Consolidated Financial Statements for Holding Companies—FR ...
Financial Statements of Limited Companies - Balance Sheet.
Transcript of Financial Statements of Limited Companies - Balance Sheet.
Financial Statements of Limited
Companies - Balance Sheet
Financial Statements of Limited
Companies - Balance Sheet
learning objectives
financial statements
the three key financial statements
the main elements of the balance sheet the main elements of the profit and loss account
the main elements of the cash flow statement
Session Summary (1) Session Summary (1)
a typical horizontal balance sheet format
capital and reserves or shareholders’ equity
liabilities
the relationship between risk and return assets
a vertical format balance sheet
valuation of assets
Session Summary (2) Session Summary (2)
explain the differences in accounting treatment of capital expenditure and revenue expenditure
identify the financial information shown in the financial statements of a company: balance sheet; profit and loss account; cash flow statement
construct simple financial statements
outline the structure of the balance sheet of a limited company
classify the broad balance sheet categories of shareholders equity; liabilities; assets
Learning Objectives (1) Learning Objectives (1)
outline the alternative balance sheet formats
prepare a balance sheet
evaluate some of the alternative methods of asset valuation
appreciate the limitations of the conventional balance sheet
Learning Objectives (2) Learning Objectives (2)
Capital Expenditure and Revenue Expenditure
Capital Expenditure and Revenue Expenditure
Revenue expenditure relates to expenditure on those items where the full benefit of making that expenditure is received within the current accounting period
Capital expenditure relates to the cost of acquiring, producing or enhancing fixed assets, the full benefit of which is received within future accounting periods
Limited companies are required to periodically prepare three main financial statements:
balance sheet
profit and loss account
cash flow statement
Financial Statements (1)
Financial Statements (1)
Financial statements are required for
the shareholders
the Registrar of Companies
and are also used by, for example
analysts
potential investors
customers
suppliers
Financial Statements (2)
Financial Statements (2)
The Three Key Financial Statements
The Three Key Financial Statements
The Main Elements of the Balance Sheet
The Main Elements of the Balance Sheet
The Main Elements of the Profit and Loss
Account
The Main Elements of the Profit and Loss
Account
The Main Elements of the Cash Flow
Statement
The Main Elements of the Cash Flow
Statement
A Typical Horizontal Balance Sheet Format
A Typical Horizontal Balance Sheet Format
capital
share premiums
retained earnings
Capital and Reserves or Shareholders’
Equity
Capital and Reserves or Shareholders’
Equity
current, or short-term, liabilities short-term financial debt trade creditors (or accounts payable) accruals long-term liabilities long-term financial debt long-term trade creditors (or accounts payable) provisions
Liabilities Liabilities
The Relationship Between Risk and
Return
The Relationship Between Risk and
Return
fixed assets tangible fixed assets intangible fixed assets financial assets current assets
Assets (1) Assets (1)
stocks debtors (or accounts receivable) cash prepayments
Assets (2) Assets (2)
A Vertical Format Balance Sheet (1)
A Vertical Format Balance Sheet (1)
fixed assets (FA) + current assets (CA)
– current liabilities (CL) – long-term liabilities (LTL)
=equity (E)
FA + (CA – CL) – LTL = E
A Vertical Format Balance Sheet (2)
A Vertical Format Balance Sheet (2)
valuation of items within the balance sheet is covered by the Companies Act 1985/1989, accounting concepts and standards
problems arise from differences in approach, and alternative methods used to value the different categories of assets and liabilities:
Valuation of Assets (1) Valuation of Assets (1)
fixed assets
brand names
goodwill
research and development costs
stocks
debtors
foreign currency transactions
There are limitations to the conventional balance sheet arising not only from the fact that it is an historical document, but from inconsistencies in its preparationdue to
differences between companies and industries
employment of various asset valuation methods
off-balance sheet financing
window dressing
Valuation of Assets (2) Valuation of Assets (2)