Upload
alokojjal-banerjee
View
223
Download
0
Embed Size (px)
Citation preview
8/13/2019 Reading Balance Sheet
1/36
INTRODUCTION
1
I. SET I. SOME ASPECTS OF ACCOUNTING
Estimated time: 10 minutes
Summary
There is no set of detaied !ues t"at is uni#e!sa$ a%!eed u&on fo! d!a'in%
up t"e finan(ia statements of a )usiness ente!&!ise. As a !esut* )aan(e s"eets
of different business enterprises (especially if t"e$ a!e f!om diffe!ent (ount!ies+
ma$ differ in detail from ea(" other. T"e )asi( &!in(i&es a!e a'a$s t"e same*however, and a )aan(e s"eets "a#e somet"in% in (ommon.
A((ountants d!a'in% u& )aan(e s"eets a!e sometimes !e,ui!ed to ma-e
ud%ements a)out moneta!$ #aues. T"e criteria t"e$ ("oose a!e im&o!tant*
)ut it is e#en mo!e #ita t"at t"e a((ountants s"oud )e consistent in usin%
t"em.
A((ountin% fi%u!es a!e not si%nifi(ant in t"emse#es. T"e$ a!e si%nifi(ant on$
'"en compared 'it" ot"e! simia! sets of fi%u!es. T"e si%nifi(an(e /o!mate!iait$+ of a((ountin% fi%u!es de&ends #e!$ mu(" on t"e date o! time
&e!iod to '"i(" t"e$ !efe!.
8/13/2019 Reading Balance Sheet
2/36
\ ANS3ER
Introduction
I. SET 4. 35AT IS A 6A7ANCE S5EET8
Estimated time: 19 minutes
Summa!$
A )aan(e s"eet is a statement of t"ose assets and ia)iities of a )usiness
ente!&!ise t"at (an )e %i#en a #aue in te!ms of mone$ it s"o's )ot" t"e
assets and "o' t"e assets a!e finan(ed t"e fi%u!es a!e estimates* not s(ientifi(
fa(ts.
T"e ia)iities indi(ate '"at mone$ "as )een made a#aia)e to t"e ente!&!ise*
and f!om '"e!e.
T"e assets s"o' "o' t"e ente!&!ise "as used t"e mone$ made a#aia)e to it.
Tota assets must a'a$s e,ua tota ia)iities to (!edito!s and s"a!e"ode!s.
E#e!$ )aan(e s"eet must in(ude t"e name of t"e ente!&!ise and t"e date
to '"i(" t"e fi%u!es in t"e )aan(e s"eet !efe!.
T"e )aan(e s"eet is one of t"e finan(ia statements of a (om&an$ and needs
to )e su&&o!ted )$:
/a+ t"e &!ofit and oss a((ount /in(ome statement+
/)+ t"e sou!(es and uses of funds statement ;funds fo' statement+
8/13/2019 Reading Balance Sheet
3/36
T5E IN. T?PES OF ASSETS AND T5EIR 7I@UIDIT?
Estimated time: 49 minutes
Summa!$
T"e assets of a )usiness ente!&!ise a!e usua$ isted on a )aan(e s"eet in
t'o main %!ou&s: fied and (u!!ent.
Fied assets a!e a(,ui!ed fo! on%=te!m use in t"e ente!&!ise* do not #a!$ %!eat$
f!om da$ to da$* and a!e on$ inf!e,uent$ (on#e!ted into (as" du!in% t"e
ife of t"e ente!&!ise.
Cu!!ent assets %ene!a$ in(ude (as"* a((ounts !e(ei#a)e and in#ento!ies
t"at 'i )e (on#e!ted into (as" du!in% t"e o&e!atin% ($(e of t"e )usiness
t"e$ a!e i-e$ to #a!$ (ontinua$.
T"e!e is aso a t"i!d %!ou& of assets (assified as in#estments '"i(" a&=
&ea! in t"e )aan(e s"eet ot Indian Com&anies in te!ms of S("edue
8/13/2019 Reading Balance Sheet
4/36
TABLE O ASSETS L!STE" S#$E%AT!#ALL&
Fied assets
/east i,uid+
7and
6uidin%s
Pant and ma("ine!$
Fitu!es and fittin%s
Moto! #e"i(es
Cu!!ent assets =
@ui(- assets
/most i,uid+
Cas" in )an-s
Cas" in "and
Ma!-eta)e se(u!ities /in#estmentsB
A((ounts !e(ei#a)e /o! de)to!s o!
(ustome!s a((ounts+ De&osits
Em&o$ee a((ounts /ad#an(es to
em&o$ees+
Ot"e! a((ounts outstandin% P!e&aid
e&enses /!ent &aid in ad#an(e* et(.+
In#ento!ies
/o! sto(-s+
Finis"ed &!odu(ts
3o!- in &!o%!ess /semi=finis"ed
&!odu(ts+
Ra' mate!ias
8/13/2019 Reading Balance Sheet
5/36
The investment side of the behnce sheetassets
4. SET .
8/13/2019 Reading Balance Sheet
6/36
at (ost
o!
(u!!ent
ma!-et
#aue*
'"i("e#e!
is t"e
o'e!
at (ost o!#auation
at (ost ess
de&!e(iation
25
8/13/2019 Reading Balance Sheet
7/36
T5E FUNDING SIDE OF T5E >
6A7ANCE S5EET=7IA6I7ITIES
>. SET 9. CURRENT 7IA6I7ITIES AND FIED
7IA6I7ITIES
Estimated time: 40 minutes
Summa!$
A (om&an$s ia)iities a!e usua$ isted on a )aan(e s"eet in t"!ee main
%!ou&s: (u!!ent ia)iities fied ia)iities and s"a!e"ode!s funds /o! o'ne!s
e,uit$.
T"e s"a!e"ode!s a!e t"e o'ne!s of t"e (om&an$. On t"e )aan(e s"eet t"e
funds t"e$ &!o#ide a!e s"o'n se&a!ate$ f!om t"ose of outside!s '"o "a#eoaned mone$ to t"e (om&an$.
Cu!!ent and fied ia)iities a!e to%et"e! !efe!!ed to as outside ia)iities.
Fied ia)iities !e&!esent t"e (om&an$s on%=te!m finan(e* and in(ude items
on '"i(" inte!est is &a$a)e* su(" as on%=te!m oans f!om finan(ia
institutions.
Cu!!ent ia)iities !e&!esent t"e (om&an$s s"o!t=te!m finan(e* and in(ude
items i-e s"o!t=te!m oans* )an- o#e!d!afts and t!ade a((ounts &a$a)e /t!ade(!edito!s+.
Inte!est a'a$s "as to )e &aid on )an- oans )ut most ot"e! (u!!ent ia)iities
8/13/2019 Reading Balance Sheet
8/36
%o* to read a ba+ance sheet
IMPORTANT NOTE
T"e )aan(e s"eet !e(o!ds actua+ ia)iities not finan(ia (ommitments.
T"us* if a (om&an$ "as ente!ed a (ont!a(t fo! &u!("ases o#e! ten $ea!s
t"is finan(ia fa(t 'i not a&&ea! on t"e )aan(e s"eet. 5o'e#e!* t"e
(ommitment s"oud )e !e#eaed in t"e notes to t"e finan(ia statements.
8/13/2019 Reading Balance Sheet
9/36
The fundin, side of the ba+ance sheet+iabi+ities
>. SET . S5ARE5O7DERS FUNDS
Estimated time : 19 minutes
Summa!$
3"en a (om&an$ is fo!med* it needs mone$ to (a!!$ on its a(ti#ities a %ood
dea of t"is mone$ usua$ (omes f!om t"e s"a!e"ode!s* '"o )u$ s"a!es in
t"e (om&an$.
T"e mone$ '"i(" t"e s"a!e"ode!s &ut into t"e (om&an$ in t"is 'a$ is des(!i)=
ed on t"e )aan(e s"eet as t"e (a&ita issued and su)s(!i)ed.
In !etu!n* at t"e dis(!etion of t"e di!e(to!s* t"e (om&an$ ma-es &a$ments
to s"a!e"ode!s /&a$s di#idends+ out of t"e &!ofits made )$ t"e (om&an$
I n addition to t"e (a&ita su)s(!i)ed* s"a!e"ode!s funds aso in(ude (a&ita
!ese!#e and !e#enue !ese!#e* '"i(" !e&!esent &!ofits !etained in t"e )usiness
and not &aid to s"a!e"ode!s. /Ca&ita !ese!#e and !e#enue !ese!#e 'i )e
(onside!ed in mo!e detai in t"e net set.+
8/13/2019 Reading Balance Sheet
10/36
%o* to read a ba+ance sheet
>. SET 2. CAPITA7 RESER
8/13/2019 Reading Balance Sheet
11/36
T5E O0 minutes
Summa!$
To unde!stand t"e finan(ia st!u(tu!e of a (om&an$* it is im&o!tant to -no'
t"e 'a$ in '"i(" t"e assets eu!!ent and fied+ a!e finan(ed )$ t"e
s"a!e"ode!s funds and t"e outside ia)iities.
6$ (om&a!in% t"e )aan(e s"eet fi%u!es fo! #a!ious %!ou&s of assets and
ia)iities 'e (an dete!mine '"et"e! o! not t"e (om&an$ is so#ent and
i,uid.
T"e ente!&!ise is so#ent if assets a!e %!eate! t"an outside ia)iities. It is i,uid
if it (an meet its (u!!ent ia)iities out of (u!!ent assets. Cu!!ent assets ess
(u!!ent ia)iities is -no'n as net 'o!-in% (a&ita.
Gea!in% !efe!s to t"e !atio of s"a!e"ode!s funds to )o!!o'ed mone$ /oan(a&itaB. Gea!in% of 1 is +o* )e(ause fou!=fift"s /J0 &e! (ent+ of t"e assets
a!e finan(ed )$ s"a!e"ode!s funds and on$ one=fift" /40 &e! (ent+ )$
)o!!o'ed mone$. 6$ (ont!ast a !atio of 1: is hi,h %ea!in% /"i%" )o!!o'in%+.
8/13/2019 Reading Balance Sheet
12/36
. SET K. SOURCES AND USES OF FUNDS
Estimated time: 40 minutes
!%'OTA)T )OTE
The sources and uses of funds statement !e#eas t"e -e$ finan(ia mana%ement
de(isions for t"e a((ountin% &e!iod.
Summa!$
T"e sou!(es and uses of funds statement is de#eo&ed )$ (om&a!in% t"ecurrent )aan(e s"eet 'it" t"at of t"e &!e#ious &e!iod and usin% some ot"e!data.
T"e sou!(es and uses of funds statement s"o's t"e ("an%es t"at "a#e ta-en&a(e in t"e &e!iod )et'een t"e t'o )aan(e s"eets in te!ms of ne' funds
a#aia)e to t"e )usiness and "o' t"e$ "a#e )een used it s"o's '"e!e ne'mone$ "as (ome f!om /sou!(es+ and "o' it "as )een used /uses+.
Sou!(es of ne' funds ma$ )e an$ of t"e foo'in%:
L net &!ofit /afte! de&!e(iation+
L de&!e(iation
L ne' s"a!e (a&ita issued and su)s(!i)ed
L sae of fied assets
L ne' oans.
De&!e(iation is not ea(t$ a sou!(e of ne' funds )ut it !edu(es t"e net &!ofit
fo! t"e &e!iod. Sin(e no mone$ fo! de&!e(iation a(tua$ ea#es t"e )usiness*t"e sou!(es of funds is net &!ofit )efo!e de&!e(iation* '"i(" is t"e same as
net &!ofit afte! de&!e(iation* &us de&!e(iation.
T"e uses of funds ma$ )e an$ of t"e foo'in%:
L &a$ment of di#idends
L &u!("ase of fied assets
L !e&a$ment of oans o! (a&ita
L in(!ease in net 'o!-in% (a&ita.
Sou!(es of funds a'a$s e,ua uses. An$ funds not used fo! t"e s&e(ia&u!&oses a)o#e !esut in ("an%es in net 'o!-in% (a&ita /(u!!ent assets ess(u!!ent ia)iitiesB.
/1
8/13/2019 Reading Balance Sheet
13/36
PANE7 E
$O*SE$OL" *TE)S!LS LT".0a+ance sheet at 1 'ecember 12//
A!T 1 'ec312/.
1 'ec312/4
$s3 $s3
Fied assets
Good'i* at (ost
7and* at (ost6uidin%s* at (ost
Pant* ma("ine!$* et(.* at (ost
Manufa(tu!in% toos* at (ost
T!ans&o!t* at (ost
Fu!nitu!e and fittin%s* at (ost
Less6 de&!e(iation /e(udin% %ood'i+
Tota fied assets
Investments
Ma!-eta)e se(u!ities /ma!-et #aue 4*110+
7urrent assets
In#ento!ies /at (ost o! ma!-et #aue* '"i("e#e! ist"e o'e!+: Finis"ed &!odu(ts 3o!- in &!o%!essRa' mate!ias Ot"e! su&&ies
A((ounts !e(ei#a)e
De&osits
1*000 1*000
1*00 1*0011*000 11*000
9*>00 *000
>*900 *400
1*400 1*400
4*400 4*400
49*J00 42*400
*00 2*440
41*400 1K*KJ0
8198:: 1K*KJ0
4*000
4K*900
1*400
90*00000
4J*4001*J00
9*0001*000
J1*>00 J1*>00 J2*000 J2*000
8/13/2019 Reading Balance Sheet
14/36
PANE7S
STEEL 'O"*#TS LT".
0a+ance sheet at 1 'ecember 12// 1
'ec3 12/.
A!T
$s3
Fied assets
Patent !i%"ts* at (ost
F!ee"od and and )uidin%s* at (ost
Pant* ma("ine!$ and e,ui&ment* at (ost
Less6 de&!e(iation
Tota fied assets Investments
Ma!-eta)e se(u!ities* at (ost: /ma!-et #aue at >1 De(. J2: 290+
/ma!-et #aue at >1 De(. JJ: 190+
7urrent assets
In#ento!ies /at (ost o! ma!-et #aue* '"i("e#e! is t"e o'e!+:
Ra' mate!ias and su&&ies 3o!- in &!o%!ess Finis"ed
&!odu(ts
Custome!s a((ounts /ao'an(e "as )een
made fo! dou)tfu de)ts+ Ad#an(es to em&o$ees Ad#an(e in(ome
ta Ot"e! !e(ei#a)es and &!e&aid e&enses
Cas" in )an-s and in "and Totaf (u!!ent assets Tota
assets
8,553 7,967
36,852 31,728
45,405 39,695
14,920 13,233
30,485 26,462
84,160 10,520
81,000 60,002
8,000 6,000
2,810 3,755
2,000 1,807
890 890
178,860 82,974
5,400 7,675
1,767 1,437
4,625 5,052
120 109
80 350
906 75
10,791 9,263
191 190
22,774 23,617
1 'ec3 12//
$s3
0 0
30,925 26,902
J>9
110
11*2K4 1*1
J*24K
54,534 50,629
K*J9
8/13/2019 Reading Balance Sheet
15/36
LIA0ILITI!
$s3
$s3
hareho+ders; funds
Ca&ita aut"o!ised 400*000
Ca&ita issued and su)s(!i)ed in o!dina!$
s
"
a
!
e
s
o
f
R
s
.
1
0
e
a
(
"
C
a
&
i
t
a
!
e
s
e
!
#
e
Re#enue !ese!#e
Tota s"a!e"ode!s funds
Fied +iabi+ities
7oan f!om finan(ia institution at 10 &e! (ent
!e&a$a)e 4001 /se(u!ed on &ants
and ma("ine!$+ De)entu!es at K &e! (ent*
!e&a$a)e 1KK9
/se(u!ed on t"e !ea estate+
Tota fied ia)iities
Tota outside ia)iities
7urrent +iabi+ities
6an- o#e!d!aft T!ade a((ounts
&a$a)e Ot"e! a((ounts &a$a)e
P!o#ision fo! taation P!o#ision fo!
a((!ued e&enses Inte!est due on
fied ia)iitiesTota (u!!ent ia)iities
Tota ia)iities
1 'ec3 12/. 1 'ec3 12//
100,000
8,440
11,300
120,000
8,440
17,566
119,740 146,006
50,000
8,00
50,00
0
58,000 58,000
236,860 140,974356,600 286,980
8/13/2019 Reading Balance Sheet
16/36
LIA0ILITI! 31 Dec.
1987
31 Dec.
1988
$s3 Rs.
hareho+ders; funds
Ca&ita aut"o!ised K*000 Ca&ita
issued and su)s(!i)ed in o!dina!$
s"a!es of Re. 1 ea(" Ca&ita
!ese!#e Re#enue !ese!#e
Tota s"a!e"ode!s funds
Fied +iabi+ities
7,873 8,000
14,393 13,856
3,294 5,399
25,560 27,255
Go#e!nment oan se(u!ed on a+t
(u!!ent and fied assets at 9 &e! (ent
&e! (ent de)entu!es 1KJ9K0
Tota fied ia)iities
7urrent +iabi+ities
6an- o#e!d!aft T!ade a((ounts &a$a)e
Ot"e! a((ounts &a$a)e P!o#ision fo!
taation P!o#ision fo! a((!ued
e&enses Inte!est due on fied ia)iities
Tota (u!!ent ia)iities
Tota ia)iities
9,500
3,500
1>*000
6,832 4,858
7,179 7,810
1,127 962
93 628
400 386
343 230
15,974 14,874
50,62954,534
J*900
5,000
3,50
8/13/2019 Reading Balance Sheet
17/36
MEASURING SO7
8/13/2019 Reading Balance Sheet
18/36
Measuring solvency and tiqukOty
9. SET 11. 7I@UIDIT?
Estimated time: 40 minutes
Summa!$
T"e (u!!ent !atio and t"e ,ui(- !atio a!e t'o measu!es of i,uidit$:
(u!!ent !atio (u!!ent assets : (u!!ent ia)iities
,ui(- !atio ,ui(- assets : (u!!ent ia)iities
T"e (u!!ent !atio measu!es %ene!a i,uidit$ )ut t"e ,ui(- !atio measures
immediate i,uidit$.
If t"e (u!!ent !atio is o'e! t"an 1:1 /e.%. 0.9: 1* '"i(" (an aso )e e&!essed
as 1:4+* (u!!ent ia)iities e(eed (u!!ent assets. T"is %ene!a$ s"o's t"at
t"e!e is a "i%" finan(ia !is- )e(ause* in )usiness* (as" is mo!e im&o!tant
t"an &!ofit.
If t"e (u!!ent !atio is too "i%" /&e!"a&s >:1 o! mo!e+ t"is ma$ mean t"at t"e
(om&an$ "as mo!e mone$ t"an it (an effi(ient$ use. T"e!e is no "a!d and
fast !ue a)out a !atio )ein% too "i%"* )ut '"en it !ises (ontinua$ o#e! time
t"e situation s"oud )e eamined.
It s"oud )e !emem)e!ed t"at* '"en (a(uatin% (u!!ent !atio* (u!!ent assets
s"oud )e ta-en as in(usi#e ot ma!-eta)e se(u!ities
8/13/2019 Reading Balance Sheet
19/36
PROFITA6I7IT?
. SET 14. T5E PROFIT AND 7OSS ACCOUNT
Estimated time: 40 minutes
Summa!$
A )aan(e s"eet s"o's assets and "o' t"e$ a!e finan(ed at a &a!ti(ua! date
it needs to )e su&&emented )$ a do(ument s"o'in% a(ti#it$: saes* (osts*
&!ofit o! oss made du!in% t"e finan(ia $ea! to t"e date of t"e )aan(e s"eet.
Su(" a do(ument* '"i(" is usua$ atta("ed to t"e )aan(e s"eet* is -no'n
as a &!ofit and oss a((ount fo! in(ome statement+.
Fou! diffe!ent t$&es of &!ofit a!e %i#en in t"e &!ofit and oss a((ount: %!oss
&!ofit* o&e!atin% &!ofit* &!ofit )efo!e ta* and net &!ofit afte! ta.
A (om&an$ %ene!a$ %ets &!ofits f!om t"e sae of %oods and se!#i(es. Some
of t"is mone$* "o'e#e!* "as to )e s&ent on !a' mate!ias* 'a%es and fa(=
to!$ o#e!"ead (osts fo! &!odu(in% t"e %oods and se!#i(es. T"e diffe!en(e
)et'een t"e mone$ !e(ei#ed f!om saes and t"e (ost di!e(t$ in#o#ed in &!o=
du(in% t"e items sod /t"e (ost of saes+ is -no'n as t"e %!oss &!ofit.
T"us: sa+es = cost of sa+es < ,ross profit =>#L
Additiona e&enses a!e in(u!!ed in !unnin% t"e )usiness ente!&!ise as a '"oe*
e.%. offi(e staff* statione!$* tee&"one ("a!%es* sates fo!(e* and so on t"ese
8/13/2019 Reading Balance Sheet
20/36
How to reed e balance sheet
C5EC
A separate statement, the statement of revenue reserve (or retained earn+
ins-, records the earned surplus brouht forward, plus the net profit for the
year, less the dividends paid. The balance is the fiure for revenue reserve
which is carried forward to the net year on the balance sheet. Any other
chares noted in this statement of revenue reserve must be investiated and
are probably eplained in the notes to the financial statements.
!s your answer
riht/ #hec0
1 company
3
8/13/2019 Reading Balance Sheet
21/36
3
owns
owes
does not
we
4
profit
5)o
6balancesheet
8/13/2019 Reading Balance Sheet
22/36
%o* to read a bdbnce stmt
. SET 1>. T3O MEASURES OF PROFITA6I7IT?
Estimated time: 40 minutes
Summa!$
T"e!e a!e t'o usefu measu!es of t"e &!ofita)iit$ of a )usiness ente!&!ise:
!etu!n on (a&ita em&o$ed and !etu!n on s"a!e"ode!s funds t"e$ a!e usua$
e&!essed as &e!(enta%es:
&!ofit inte!est onRetu!n on (a&ita em&o$ed )efo!e ta fied ia)iities 100
(a&ita em&o$ed
net &!ofit afte! ta 100Retu!n on s"a!e"ode!s funds sna!e"ode!s funds
T"e fi%u!es fo! &!ofit 'i )e o)tained f!om t"e &!ofit and toss a((ount and
t"e fi%u!es fo! (a&ita em&o$ed and s"a!e"ode!s funds f!om t"e )aan(e
s"eet.
Ca&ita em&o$ed is %ene!a$ defined as tota assets ess (u!!ent ia)iities.
T"is is t"e same as s"a!e"ode!s funds &us on%=te!m ia)iities.
A finan(ia !atio is i-e t"e finan(ia tem&e!atu!e of a )usiness it is "eat"$
'"en it (om&ies 'it" no!ma a((e&ted !atios fo! t"e indust!$ '"i(" a!e usua$
&u)is"ed ea(" $ea! )$ ("am)e!s of (omme!(e indust!ia asso(iations o! the
8/13/2019 Reading Balance Sheet
23/36
!s(
Qa
5o' o !ead a ba+ance sheet
. SET 1. T5E
8/13/2019 Reading Balance Sheet
24/36
ASSESSING
2T5E 6A7ANCE S5EET
2. SET 19. RE7IA6I7IT?
Estimated time: 49 minutes
Summa!$
A )aan(e s"eet offe!s usefu info!mation )ut "o' (an 'e dete!mine t"at
t"e data a!e !eia)e8 3e must ("e(- t"e inte!na (onsisten($ of t"e )aan(e
s"eet 'it" t"e asso(iated finan(ia statements: t"e &!ofit and oss a((ount*
t"e sou!(es and uses of funds statement* t"e audito!s (e!tifi(ate and t"e
notes to t"e finan(ia statements.
T"e )aan(e s"eet and asso(iated finan(ia statements s"oud s"o':
1. t"e name of t"e (om&an$ and t"e date. It is im&o!tant in assessin% a
(om&an$s &!esent finan(ia &osition to see t"e +atest )aan(e s"eet=
t"at is* one '"i(" is not mo!e t"an si mont"s od
4. se&a!ate totas fo! t"e (u!!ent and fied assets and ia)iities
>. t"e )asis on '"i(" t"e assets "a#e )een #aued
. t"e di!e(to!s si%natu!e* '"i(" indi(ates t"e acceptance of !es&onsi)iit$fo! t"e &u)is"ed fi%u!es* and a (ea! (e!tifi(ate f!om an inde&endent*
&!ofessiona$ ,uaified audito!.
8/13/2019 Reading Balance Sheet
25/36
AssessDi, the ba+ance sheet
13 SET 1. 7IMITATIONS
Estimated time: 40 minutes
Summa!$
3"en 'e a!e ma-in% an$ assessment of a (om&an$s &osition* 'e must )e
a'a!e t"at t"e )aan(e s"eet (an %i#e on$ a imited &i(tu!e of t"e (om&an$s
state of affai!s. T"e %!eatest imitation of t"e info!mation (ontained on a
)aan(e s"eet is t"at it is (on(e!ned on+E 'it" t"in%s t"at (an )e e&!essed
in moneta!$ te!ms.
A (om&an$s &!esent finan(ia &osition /as !efe(ted in its atest )aan(e s"eet+
is im&o!tant in dete!minin% its futu!e &otentia. E,ua$ im&o!tant* "o'e#e!*a!e fa(to!s su(" as t"e natu!e of t"e (om&an$s &!odu(ts /es&e(ia$ in !eation
to e&e(ted te("noo%i(a de#eo&ments+* t"e s-i and mo!ae of mana%ement
and staff* t"e a(ti#ities of (om&etito!s* and %ene!a e(onomi( (onditions. Su("
info!mation must )e ta-en into a((ount aon% 'it" t"e )aan(e s"eet fi%u!es
in assessin% t"e futu!e &!os&e(ts of a )usiness ente!&!ise.
T"e )aan(e s"eet is aso imited )e(ause t"e fi%u!es '"i(" a&&ea! on it a!e
on$ estimates and not s(ientifi( fa(ts. T"e -e$ a((ountin% (on(e&t is not
a)soute a((u!a($ )ut !at"e! mate!iait$ it is #e!$ diffi(ut to #aue assets
ea(t$. Fu!t"e!mo!e* uness s&e(ia infation a((ountin% te("ni,ues a!eado&ted /see t"e te("ni(a note in A&&endi A+* a )aan(e s"eet assumes
t"at t"e #aue of mone$ !emains un("an%ed o#e! time* '"i(" is (e!tain$ not
t
8/13/2019 Reading Balance Sheet
26/36
APPENDI A
Te("ni(a note on infation a((ountin%
T"is te("ni(a note is desi%ned to %i#e $ou )ot" a %ene!a idea of t"e )asi(
(on(e&ts of infation a((ountin% and t"e o&&o!tunit$ to foo' t"!ou%"* i!
eam&es A=5* some of t"e (om&eities of t"e (om&utations !e,ui!ed. T"
eam&es a!e mo!e diffi(ut t"an an$t"in% in t"e &!o%!amme itsef* )ut '"e!$ouma-e use of '"at $ou "a#e ea!ned f!om t"e &!o%!amme in$ou! 'o!-B
$ou ma$ find it "e&fu to !efe! to t"is te("ni(a note.
Fi!st !ead t"e int!odu(to!$ se(tion. T"en stud$ ea(" eam&e (a!efu$. ?ou
'i find an e&anation of t"e fi%u!es in t"e e&anato!$ notes.
Infation
Infation is a (onstant in(!ease o#e! time in t"e %ene!a e#e of &!i(es '"i("
affe(ts finan(ia mana%ement de(isions and a((ountin% info!mation.
A((ountin% see-s to measu!e e(onomi( e#ents and ("an%es o#e! time usin%
moneta!$ units* )ut du!in% infation t"e !ea #aue of su(" units (onstant$
("an%es. As on% as t"e !ate of infation is sma* it is &!a(ti(a to i%no!e it
"o'e#e!* '"en t"e ("an%e )e(omes mate!ia /sa$* o#e! >0 &e!(ent &e! $ea! I
t"en a((ountin% data f!om one $ea! to t"e net a!e not (om&a!a)e and (a!
)e miseadin%.
Fo! instan(e* in Eam&e 6 t"e &!ofit and oss a((ount s"o's a &!ofit of Rs400 '"i(" ma$ "a#e en(ou!a%ed mana%ement to &a$ a di#idend of Rs 10f
fo! t"e $ea!. 5o'e#e!* '"en adusted fo! infation* t"e &!ofit of Rs 400
)e(omes a oss of Rs J> T"us t"e di#idend of Rs 100 !edu(es t"e e,uit$B
%o* to read a ba+ance sheet AppendiA
8/13/2019 Reading Balance Sheet
27/36
Ete!na finan(ia !e&o!tin% LGPPA met"od
Fo! GPPA* a t"e items in a finan(ia statement a!e (a(uated at a (onstant
moneta!$ #aue usin% a %ene!a &!i(e inde &!o#ided )$ t"e %o#e!nmentstatisti(s offi(e. T"us:
=a@ t"e (ost of fied assets is adusted fo! &!i(e ("an%es f!om t"e date of
&u!("ase to t"e date of t"e )aan(e s"eet and de&!e(iation is (a(uatedon t"e )asis of t"e adusted fied asset (ost
ib@ t"e o&enin% and (osin% in#ento!ies a!e adusted fo! &!i(e ("an%es f!om
t"e date of &u!("ase and t"e (ost of %oods sod is adusted
a((o!din%$
/c@ a &!ofit and oss a((ount items /ot"e! t"an (ost of saes and de&!e(iation
a)o#e+ a!e adusted to (u!!ent &!i(e e#es
/d+ t"e net moneta!$ 'o!-in% (a&ita /de)to!s ess (!edito!s+ is adusted fo!
&!i(e=e#e ("an%es du!in% t"e $ea!.
T"e te("ni,ue fo! t"ese adustments is o)e(ti#e )ut t"e %ene!a &!i(e indema$ not !efe(t !ea ("an%es in fied assets o! in#ento!$ (osts t"us* GPPA
adustment ma$ not !efe(t !ea &!ofita)iit$ ("an%es. Fu!t"e!mo!e* t"e GPPAde&!e(iation ("a!%es ma$ not &!o#ide fo! !e&a(ement of fied assets
a((o!din%$* t"e finan(ia statements &!odu(ed ma$ )e miseadin% and of itte#aue.
Ete!na finan(ia !e&o!tin% LCCA met"od
Unde! t"e CCA met"od* mo!e s&e(ifi( estimates o! &!i(e indi(es /(om&uted)$ t"e %o#e!nment statisti(s offi(e+ a!e used fo! fied assets and de&!e(iation
/to'a!ds !e&a(ement (ost+* in#ento!ies and (ost of saes /to'a!ds ("an%esin (ost of mate!ias+. T"e te("ni,ue of CCA does* t"e!efo!e* !efe(t mo!e
s&e(ifi( &!i(e=e#e ("an%es )ut it is mo!e su)e(ti#e t"an t"e GPPA met"odand it "as t'o mao! imitations:
/a+ 'it" te("noo%i(a ("an%e* fied assets ma$ 8of a(tua$ )e !e&a(ed 'it"
identi(a e,ui&ment t"us t"e (om&a!a)e !e&a(ement (ost of od
e,ui&ment ma$ )e i!!ee#ant
/)+ oss of &u!("asin% &o'e! of (as" o! nea! (as" assets ma$* o! ma$ not*
)e in(uded as a !ee#ant adustment.
O#e!a* t"e CCA met"od &!o#ides an indi(ation of t"e (ost of !e&a(in% fiedassetsand in#ento!ies and is mo!e !ee#ant t"an t"e GPPA met"od. 5o'e#e!*
it is (om&e and diffi(ut fo! non=a((ountants to unde!stand.
Ete!na finan(ia !e&o!tin% &!a(ti(e
Some (om&anies in (ount!ies 'it" mode!ate infation ma$ revalue fied i
to ma!-et #aue e#e!$ fi#e $ea!s t"is in(!eases assets and shareholders9/!e#auation !ese!#e+ and !edu(es t"e &!ofita)iit$ /due to in(nde&!e(iation ("a!%es+. Some (ount!ies !e,ui!e infation a((ountin%* unda
GPPA and CCA met"ods to )e s"o'n as (om&a!ati#e data on normal ftistatements.
H
Count!ies 'it" "i%" infation /o#e! >0 &e! (ent &e! $ea!+ "a#e int!odu#a!iet$ of measu!es to !edu(e t"e ta )u!den on infationa!$ &!ofits "o'
'"e!e su(" ta a's diffe! si%nifi(ant$ f!om %ene!a$ a((e&ted a((oi&!in(i&es* t"e #aue of t"e !esutin% &!ofit and oss a((ounts and )a
s"eets is ,uestiona)e.
inte!na=finan(ia !e&o!tin%
Fo! inte!na finan(ia !e&o!ts '"e!e infation is "i%" /o#e! >0 &e! (ent &e! \t!aditiona standa!d (ostin% and )ud%eta!$ (ont!o s$stems )e(ome ess i
)e(ause t"e$ a!e )ased on t"e fase assum&tion of (onstant &!i(e e#es*affe(ts man$ inte!na mana%ement de(isions* &a!ti(ua!$ t"ose )ase
e#auatin% &!ofita)iit$ and t"e finan(in% of 'o!-in% (a&ita needs.
To dea 'it" t"ese &!o)ems* mana%ement needs td fo!e(ast s$stemat
t"e on%=te!m infationa!$ effe(ts on in#ento!ies* fied assets and de&!e(i%
and ot"e! (osts* as t"e$ affe(t &!ofita)iit$ and finan(in%. 3it" "i%" infte
one $ea! ma$ )e too on% to maintain a sin%e standa!d (ost o! )ud%etfo! t"e eistin% (ost and )ud%eta!$ (ont!o s$stems. T"us* it ma$ )e ne(e
to set u& indi(es of &!i(e ("an%es and to adust t"e "isto!i(a (ost s$s
,ua!te!$ 'it" (om&ute!ised a((ountin% s$stems su(" (om&-
adustments a!e feasi)e.
Con(usion
A (om&anies must modif$ t"ei! t!aditiona a((ountin% and (ont!o te("n
fo! "i%" infation /o#e! >0 &e! (ent &e! $ea!+ fo! )ot" &u)is"ed fina
statements and inte!na !e&o!tin%* )ut on$ mana%ement (an de(ide* )
usefuness of t"e !esut* '"at de%!ee of (om&eit$ is ustified.
8/13/2019 Reading Balance Sheet
28/36
%o* to reed a ba+ance sheet AppendiA
A sim&ified eam&e of t"e CCA /Cu!!ent Cost A((ountin%+ met"od of
infation a((ountin% is %i#en in Eam&es A to 5. T"e eam&e uses t"!ee
diffe!ent &!i(e indi(es: e,ui&ment* mate!ias and t"e %ene!a &!i(e e#e. T"e
GPPA /Gene!a Pu!("asin% Po'e! A((ountin%+ met"od 'oud )e simia! )ut
'oud use on$ one %ene!a &!i(e inde.
Eam&e A
BALA)#E S$EET
12//
%istorica+ cost
12// 7urrentcost
A!T
Fied assets
Cost#auation Less6
A((umuatedde&!e(iation
J00
4J0
1*
940 K>> /E. D+
7urrent assets
Cas"
A((ounts !e(ei#a)e
In#ento!$Tota assetsLIA0ILITI! AN' O&N!$;
!UIT" =shareho+ders; funds@
100900
00
100 900 9001*000
/E. 5I 1*100
4*0>>
1*940
7urrent +iabi+ities
A((ounts &a$a)e 00 00
Fied +iabi+ities
7on%=te!m oan 940 940
O*ners; eGuitE
Ca&ita
Re#auation !ese!#e
Re#enue !ese!#e
100
900
100
2K
00 412
/Note+1*11>
Tota ia)iities and
o'ne!s e,uit$
1*940 4*0>>
!p+anatorE notes
1. T"e )aan(e s"eet s"o's "o' t"e tota assets in(!ease f!om 1*9404*0>> )e(ause t"e (om&an$ !e#aued fied assets /940 to K>> and tin#ento!$ /00 to 9001.
4. Ea!ned su!&us is !edu(ed )$ 4J> /Eam&e 6+ /f!om 900 to 412+ dueinfation adustments.
>. Re#auation !ese!#e is in(!eased f!om 0 to 2K '"i(" (onsists of !e#aufied assets 1> /Eam&e D+ and in#ento!$ 100 /Eam&e 5I* and &!eand oss a((ounts adustments 4J> /Eam&e G+.
1//
8/13/2019 Reading Balance Sheet
29/36
%o* to read a ba+ancesheet
Appendi A
Eam&e 6
'O!T A)" LOSS A##O*)T12// %istorica+ cost
12// 7urrent
cost
Saes 4*900 4*900
Cost ot saes 1*J00 1*J00
>ross profit 200 200
Sein%* administ!ati#e
and %ene!a e&enses
>00 >00
Operatin, profit
Cu!!ent (ost a((ountin%
adustments
= 4J> Notes+
AdHusted operatin, profit 00 112
In(ome ta 400 400
Net profit =+oss@ 400 /J>1
STATE%E)T O E:E)*E ESE:E
O&enin% )aan(e 00 00
Net &!ofit /oss+ 400 /J>
00 >12
Less6 Di#idends &aid
Cosin% )aan(e
100
900
100412 /E. A+
Explanatory notes
1. T"e &!ofit and oss a((ount s"o's "o' t"e &!ofit ot 400 is !edu(ed to
a oss of /J>+ )$ CCA adustments:
De&!e(iation in(!ease 1>> /E. D+
Cost of saes in(!ease 490 /E. E+
Moneta!$ 'o!-in% (a&ita in(!ease 40 /E. F+
Su)tota 0>
Less6 Gea!in% adustment=of fset of inf ationa!$
osses )$ t"e de) t: e,ui t$ / on%= te!m ia) i it ies :
s"a!e"ode!s funds+ st!u(tu!e 140 /E. G+
Net CCA adustment /a)o#e+ 4J>
4. T"e (osin% )aan(e ot t"e statement of ea!ned su!&us is !edu(ed f!om900 to 412 )$ t"e CCA adustment of 4J>.
Eam&e C
'!#E !)"!#ES
12/- 12/.
!nd of A vera,e !nd of Avera,e
E,ui&ment Eear Eear
490 400 00 >00
Mate!ias 400 400 900 00
Gene!a &!i(e e#e 420 100 >00 400
Explanatory notes
1. T"ese a!e &!i(e indi(es fo! e,ui&ment* mate!ias and %ene!a &!i(e ("an%es
fo! t"e $ea!s 1KJ and 1KJ2 s"o'in% indi(es at t"e end of t"e $ea! and
a#e!a%e indi(es.
4. T"e indi(es (ome f!om %o#e!nment statisti(a !e&o!ts and a!e used to
adust "isto!i(a (osts to current (osts in Eam&es D to 5.
>. Assum&tions "a#e )een made so t"at on$ t"e end=of=$ea! and a#e!a%eindi(es fo! ea(" $ea! a!e used. 5o'e#e!* ot"e! mo!e (om&e assum&=tions (oud )e made.
190191
%o* to read a ba+ance Appendi
8/13/2019 Reading Balance Sheet
30/36
%o* to read a ba+ancesheet
AppendiA
Eam&e D
A";*ST%E)T O !. T"e indi(es (ome f!om Eam&e C.
. T"e detaied adustments fo! CCA a!e:
/a+ 1KJ &u!("ases = Cost:
00 /5O VH W X =1*400 /CO 400
/a#e!a%e J4+
A((umuated de&!e(iation:
40I5C W 6V . Q/CC+ 400 /a#e!a%eJ4+
ib@ 1KJ2 &u!("asesLCost:
400 /5O 33Ji 4 /CO. >00 /a#e!a%eJ>+
A((umuated de&!e(iation:
Qmum 00 /end J>1 ( .Y.0 /5C+ ========================== 9> /CO
>00 /a#e!a%e J4+
/d Re#auation !ese!#e:
Cu!!ent (ost net )oo- #aue /1*=9>>+ K>> /CO
5isto!i(a (ost net )oo- #aue /J00=4J0+ 940 /5O
Re#auation !ese!#e 1> B!3 A@
id@ De&!e(iation 1KJ2:Cu!!ent (ost: 40 &e! (ent 1* 4K> /CO
5isto!i(a (ost: 40 &e! (ent J00 10 /5O
De&!e(iation in(!ease 1>> B!30@
8/13/2019 Reading Balance Sheet
31/36
%o& to read a ba+ance sheet Appendi A
Eam&e EH
#OST O SALES A";*ST%E)T
%istorica+ cost
Cosin% in#ento!$ 900 /5O
O&enin% in#ento!$ /&!e#ious )aan(e s"eet+ 190 /5O
Tota in(!ease /in(uded in t"e (a(uation of
t"e (ost of saes+ >90 /5O
7urrent cost at 12/. prices
ni Cf+Cosin% in#ento!$ 900 900 /end J>+
00 /CO
. . *(Y 00 /a#e!a%e J>+O&enin% in#ento!$ 190 400 end J4+
>00 ICC+
Cost of saes L #oume in(!ease 100
Cost ot saes L &!i(e in(!ease 490 B!3 0@
Tota in(!ease /in(uded in t"e (a(uation ot
t"e (ost of saes+ >90
!p+anatorE note
T"e (ost of saes adustment s"o's t"e in(!ease in in#ento!$ ot >90 /900=190+
is ana$sed into a #oume in(!ease ot 100 and a &!i(e in(!ease of 490. T"is
&!i(e in(!ease ot 490 is due to intation and t"e!efo!e is adusted on t"e in(ome
statement /Eam&e 6+ as an infationa!$ effe(t.
Eample
%O)ETA& =O7!)> #A'!TAL A";*ST%E)T (%=#-
%istorica+ cost 12/.
A((ounts !e(ei#a)e
A((ounts &a$a)e
7tosin, M3C
O&enin% M3C /P!e#ious )aan(e s"eet+
Tota ("an%e
7urrent cost at 12/. prices
Cosin% M3C : 100 Q00 A#e!a%e J2+Q
:: /end J2+ 400 /a#e!a%e J2+ O&enin%
M3C: 90 420 /end J+
M3C #oume in(!ease >0
M3C &!i(e in(!ease 40 J!3 0@
Tota ("an%e 90
!p+anatorE note
T"e moneta!$ 'o!-in% (a&ita adustment s"o's "o' t"e net (!edit ao'ed"as in(!eased du!in% t"e $ea! to 100 /900=00+ f!om 90 /on t"e &!e#ious
)aan(e s"eet+. T"is in(!ease of 90 is ana$sed as a #oume in(!ease of >0and a &!i(e in(!ease of 40. T"e &!i(e in(!ease of 40 is due to infation and
is adusted on t"e &!ofit and oss a((ount J!amp+e J+ as an infationa!$ effe(t.
900 /5O
00 I 5O
100
50 (HO
50
2 /CO
>2 /CO
8/13/2019 Reading Balance Sheet
32/36
%o* to read a ba+ancesheet
AppendixA
Eample >
>EA!)> A";*ST%E)T
Net assets a!e finan(ed )$:
Liabi+ities
7on%=te!m oan
Less6 Cas"
Net on%=te!m ia)iit$ finan(in%
O*ners; eGuitE =shareho+ders; funds@
Ca&ita
A((umuated &!ofit /)efo!e adustment+
Re#auation !ese!#es /)efo!e %ea!in%
adustment+:
Fied assets
in#ento!$
Net on%=te!m e,uit$ finan(in%
Explanatory notes
1. The earin ad?ustment shows how financin net assets with lon+tern
debt (42@- rather than euity (1,113- (i.e. with lon+term liabilities rathe
than shareholders9 funds- enables the company to pass on part (3@ pe
cent- of the inflationary loss to lon+term creditors.
2. !n this case the earin effect shows how the debt euity (lon+tern
liabilities shareholders9 funds- structure (42@ 1,113- of the company
enables it to offset inflationary losses to the etent of about 3@ per cent
thus, only C@ per cent of the 4@3 inflationary ad?ustments (depreciatior
133, cost of sales 2D@, monetary wor0in capital 2@- is appropriate *
the company and a earin ad?ustment of 12@ (3@ per cent of 4@3- ii
deducted to show a net chare to the income statement of 21
(4@3+12@-.
P!o&o!tion of infationa!$ ("an%es finan(ed )$
on%=te!m ia)iities /de)t+ !at"e! t"an o'ne!s
e,uit$:
i 1*11> 40+ 42.>K &e! (ent = a&&!oimate$ >0 &e! (ent
Tota infationa!$ adustments 0> B!30@
Gea!in% adustment >0 &e! (ent of 0>
/a&&!oimate$+ 140 B!3 0@
Net ("a!%e to in(ome statement 4J> /f. 0@
520 (fx. A
100 (fx. A
420
100 (fx. A)
500 (fx.
)41
3
10
0 513
J!3
A)
8/13/2019 Reading Balance Sheet
33/36
!"# $%
8/13/2019 Reading Balance Sheet
34/36
%o* to read a ba+ance sheet
APPENDI 6
Eam&e 5
!):E)TO& A";*ST%E)T
Cosin% in#ento!$ 00 J!3 A@
Cost ("an%e f!om a#e!a%e 1KJ2 to end 1KJ2
n . Ann 900 /end J>+Cost: 00 00 /a#e!a%e J>1
900 B!3 A@
Less6 5isto!i(a (ost /see a)o#e+ 00
Re#auation !ese!#e 100 J!3 A@
!p+anatorE note
T"e in#ento!$ adustment s"o's "o' t"e 1KJ2 (osin% in#ento!$ of 00 #aued at
a#e!a%e (ost to! t"e $ea! is !e#aued 'it" $ea!=end indi(es )$ 100 /900=00+*
'"i(" is (!edited to t"e !e#auation !ese!#e /Eam&e A+.
accountin
accountin concepts
accounts payable
accountin period
accounts receivable
accrual
accumulated
depreciation
administrative
epense
aein
amortisation
G7OSSAR?
T"e %ossa!$ in(udes te!ms used in t"is )oo- and ot"e! a((ountin% an%ua
'"i(" $ou mi%"t (ome a(!oss in t"e (ou!se of $ou! 'o!-. Ate!nati e&!essions
a!e %i#en in &a!ent"eses afte! t"e main ent!$.
t"e te("ni,ue of &!e&a!in% finan(ia statements f!om )oo--ee&in% !e(o! /)ased
on a((ountin% (on(e&ts su(" as t"ose %i#en )eo'+.
/a((ountin% &!in(i&es+ &!a(ti(a !ues '"i(" ena)e )oo--ee&in% !e(o!ds
t!ansa(tions to )e (on#e!ted into finan(ia statements. T"e !ues in(ui (on(e&ts
of (ost* (onsisten($* (onse!#atism* (om&a!a)iit$* %oin% (on(ef a((ountin%
&e!iod* mat("in%* &!ofit !eaisation* mate!iait$* et(.
/(!edito!s+ mone$ o'ed )$ a )usiness. A((ounts &a$a)e a&&ea! on t )aan(e
s"eet unde! (u!!ent ia)iities.
t"e time inte!#a f!om t"e date of one )aan(e s"eet to t"e net. T"e &e!i ot t"e
&!ofit and oss a((ount /usua$ one $ea!+.
/see (ustome!s a((ounts+
/ia)iit$* (!edito!* &a$a)e* (u!!ent ia)iit$+ an a((ountin% (on(e&t: in(o! and
e&ense fo! t"e a((ountin% &e!iod* '"et"e! to! (as" o! (!edit* must I in(uded.
Re#enues must )e mat("ed 'it" a&&!o&!iate e&enses to &!o#i1 a meanin%fu
net in(ome fi%u!e fo! an a((ountin% &e!iod* !e%a!dess of '"i (as" ma$ "a#e
)een e("an%ed.
a tota amount )$ '"i(" o!i%ina (ost of a fied asset s"o'n on t"e )aan s"eet
"as )een !edu(ed to ta-e into a((ount dete!io!ation and o)soes(en( Fo!
eam&e* (onside! a 'ate! 'o!-s t"at (osts 1 miion 3CU. Ea(" $e
de&!e(iation ot 90*000 3CU is !e(o!ded a%ainst it. Afte! fi#e $ea!s a((umuated
de&!e(iation 'oud )e 9 90*000 3CU* o! 490*000 3CU. T. main &u!&ose ot
de&!e(iation is to "e& set &!i(es so as to a((umuate a fu! t"at (an )e used to
!e&a(e assets.
(ost of di!e(tin% and (ont!oin% a )usiness. T"is in(udes di!e(to!s fees* off
saa!ies* offi(e !ent* i%"tin%* "eatin%* e%a tees* audito!s fees* a((ountii
se!#i(es* et(. It is not a !esea!("* a manufa(tu!in%* a saes o! a dist!i)utii
e&ense.
an ana$sis a((o!din% to time ea&sed afte! t"e )iin% date /o! due date+ "e&
mana%ement dete!mine "o' to (oe(t )is and to dis(i&ine (ustomei
tsimia! to de&!e(iation+ t"e &!o(ess of '!itin% off t"e (ost of an intan%it asset*
su(" as a ease o! &atent* o#e! its usefu ife. T"e a((ountin% &!o(e to!
amo!tisation is simia! to t"e &!o(ess ot de&!e(iation fo! fied asset
198
8/13/2019 Reading Balance Sheet
35/36
%o* to read a ba+ance sheet
APPENDI 6
Eam&e 5
!):E)TO& A";*ST%E)T
Cosin% in#ento!$ 00 =!3 A@
Cost ("an%e f!om a#e!a%e 1KJ2 to end 1KJ2
Ann 900 /end J>+
00 /a#e!a%e J>+
900 B!3 A@
Less6 5isto!i(a (ost /see a)o#e+ 00
Re#auation !ese!#e 100 Z A@
!p+anatorE note
T"e in#ento!$ adustment s"o's "o' t"e 1KJ2 (osin% in#ento!$ of 00 #aued
at a#e!a%e (ost to! t"e $ea! is !e#aued 'it" $ea!=end indi(es )$ 100
/900=00+* '"i(" is (!edited to t"e !e#auation !ese!#e /Eam&e A+.
G7OSSAR?
T"e %ossa!$ in(udes te!ms used in t"is )oo- and ot"e! a((ountin% an%ua
'"i(" $ou mi%"t (ome a(!oss in t"e (ou!se of $ou! 'o!-. Ate!nat!
e&!essions a!e %i#en in &a!ent"eses afte! t"e main ent!$*
accountin t"e te("ni,ue of &!e&a!in% finan(ia statements f!om )oo--ee&in% !e(o!/)ased on a((ountin% (on(e&ts su(" as t"ose %i#en )eo'+.
accountin concepts /a((ountin% &!in(i&es+ &!a(ti(a !ues '"i(" ena)e )oo--ee&in% !e(o!ds
t!ansa(tions to )e (on#e!ted into finan(ia statements. T"e !ues in(ui
(on(e&ts of (ost* (onsisten($* (onse!#atism* (om&a!a)iit$* %oin% (on(ei
a((ountin% &e!iod* mat("in%* &!ofit !eaisation* mate!iait$* et(.
accountF payable /(!edito!s+ mone$ o'ed )$ a )usiness. A((ounts &a$a)e a&&ea! on t
)aan(e s"eet unde! (u!!ent ia)iities.
t"e time inte!#a f!om t"e date of one )aan(e s"eet to t"e net. T"e &e!i
of t"e &!ofit and oss a((ount /usua$ one $ea!+.
/see (ustome!s a((ounts+
/ia)iit$* (!edito!* &a$a)e* (u!!ent ia)iit$+ an a((ountin% (on(e&t: in(o!
and e&ense fo! t"e a((ountin% &e!iod* '"et"e! to! (as" o! (!edit* must I
in(uded. Re#enues must )e mat("ed 'it" a&&!o&!iate e&enses to &!o#i
a meanin%fu net in(ome fi%u!e fo! an a((ountin% &e!iod* !e%a!dess of '"i
(as" ma$ "a#e )een e("an%ed.
a tota amount )$ '"i(" o!i%ina (ost of a fied asset s"o'n on t"e )aan
s"eet "as )een !edu(ed to ta-e into a((ount dete!io!ation and o)soes(en(
Fo! eam&e* (onside! a 'ate! 'o!-s t"at (osts 1 miion 3CU. Ea(" $ de&!e(iation of 90*000 3CU is !e(o!ded a%ainst it. Afte! fi#e $ea!s
accountin period
accounts
receivable accrual
accumulated
depreciation
administrative
epense
aein
amortisation
8/13/2019 Reading Balance Sheet
36/36
a((umuated de&!e(iation 'oud )e 9 90*000 3CU* o!
490*000 3CU. Ti main &u!&ose of de&!e(iation is to "e&
set &!i(es so as to a((umuate a fui t"at (an )e used to
!e&a(e assets.
(ost of di!e(tin% and(ont!oin% a )usiness. T"is in(udes
di!e(to!s fees* offt saa!ies* offi(e !ent* i%"tin%* "eatin%*
e%a fees* audito!s fees* a((ountii se!#i(es* et(. It is
not a !esea!("* a manufa(tu!in%* a saes o! a dist")utii e&ense.
an ana$sis a((o!din% to time ea&sed afte! t"e )iin% date /o! due date+
"e& mana%ement dete!mine "o' to (oe(t )is and to dis(i&ine (ustomei
/simia! to de&!e(iation+ t"e &!o(ess of '!itin% off t"e (ost of an intan%it
asset* su(" as a ease o! &atent* o#e! its usefu ite. T"e a((ountin% &!o(e
fo! amo!tisation is simia! to t"e &!o(ess of de&!e(iation fo! fied asset:
12/ i