ADVANCED FINANCIAL

ACCOUNTING

Rangajeewa Herath
B.Sc. Accountancy and Financial Management
(special) hons, (USJ)
MBA-PIM (USJ)
Preparation and Presentation
of Financial Statements of
Limited Liability Companies

2
WHAT IS A COMPANY

 Company is an entity incorporated under the

Companies Act No 07 0f 2007. A Company is a
legal entity which is having legal personality. i.e.
a company is treated as a person by low. This is a
main feature of a company where as sole-
proprietorship or partnership does not have.

3
COMPANIES LAW

 Companies Act No. 7 of 2007 is the Act currently

enforces on companies in Sri Lanka. Companies
Act No. 17 of 1982 was the previous Act enforced
on companies until 2007 and the new act was
effective from 3rd March 2007. Companies
incorporated under the previous act also should
be incorporated under the new Act. Accordingly,
all the companies incorporated up to date and the
all the companies which will incorporate in the
future are subject to Act No. 7 of 2007.

4
TYPES OF COMPANIES

COMPANIES

UN LIMITED LIMITED COMPANIES LIMITED BY

COMPANIES COMPANIES GUARANTEE

PRIVATE OFF-SHORE PUBLIC

COMPANIES COMPANIES COMPANIES

LISTED UN-LISTED
COMPANIES COMPANIES

5
EQUITY OF THE COMPANY

 Stated Capital
- Ordinary share capital
- Preference Share Capital

Reserves
- Retained Earnings
- Revaluation Reserves

6
ORDINARY SHARES

 Ordinary shares are having following features.

 Do not entitle for a specific distribution
(dividend) and it will vary according to the profit
of the company.
 Have the right to vote on a poll at the company
on any resolution
 Have the right to an equal share in the
distribution of the surplus assets of the company
on liquidation

7
PREFERENCE SHARES

 Preference shares are having following features.

 Entitle for a specific (Fixed) distribution
(dividend).
 Do not have the right to vote on a poll at the
company on any resolution
 Do not have the write in the distribution of the
surplus assets of the company on liquidation

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ISSUE OF SHARES

 When a company issues shares to raise capital it

can asked total or part of the value of a share
with application. Investors who apply to
purchase shares will become share holders only
when the shares were allotted to them. Current
practice is to call entire value of a share with the
applications but it is possible to collect the share
price in different stages such as application,
allotment a d call.

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ACTIVITY 1
Araliya PLC had a stated capital-ordinary shares
balance of Rs.2,000,000 as at 01.01.2019. The Board of
Directors decided to make a public issue of 100,000
shares at Rs.25 each. The entire consideration is
collected with the application.

 01/01: Applications were called 100,000 shares at

Rs.25/- each by issuing Prospectors
 31/01: Applications were received for 120,000 shares
with the application money of Rs.25 per share.
 15/02: Applications for 20,000 shares were rejected
and 100,000 shares were allotted and allotment letters
were issued.

Required: Prepare necessary ledger account for the

issue of shares. 10
ACTIVITY 2
Saman PLC had a stated capital-ordinary shares
balance of Rs.3,000,000 as at 01.01.2019. The Board of
Directors decided to make a public issue of 200,000
shares at Rs.30 each. The entire consideration is
collected with the application.

 01/01: Applications were called 200,000 shares at

Rs.30/- each by issuing Prospectors
 31/01: Applications were received for 250,000 shares
with the application money of Rs.30 per share.
 15/02: Applications for 50,000 shares were rejected
and 200,000 shares were allotted and allotment
letters were issued.

Required: Prepare necessary ledger account for the

issue of shares. 11
 ACTIVITY 3
Kamal PLC had a stated capital-ordinary shares balance of Rs.2,000,000
as at 01.01.2019. The Board of Directors decided to make a public issue of
100,000 shares at Rs.25 each. Consideration is collected as follows.
With application - Rs.10
At allotment - Rs.10
at Call - Rs.5

 01/01: Applications were called 100,000 shares at Rs.25/- each by

issuing Prospectors.
 31/01: Applications were received for 120,000 shares with the
application money of Rs.10 per share.
 05/02: Applications for 20,000 shares were rejected and 100,000 shares
were allotted and allotment letters were issued.
 10/02: All the allotment money was received.
 15/03: The call was made
 31/03: The call money was received.
12
Required: Prepare necessary ledger account for the issue of shares.
RIGHT ISSUE OF SHARES
 Shares are issued at a price less
than market price of a share.
 Shares are issued to existing share
holders.
 Shares are issued proportionate to
shares held by existing share
holders.

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ACTIVITY 4

 Suranga PLC had a stated capital-ordinary

shares balance of Rs.2,000,000 as at 01.01.2019.
The sated capital consists of 100,000 ordinary
shares issued at Rs.20 each. These shares are
presently traded in the Colombo Stock Exchange
at a market price of Rs.45 each. The Board of
Directors decided to make a right issue of 1share
for every 4 shares held at Rs.30 each. All the
rights were utilized by the share holders and
shares were allotted.

 Required: Prepare necessary ledger account for

the issue of shares. 14
ACTIVITY 5
 KANDY PLC had a stated capital-ordinary
shares balance of Rs.1,000,000 as at 01.01.2019.
The sated capital consists of 50,000 ordinary
shares issued at Rs.20 each. These shares are
presently traded in the Colombo Stock Exchange
at a market price of Rs.40each. The Board of
Directors decided to make a right issue of 1share
for every 5 shares held at Rs.25 each. Excepts for
few share holders who had invested in 10,000
shares, all other rights were utilized by the share
holders and shares were allotted.

 Required: Prepare necessary ledger account for

the issue of shares. 15
ACCOUNTING FOR INCOME TAX

 Company as a legal person is subject to pay income

tax based on the taxable income of the company.
 Based on the self assessment, company should pay
income tax on quarterly basis.
 Total income tax liability of the year should be
assessed at the year end when preparing the
financial statements and a liability (Provision for
income tax) should be recognized for the payable
amount.
 This should be settled in the next year as agreed
with the Inland Revenue. This might resulted in
adjustment for under (over) provision for income tax
of the last year. 16
ACTIVITY 6

Neptune PLC was incorporated on 01.04.2017. Income tax

paid by Neptune PLC on self assessment for during the year
ended 31.03.2018 was Rs.650,000 and total income tax
liability for the year ending 31.03.2018 was estimated as
Rs.920,000.
During the year ending 31.03.2019, the company paid last
year income tax payable and additional Rs.900,000 on self
assessment basis. The total income tax liability for the year
ending 31.03.2019 was estimated as Rs.1,300,000.

Required:
1. Prepare the necessary ledger accounts
2. Show statement of P/L and OCI and Statement of
17
Financial position extracts for 2017/18 and 2018/19.
ACTIVITY 7

Platinum PLC was incorporated on 01.04.2017. Income tax

paid by Platinum PLC on self assessment for during the year
ended 31.03.2018 is Rs.850,000 and total income tax liability
for the year ending 31.03.2018 is estimated as Rs.1,150,000.
During the year ending 31.03.2019, the total income tax paid
by the company was Rs.1,100,000 including Rs.400,000 for
previous year income tax. The total income tax liability for
the year ending 31.03.2019 is estimated as Rs.1,350,000.

 Required:
 Prepare the necessary ledger accounts
 Show statement of P/L and OCI and Statement of
Financial position extracts for 2017/18 and 2018/19. 18
ACTIVITY 8

Galaxy PLC was incorporated on 01.04.2017. Income tax

paid by Galaxy PLC on self assessment for during the year
ended 31.03.2018 is Rs.750,000 and total income tax liability
for the year ending 31.03.2018 is estimated as Rs.1,050,000.
During the year ending 31.03.2019, the total income tax paid
by the company was Rs.1,200,000 including Rs.200,000 for
previous year income tax. The total income tax liability for
the year ending 31.03.2019 is estimated as Rs.1,350,000.

 Required:
 Prepare the necessary ledger accounts
 Show statement of P/L and OCI and Statement of
Financial position extracts for 2017/18 and 2018/19. 19
STATEMENT OF CHANGES IN EQUITY

 This is the financial statement which provides

information about the movement of each equity
items during the year. Generally the SCE
includes the following movements of the equity.

 Issue of shares
 Profit for the year

 Other comprehensive income

 Transfer between equity items

 Dividend payments
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ACTIVITY 9
The following balances were extracted as at 01.04.2018from the Global PLC.

 Stated Capita- ordinary shares @ Rs.20 400,000

 Revaluation Reserve 200,000
 General reserve 150,000
 Retained earnings 450,000

Following transactions were taken placed during year ended 31.03.2019.

1. Public issue of shares – 10,000 shares at Rs.20 each.

2. Capitalization of reserves was made for one share for every five shares held at
Rs.20 each using retained earnings.
3. Dividend paid – Rs.50,000
4. Revaluation of PPE- resulted a revolution reserve of Rs.120,000
5. Profit for the year ending 31.03.2015 was Rs.230,000.
6. Directors have made the following proposal.
Transfer Rs.100,000 to general reserves
Proposed final dividend Rs.72,000

Required: Prepare the statement of changes in equity for the year ended 31.03.2013. 21
ACTIVITY 10
The following balances were extracted as at 31.03.2019 from the Uranus PLC.

 Stated Capita- Ordinary shares @ Rs.20 800,000

 Revaluation Reserve 450,000
 General reserve 170,000
 Retained earnings 580,000

Following transactions were taken placed during year ended 31.03.2019.

1. Public issue of ordinary shares – 20,000 shares at Rs.20 each.

2. Capitalization of reserves of one share for every five shares held at Rs.20 each using
retained earnings.
3. Dividend paid – Ordinary shares Rs.80,000
4. Revaluation of PPE- resulted a revolution surplus of Rs.180,000
5. Profit for the year was Rs.350,000.
6. Directors have made the following proposal.
7. Transfer Rs.100,000 to general reserves
8. Final dividend Rs.60,000 for ordinary shares and Rs.30,000 for preference shares

Required: Prepare the statement of changes in equity for the year ended 31.03.2019. 22
ACTIVITY 11
 Following balances were extracted as at 31.03.2019 from the Pluto PLC.

 Stated Capita- Ordinary shares @ Rs.20 900,000

 Revaluation Reserve 550,000
 AFS reserves 150,000
 General reserve 170,000
 Retained earnings 580,000

Following transactions were taken placed during year ended 31.03.2019.

1. Public issue of ordinary shares – 20,000 shares at Rs.20 each.

2. Capitalization of reserves of one share for every five shares held at Rs.20 each using retained
earnings.
3. Dividend paid – Ordinary shares Rs.80,000
4. Revaluation of PPE- resulted a revolution deficit of Rs.280,000
5. Profit for the year was Rs.450,000.
6. Loss on change in FV of AFS-FA is Rs.60,000.
7. Directors have made the following proposal.
Transfer Rs.150,000 to general reserves
Final dividend Rs.80,000 for ordinary shares and Rs.30,000 for preference shares

Required: Prepare the statement of changes in equity for the year ended 31.03.2019. 23
NOTE ON PPE

Since single amount of presented on the face of

statement of financial position for PPE, the details of
the each class of PPE including the movements during
the year for cost/valuation and accumulated
depreciation are presented in the notes to FS.

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ACTIVITY 12
Following balances were extracted from the Asteroid
PLC as at 31.03.2019.
Rs.
 Land and buildings- cost 1,000,000
 Land and buildings- Acc. depn. 200,000
 Motor vehicles- cost 1,500,000
 Motor vehicles - Acc. depn. 650,000
 Office equipments - cost 450,000
 Office equipments – Acc. depn. 180,000

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ACTIVITY 12 CONT..
Following additional information is also provided.

 Cost of the Land of the business is Rs.400,000.

 Accumulated depreciation represents balances as at 31.03.2018.
 A new building constructed during the year costing Rs.250,000 has been
completed on 31.03.2019. this has been accounted properly.
 A motor vehicle which was purchased on 01/01/2017 of Rs.500,000 was sold
for Rs.300,000 on 01.01.2019. The sales proceed was credited to motor
vehicle account by debiting cash and no other entry was made in this
regards.
 Following additions are made during the year and properly accounted.
01.07.2018 Motor Vehicles Rs.300,000
01.10.2018 Office equipment Rs.150,000
 Useful lives of the property, plant and equipment are as follows.
Buildings – 10 years Motor vehicle -5 years Off. Equip – 4 years.

Required: for the year ended 31.03.2019:

(a)Note on property, plant and equipment for the purpose of publication
(b) Extracts of statement of profit or loss and other comprehensive income 26
ACTIVITY 13
Following balances were extracted from the Asteroid
PLC as at 31.03.2019.
Rs.
 Land and buildings- cost 3,500,000
 Land and buildings- Acc. depn. 300,000
 Motor vehicles- cost 4,500,000
 Motor vehicles - Acc. depn. 750,000
 Office equipments - cost 750,000
 Office equipments – Acc. depn. 250,000

27
ACTIVITY 13 CONT..
Following additional information is also provided.

 Cost of the Land of the business is Rs.2,000,000. Land was revalued for the first time
for Rs.2,600,000 but no accounting entries are made for this regards.
 Buildings were revalued for the first time on 01.04.2018 for Rs.1,750,000 but no
accounting entries are made for this regards.
 Accumulated depreciation represents balances as at 31.03.2018.
 A new building constructed during the year costing Rs.250,000 has been completed on
31.03.2019. this has been accounted properly.
 A motor vehicle which was purchased on 01/01/2017 of Rs.1,200,000 was sold for
Rs.1,000,000 on 01.10.2018. The sales proceed was credited to motor vehicle account by
debiting cash and no other entry was made in this regards.
 Following additions are made during the year and properly accounted.
01.07.2018 Motor Vehicles Rs.1,000,000
01.10.2018 Office equipment Rs.250,000
 Useful lives of the property, plant and equipment are as follows.
Buildings – 10 years Motor vehicle -5 years Off. Equip – 4 years.

Required: for the year ended 31.03.2019:

(a)Note on property, plant and equipment for the purpose of publication
(b) Extracts of statement of profit or loss and other comprehensive income 28