ABFA2064 FINANCIAL ACCOUNTING III 1 updated on 2024

Lecture 8: Preparation of financial statement for companies

2. Proforma financial statement

Tanjong Jara Bhd

Statement of financial position as at …
RM
ASSETS
Non-current assets
Property, Plant & Equipment X
Investment properties X
Goodwill X
Other intangible assets X
Investment in associates X
1. Introduction: X

The financial statements of a limited liability company are subject to regulation

and must follow a prescribe format. Current assets
Inventories X
Must of the prescribed format is determined by IAS 1/ MFRS 1 Presentation of Trade receivables X
Financial Statements. This accounting standard states what should be included Other receivables / Tax recoverable X
in a set of financial statements and how they should be presented. Prepaid expenses / Accrued income X
Short term deposit, cash & bank balances X
A complete set of a financial statements in accordance with IAS 1 comprises:
(a) A statement of financial position; X
(b) A statement of profit or loss and other comprehensive income
(c) A statement of changes of equity Total assets X
(d) A statement of cash flow ( lecture 9)
(e) Notes to accounts
EQUITY & LIABILITIES
The accounting concepts that were studies earlier such as accrual concepts, and
the separate entity concept as well accounting equation are also apply to the Equity
financial statement of companies. Share capital X
Retained earnings X
 ABFA2064 FINANCIAL ACCOUNTING III 2 updated on 2024

Other components of equity / Revaluation reserves X

X Tanjong Jara Bhd
Statement of profit or loss for the year ended …
RM
Non-current liabilities
Revenue X
Long-term loans X
Cost of sales (X)
Deferred borrowings X
Gross profit X
Lease obligation X
Other income X
Deferred tax X
Distribution costs (X)
Long-term provisions X
Administrative expenses (X)
X
Finance costs (X)
Current liabilities
Profit before tax X
Trade payables X
Income tax expense (X)
Other payables X
Profit for the year C
Accrued expenses / Revenue received in advance X
Short term borrowings X
3.2 By Nature
Current portion of long-term borrowing X
Current tax payable X Tanjong Jara Bhd
Short-term provisions X Statement of profit or loss for the year ended …
X RM
Revenue X
Total equity & liabilities X Other operating income X
Changes in inventories of FG & WIP (C/S - O/S) X / (X)
Raw materials & consumables used (O/S + Purchases - C/S) (X)
3. Statement of profit or loss Employee benefits expenses (X)
Depreciation and amortisation expenses (X)
2 ways expenses are analysed:
(a) By Function Impairment of PPE (X)
(b) By Nature Other expenses (X)
Finance costs (X)
Profit before tax X
Income tax expense (X)
3.1 By Function Profit for the year C
 ABFA2064 FINANCIAL ACCOUNTING III 3 updated on 2024

Distribution costs (X)

Administrative expenses (X)
Note 1: Changes in inventories of FG & WIP Finance costs (X)
RM
Profit before tax X
Closing inventories of FG & WIP X
Opening inventories of FG & WIP (X) Income tax expense (X)
Increase / (Decrease) X / (X) Profit for the year X
Other comprehensive income
Note 2: Raw materials & Consumables used Gain on property revaluation X
RM
Opening inventories of raw materials X Total Comprehensive Income for the year x
Purchases X
Closing inventories of raw materials (X) 4. Statement of changes in equity
X
Tanjong Jara Bhd
Statement of changes in equity for the year ended….
Note: IAS 1 require financial statements to include a statement of profit or loss SC RE GR RR Total
and other comprehensive income. RM RM RM RM RM
Balance at 1 Jan 20x1 X X X X X
This statement shows all the realised gain or losses from the statement of Changes in equity
profit or loss and the unrealised gains or losses from the statement of financial Revaluation X
position in one statement of performance. Issue of share capital X X
Bonus issue X (X) -
If the company had unrealised profit, a statement of profit or loss and Rights issue X X
comprehensive income should be prepared. Profit for the year X X
Transfer RE to GR (X) X -
Dividends (X) (X)
Balance at 31 Dec 20x1 X X X X X
Tanjong Jara Bhd
Statement of profit or loss and comprehensive income for the year ended … SC = Share capital
RM RR = Revaluation reserve
Revenue X GR = General reserve
Cost of sales (X) RE = Retained earnings
Gross profit X
Other income X Activity 1: Statement of changes in equity
ABFA2064 FINANCIAL ACCOUNTING III 4 updated on 2024

(b) Prepare the statement of changes in equity for the year ended 31
The following were the balances extracted from the books of BP Bhd. on 1 December 20x1 for BP Bhd.
January 20x1:
Solution:
RM’000
Ordinary shares (RM1 each) 5,200 (a) Ordinary share capital movement
General reserve 2,600 unit RM
Retained earnings 2,426 01-Jan Balance b/d 5,200 5,200
30-Jun Right issue (5200 x2/5) 2,080 1,456
During the financial year ended 31 December 20x1, the following transactions 7,280 6,656
occurred in BP Bhd.: 01-Sep Bonus issue (7280 x ¼) 1,820 1,820
31- Dec Balance c/d 9,100 8,476
1. Profit for the year ended 31 December 20x1 amounted to RM900,000.
(b)
2. The directors decided to transfer 30% of the current year’s profit to general
BP Bhd.
reserve.
Statement of changes in equity for the year ended 31 December 20x1
3. An interim dividend of RM0.04 per share was paid to ordinary
shareholders. OS RE GR Total
RM’00 RM’00 RM’00 RM’00
4. A right issue of 2 shares for every 5 shares on 1 January 20x1 was issue at 0 0 0 0
RM0.70 per share on 30 June 20x1. Bal at 1 January
20x1 5,200 2,426 2,600
5. A bonus issue of 1 share for every 4 shares on 1 January 2021 was issue on Profit for the year 900 600
30 September 20x1.Averare share price of BP was RM1.00. Transfer to GR 30% (270) 270 -
Interim dividend (208) (208)
6. Final dividend of RM0.05 per share was declared. (RM0.04 x 5200)
7. The shareholders of the recent right issue and bonus issue were not entitled Rights issue 1,456 1,456
for the final dividend this year (2/5 x 5200 x 70¢)
Bonus issue 1,820 (1,820) -
Required: (1/4 x7280 x RM1)
Final dividend (400) (400)
(a) Prepare a schedule to record the changes ordinary share of each issuance of
share during the year. (RM0.05 x 9,100) (455)
Bal @ 31 Dec. 20x1 8,476 173 2,870 1,448
ABFA2064 FINANCIAL ACCOUNTING III 5 updated on 2024

Activity 2: Non-current asset schedule Gain on disposal = Sales proceeds – NBV =RM130,000 – 118,000
= RM12,000
The following were the balances extracted from the books of BBC Bhd. on 1
January 20x2: This gain of disposal is a realised gain and therefore it should be recorded in
statement of profit or loss as “Other Income”.
RM RM
Land and building at valuation 1,660,70
(Land : RM960,700, Building: RM700,000) 0 (b) Prepare a non-current assets schedule for the year ended 20x3
Plant and machinery at cost 800,000
Non-current assets schedule
Accum. depreciation - building 150,000
Land Building Machinery Total
Accum. depreciation - plant and machinery 420,000
Cost: RM’000 RM’000 RM’000 RM’000
Balance as at 1 January 20x2 960,700 700,000 800,000 2,460,700
During the financial year, some machinery was disposed. The net book value Revaluation reserve 39,300 39,300
of the machinery disposed was RM118,000, with cost of RM200,000. Proceeds Acquisition 500,000 500,000
from disposal was RM130,000. No transaction has been recorded, including Disposal (200,000) (200,000)
the receipts from disposal. Balance as at 1 December 1,000,00
700,000 1,100,000 2,800,000
20x2 0
After the disposal, BBC purchased a new machine cost RM500,000 to replace
the old one.
Accumulated depreciation:
Depreciation policy of BBC is 2 % on building cost and 10 % on machine’s net Balance as at 1 January 20x2 - 150,000 420,000 570,000
book value. Current year depreciation - 14,000 68,000 82,000
Disposal (200,000-118,000) - - (82,000) (82,000)
A revaluation of land report showed that the land value is RM1,000,000 as at Balance as at 1 December
31 December 20x2. - 164,000 406,000 570,000
20x2
Required:
Book value:
(a) Calculate the gain / loss on disposal of the machinery. Balance as at 1 January 20x2 960,700 550,000 380,000 1,890,700
Explain the accounting treatment on the gain or loss of disposal and where Balance as at 1 December 1,000,00
536,000 694,000 2,230,000
it should be recorded. 20x2 0
ABFA2064 FINANCIAL ACCOUNTING III 6 updated on 2024

Trade payables 1,800

Long-term loan 2,300
(c) Explain the accounting treatment on the revaluation gain/ surplus of the Share capital 16,000
land and where it should be recorded. Retained earnings 1,150
Dividend paid 600
Revaluation gain is an unrealised gain, it will be recorded as “other
comprehensive income” after the profit for the year, in the statement of 60,750 60,750
profit or loss and comprehensive income.
The following information is also available:
This gain is cannot recognised as profit yet, therefore will be recorded as a
revaluation reserve in the statement of financial position under the equity. 1. The company revalued its land during the year. This was the first time that
such a revaluation had been taken place. The land had cost RM19 million
and had not been depreciated.
Activity 3: Statement of profit or loss and other comprehensive (by function) 2. Depreciation of RM3.7 million has been charged during the year and is
included under the administrative cost headings on the trial balance.
Lovely Star Bhd. operates a chain of department stores across the country.
3. The directors paid a dividend of RM600,000 during the year ended 31
The following summarised trial balance has been extracted from the book of December 20x2.
Lovely Star Bhd. as at 31 December 20x2:
4. Tax expense for the year has been estimated at RM2.1 million.
Dr Cr
RM'000 RM'000 Required:
Sales 27,300
Prepare the following for Lovely Star for the year ended 31 December 20x2
Cost of sales 16,250
(i) Statement of profit or loss and other comprehensive (by function);
Administrative expenses 250 (ii) Statement of changes in equity;
Distribution costs 2,500 (iii) Non-current assets schedule; and
Trade receivables 800 (iv) Statement of financial position as at that date
Interest paid 350
Property, plant and equipment - cost or valuation 37,000
Property, plant and equipment – accum. depn. 4,200
Revaluation reserve 8,000
Inventories as at 31 December 20x2 850 Suggested solution
Tax paid 2,000
Bank 150 (i)
Lovely Star Bhd.
 ABFA2064 FINANCIAL ACCOUNTING III 7 updated on 2024

Statement of profit or loss for the year ended 31 December 20x2 Acquisition - - -
RM’000 Balance as at 1 December 20x2 27,000 10,000 37,000
Revenue 27,300
Cost of sales (16,250) Accumulated depreciation:
Gross profit 11,050 Balance as at 1 January 20x2 - 500 500
Distribution costs (2500)
Current year depreciation - 3,700 3,700
Administrative expenses (250)
Disposal - - -
Finance costs: Interest paid (350)
Balance as at 1 December 20x2 - 4,200 4,200
Profit before tax 7,950
Income tax expense (2100)
Book value:
Profit for the year 5,850
Balance as at 1 January 20x2 19,000 9,500 28,500
Other comprehensive income:
Balance as at 1 December 20x2 27,000 5,800 32,800
Gain on property revaluation 8,000
Total Comprehensive Income for the year 13,850
(ii)
(iv)
Lovely Star Bhd.
Lovely Star Bhd.
Statement of changes in equity for the year ended 31 December 20x2
Statement of financial position as at 31 December 20x2
SC RR RE Total
RM’000 RM’000 RM’000 RM’000 Non-current assets RM’000
Bal. as at 1 Jan 20x2 16,000 - 1,150 17,150 Property, plant and equipment 32,800
Revaluation reserve 8,000 8,000
Profit for the year 5,850 5,850 Current assets
Dividend paid (600) (600) Inventories 850
Bal. as at 31 Dec 20x2 16,000 8,000 6,400 30,400 Trade receivables 800
Bank 150
(iii) 1,800
Non-current assets schedule
Land Building Total 34,600
Cost: RM’000 RM’000 RM’000
Equity and liabilities
Balance as at 1 January 20x2 19,000 10,000 29,000
Share capital 16,000
Revaluation reserve 8,000 8,000
 ABFA2064 FINANCIAL ACCOUNTING III 8 updated on 2024

Retained earnings 6,400

Revaluation reserves 8,000 Trial balance as at 31 December 20x2
30,400
DR CR
RM'000 RM'000
Non-current liabilities Revenue 21,660
Long-term loan 2,300 Dividend 180
Inventories as at 1 January 20x2
- Raw material 770
Current liabilities - Work in progress 330
Trade payables 1,800 - Finished goods 1,530
Tax payable (2,100 expense – 2,000 paid) 100 Purchases of raw materials 8,530
Wages and salaries 3,130
1,900
Depreciation of property, plant and equipment 3,670
34,600 Operating expenses 1,500
Preference dividend paid 150
Tax paid 1,080
Property, plant and equipment 25,700
Investments 4,920
Trade receivables 4,770
Cash balances 800
Bank 480
Trade payables 1,760
Ordinary shares (16mil units) 16,000
Retained earnings 13,800
10% Redeemable preference shares of RM1.00 3,000
each
56,800 56,800

Activity 4: Additional information:

1. Closing inventories determined on weighted average basis were:

The following trial balance relates to Blue Ocean Bhd., a manufacturing and
distribution company. RM’000
ABFA2064 FINANCIAL ACCOUNTING III 9 updated on 2024

Raw materials 680 RM’000 RM’000 RM’000

Work-in-progress 460 Inventories as at 31 December 20x2 1780 460 2240
Finished goods 1,780 Inventories as at 1 January 20x2 1530 330 1,860
*Increase 250 130 380
2. The 10% Redeemable preference shares will be due for redemption at par
on 1 January 20x5. The dividend for the second half of the current *Increase will be added to SOPL as lesser inventory consumed.
financial year has yet to be accrued in the account. *if decrease, to (minus) in SOPL as more inventory consumed.

3. The directors had proposed a final ordinary dividend of 5 sen per share as
at 31 December 20x2. W 2: Raw materials & Consumables used RM’000
Inventories as at 1 January 20x2 770
4. Tax expenses for the year is estimated at RM1,200,000. Purchases 8,530
Inventories as at 31 December 20x2 (680)
Required: 8,620

Prepare the following financial statements of Blue Ocean Bhd. for the year Blue Ocean Bhd.
ended 31 December 20x2: Statement of profit or loss for the year ended 31 December 20x2
RM'000
(a) Statement of profit or loss (by nature); Revenue 21,660
Investment income 180
(b) Statement of changes in equity; and Changes in FG and WIP [W1] 380
Raw material used and consumed [W2] (8,620)
(c) Statement of financial position. Staff costs (3,130)
Depreciation and amortisation expenses (3,670)
Operating expenses (1,500)
*Finance costs: RPS dividend (3,000 x 10%) (300)
Profit before tax 5,000
Tax expenses (1,200)
Profit for the year 3,800

*Redeemable preference share dividend is treated as financing cost.

Solution: (b)
Working Blue Ocean Bhd.
W 1: Changes in inventories of FG & WIP Statement of changes of equity for the year ended 31 Dec 20x2
Share capital Retained earnings Total
FG WIP Total
RM'000 RM'000 RM'00
 ABFA2064 FINANCIAL ACCOUNTING III 10 updated on 2024

0 Dividend payable: PS 300 – 150 paid 150

Bal as at 1 Jan 2022 16,000 13,800 29,800 Dividend payable: OS 800
Profit for the year 3,800 3,800 3,310
**Dividend paid -800 -800 39,110
16,000 16,800 32,800

**OS dividend = 0.05 x 16,000,000 =800,000

Blue Ocean Bhd.

Statement of financial position as at 31 December 20x2
RM’000
Non-current assets
Property, plant and equipment 25,700
Investments 4,920
30,620
Current assets
Inventories: RM + WIP + FG 2,920
Trade receivables 4,770
Cash 800
8.490
39,110

Equity and liabilities

Share capital 16,000
Reserves/ Retained Earnings 16,800
32,800
Non-current liabilities
10% Redeemable preference shares 3,000

Current liabilities
Trade payables 1,760
Bank overdraft 480
Tax payable 1,200 expense – 1,080 paid 120