Interpretation Theory of Financial Statement

STATEMENT OF CASH FLOW

          CASH FLOW (Easy System)

Profit Before Tax  (PBIT)		xxxxxx
Add: Depreciation	xxxxx
Less: Profit on Disposal	(xxxxx)
Add: Loss On disposal	xxxxx
Less:Increase in Inventory	(xxxxx)
Add: Decrease in Inventory	xxxxx
Less: Increase in Receivable	(xxxxx)
Add.: Decrease in Receivable	xxxxx
Less: Decrease in Payable	(xxxxx)
Add: Increase In Payable	xxxxx
		xxxxx
Cash Flow from Operation		xxxxx
Less Interest Paid	(xxxxx)
Less Tax Paid	(xxxxx)
		xxxxx
Net Cash From Operating Exp.		xxxxx
Investing Activities
Less:         Purchase of non Current Asset		(xxxxx)
Add:         Sale of Non Current Asset		xxxxx
Add:          Dividend Received		xxxxx
Add.:         Interest Received		xxxxx
Financing Activities
Add: Issue of Share		xxxxx
Less: Repayment of Loan		(xxxxx)
Add: Loan From Others		xxxxx
Less: Dividend Pay/Interest Pay		(xxxxx)

Consolidated Financial Statements

The general principles involved in consolidated financial statements are:

1. A consolidated financial statement should essentially provide true and fair picture of financial condition and operating result of the business faction.

2. A consolidated financial statement needs to be prepared on the basis of legal-entity based financial statements of the parent company and its subsidiaries which belong to the business faction, and prepared in accordance with the GAAP.

3. A consolidated financial statement needs provide a clear vision about the financial info requisite for interested parties not to mislead their judgments about the business groups’ condition.

4. The procedures and policies used for preparing consolidated financial statements need to be applied ad infinitum and should not be changed without any reason.

Checklist for preparation of consolidated financial statements

1. Estimate group holdings and establish each entity’s status in the question.

2. Ascertain the fair value of acquired assets and calculate net assets of the subsidiary.

3. Estimate goodwill arising on acquisition.

4. Adjust for any intra-group activities.

5. Estimate the balance carried forward on consolidated retained earnings.

Few theory:

Consolidated Sales = Total Individuals Sales – Intra group Sale

Consolidated COGS = Total Cost – Intra group Sales + Unrealized profit

Consolidated COGS = Total Cost – (Intra group Sales - Unrealized profit)

Consolidated Profit = Total Individual Profit – Unrealized Profit

Consolidated  Receivable = Total receivable –Intra group Receivable

Consolidated  Payable = Total Payable –Intra group Payable

Closing Inventory increase profit will increase

If A parent company have  Only Associate company then it will not possible to create consolidated accounts.

Need at least on e subsidiary company.

Parents company of Associate company profits will show profit after tax in Associate will show profit before tax in consolidated accounts.

NCI = Fare value + Post acquisition profit – unrealized Profit as per percentage

If Parent Sold to Subsidiary Company and if any unrealized profit gain then the full amount of unrealized profit will be deduct from the group profit.

If Subsidiary Sold to Parent Company and if any unrealized profit gain then the percentage of unrealized profit  will deduct from the group profit. And Unrealized profit will deduct From NCI (as per percentage of NCI)

GoodWill= Trasfer share capital + NCI at the date of acquisition –Share capital-Retained earnings – Fair value of plant higher than carrying value

CALCULATION FORMAT

Consolidated SOCI

Description	P.Co.	S.Co.	Workings	Consolidated SOCI
Revenue Cost of Sales Gross Profit Administrative Expense Profit Before Taxation Income Tax Profit Attributable to Owners of P.Co of NCI Investment on Retained Earnings Group profit for the year Retained Earnings b/f Retained Earnings c/f

Goodwill Calculation

Consideration Transferred                                           ****

Add: Non Controlling Interest                                      ****

Total                                                                            ****

Less: Net Acquisition-date Faire Value

of identifiable assets acquired                         ****

Ordinary Share Capital                                                 ****

Share Premium                                                             ****

Retained earnings at acquisition                                   ****

Fair value adjustment at acquisition                 ****

                                                                                    ****

Goodwill                                                                      ****

NON CONTROLLING INTEREST CALCULATION

1.      NCI = Opening NCI + Year End retained Earning x % of NCI

(If Opening and Closing retained earning are  given separately)

2.      NCI = Opening NCI + (Closing Retained Earning – Opening Retained Earning) x % of NCI

3.      Cost of the Investment = Ordinary Share Value + Retained Earnings at acquisition + Profit as per percentage and proportionate time (month) + Goodwill

4.      Cost of the Investment = Ordinary Share Value + Retained Earnings at acquisition + Profit as per percentage and proportionate time (month) + Goodwill- Non controlling interest (if any)

Such as Parent company acquires Subsidiary company on 1^st October, 2012 and the year end is 31^st December,2012. So, Profit proportionate is 1^st October to 31^st December that means 3 months.

If profit is 80000 tk during the year then the cost of investment will be 80000 x 9/12 = 60,000 tk. which is the cost of investment.

5.      For Associate Company ,no legal form of Consolidated Income Statement and no need to prepare consolidated Income Statement.

6.      For Subsidiary Company Consolidated Income Statement is Required.

7.      If any parents comapny has no subsidiary company only associate company the no need to prepare consolidated income Statement. In this purpose SOFP Shows the Investment in Associate and the income will show in the SOCI, before tax.

8.      Mark Up 40% means When Sales 100 then CGS 125.

Ex. If sales 5000tk then CGS will be 5000x 100/125 = 40000

And Profit will be – 50,000 – 40000

If unrealised profit then how to calculate consolidated retained earning:

Condition : 100% Acquire

If Subsidiary company sold some goods to parents company but the goods still in inventory then the unsold goods profit will be deduct (as per parents company percentage ) from the retained earnings then added parents company retained earnings.

Condition : less than 100%  such as 60% Acquire

If the above condition is presence

1.      Calculate the intra group sales profit

2.      Calculate unsold/unrealized profit as per percentage

3.      Deduct the unrealised profit from the consolidated gross  profit

Example: On 1May 2008 Symphony Co. Acquired 60% of the share capital of Sprint for 1,20,000 $. During the year Symphony Co. sold goods to sprint Co for $30,000 including a profit margin of 25%. 40% of these goods were in inventory at the year end.

The following extract was taken from the financial statement of Symphony Co and Sprint company at 30^th April, 2009

                                                            Symphony                   Sprint

                                                            $000                            $000

Revenue                                              750                              400

Cost of sales                                        (420)                            (100)

Gross Profit                                         330                              300

What is the consolidated gross profit?

Step-1.

Intragroup sales: $30000 and Profit margin 25% then profit will be $7500 (30000 x 25%)

Step-2

 Unrealized profit will be 7500 x 40% = 3000.

Step-3

(330000 + 300000) – 3000 = $327000 

Chapter 14- Control Accounts

Control Accounts Error


                     1. Recording Error
                      2. Posting Error
                      3. Miscasting Error
                      4. Extraction Error

1. Recording Errors:
      Errors in recording or day books effect individual as well as Grand Total.
     · Over Recorded Opposite side of Original
     · Under Recorded Same side of Original

Error Identification:
In Day Books,
            · Not Entered
            · Omitted
            · Wrongly Entered
            · Not Recorded

2. Posting Errors:

            · Over Posted Opposite side of Original

            · Under Posted Same side of Original

Error Identification:

           · Not Posted

           · Wrongly Posted

           · Posted on wrong side of ledger a/c

3. Miscasting Errors:

            It’s a Total Error in accounts

            · Over Casted------ Opposite side of Original

            · Under Casted--------- Same side of Original

Error Identification:

            · Under Casted

            · Over Casted

            · Total wrongly casted

4. Extracting Errors:

             List of balances Balance of Personal Ledger

            · Over Extracted Opposite side of Original

            · Under Extracted Same side of Original

Error Identification:

List of balances

PASS RATES FOR PAPER F3

Dec 2007	67
Jun 2008	48
Dec 2008	50
Jun 2009	55
Dec 2009	59*
Jun 2010	60*
Dec 2010	60*
Jun 2011	55*
Dec 2011	54*
Jun 2012	57*

* Results achieved by students for paper-based examinations and computer-based examinations.

FFA or ACCA F3

Chapter 7

Sales Tax
Sales Tax is an indirect tax levied on the sale of goods and services. It is usually administered by the local tax authorities.

How is sales tax collected:

    - The manufacturer hands over to tax authorities
    - Wholesaler hands over to tax authorities
    - Retailer hands over to tax authorities.

There are two types of tax. Such as 1. Output Sales tax and 2. Input Sales Tax.

Output sales tax is known as Sales Tax. and Input tax known as purchase tax.

Purchase tax is recoverable from sales tax. And company should be tax registered.

Irrecoverable sales tax.:

There are some circumstances in which traders are not allowed to reclaim sales tax paid on their inputs. This is referred to as irrecoverable sales tax.

Accounting for sales tax.:

Sales tax charged on sales is collected by the business. If Sales is 600 and tax is 90 then Journal will be

Debit     Cash or Trade Receivable                                 690
Credit    Sales                                                                         600
Credit    Sales Tax control account (Output sales tax)                 90

If input sales tax is recoverable.

Debit  Purchase
Debit  Sales Tax control account (Output sales tax)
Credit  Cash or Payable

FA-2- Extended trial Balance

What is ETB?                                                  Click here for download

ETB stands for Extended Trial Balance. So The purpose of preparing extended trial balane is to make adjustments that had not been made when a normal trial balance was extracted. In other word to make adjustments that were omitted for the purpose of preparing an accurate final accounts and the balance sheet

Format of ETB



Some important tips:

Take the profit or loss for the year to the statement of financial position columns.

          Profit = Debit in income statement = Credit in Balance Sheet or Financial Statement

          Loss = Credit in income statement = Debit in Balance Sheet or Financial Statement

          Accruals = Liability = Credit

          

          Prepayment = Assets = Debit

         Closing Inventory will be an asset (DEBIT) in the Statement of Financial Position and will be      credited to cost of sales in the income statement.

Accumulated Depreciation 

Important to Know : 

              The Depreciation Charge is a Debit in the Income Statement and Accumulated  Depreciation is a Credit in the Statement of Financial Position.

If you purchased a new car for $50,000 and resold it three years later for $30,000, you would have experienced a $20,000 loss on the value of your asset. A business would write a portion of this loss of value off each year, even though it required no cash outlay, reducing reported profits.

The accounting entry has to be put somewhere on the financial statements. It is kept in a special type of account (known as a contra account) on the balance sheet known as accumulated depreciation. Frankly, you don't need to worry about that. You just need to know that your balance sheet is going to look like this:

Car Asset - $50,000 value

Accumulated Depreciation - Car - ($20,000 value)

Net Asset Value - Car: $30,000

As you can see, the purpose of the accumulated depreciation account is to reduce the carrying value of an assets to reflect the loss of value due to wear, tear, and usage. Companies purchase assets such as computers, copy machines, buildings, and furniture, all of which lose value each day. This depreciation loss must be accounted for in the company's financial statements in order to give shareholders the most accurate portrayal of the economic realty of the business.

If you have trouble understanding the concept of accumulated depreciation, think about the problem this way: If a company bought $100,000 worth of computers in 1989 and never recorded any depreciation expense, the balance sheet would still show an asset worth $100,000. Do you really think that computers that old, which wouldn't even run today's software, are worth anywhere near that amount? At most, you'd be lucky to get a few hundred dollars for scrap parts.

Accumulated Depreciation - Net

When you look at a balance sheet, you aren't going to see the individual assets and many businesses don't even bother to show you the accumulated depreciation account at all. Instead, they show a single line called "Property, Plant, and Equipment - net" it is referring to the fact that the company has deducted accumulated depreciation from the purchase price of the company's assets. 

(ref. about.com