The preparation of financial statements

Question 1

General accounting concepts used in preparing financial statements

Accruals 
Going concern
Consistency 
Offsetting 
Materiality and aggregation

Answer 1

Accruals - income and expenses must be recognised in the period they relate to

Going concern - assumption the business will remain in business for the foreseeable future

Consistency - of presentation and classification year on year

Offsetting - elements should not be offset unless required or permitted by the relevant standard

Materiality and aggregation - each material class of similar items should be presented separately in the accounts

Question 2

Financial statements proforma

Answer 2

Assets:
Non current assets
Current assets
Total assets

Equity and liabilities:
Equity

Non-current liabilities

Current liabilities
Total equity and liabilities

Question 3

Income tax expense

Answer 3

Current tax - X
Under/overstatement of prior periods - X/(X)
Deferred tax - X
Total = sum of above

Estimate of current year tax bill
Dr (P&L) Tax expense
Cr (SFP) Tax liability

True-up
Same as above with adjusting figure

Payment
Dr (SFP) Tax liability
Cr Cash

Question 4

PPE in accounts

Answer 4

Shown in balance sheet as total carrying amount for all PPE assets and additions and depreciation