This document provides information on financial statements including:
1) An income statement summarizes revenues, expenses, operating income, financing decisions, interest, taxes, and net income over a period of time.
2) A balance sheet demonstrates a business's financial position by showing assets, liabilities, and shareholders' equity on a specific date.
3) A cash flow statement presents cash flows from operating, investing and financing activities during a period. It reconciles net income to cash provided or used by those activities.
This document provides information on financial statements including:
1) An income statement summarizes revenues, expenses, operating income, financing decisions, interest, taxes, and net income over a period of time.
2) A balance sheet demonstrates a business's financial position by showing assets, liabilities, and shareholders' equity on a specific date.
3) A cash flow statement presents cash flows from operating, investing and financing activities during a period. It reconciles net income to cash provided or used by those activities.
This document provides information on financial statements including:
1) An income statement summarizes revenues, expenses, operating income, financing decisions, interest, taxes, and net income over a period of time.
2) A balance sheet demonstrates a business's financial position by showing assets, liabilities, and shareholders' equity on a specific date.
3) A cash flow statement presents cash flows from operating, investing and financing activities during a period. It reconciles net income to cash provided or used by those activities.
Financial Statement • According to the Financial Accounting Standards Board (FASB), the financial statements of a firm should provide sufficient information that is useful to – investors and – creditors – in making their investment and credit decisions in an informed way.
The financial statements are expected to be
prepared in accordance with a set of standards known as generally accepted accounting principles (GAAP). Financial Statement • Income Statement • Balance Sheet • Cash Flow Statement • Fund Flow Statement Income Statement An income statement is a summary of the revenues and expenses of a business over a period of time, usually either one month, three months, or one year. Summarizes the results of the firm’s operating and financing decisions during that time. Operating decisions of the company apply to production and marketing such as sales/revenues, cost of goods sold, administrative and general expenses (advertising, office salaries) Provides operating income/earnings before interest and taxes (EBIT) Contd.... Results of financing decisions are reflected in the remainder of the income statement. When interest expenses and taxes are subtracted from EBIT, the result is net income available to shareholders. Net income does not necessarily equal actual cash flow from operations and financing. The Balance Sheet • The balance sheet demonstrates the financial position of a business. The left side of balance sheet represents Liabilities and right side reflects Assets. • Liabilities are further divided into owners funds and external liabilities Income Statement Contd..... Income Statement Specimen AMOUNT Sales XXXX Less Cost of Goods sold XXXX Gross Profit XXXX Less Administrative Expenses and Selling and XXXX distribution Expenses EBIT or PBIT XXXX Less Interest XXXX EBT or PBT XXXX Less Tax XXXX EAT or PAT XXXX Less Preference dividend (If any) XXXX Profit available to Equity shareholders. XXXX Balance Sheet • It is one of the major financial statements which presents a company's financial position at the end of a specified date. Balance sheet has been described as a "snapshot" of the company's financial position at a moment for e.g. the amounts reported on a balance sheet dated March 31st, 2020 reflects that all the transactions throughout the year 3 have been recorded. • The balance sheet provides information related to the assets, liabilities and the shareholders’ equity of the company as on a specific date. • Total Assets = Total Liabilities + Share holders’ equity Share Capital • Authorised Capital or Registered Capital • Issued Capital • Subscribed Capital • Called Up Capital • Paid Up Capital Corporate Balance Sheet-Horizontal Contd.... Vertical Form of Balance Sheet Contd.... THE STATEMENT OF CASH FLOWS
• A cash flow statèrent présents information about the cash
flow associâ tes with the company’s main opérations and those associated with its investing and financing activities of the period. Current Liabilities • Current Liabilities are those Liabilities which are be paid into within time period of 12 months or accounting year whichever is earlier. • Examples : Creditors Bank Overdraft Bills Payable Short term Loans Others (Outstanding Expenses and incomes received in advance ) Current Assets • Current Assets are those assets which are converted into cash within time period of 12 months or accounting year whichever is earlier. • Examples : Cash in hand Cash at bank Bills Receivable Debtors Stock Short term Investments Others (Prepaid Expenses and Outstanding Incomes) Activities which can either generate cash or use cash for a business entity • A. Operating activities. • B. Investing activities. • C. Financing activities. Operating Activities
All these activities are reported in the I/S (income
statement). However, I/S only provides the accrual-basis net income (revenue –expense + gains – losses ) which very often is not the change in cash.
Therefore, we need to adjust from net income flows to cash
flows in order to report the net cash provided by (or used in) operating activities. Operating Activities
Net Profit XXXXX
Add Non Cash and Non operating expenses 1. Depreciation XXXXX 2. Goodwill written off XXXXX 3. Loss on sale of assets XXXXX 4. Discount on issue of shares XXXXX 5. Amount Transferred to GR XXXXX 6. Dividend Paid XXXXX 7. Other Non Cash and Non XXXXX operating expenses Less Non operating and non cash incomes Share Premium (XXXXX)
Profit on sale of assets (XXXXX)
Others (XXXXX) Add Increase in CL XXXXX Add Decrease in CA XXXXX Less Decrease in CL (XXXXX) Less Increase in CA (XXXXX) Net Cash generated or used from XXXXX operating activities B. Investing Activities • Investing activities relate to the acquisition and disposal of long-term tangible and intangible assets and other investments • Cash flows from investing activities are an indication of the expansion or downsizing of operating capacity • Examples: • Payments for newly acquired equipment • Receipts from the disposal of a building • Payments for new investments Cash Flows from Investing Activities Transactions involving acquiring (Investing (Cash outflows)) and selling (Disinvesting (Cash inflows)) : – a. Property, Plant and Equipment.
– b. Investments (current and non-current).
Investing Activities Sale of Fixed Assets Inflow Land and Building Inflow Plant and machinery Inflow Furniture Inflow Other Fixed assets Inflow Sale of Investment Inflow Purchase of Fixed Assets Land and Building Outflow Plant and machinery Outflow Furniture Outflow Other Fixed assets Outflow Investment purchased Outflow Net cash generated or Used from XXXXX Investing activities C. Financing Activities • Financing activities relate to changes in the size and composition of contributed capital and financial debt of the company • Examples: • Receipts from issuing new shares or bonds • Receipts from new bank loan • Payments for buy-back of shares • Repayments of loans • Payments of interest and dividend Q.1
Equity Share 14,80,000 14,90,000 Building 7,50,000 9,50,000 capital Profit and 2,50,000 4,00,000 Land 2,00,000 4,00,000 Loss Account Long Tem 3,00,000 2,50,000 Machnary 8,00,000 8,60,000 Debt Creditors 3,60,000 4,10,000 Stock 2,50,000 2,20,000 Bills Payble 3,00,000 Debtors 3,50,000 3,84,000 Cash 40,000 36,000
Total 23,90,000 28,50,000 23,90,000 28,50,000 Additional Information • Depreciation on Machinery Rs. 80,000 • Depreciation on Building Rs. 75,000 • Dividend Paid Rs. 1, 50,000 • You are required to prepare cash flow statememt and comment on the operating, investing and financial health of company. Operating Activities Rs. Rs. Net Profit 1,50,000 Add Non Cash Expenses and NOE Depreciation 1,55,000 Dividend paid 1,50,000 3,05,000 ADD Decrease in CA Stock 30,000 ADD Increase in CL Creditors 50,000 BP 3,00,000 Rs. Rs. LESS Increase in CA Debtors (34,000) LESS Decrease in CL 3.46,000 Net cash generated or 8,01,000 used Investing activities
Purchase of Building (275,000)
(950,000-675,000) Purchase of Land (2,00,000) Machinery (1,40,000) purchased 860,000-7,20,000 Net cash used in (6,15,000) investing activities Financing Activities Rs. Rs. Equity capital issued 10,000 Dividend Paid (150,000) Long term Debt paid (50,000) Cash used in (190,000) Financing Activities Cash Flow Statement Rs. Opening Balance of Cash 40,000 Cash generated from OA 8,01,000 Cash used in Investing activities (6,15,000) Cash used in Financing activities (1,90,000) Closing balance of cash 36,000 Question No. 2- Balance Sheet of Hind Limited Liabilities 01-04-2020 31-03- Assets 01-04-2020 31-03-2021 2021 (Rs) (Rs) (Rs) (Rs) Equity Share 35,00,000 42,00,000 Building 8,00,000 12,00,000 capital Profit and Loss 4,00,000 6,50,000 Land 20,00,000 31,40,000 Account General Reserve 2,00,000 3,50,000 Goodwill 4,00,000 3,00,000 Long Tem Debt 7,00,000 9,00,000 Machinery 18,00,000 12,00,000 Short term Loan 1,50,000 2,50,000 Furniture 2,00,000 5,00,000 Creditors 4,50,000 6,00,000 Stock 2,50,000 2,20,000 Bills Payble 4,00,000 3,00,000 Debtors 3,50,000 6,00,000 Rent Outstading 50,000 30,000 Cash 50,000 1,20,000 Total 58,50,000 72,80,000 Total 58,50,000 72,80,000 Additional Information • 1. Depreciate Building by 10% • 2. Depreciate Machinery by 20% • 3. Dividend Paid Rs. 2,00,000 • 4. Interest Paid on Long term loans Rs. 70,000 • You are required to prepare Cash flow Statement Operating activities Rs. Rs. 2,50,000 Add Non cash & Op Expenses Dep on Building 80,000 Dep on Mach 3,60,0000 Dividend paid 2,00,000 Interest on Loan 70,000 General Reserves 1,50,0000 Goodwill written off 1,00,0000 9,60,000 Rs. Rs. ADD Decrease in CA Stock 30,000 ADD Increase in CL: Short term loans 1,00,000 Creditors 1,50,000 LESS Increase in CA( Debtors) (2,50,000) LESS Decrease in CL Bills payable (1,00,000) Rent (20,000) (90,000) Cash flow from operating 11,20,000 activities INVESTING ACTIVITIES RS. 1 Purchase of building (4,80,000) 2 Land Purchased (11,40,000) 3 Sale of Machinery 2,40,000 4. Furniture Purchased (3,00,000) Cash Used in INVESTING ACTIVITIES (16,80,000) FINANCING ACTIVITIES Rs. 1. Equity share Capital Issued 7,00,000 2. Long term Debt Taken 2,00,000 3. Dividend paid (2,00,000) 4. Interest paid (70,000) Cash flow from financing activities 6,30,000 Cash Flow Statement Rs. 1 Opening balance of cash 50,000 2 Cash flow from operating activities 11,20,000 3 Cash Used in Investing activities (16,80,000) 4 Cash flow from financing activities 6, 30,000 Closing balance of cash 1,20,000