The document provides an overview of accounting for single entities, including different types of business entities and how to account for merchandising and manufacturing businesses. It discusses accounting for corporations and accounting from incomplete records. It also covers the preparation and interpretation of key financial statements, including the statement of financial position, income statement, statement of changes in equity, and statement of cash flows. Key accounting concepts like the accrual basis of accounting and materiality are also summarized.

1. FR111
Fundamentals of
Financial Accounting
Session 1

2. Part-D: Accounting for Single Entities [WEIGHT 40%]
D1. Accounting for different business types [40%]
D2. Preparation and interpretation of financial statements [60%]
Discussion Topics_ D1
10.1 Introduction
10.2 Types of business entities
10.3 Accounting for merchandising business
10.4 Accounting for manufacturing business
10.5 Single and multiple-step income statements
10.6 Accounting for corporation
10.7 Accounts from incomplete records

3. Types of Business Entities
Based on ownership structure
1. Sole proprietorship: Number of owner: 1
2. Partnership: Number of owners limited between 2 and 20
3. Corporation: Private limited company (PVT) 2-50; public limited company
(limited or LTD or Ltd. in Bangladesh; plc globally) 7 to limited by shares
Based on nature of operation
1. Manufacturing: produce goods
2. Merchandizing/Trading: buy goods from manufacturer and sell to
customers
3. Service: provide or render service

4. Accounting for Trading/Merchandizing Business
Perpetual inventory system Periodic inventory system
Real time recording- Records transactions instantly Record transactions at the end of a period…at the end of
each week, month or year
Purchase of inventories are recorded as (current) assets
[Inventories account]
Purchase of inventories are recorded as an expense
[purchase account)
Purchase returns, discount, freights and other costs
associated with the purchase of goods are all
recorded/adjusted to the inventories account
Purchase returns, discount, freights and other costs
associated with the purchase of goods are recorded in
separate accounts
To record sales transaction as revenue, corresponding
costs and inventories are recognized immediately
Only sales revenues are recognized; corresponding costs
are determined later at the end of the reporting period
Cost of goods sold/cost of sales and ending inventory
data are readily available
Cost of goods sold/cost of sales can be determined only
after paying substantial effort, while the valuation of
ending inventory requires physical count
Suitable for large companies Suitable for small companies or enterprises with low
volume of transactions

5. Recording merchandizing transactions
Nature of transactions Perpetual inventory system Periodic inventory system
Purchase of
goods/merchandize
Merchandize inventory Dr.
Trade or Accounts Payable/cash Cr.
Purchase Account Dr.
Trade/Accounts Payable/cash Cr.
Freight on purchase Merchandize inventory Dr.
Accounts Payable/cash Cr.
Freight-in A/C Dr.
Accounts Payable/cash Cr.
Return goods to
supplier
Trade or Accounts Payable/cash Dr.
Merchandize inventory Cr.
Trade or Accounts Payable/cash Dr.
Purchase return Cr.
Make payments to
suppliers
Trade or accounts payable Dr.
Cash…………………………………..Cr.
Merchandize inventory ……..Cr. (with the amount of discount
received at the time of paying dues to suppliers)
Trade or accounts payable Dr.
Cash…………………………………..Cr.
Purchase discount ……..Cr. (with the amount of discount received
at the time of paying dues to suppliers)
Sales goods to
customers
(1) Trade or accounts receivable Dr.
Sales revenue Cr. [with the selling price]
(2) Cost of goods sold Dr.
Merchandize inventory Cr. [with the costs of inventory]
Trade or accounts receivable Dr.
Sales revenue Cr.
Return from customers (1) Sales return (and allowance) Dr.
Trade receivable Cr.
(2) Merchandize inventory Dr.
Cost of goods sold Cr.
Sales return Dr.
Trade receivable Cr.
Grant allowance to
customer
Sales (return and) allowance Dr.
Trade receivable Cr.
Sales (return and) allowance Dr.
Trade receivable Cr.
Receive payments from
customer
Cash Dr.
Sales or cash discount Dr.
Trade or accounts receivable Cr.
Cash Dr.
Sales or cash discount Dr.
Trade or accounts receivable Cr.

6. For example, consider the following transactions:
Nasir Enterprise identified the following transactions for the month of April 2021.
• April 5: Purchase merchandise/goods for cash Tk 50,000 from X Ltd. FOB destination (Home delivery, freight
cost paid by seller), paid freight cost Tk 200 by the relevant party.
• April 6: Purchase merchandise/goods on account 80,000 from X Ltd, term 2/15, n/30, invoice no. 3890.
Paid freight cost Tk 500 by the relevant party, FOB shipping point.
• April 9: Returned goods to X LTD for Tk 4,000 and send a debit note.
• April 10: Sold merchandise on account for Tk 85,000 to Mr. Tarek, terms 1/15, n/EOM (cost of goods sold
70%). Paid freight cost Tk 2,000, FOB destination. [Freight out Dr. Cash Cr. Same for both method]
• April 12: Received return of damaged merchandise from Mr. Tarek Tk. 5,000.
• April 13: Grant allowance to Mr. Tarek for fully damaged goods Tk 2,000.
• April 14: Sold merchandise for cash Tk 100,000 to Mr. Kalam (cost of goods sold 70%). FOB shipping point,
paid freight Tk. 1,000 by relevant party.
• April 15 : Collect payments from Mr. Tarek in full and final settlement.
• April 18 : Paid X Ltd for goods purchased on April 6 in full and final settlement.
• April 28: Received cash in advance from Mr. Khan Tk 60,000 for merchandise to be delivered in the next
month.
Required:
Record the above transactions in a General Journal in the books of Nasir Enterprise under:
I. Perpetual inventory system
II. Periodic inventory system

7. Accounting for Manufacturing Business
Cost of goods sold statement
Titles Tk Tk
Direct materials used/consumed:
Beginning/opening Raw Materials
+ Net Purchase of RM during the year
- Ending/closing RM
Direct labor
Manufacturing/factory/works overhead:
Indirect materials
Indirect labor (supervisor, factory manger’s salary)
Other indirect factory expenses (such as utility, depreciation)
Manufacturing costs
+ Beginning work-in-process
- Ending/closing work-in-process
Cost of goods manufactured
+ Beginning finished goods
Cost of goods available for sale
-Ending finished goods
Cost of goods sold

8. Income Statement/Statement of Profit or Loss
/Statement of Comprehensive Income
• Single step: First, report all types of revenues at the top of the profit or loss
statement and sum up them in a single amount titled ‘total revenue’
irrespective of whether they arise from operating or non-operating activities.
Then, deduct all the expenses and losses regardless of whether they arise from
operating or non-operating activities.
• Multiple-step: Report gross revenue arises from main/major ongoing/central
operation and deduct direct costs/expenses [e.g., costs of goods sold in a
manufacturing or merchandizing entities, direct expense in a service
organizations]; the resulting figures is gross profit. Then deduct operating
expense [selling and administrative, and finance costs] from gross profit to find
out operating profit. From operating profit deduct or add non-operating or
infrequent gain or loss to derive net profit before tax. After deducting tax, we
will find profit after tax for the period. Then report extraordinary or other
comprehensive income or loss [exchange gain or loss, revaluation gain or loss,
change in accounting policies] to derive total comprehensive income.

9. Single-step Income Statement

10. Multiple step Income Statement

11. Equity transactions
• GP issued 1,000,000 shares @ Tk 70; face value Tk 10.
Bank Dr. 70,000,000
Share capital Cr. 10,000,000
Share premium (additional paid-in capital) Cr. 60,000,000
• GP reports its profit 100 million BDT during 2020.
Income summary Dr. 100
Retained earnings Cr. 100
• 20% of profit is declared or paid as dividend.
Retained earnings Dr.
Bank Cr.
• Bonus share/stock dividend 20% stock dividend is declared.
Retained earnings Dr.
Share capital Cr.

12. Types of share
• A company's capital is divided into small equal units of a finite
number. Each unit is known as a share. In simple terms, a share is a
percentage of ownership in a company or a financial asset. Investors
who hold shares of any company are known as shareholders. Note
that a lot of share that can be traded on a stock exchange is known as
stock.
• Shares can be broadly divided into two categories:
1. Preference share [get preference in receiving dividend payment, and in the
event of bankruptcy]
2. Ordinary equity share: they are entitled to enjoy/suffer residual profit or
loss.

13. Debentures
• Debenture
• Share vs. debenture
• Types of debenture
• Issue of debenture
• Redemption of debenture

14. Accounting for incomplete records
• Features of incomplete records
• Reasons for incompleteness
• Ascertainment of profit or loss from incomplete records
• Preparing statement of affairs from incomplete records
• Preparing profit and loss statement from incomplete records

32. Problems and sample answers on incomplete records
• Read the questions carefully
• Plan answers sequences
• Do relevant workings
• Prepare the required Financial Statements such as Statement of
Financial Position, Statement of Profit or Loss, and Statement of
Owner’s Equity or Statement of changes in equity.

50. Part D2: Preparation and Interpretation of Financial Statements
11.1 Introduction
11.2 Presentation of financial statements [IAS 1]
11.3 Statement of financial position
11.4 Income statement
11.5 Statement of changes in equity
11.6 Statement of cash flows
11.7 Basic financial ratios

51. IAS 1: Presentation of Financial Statements
Q1. What is about IAS 1/ Objective of IAS 1?
The objective of IAS 1 (2007) is to prescribe the basis for presentation of general
purpose financial statements, to ensure comparability both with the entity's
financial statements of previous periods and with the financial statements of other
entities. IAS 1 sets out the overall requirements for the presentation of financial
statements, guidelines for their structure and minimum requirements for their
content.

52. Q2. Objectives of financial statements:
The objective of general purpose 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.

53. Q3. Elements of Financial statements:
Financial statements provide information about an entity's:
i) Assets
ii) Liabilities
iii) Equity
iv) Income and expenses, including gains and losses
v) Contributions by and distributions to owners (in their capacity as owners)
vi) Cash flows.
• That information, along with other information in the notes, assists users of financial statements
in predicting the entity's future cash flows and, in particular, their timing and certainty.

54. Q4. Types or Components of financial statements:
• A complete set of financial statements includes:
i) a statement of financial position (balance sheet) at the end of the period
ii) a statement of profit or loss and other comprehensive income for the period (presented as a single
statement, or by presenting the profit or loss section in a separate statement of profit or loss,
immediately followed by a statement presenting comprehensive income beginning with profit or loss)
iii) a statement of changes in equity for the period
iv) a statement of cash flows for the period
v) notes, comprising a summary of significant accounting policies and other explanatory notes
vi) Comparative information prescribed by the standard.
• An entity may use titles for the statements other than those stated above. All financial statements are
required to be presented with equal prominence.

55. Q5. Underlying assumptions of financial statements
Going concern
The Conceptual Framework notes that financial statements are normally prepared
assuming the entity is a going concern and will continue in operation for the
foreseeable future.
Accrual basis of accounting
IAS 1 requires that an entity prepare its financial statements, except for cash flow
information, using the accrual basis of accounting. In accrual basis, an event or
transactions that can change the financial position of an entity are to be
recognized, recorded and reported regardless of whether cash is received or paid.

56. Q6. Other principles:
Consistency of presentation
The presentation and classification of items in the financial statements shall be retained from one period to the next unless a change is justified either by a change in
circumstances or a requirement of a new IFRS.
Materiality:
Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial
statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.
Each material class of similar items must be presented separately in the financial statements. Dissimilar items may be aggregated only if they are individually immaterial.
Offsetting
Assets and liabilities, and income and expenses, may not be offset unless required or permitted by an IFRS.
Comparative information
IAS 1 requires that comparative information to be disclosed in respect of the previous period for all amounts reported in the financial statements, both on the face of the
financial statements and in the notes, unless another Standard requires otherwise. Comparative information is provided for narrative and descriptive where it is relevant
to understanding the financial statements of the current period.
An entity is required to present at least two of each of the following primary financial statements:
i) Statement of financial position*
ii) Statement of profit or loss and other comprehensive income separate statements of profit or loss (where presented)
iii) Statement of cash flows
iv) Statement of changes in equity
v) Related notes for each of the above items.
* A third statement of financial position is required to be presented if the entity retrospectively applies an accounting policy, restates items, or reclassifies items, and
those adjustments had a material effect on the information in the statement of financial position at the beginning of the comparative period.

57. Q7. Structure of Statement of financial position (balance sheet)
• Current and non-current classification
An entity must normally present a classified statement of financial position, separating current and non-current assets
and liabilities, unless presentation based on liquidity provides information that is reliable. [IAS 1.60] In either case, if an
asset (liability) category combines amounts that will be received (settled) after 12 months with assets (liabilities) that
will be received (settled) within 12 months, note disclosure is required that separates the longer-term amounts from
the 12-month amounts. [IAS 1.61]
Current assets are assets that are: [IAS 1.66]
• expected to be realized in the entity's normal operating cycle held primarily for the purpose of trading expected to
be realized within 12 months after the reporting period cash and cash equivalents (unless restricted).
• All other assets are non-current. [IAS 1.66]
• Current liabilities are those: [IAS 1.69]
• expected to be settled within the entity's normal operating cycle held for purpose of trading due to be settled within
12 months for which the entity does not have the right at the end of the reporting period to defer settlement beyond
12 months.

58. Line items in the Statement of Financial Position
Property, plant and equipment
Investment property
Intangible assets
Financial assets (excluding amounts shown under (e), (h), and (i))
Investments accounted for using the equity method
Biological assets
Inventories
Trade and other receivables
Cash and cash equivalents
Assets held for sale
Trade and other payables
Provisions
Financial liabilities (excluding amounts shown under (k) and (l))
Current tax liabilities and current tax assets, as defined in IAS 12
Deferred tax liabilities and deferred tax assets, as defined in IAS 12
Liabilities included in disposal groups
Non-controlling interests, presented within equity
Issued capital and reserves attributable to owners of the parent.

59. Q7. Line items of statement of financial position (balance sheet)
ne items
The line items to be included on the face of the statement of financial position are: [IAS 1.54]
• Share capital and reserves:
Regarding issued share capital and reserves, the following disclosures
are required: [IAS 1.79]
Numbers of shares authorized, issued and fully paid, and issued but not
fully paid par value (or that shares do not have a par value)
A reconciliation of the number of shares outstanding at the beginning
and the end of the period description of rights, preferences, and
restrictions
Treasury shares, including shares held by subsidiaries and associates
shares reserved for issuance under options and contracts
A description of the nature and purpose of each reserve within equity.

60. Q8. Statement of profit or loss and other comprehensive income
• Comprehensive income for the period = Profit or loss + Other comprehensive income
• Examples of items recognized outside of profit or loss
 Changes in revaluation surplus where the revaluation method is used under IAS 16 Property, Plant and Equipment and
IAS 38 Intangible Assets
 Remeasurements of a net defined benefit liability or asset recognized in accordance with IAS 19 Employee Benefits
(2011)
 Exchange differences from translating functional currencies into presentation currency in accordance with IAS 21 The
Effects of Changes in Foreign Exchange Rates
 Gains and losses on remeasuring available-for-sale financial assets in accordance with IAS 39 Financial Instruments:
Recognition and Measurement
 The effective portion of gains and losses on hedging instruments in a cash flow hedge under IAS 39 or IFRS 9 Financial
Instruments
 Gains and losses on remeasuring an investment in equity instruments where the entity has elected to present them in
other comprehensive income in accordance with IFRS 9
 The effects of changes in the credit risk of a financial liability designated as at fair value through profit and loss under
IFRS 9.

61. Q9. Statement of changes in equity
• IAS 1 requires an entity to present a separate statement of changes in equity. The statement must show: [IAS 1.106]
• total comprehensive income for the period, showing separately amounts attributable to owners of the parent and to
non-controlling interests the effects of any retrospective application of accounting policies or restatements made in
accordance with IAS 8, separately for each component of other comprehensive income reconciliations between the
carrying amounts at the beginning and the end of the period for each component of equity, separately disclosing:
• profit or loss other comprehensive income* transactions with owners, showing separately contributions by and
distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control
• * An analysis of other comprehensive income by item is required to be presented either in the statement or in the
notes. [IAS 1.106A]
• The following amounts may also be presented on the face of the statement of changes in equity, or they may be
presented in the notes: [IAS 1.107]
• Amount of dividends recognized as distributions
• The related amount per share.

62. Q9. Statement of changes in equity
• IAS 1 requires an entity to present a separate statement of changes in equity. The statement must show: [IAS 1.106]
• total comprehensive income for the period, showing separately amounts attributable to owners of the parent and to
non-controlling interests the effects of any retrospective application of accounting policies or restatements made in
accordance with IAS 8, separately for each component of other comprehensive income reconciliations between the
carrying amounts at the beginning and the end of the period for each component of equity, separately disclosing:
• profit or loss other comprehensive income* transactions with owners, showing separately contributions by and
distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control
* An analysis of other comprehensive income by item is required to be presented either in the statement or in the
notes. [IAS 1.106A]
• The following amounts may also be presented on the face of the statement of changes in equity, or they may be
presented in the notes: [IAS 1.107]
• Amount of dividends recognized as distributions
• The related amount per share.

63. Q10. Notes to the financial statements
• The notes must: [IAS 1.112]
i) Present information about the basis of preparation of the financial statements and the specific accounting policies used
ii) Disclose any information required by IFRSs that is not presented elsewhere in the financial statements and provide
iii) Additional information that is not presented elsewhere in the financial statements but is relevant to an understanding of any
of them
• Notes are presented in a systematic manner and cross-referenced from the face of the financial statements to the relevant note.
• IAS 1.114 suggests that the notes should normally be presented in the following order:*
i) a statement of compliance with IFRSs a summary of significant accounting policies applied, including: the measurement basis
(or bases) used in preparing the financial statements
ii) the other accounting policies used that are relevant to an understanding of the financial
iii) statements supporting information for items presented on the face of the statement of financial position (balance sheet),
statement(s) of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows,
in the order in which each statement and each line item is presented other disclosures, including: contingent liabilities (see
IAS 37) and unrecognized contractual commitments non-financial disclosures, such as the entity's financial risk management
objectives and policies (see IFRS 7 Financial Instruments: Disclosures)

64. Judgments and key assumptions
• An entity must disclose, in the summary of significant accounting policies or other
notes, the judgments, apart from those involving estimations, that management
has made in the process of applying the entity's accounting policies that have the
most significant effect on the amounts recognized in the financial statements

65. Statement of Cash Flows
• IAS 7 — Statement of Cash Flows
• Overview
• IAS 7 Statement of Cash Flows requires an entity to present a statement of cash flows as an integral part of
its primary financial statements. Cash flows are classified and presented into operating activities (either using
the 'direct' or 'indirect' method), investing activities or financing activities, with the latter two categories
generally presented on a gross basis.
• Objective of IAS 7
• The objective of IAS 7 is to require the presentation of information about the historical changes in cash and
cash equivalents of an entity by means of a statement of cash flows, which classifies cash flows during the
period according to operating, investing, and financing activities.

66. Presentation of the Statement of Cash Flows
• Cash flows must be analyzed between operating, investing and financing activities. [IAS 7.10]
• Key principles specified by IAS 7 for the preparation of a statement of cash flows are as follows:
 operating activities are the main revenue-producing activities of the entity that are not investing or financing activities, so
operating cash flows include cash received from customers and cash paid to suppliers and employees [IAS 7.14]
 investing activities are the acquisition and disposal of long-term assets and other investments that are not considered to
be cash equivalents [IAS 7.6]
 financing activities are activities that alter the equity capital and borrowing structure of the entity [IAS 7.6]
 interest and dividends received and paid may be classified as operating, investing, or financing cash flows, provided that
they are classified consistently from period to period [IAS 7.31]
 cash flows arising from taxes on income are normally classified as operating, unless they can be specifically identified with
financing or investing activities [IAS 7.35]
• for operating cash flows, the direct method of presentation is encouraged, but the indirect method is acceptable [IAS 7.18]

67. Cash receipts from customers xx,xxx
Cash paid to suppliers xx,xxx
Cash paid to employees xx,xxx
Cash paid for other operating expenses xx,xxx
Interest paid xx,xxx
Income taxes paid xx,xxx
Net cash from operating activities xx,xxx
The direct method shows each major class of gross cash receipts and gross cash payments.
The operating cash flows section of the statement of cash flows under the direct method would appear
something like this:

68. The indirect method adjusts accrual basis net profit or loss for the effects of non-cash transactions. The operating cash
flows section of the statement of cash flows under the indirect method would appear something like this:
the exchange rate used for translation of transactions denominated in a foreign currency should be the rate in effect at
the date of the cash flows [IAS 7.25]
cash flows of foreign subsidiaries should be translated at the exchange rates prevailing when the cash flows took place
Profit before interest and income taxes xx,xxx
Add back depreciation xx,xxx
Add back impairment of assets xx,xxx
Increase in receivables xx,xxx
Decrease in inventories xx,xxx
Increase in trade payables xx,xxx
Interest expense xx,xxx
Less Interest accrued but not yet paid xx,xxx
Interest paid xx,xxx
Income taxes paid xx,xxx
Net cash from operating activities xx,xxx

69. Financial Statements Analysis and Interpretation
• Ratios denote relationship between different items/elements of
financial statements which indicates a specific aspect of financial
health [e.g., liquidity, solvency, profitability, assets management
efficiency] of an entity.
• Ratios can be grouped under several heads including:
1. Profitability ratio
2. Liquidity ratio
3. Solvency ratio
4. Assets management efficiency/turnover/activity ratio
5. Valuation ratio

70. Group of ratios Specific ratio
1. Profitability (Performance) ratio Gross profit margin = Gross profit/sales
Operating profit margin = Net operating profit/Sales *100
Net profit margin = Net profit tax/ sales revenue
Return of assets= net profit after tax/assets
Return on equity = net profit after tax /shareholders’ equity
Return on capital employed/Return on investment = Net operating profit / Average
operating assets [Capital employed= Shareholders’ equity + Long term loan]
2. Liquidity ratio Current ratio = Current Assets/Current Liabilities
Quick ratio = [Current assets – Inventories]/ Current liabilities
3. Solvency ratio Debt-equity ratio = Total liabilities/ total shareholders’ equity
Debt-assets ratio = Total liabilities / total assets
Finance cost coverage ratio = Profit before interest/interest expense
Financial leverage ratio
Fixed charge coverage
4. Asset management ratio/Activity/Efficiency ratio Inventory turnover = Cost of goods sold/ average inventory
Receivable turnover = Credit sales/ average receivable
Payables turnover = Credit purchase or cost of goods sold / average accounts payables
Working capital turnover = Sales revenue / average working capital
Fixed asset turnover = Sales / fixed assets
Asset turnover = Sales / Total assets = 5/1= 5 times
5. Valuation/Investors ratio Price/earnings (P/E) ratio = Market price per share / Earnings Per Share
Basic EPS = Earnings available for equity shareholders/ Number of ordinary shares
outstanding
Net asset value per share = Shareholders’ equity / Number of ordinary shares
outstanding
Dividend payout ratio = Dividend per share / Earnings per share

75. Interpretation of Ratios
• Interpretation on a specific ratio requires consideration of several
factors including:
oPrior periods ratio
oBenchmark set for the ratio
oIndustry average
oChanges in the internal and external contexts during the periods
oEconomic condition

76. XL Limited
Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 2020
Particulars Notes Amount in Taka
2019-2020 2018-2019
Net sales [Gross revenue – VAT] 1
Cost of goods sold 2
Gross profit 3
Operating expenses:
Distribution expense
Administrative expense
Finance cost
Total operating expense
Operating profit/ profit from operations
Other Income and loss/ non-operating income:
[Investment income, gain or loss on disposal of PPE]
Net profit before tax
Income tax
Net profit after tax
Other comprehensive income:
Exchange gain (loss)
Revaluation gain/loss
Change in accounting policy/methods
Total comprehensive income for the period
EPS

77. Components of owner’s/shareholders’ equity/capital
• For a sole proprietorship or partnership business owner’s (owners’)
equity comprises:
Amount in Tk
Beginning/ opening Capital
+/- Net profit (loss)
+ Additional investment
- Drawing
Ending/closing capital
EC= BC+P+AI-D
EC-BC-AI+D = P

78. Components of owner’s/shareholders’ equity/capital
• For a corporation (private or public limited company) shareholders’
equity comprises the following items:
1. Share capital [face value or par value of shares outstanding]
2. Share premium/additional paid in capital [issue price - face value]
3. Retained earnings/accumulated profit or loss [share or portion of profit not
distributed among the shareholders]
4. General reserve [profit transferred for unspecified purpose]
5. Revaluation reserve: excess of fair value over net book value of non-current
assets
6. Other reserves whether or not required by regulators [statutory reserve for
financial institutions]

79. A typical statement of changes in equity looks like as follows
Particulars Share capital Share
premium
Retained
earnings
Revaluation reserve General
reserve
Statutory
reserve
Total equity
Beginning balance
Net profit for the period ×
Other comprehensive
income (exchange gain)
New issue of share × ×
Cash Dividends (×)
Stock dividend × (×)
Ending balance
Statement of Changes in Equity

80. Statement of Financial Position/Balance Sheet
Particulars Tk Tk Tk
Assets
Non-current assets:
Property plant and equipment [Workings Note 3]
Investment property
Patent
Current Assets:
Inventories
Trade receivables
Cash (9,000+23,000+25,000)
Total assets
Equity and liabilities:
Equity:
Share capital
Share premium
Retained earnings
Total equity
Non-current liability :
Loan / Notes payable
Current liability :
Loan/Notes payable
Payable on machinery
Trade payable
Accruals
Interest accrued [80,000 × 12%= 9,600 -5,000]
Income tax payable
Total Equity and liabilities

81. Exercise 1. The following information has been extracted from the books of XL Ltd for the year ended 31 December, 2020:
Accounts Title Dr. (BDT) Cr. (BDT)
Administrative expenses 160,000
Interest paid/ Finance cost 5,000
Distribution costs 250,000
Share capital (Ordinary Tk 10/shares) 200,000
Dividends paid 6,000
Cash and cash equivalents 9,000
Land and Buildings (cost) 210,000
Accumulated depreciation (Building) 48,000
Plant and machinery (cost) 125,000
Accumulated depreciation (plant and machinery) 75,000
Accruals 90,000
Investment income (dividend or interest received) 10,000
Retained earnings 260,000
Trade receivables and payables 538,000 52,000
Investment property 125,000
Patent 75,000
Inventory as at 1.1.2020 140,000
Purchase 480,000
12% Loan 80,000
Exchange gain 8,000
Sales revenue ---------- 1,300,000
2,123,000 2,123,000

82. Additional information:
• Inventory at 31.12.2020 was valued at Tk 220,000.
• Buildings (cost Tk. 110,000) are depreciated on a straight-line basis
@ 5% and plant and machinery @ 20%.
• A piece of used machinery which had originally cost BDT 25,000 was sold during the year for Tk 23,000. Accumulated depreciation
of 5,000 had been charged on this machinery. The transaction has not been recorded in the books of accounts
• [Cash/Bank Dr. 23,000
• Accumulated Depreciation Dr. 5,000
• Plant and Machinery Cr. 25,000
• Gain on disposal Cr. 3,000]
• . Additionally, new machinery has been purchased on credit Tk 40,000 which has not been recorded yet.
• The depreciation charges for the year are to be apportioned as follows: cost of sales 60%, distribution costs 30%, and administrative
expenses 10%.
• Income tax for the year is estimated @ 25% on profit before tax.
• The company issued 1,000 new shares during the year @ Tk 25 per share (face value Tk 10) which has not yet been recorded.
• The loan is repayable in five installments starting on December 31, 2021.
Requirements: Produce the following financial statements as per IAS 1:
1. A statement of profit or loss and other comprehensive income for the period,
2. A statement of changes in equity for the period, and
3. A statement of financial position (Balance sheet) as at December 31, 2020. Show all workings clearly.

83. To prepare the statement of profit or loss, you have to do some workings first.
Working 1: Schedule of operating expenses
Particulars Cost of sales Administrative expense Distribution expense
Beginning inventory 140,000
Purchase 480,000
Ending inventory (220,000)
Administrative expense 160,000
Distribution expense 250,000
Depreciation on building 3,300 550 1,650
Depreciation on machinery 16,800 2,800 8,400
Total 420,100 163,350 260,050
Particulars Amount of depreciation Cost of sales
(60%)
Administrative
expense (10%)
Distribution
expense (30%)
Building (110,000×5%)=5,500 3,300 550 1,650
Machinery (125,000-25,000+40,000)×20%=28,000 16,800 2,800 8,400
Working 2: Calculation of Depreciation expense:

84. XL Limited
Statement of Profit or Loss & Other Comprehensive Income
For the year ended 31 December 2020
Particulars Tk Tk
Sales revenue 1,300,000
Cost of sales/cost of goods sold (Working Note 1) (420,100)
Gross profit 879,900
Operating expenses:
Distribution expense (Working Note 1) 260,050
Administrative expense (Working Note 1) 163,350
Total operating expense (423,400)
Net operating Income/ profit 4,56,500
Non-operating income/expense:
Investment income [Interest revenue, dividend received, rental
income]
10,000
Gain on disposal [23,000-(25,000-5,000)]= 3,000
Finance cost/Interest expense (paid 5,000 and the remaining left due) (80,000×12%) = (9,600)
Net profit before tax 459,900
Income tax (459,000×25%)= (114,975)
Net profit after tax 344,925
Other comprehensive income:
Exchange gain (loss) 8,000
Revaluation gain/loss
Change in accounting policy/methods
Total comprehensive income 352,925

85. XL Limited
Statement of Changes in Equity
For the year ended 31 December 2020
Particulars Share
capital
Share
premium
Retained
earnings
Revaluation
reserve
General
reserve
Statutory
reserve
Total
equity
Beginning balance 200,000 260,000 460,000
Net profit for the period 344,925 344,925
Other comprehensive
income (exchange gain)
8,000 8,000
New issue 10,000 15,000 25,000
Dividends paid (6,000) (6,000)
Ending balance 210,000 15,000 606,925 831,925

86. Working Note 3:
Property, plant and equipment schedule [also known as fixed assets schedule]
Land Building Plant and Machinery Total
Beginning balance (cost) 100,000 110,000 125,000 335,000
Addition [purchase] during the period 40,000 40,000
Disposal [sales] during the period (25,000) (25,000)
Ending balance (cost) 100,000 110,000 140,000 350,000
Accumulated Depreciation beginning
balance
48,000 75,000 123,000
Charged during the year 5,500 28,000 33,500
Disposal (5,000) (5,000)
Ending accumulated depreciation 53,500 98,000 151,500
Net book value of PPE 100,000 56,500 42,000 198,500

87. XL Limited
Statement of Financial Position
As at 31 December 2020
Particulars Tk Tk Tk
Assets
Non-current assets:
Property plant and equipment [Workings Note 3] 198,500
Investment property 125,000
Patent 75,000
398,500
Current Assets:
Inventories 220,000
Trade receivables 538,000
Cash (9,000+23,000+25,000) 57,000
815,000
Total assets 1,213,500
Equity and liabilities:
Equity:
Share capital 210,000
Share premium 15,000
Retained earnings 606,925
Total equity 831,925
Non-current liability :
Loan / Notes payable 64,000
Current liability :
Loan/Notes payable 16,000
Payable on machinery 40,000
Trade payable 52,000
Accruals 90,000
Interest accrued [80,000 × 12%= 9,600 -5,000] 4,600
Income tax payable 114,975
317,575
Total Equity and liabilities 1,213,500

113. All the Best!