Conventions (Enforced)

1. Consistency: Financial statements can be compared only when the

accounting policies are followed consistently by the firm over the period.
However, changes can be made only in special circumstances.
2. Disclosure: This principle state that the financial statement should be
prepared in such a way that it fairly discloses all the material information to
the users, so as to help them in taking a rational decision.
3. Conservatism/Prudence: This convention states that the firm should not
anticipate incomes and gains, but provide for all expenses and losses.
 Characteristics of a financial statement

1. Relevant – capable of making a difference in the decisions made by

users>predictive value, confirmatory value or both.
2. Faithful representation (reliability) – complete, neutral and free from errors.

Enhancing characteristics-
1. Comparability-
2. Verifiability-
3. Understandability-
4. Timeliness-
 Session 1
Lone Pine Café

• 1 November 2005 – One year lease for Café
signed
• Partners - Mr. and Mrs. Henry Antoine and
Mrs. Sandra Landers
• But the Partnership was dissolved
• What happens after that…………………….
 Understanding information needs of
different types of business.
 Key Financial Statements and their
relationship for financial
Reporting
 Q&A
1. When was the partnership created?
 Q&A
2. What was the profit sharing ratio?
 Q&A
3. What was the rent of the café?
 Q&A
4. Why did the facility attract the partners?
 Q&A
5. How were the funds arranged?
 Q&A
6. Where were these used?
 Q&A
7. How much was the operating licence for?
 Q&A
8. How much was invested in the cash register?
 Q&A
9. How were the roles assigned?
 Q&A
10. What went missing?
 Q&A
11. When was the partnership dissolved
 Q&A
12. Who was hired?
13. What was the balance in the cash register?
14. What was the balance in the checking account on 30th
March 2006?
15. Who was Ski Instructors?
16. How much was owed to the suppliers?
17. How much was depreciation?
18. How much was F&B for?
19. Were partner salaries paid on time?
20. How much was Mr. Antoine’s clothing for?
21. How much loan was repaid?
22. What did Mr. Simpson suggest?
Concepts covered using the case
An introduction to -

A. Balance sheet
A statement showing assets and liabilities

B. Income statement
A statement showing incomes and expenses

C. Accounting Equation
A simple presentation of double entry using an
equation.

D. Accounting concepts and

conventions
Underlying concepts and assumptions on which financial
statements are prepared. .
 Case Questions

1. Prepare a balance sheet for the Lone Pine Café as of

November 2, 2005.
2. Prepare a balance sheet as of March 30, 2006.
3. Disregarding the martial complications, do you
suppose that the partners would have been able to
receive their proportional share of the equity
determined in Question 2 if the partnership was
dissolved on March 30, 2006? Why?