Lecture-7

FINANCIAL STATEMENTS
ACC 306

Financial Statements
and Analysis

Dr. ARPIT SIDHU

(Ph.D, UGC-NET, HP-SET, MBA,
MCOM, BCOM)
Learning Outcomes:
To identify and construct financial
statements based on their
elements and interpret the
information accordingly
Corporate FINANCIAL STATEMENTS
STATEMENT OF PROFIT AND LOSS ACCOUNT
 STATEMENT OF PROFIT AND LOSS
ACCOUNT
The profit and loss (P&L) statement is a financial statement that
summarizes the
revenues,
costs, and
expenses
incurred during a specified period,
usually a fiscal quarter or year. 
Statement of Profit & Loss- HUL
 Few Important items of P&L Account

1. Operating Expenses/ Income

2. Non Operating Expenses/ Income
3. Exceptional Items
4. Employee Cost
5. Finance Cost
 Operating Expenses

Operating expenses are expenses a business incurs in order to keep it running or

costs incurred by a business for its operational activities.
• Operating expenses include:
• Payroll for staff (excluding labor for manufacturing)
• Insurance
• Employee benefit expenses
• License fees
• Rent
•  Depreciation
• Marketing
• Building maintenance and repairs
• Freight & Carriage
Cost of Material Consumed, Purchases & Change
in Inventory- HUL
Employee Benefit Expenses HUL
Depreciation and Amortisation Expenses HUL

HUL
Non Operating Expenses

A non-operating expense is one not related to a company’s day to day business operations or
manufacturing. They include costs for:
• Bank fees
• Lawsuit payments and associated fees
• Restructuring costs
• Interest
Finance Cost HUL
• Finance costs as “interest and other costs that an entity incurs in connection with the
borrowing of funds”. Finance costs are also known as “financing costs” and
“borrowing costs”
• Interest paid on term loans, bank overdraft, cash credit limit from banks and from others such
as public deposits, debentures, bonds stc.
Other Expenses- HUL
 POLL

Q. Tell the process of allocating the cost of intangible assets over its
estimated life?
(a) Amortization
(b) Provisions
(c) Depreciation
(d) Devaluation
Exceptional Items
 Exceptional Items Cont.
These are one-off events that either caused a great expense or a big bout of revenue.

For example, suppose a company sold off some of its machinery because it did not
use it anymore. This led to an income of Rs 1 crore – a big sum for a single
transaction.

This could easily boost the company’s profits in that particular quarter/year.
However, this is not likely to recur again. So, it is counted as an ‘Exceptional Item’.
Exceptional Items Reported By HUL
Operating Vs Non Operating Expenses
Operating Income

The operating income (also referred to as operating profit) is the basic or primary income that
a business derives solely from its core operations.
• Sale of merchandise by a merchant or retail company like Walmart
• Sale of various types of furniture by a furniture manufacturing company like IKEA Furniture
• Sale of all types of ready-to-wear cloth by a fashion retailer like Lilliput kidswear Ltd
• Medical services provided by a health expert or hospital like Fortis l Center
Revenue from Operations (Sales)- HUL
 Non Operating (Other) Income

The non-operating income (also referred to as non-operating profit) is the income

that a business earns from other than its primary business operations.
• Dividend income from other entities
• Interest on investment in other entities
• Rental income from a building, hall or another premises
Other Income - HUL
Operating Vs Non Operating Income
POLL

Interest earned on investments would appear in which section of a

retailer's multiple-step income statement?
A. Non-operating
B.  Operating
C.  Would Not Appear
Tell the category of items-Operating Expenses or
Income, Non Operating Expenses or Income.
A. Depreciation of equipment and building used in the manufacturing of
products
B. Payment of interest on corporate Debt
C. Extra ordinary costs of disposing of property or assets not related to
operations
D. A retail store invests $10,000 in the stock market, and in a one-month
period earns 5% in capital gains
Ans

A. Depreciation of equipment and building used in the manufacturing of

products = Operating Exp.
B. Payment of interest on corporate Debt = Non Operating Exp.
C. Extra ordinary costs of disposing of property or assets not related to
operations = Non Operating Exp.
D. A retail store invests $10,000 in the stock market, and in a one-month
period earns 5% in capital gains = Non Operating Income
STATEMENT OF CHANGES IN EQUITY
STATEMENT OF CHANGES IN
EQUITY
The statement of changes in equity is a reconciliation
of the beginning and ending balances in a company’s
equity during a reporting period.
It is not considered an essential part of the monthly
financial statements, and so is the most likely of all the
financial statements not to be issued.
STATEMENT OF CASH FLOWS
STATEMENT OF CASH FLOWS
• The statement of cash flows, or the cash flow statement, is a financial
statement that summarizes the Inflow and outflow a of cash from
three major activities
1) Operating
2) Investing
3) Financing
Doubt???