account. </li></ul></ul><ul><ul><li>Expenses / Incomes should relate to the period for which the accounts are being prepared. </li></ul></ul><ul><ul><li>Entity Concept. </li></ul></ul><ul><li>Profit & Loss Account Structure </li></ul><ul><ul><li>Profit & Loss A/c proper - depicts profit or loss for the year - Above the Line </li></ul></ul><ul><ul><li>Profit & Loss appropriation A/c – Shows appropriations for dividend, transfer to reserves, income & expenditure, if material relating to previous year. </li></ul></ul>
    17. 17. Statutory Contents of the Balance Sheet: <ul><ul><li>Liabilities </li></ul></ul><ul><li>1. Owner’s Equity: Share Capital ,Reserves & Surplus </li></ul><ul><li>2. Loan Fund: Secured Loans, Unsecured Loans, Current liabilities& Provisions. </li></ul><ul><ul><li>Assets </li></ul></ul><ul><li>1. Fixed Assets </li></ul><ul><li>2. Investments </li></ul><ul><li>3. Current Assets & Loans & </li></ul><ul><li>Advances. </li></ul><ul><li>4. Miscellaneous Expenses. </li></ul>
    18. 18. Liabilities: Note: The Authorized Share Capital is shown only as a total amount by way of information & NOT added to the liabilities of the co. Share Capital Authorized Issued Subscribed Paid up
    19. 19. Liabilities Reserves Revenue Capital Created out of revenue profits <ul><li>Created out of capital profits </li></ul><ul><ul><li>Profits prior to incorporation </li></ul></ul><ul><ul><li>Premium on issue of debentures </li></ul></ul>
    20. 20. Liabilities Revenue Reserves General Specific Purpose is to meet any unforeseen contingency or to utilize the same for expansion of the business Purpose is specific or definite
    21. 21. Liabilities: …..cont Reserves & Surplus: 1. Capital Reserve. 2. Capital Redemption Reserve. 3.Share Premium Account. 4. Debenture Redemption Reserve. 5. Revaluation Reserve 6.Revenue Reserve 7.Surplus i.e., balance in the statement of Profit & Loss . Notes: If preference shares are redeemed out of profits, a sum equal to nominal amt of shares should to be transferred to reserve A/c called CRR, which in turn can be utilized for issue of bonus shares.
    22. 22. Liabilities: ......cont <ul><li>Secured Loans : Nature of security given for each loan to be disclosed </li></ul><ul><li>along with the respective loan. </li></ul><ul><ul><li>TCS position </li></ul></ul><ul><ul><li>Bank Overdrafts are secured against domestic book debts </li></ul></ul><ul><ul><li>Obligations under finance lease are secured against fixed assets obtained under such agreement. </li></ul></ul><ul><li>Unsecured Loans: No security given for the loan borrowed. </li></ul><ul><li>Eg: Loans & Advances from the subsidiaries. </li></ul><ul><li>Current Liabilities & Provisions: Current Liability – Repayable within 1 year. </li></ul><ul><li>Provisions – eg: Provision for taxation. </li></ul>- 21 -
    23. 23. Contingent Liability: <ul><ul><li>The liability which will EXIST or NOT will depend on any FUTURE UNCERTAIN incident </li></ul></ul><ul><ul><li>Shown in the Foot Note of the Balance Sheet. </li></ul></ul><ul><ul><li>Examples of Contingent Liability: </li></ul></ul><ul><ul><li>1. Likelihood of a dishonour of a bill discounted with bankers. </li></ul></ul><ul><ul><li>2. Likelihood of a negative outcome of a pending litigation. </li></ul></ul><ul><ul><li>3. The chance of financial guarantees given on behalf of other parties </li></ul></ul><ul><ul><li>being invoked. </li></ul></ul><ul><ul><li>4. Claims that may arise under Product Warranty favouring the </li></ul></ul><ul><ul><li>customers during the un expire residual tenor. </li></ul></ul><ul><ul><li>Note: A contingency may result in a Loss or a Gain. Contingent Assets must never be recognised in the Financial Statement. </li></ul></ul><ul><ul><li>The Nature & the Financial effect of the Contingent loss must always be disclosed in the Financial Statement. </li></ul></ul>- 22 -
    24. 24. Contingent Liability <ul><ul><li>TCS position </li></ul></ul><ul><ul><li>Company is contesting claims made by lessors for properties leased under tenancy agreements in the courts </li></ul></ul><ul><ul><li>Has provided guarantees to third parties on behalf of its subsidiary Diligenta Limited. </li></ul></ul><ul><ul><li>Income tax demands </li></ul></ul><ul><ul><li>Indirect tax demands. </li></ul></ul>
    25. 25. Assets : <ul><li>Fixed Assets – Disclosure requirements : </li></ul><ul><ul><li>Different assets to be shown separately. </li></ul></ul><ul><ul><li>Original cost, additions, deletions & depreciation up to year end to be </li></ul></ul><ul><li>shown in FS. </li></ul><ul><ul><li>Mode of valuation. </li></ul></ul><ul><li>TCS Position : </li></ul><ul><ul><li>Stated at cost less accumulated depreciation </li></ul></ul><ul><ul><li>Cost includes all expenses incurred to bring the asset to its present location & condition. </li></ul></ul><ul><ul><li>Fixed Assets exclude computers & other assets costing Rs. 50000 or less, which are not capitalized. </li></ul></ul>- 24 -
    26. 26. Assets: ……cont - 25 - Investments Govt. & Trust Securities Shares, debentures & bonds of various cos. Shares, debentures & bonds of subsidiary co. Investment in Fixed Asset. Investments should always be shown at Cost or Market value, whichever is Lower (Accounting Standard -13)
    27. 27. Assets : ……cont Current Assets, Loans & Advances : Assets which are likely to be converted into cash within a year. Current Assets – incl. Cash & bank Balances, Sundry debtors (net of provision for doubtful debts), accrued interest on investments etc. Loans & Advances – incl. cash loan given to different persons, advances against purchase of goods & various expenses etc. - 26 -
    28. 28. Assets: ……cont Miscellaneous Expense : That part of expenses which are not written off up to the date of Balance Sheet. Eg –Development expenses not adjusted, Preliminary expenses, Discount allowed on issue of shares or debentures. - 27 -
    29. 29. Notes to Accounts <ul><ul><li>Shall contain additional information </li></ul></ul><ul><ul><li>Shall provide narrative description / disaggregations of items in FSs </li></ul></ul><ul><ul><li>Items on BS, P&L A/c & Cash flow statement can be cross – referenced to any related information in notes. </li></ul></ul>
    30. 30. Balance Sheet Prescribed format – as per Part 1 Schedule VI - 29 - Schedule Amt (Rs) Sources of Funds: 1 SHAREHOLDER’S FUND (a) Share Capital A xxxx (b) Reserves & Surplus B xxxx 2 LOAN FUNDS (a) Secured Loans C xxxx (b) Unsecured Loans D xxxx 3 TOTAL FUNDS EMPLOYED XXXX
    31. 31. Part 1 Schedule VI ……..cont - 30 - Schedule Amt(Rs) Application of funds: 4 FIXED ASSETS (a) Gross Block F xxxx (b) Less : Accumulated Depreciation xxxx (c) Net Block xxxx (d) Capital Work –in-Progress xxxx 5 INVESTMENTS G xxxx 6 CURRENT ASSETS,LOANS & ADVANCES (a) Interest accrued on investment xxxx (b) Inventories H xxxx
    32. 32. Part 1 Schedule VI ……..cont - 31 - Schedule Amt(Rs) (c) Unbilled Revenues xxxx (d) Sundry Debtors I xxxx (e) Cash & bank Balances J xxxx (f) Loans & Advances K xxxx 7 CURRENT LIABILITIES & PROVISIONS (a) Current liabilities L xxxx (b) Provisions M xxxx 8 NET CURRENT ASSET [ (6) – (7)] xxxx 9 MISCELLANEOUS EXPENDITURE xxxx 10 TOTAL ASSETS (NET) XXXX
    33. 33. Prescribed format of Profit & Loss Account – Part 2,Schedule VI - 32 - Schedule Amt(Rs) INCOME: 1 Information technology & consultancy services N xxxx 2 Sale of equipment & software licenses. O xxxx 3 Other income xxxx TOTAL INCOME XXXX EXPENDITURE: 4 Employee Costs P xxxx 5 Operation & other expenses Q xxxx TOTAL EXPENDITURE XXXX
    34. 34. Part 2,Schedule VI …..cont - 33 - Schedule Amt(Rs) Profit before additional performance incentive, interest, depreciation, taxes & exceptional items.[ TOTAL INCOME – TOTAL EXPENDITURE] XXXX 6 Additional Performance incentive xxxx 7 Interest xxxx 8 Depreciation F xxxx Profit before tax & exceptional items XXXX 9 Provision for Taxes xxxx Profit before exceptional items XXXX 10 Profit on sale of long term investment xxxx NET PROFIT FOR THE YEAR XXXX 11 Balance b/fwd from previous year xxxx Amount available for Appropriation XXXX
    35. 35. Part 2,Schedule VI …..cont - 34 - Schedule Amt(Rs) 12 APPROPRIATIONS (a) Interim dividend xxxx (b) Proposed final dividend xxxx (c) General Reserve xxxx (d) Balance carried to balance sheet xxxx
    36. 36. Exercise <ul><ul><li>Share Premium Account </li></ul></ul><ul><ul><li>Preliminary Expenses </li></ul></ul><ul><ul><li>Goodwill </li></ul></ul><ul><ul><li>Authorized Share Capital </li></ul></ul><ul><ul><li>Mortgaged Loan </li></ul></ul><ul><ul><li>Provision for Taxation </li></ul></ul>- 35 - 1. Under what headings will you show the following items in the Balance Sheet of the Company?
    37. 37. Exercise <ul><li>2. Re- arrange the following items under the three headings: Fixed Assets, Current Assets, Loans & Advances. </li></ul><ul><ul><li>Furniture </li></ul></ul><ul><ul><li>Trademarks </li></ul></ul><ul><ul><li>Advance to Subsidiaries </li></ul></ul><ul><ul><li>Cash in hand /with bank </li></ul></ul><ul><ul><li>Vehicles </li></ul></ul><ul><ul><li>General reserves </li></ul></ul>- 36 -
    38. 38. Thank You 20 October 2009

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