Chapter 3 - Published Financial Statements

Question 1

• Definition

Objective of Financial Statements

Answer 1

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

• To Provide Financial information about the reporting entity
• That is useful to investors/creditors/creditors
• To support in decision making about providing resources to the entity

Question 2

Items to be Displayed on the Statement of Profit Loss:

Answer 2

• Revenue
• Finance Costs
• Tax Expense
• Other Comprehensive Income for the Year
• Share of Profit/Loss of associates

= Total Comprehensive Income

Question 3

Expenses are to be analysed by:

Answer 3

FUNCTION:

• Cost of Sales
• Distribution Costs
• Admin Costs

NATURE:

• Raw Materials
• Employee Costs
• Depreciation

Nature suits Manufacturing Companies

Function suits trading Companies - E.g - Legal

Question 4

How Current Assets and Liabilities are Defined:

Answer 4

Current Assets are:

• Cash or Cash Equivalents
• Those to be realised, sold or used within the normal operating cycle
• Assets held for trading and expected to be realised within 12 Months

Current Liabilities are:

• Those expected to be settled in the normal operating cycle
• Liabilities held for trading and are expected to be realised within 12 Months
• Where the company doesn’t have the unconditional right to defer payment beyond 12 Months