Presentation Of Financial Statements

Question 1

Purpose of FS

Answer 1

The objective of financial statements is to provide information about the financial position, performance and cash flows of an entity that’s is useful to a wide range of users in making economic decisions

Question 2

What’re financial statements?

Answer 2

-A statement of financial position (blanc sheets)
-A statement of profit and loss , other comprehensive income for the period (income statement)
-A statement of changes in equity
-A statement of cash flows
-Notes , comprising a summary of significant accounting policies and other explanatory information
- Comparative information in respect of the preceding period

Question 3

What do the financial statements show?

Answer 3

-Financial position (statement of financial position)
-Performance ( statement of profit and loss , other comprehensive income, changes in equity)
-Cash flows(statement of cash flows )

Question 4

How many format we use for detailing income and expenses?

Answer 4

Two

Question 5

Explain format 1?

Answer 5

Format one is vertical with costs analyzed according to function,for example cost of sales , distribution costs, administration expenses and other operating income or expense

Question 6

Explain format 2?

Answer 6

Format two is vertical with costs analyzed according to nature for example raw materials, employee benefits expenses , operating expenses and depreciation

Question 7

What’s cost of sales?

Answer 7

The direct cost attributable to the production of the goods or supply of services by an entity

Question 8

What may include cost of sales?

Answer 8

•Direct materials, direct labor , other external charges that comprise production costs from external sources
•Overheads : variable and fixed production overheads
•Depreciation and amortization: depreciation of non-current assets used in production
•Adjustments : opening and closing inventory
•Cost of sales : opening+purchase closings

Question 9

What’s distribution costs?

Answer 9

Costs incurred after the production of the finished article and up to and including transfer of the goods to the customer

Question 10

What’re the examples of distribution costs ?

Answer 10

•Warehousing Cost such as rent ,rates and wages
• Promotion costs such as advertising
•Selling costs such as sales staff salaries and commissions and cost of rent
•Transport cost for example gross wages and pension contributions of transport staff , vehicle costs such as running costs maintenance and depreciation

Question 11

What’re administrative expenses?

Answer 11

Costs of running the business that have not been classified as either cost of sales or distribution costs

Question 12

Examples of AE?

Answer 12

•Administration salaries
•Property costs , for example rent and rates
•Bad debts
•Professional fees

Question 13

What’re the operating incomes/expenses

Answer 13

Under this heading a company disclose material income or expenses derived from ordinary activities of the business that haven’t been included elsewhere

Question 14

What’re the examples of other operating income/expenses?

Answer 14

•Income derived from intangible assets (royalties , commissions)
•Income derived from third party use of property, plant and equipment that’s surplus to the current productive needs of the company
•Income received from employees (canteen , recreation fees)
•Payments for rights to use intangible assets not directly related to operations (licenses )

Question 15

Explain finance costs / income

Answer 15

•Represent interest payable/receivable on borrowings , and similar expenses .
•Are usually shown separately on the face of the profit and loss a/c

Question 16

What’s current tax?

Answer 16

•Usually an estimated figure
•Treated as an expense in profit and loss
•A current liability in the statement of financial position (credit)

Question 17

What other comprehensive income can include?

Answer 17

Revaluation gain/loss of non-current assets, financial instruments and employee benefits

Question 18

Talk about The statement of financial position (sofp old name is balance sheet)

Answer 18

Ias1 specifies which items are to be included on the face of the statement of financial position. It doesn’t prescribe the order and presentation that’s to be followed.In almost all cases , it would be appropriate to split items into current and non -current .

Question 19

Give some examples of items that has to be included on the face of the sfop

Answer 19

•Property , plant and equipment
•Inventories (or stocks is current assets)
•Trade and other payables

Question 20

What the statement of changes in equity will show?

Answer 20

•The brought forward (b/f) and carried forward (c/f)figures for all capital and reserve accounts
•Total comprehensive income and expense for the period , showing the total amounts attributable to equity holders
•The amounts of transactions with equity holders ,showing contributions by and distribution to equity holders separately

Question 21

What kind of qualitative information the investor needs in addition to the FS to make decisions?

Answer 21

•Segmental analysis
•The impact of changes on the operation (a breakdown of turnover , costs and profits for both new and discontinued operations)
•The existence of related parties

Question 22

What kind of qualitative narrative information the investor needs in addition to the FS to make decisions?

Answer 22

•Mandatory disclosures
•Chairman’s report
•Management commentary
•Director’s report
•Management commentary
•Directors’ report
•Best practice disclosures : Operating and financial review
•Business review in the director’s report
•Strategic Report