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Financial Accounting

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Financial Accounting (Mgt-101)
VU
Lesson-40
Financial Statements of Limited Companies
QUESTION
Following trial balance has been extracted from the books of Alpha Ltd. as on June 30, 2002.
You are required to prepare the profit and loss account for the year and the Balance Sheet as at June 30,
2002.
Alpha Limited
Trial Balance as at June 30, 2002
Title of Account
Dr. Rs.
Cr. Rs.
Paid up capital
175,000
10 % Debentures
75,000
Building at Cost
237,500
Equipment at Cost
20,000
Vehicles at Cost
43,000
Accumulated Dep. ­ Building
11,250
Equipment
6,000
Vehicles
12,900
Stock Opening Balance
56,725
Sales
245,500
Purchases
134,775
Carriage Inward
4,050
Salaries and Wages
23,100
Directors Remuneration
15,750
Vehicle Running Expenses
20,300
Insurance
7,325
Miscellaneous Expenses
1,400
Markup on Debentures
3,750
Debtors
46,525
Creditors
28,425
Bank
20,975
General Reserve
12,500
Share Premium Account
35,000
Interim Dividend Paid
8,750
Accumulated Profit and Loss account
42,350
TOTAL
643,925
643,925
Additional Information:
 Closing stock Rs. 68,050.
 Depreciation Building 5,000, Vehicles Rs 7,500, Equipment 3,000.
 Six months Debenture markup is to be accrued.
 10% final dividend is to be paid in addition to interim dividend.
 Transfer Rs. 5,000 to general reserve.
 Authorised share capital is Rs. 250,000 divided in to 25,000 shares of Rs. 10 each.
 Provision for Income Tax to be made Rs. 12,500.
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Financial Accounting (Mgt-101)
VU
BALANCE SHEET
Alpha Ltd.
Balance Sheet As At June 30, 2002
Particulars
Note
Amount Rs.
Fixed Assets at WDV
1
254,850
Current Assets
Debtors
46,525
Stock in Trade
68,050
Bank Balance
20,975
135,550
Current Liabilities
Creditors
28,425
Proposed Dividend
17,500
Debenture Markup Payable
3,750
Provision for Tax
12,500
62,175
Working Capital
73,375
Net Assets Employed
328,225
Financed By:
Authorized Capital
25,000 Shares of Rs. 10 each
250,000
Paid Up Capital
17,500 shares of Rs. 10 each
175,000
Share Premium
35,000
General Reserve (12,500 + 5,000 transferred from P & L)
17,500
Accumulated Profit and Loss Account
25,725
Share Holders' Equity
253,225
Debentures
75,000
Total
328,225
258
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Financial Accounting (Mgt-101)
VU
PROFIT & LOSS ACCOUNT
Alpha Ltd
Profit and Loss Account for the Year Ended June 30 2002
Particulars
Note
RS.
Sales
245,500
Less: Cost of Goods Sold
2
127,500
Gross Profit
118,000
Less: Administrative Expenses
Directors Remuneration
15,750
Salaries and Wages
23,100
Vehicle Running Expenses
20,300
Insurance
7,325
Depreciation
1
15,500
Miscellaneous Expenses
1,400
83,375
Operating Profit
34,625
Less: Debenture Markup
3
7,500
Net Profit Before Tax
27,125
Less: Provision for Tax
12,500
Net Profit after tax
14,625
Add: Accumulated Profit Brought Forward
42,350
56,975
Less: Appropriation
General Reserve
5,000
Interim dividend
8,750
Proposed Final Dividend (10% of 175,000)
17,500
31,250
Accumulated Profit Carried Forward
25,725
259
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Financial Accounting (Mgt-101)
VU
NOTE # 1
Fixed Assets at WDV
Particulars
Cost
Acc. Dep.
WDV
R
A
As At
For The  As At  As At
As At  Addition/  As At
T
1-7-01  Deletion  30-6-02
1-7-01
Year  30-6-02 30-6-02
E
Building
237,500
0
237,500
11,250
5,000
16,250 221,250
Equipment
20,000
0
20,000
6,000
3,000
9,000
11,000
Vehicles
43,000
0
43,000
12,900
7,500
20,400
22,600
TOTAL
300,500
0
300,500
30,150
15,500
45,650 254,850
NOTE # 2
Cost of Goods Sold
Opening Stock
56,725
Add: Purchases
134,775
Add: Carriage inward
4,050
(68,050)
Less: Closing Stock
127,500
NOTE # 3
Mark up on Debentures
Mark up given in trial
3,750
Add: Accrued Mark up for six months
(75,000 x 10% x 6/12)
3,750
Total Mark Up
7,500
STATEMENT OF CHANGES IN EQUITY
Statement of changes in equity shows movement in share holders' equity during the reported period.
Share holders equity includes:
o  Share Capital
o  Share Premium Reserve
o  General Reserve
o  Accumulated Profit & Loss Account
Reserves are of two types:
 Distributable Reserve
 Non Distributable Reserve
DISTRIBUTABLE RESERVE
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Financial Accounting (Mgt-101)
VU
Distributable reserves are those reserves which are distributable among the share holders of the company,
for Example, General Reserve, Accumulated Profit & loss etc.
NON DISTRIBUTABLE RESERVE
Non Distributable reserves are those reserves which are created for a specific purpose. These can not be
distributed among share holders. These can be utilized for that particular purpose, for which, these are
created. For example, Share Premium Reserve, Revaluation Reserve.
PROCEDURE FOR PREPARING STATEMENT OF CHANGE IN EQUITY
All the opening balances of share holders' equity are listed down first.
Movement during the year in share holders' equity is recorded.
After adding/reducing the share holders' equity, closing balances are calculated.
All information regarding share holders' equity is collected from balance sheet of the company.
According to International Accounting Standards, fixed assets revaluation reserve is included in the
statement of changes in equity. But The Companies Ordinance does not allow revaluation reserve to
become a part of statement of changes in equity. As Companies Ordinance prevails over
International Accounting Standards, so we do not show Revaluation reserve in the statement of
changes in equity.
STATEMENT OF CHANGE IN EQUITY
Alpha Ltd
Statement of Changes in Equity for Year Ended June 30, 2002
Share
Share
General
Profit &
Total
Capital
Premium
Reserve
Loss A/c
Account
Balance On Jun 30, 2001
175,000
35,000
12,500
42,350
264,850
Net Profit for the Period
14,625
14,625
Transfer to General Reserve
5,000
(5,000)
0
Dividend
(26,250)
(26,250)
Balance On June 30, 2002
175,000
35,000
17,500
25,725
253,225
NOTES TO THE ACCOUNTS
Notes to the accounts are explanatory notes on financial statements of the company. These include all the
information, from formation of company to the calculation of figures, arrived at, during the preparation of
financial statements.
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Financial Accounting (Mgt-101)
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Notes of Alpha Ltd. are as follows:
Company and Its operations
o  Company was formed in the year --------
o  The company trades in electronic consumer items.
Significant Accounting Policies
Historical Cost Convention
These accounts have been prepared under the historical cost convention.
o
Revenue Recognition
Sales are recorded on dispatch of goods to customers.
o
Fixed Assets
Fixed Assets are recorded at cost less accumulated depreciation.
o
Stock Valuation
Method of stock valuation is --------
o
Taxation
Provision for Taxation is calculated on the basis of -------
o
262
Table of Contents:
  1. Introduction to Financial Accounting
  2. Basic Concepts of Business: capital, profit, budget
  3. Cash Accounting and Accrual Accounting
  4. Business entity, Single and double entry book-keeping, Debit and Credit
  5. Rules of Debit and Credit for Assets, Liabilities, Income and Expenses
  6. flow of transactions, books of accounts, General Ledger balance
  7. Cash book and bank book, Accounting Period, Trial Balance and its limitations
  8. Profit & Loss account from trial balance, Receipt & Payment, Income & Expenditure and Profit & Loss account
  9. Assets and Liabilities, Balance Sheet from trial balance
  10. Sample Transactions of a Company
  11. Sample Accounts of a Company
  12. THE ACCOUNTING EQUATION
  13. types of vouchers, Carrying forward the balance of an account
  14. ILLUSTRATIONS: Ccarrying Forward of Balances
  15. Opening Stock, Closing Stock
  16. COST OF GOODS SOLD STATEMENT
  17. DEPRECIATION
  18. GROUPINGS OF FIXED ASSETS
  19. CAPITAL WORK IN PROGRESS 1
  20. CAPITAL WORK IN PROGRESS 2
  21. REVALUATION OF FIXED ASSETS
  22. Banking transactions, Bank reconciliation statements
  23. RECAP
  24. Accounting Examples with Solutions
  25. RECORDING OF PROVISION FOR BAD DEBTS
  26. SUBSIDIARY BOOKS
  27. A PERSON IS BOTH DEBTOR AND CREDITOR
  28. RECTIFICATION OF ERROR
  29. STANDARD FORMAT OF PROFIT & LOSS ACCOUNT
  30. STANDARD FORMAT OF BALANCE SHEET
  31. DIFFERENT BUSINESS ENTITIES: Commercial, Non-commercial organizations
  32. SOLE PROPRIETORSHIP
  33. Financial Statements Of Manufacturing Concern
  34. Financial Statements of Partnership firms
  35. INTEREST ON CAPITAL AND DRAWINGS
  36. DISADVANTAGES OF A PARTNERSHIP FIRM
  37. SHARE CAPITAL
  38. STATEMENT OF CHANGES IN EQUITY
  39. Financial Statements of Limited Companies
  40. Financial Statements of Limited Companies
  41. CASH FLOW STATEMENT 1
  42. CASH FLOW STATEMENT 2
  43. FINANCIAL STATEMENTS OF LISTED, QUOTED COMPANIES
  44. FINANCIAL STATEMENTS OF LISTED COMPANIES
  45. FINANCIAL STATEMENTS OF LISTED COMPANIES