Unit – 3

Presentation of financial statement

Meaning of financial statement or financial
report :
Financial statement is a formal record of the
financial activities of a business, person or other
entity.
Types of financial statement :
1.Statement of financial position (SOFP) or Balance
sheet : it is the report on company's asset, liabilities
and ownership equity at a given point of time.

2. Statement of comprehensive income (SOPL) : It is

a statement of profit and loss, reports on a company's
income, expenses and profit over a period of time.
3. Statement of changes in equity (SOCE) : It
explains the changes of company's equity throughout
the reporting period.

4. Statement of cash flows (SOCF) : It reports on a

company’s cash flow activities, particularly it’s
operating, investing and financing activities.
 Objectives of financial statement :
1.To determine the ability of business to generate cash,
the sources and uses of net cash.
2.To determine whether business has the capability to
pay back it's debts.
3.To derive financial ratios from the statement that
indicate the conditions of the business.
4.To investigate the details of certain business
transactions.
Particulars Note No. Amount

Equities and liabilities

1. Shareholders fund
a. Share capital
b. Reserve and surplus
c. Money received against share
Warrant
1. Share application money pending
allotment
2. Non current liabilities
a. Long term borrowing
b. Deferred tax liability (net)
c. Other long term liability
d. Long term provision
3. Current liability
a. Short term borrowing
b. Trade payable
c. Other current liability
d. Short term provision
Total equity and liability
Assets
1. Non current assets
a. Fixed assets
Tangible assets
Intangible assets
Capital work in progress
Intangible assets under development
a. Non current investment
b. Deferred tax assets (net)
c. Long term loans and advance
d. Other non current assets
1. Current assets
a. Current investment
b. Inventories or stock
c. Trade receivable
d. Cash and cash equivalents
e. Short term loans and advance
f. Other current assets
Total assets
Important terms :
1.Retention of profit or retained earnings : An
appropriation from distributable profit represent that
part of income (after dividend) which the management
keep for capital maintenance.
2.Liability : It is an obligation arising from a transaction or
other event mat has already occurred and mat involves
an entity in a profitable future transfer of cash, goods or
services.
3. Non current liabilities : provide financing on a long term
basis. Non current liabilities are not due for settlement
within 12 months after the reporting period
4. Reservess and surplus includes :
a.Capital reserve.
b.Capital resumption reserve.
c.Debenture resumption reserve.
d.Revaluation reserve.
e.Surplus.
f. Securities premium reserve.
5. Asset : Is any resource, tangible or intangible
controlled by an entity as a result of past
transactions or events from which huger
economic benefits are expected to flow to the
entity.
* Tangible assets include land , building,
property, plant and equipment, furniture, vehicle.
* Intangible assets include Goodwill, trademark,
computer software, patents, copyright.
6. Non current assets : It is a assets which are held
by a business not with the purpose to resell but are
held either as investment or to facilitate business
operations.
It includes investment in property, equity instrument,
preference share, government securities, investment
in mutual funds.
Inventories includes: Raw material, work in
progress, finished goods or stock, spates and
stores, loose tools.
 Statement of profit and loss :
1.Income : Income is investment in economic benefits
during the reporting period in the form of inflows or
enhancements of assets or decreases of liabilities that
results in increases in equity.
Income = Revenue – Expenses
2.Revenue : It means the amount which is result of
operation that is sale of goods or services. Revenue is gross
inflow of cash receivables or other consideration arising in
the course of ordinary activities of an Enterprise.
Ex : Receipts from sale of goods, rent, commission etc.
Revenue = Income + Expenses.
3.Cost of goods sold or cost of sales : Cost of sales
refers to direct cost attributable to the production of
goods or supply of services by an entity.
4.Distribution cost : Cost or expenses incurred in
moving goods from the point of production to the point
of consumption. It is also called as distribution
expenses.
Ex : Shipping cost, tools, warehouse fees etc.
5.Administration expenses : These are the expenses
that an organization incurred not directly tied to a
specific function such ad manufacturing or production
of sales . These expenses are related to the
organization as a whole.
Ex: Mobile and telephone services, power and water
charges, cost for internet etc.
6.Finance cost : It is the cost , interest and other
charges involved in the borrowing of money to build or
to purchase assets.
Ex: Interest payments, financing fees etc.
 Particular Note No. Amount

i)Revenue from operation / sales

1. Sale of product
2. Sale of services
3. Other operating revenue
Less: Excise duty
ii)Add: other income
1. Interest income
2. Dividend income
3. Net gain on sale of investment
4. Other non operating incomes
5. Discount received
Total income (i + ii)

iii) Expenses
1. Cost of material consumed
2. Purchase of stock in trade
3. Changes in inventories of finished
goods and stock in trade.
(Opening stock – Closing stock)
iv) Employees benefit expenses
1. Salaries and wages
2. Contribution to PF/ESI
3. Expenses on employee top option
scheme (ESOP)
4. Staff welfare expenses.

v) Finance cost
1. Interest expenses
2. Other borrowing cost
3. Applicable net gain / loss on foreign
exchange

vi) Depreciation and Amortization

expenses
1. Depreciation on land and building
2. Depreciation on furniture
3. Goodwill written off

vii) Other expenses

1. Consumption of stores and spare parts
3. Rent paid
4. Repair charges
5. Insurance expenses
6. Printing and Stationary
7. Bad debts
8. Preliminary expenses
9. Discount allowed
10. Miscellaneous expenses
Total
Total expenses (iii+iv+v+vi+vii)

Profit before tax (total income – total

expenses)
Less: income tax
a. Current tax
b. Deferred tax
Profit after tax
Profit attributable to
a. Controlling Interest
b. Non controlling interest