FINANCIAL MANAGEMENT (IE 210

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FINANCIAL STATEMENTS (F/S)- Definitions

• The means by which the information accumulated and processed in financial accounting is periodically communicated to the users

FINANCIAL STATEMENTS (F/S) Definitions

• The end product or main output of the financial accounting process

FINANCIAL STATEMENTS (F/S) Definitions

• A structured financial representation of the financial position and financial performance of an entity.

COMPONENTS OF F/S
1. Statement of Financial Position or formerly Balance Sheet 2. Income Statement 3. Statement of Comprehensive Income 4. Statement of Changes in Equity 5. Statement of Cash Flows 6. Notes, comprising a summary of significant accounting policies and other explanatory notes

OBJECTIVES OF F/S

To provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions

OBJECTIVES OF F/S

F/S also shows the results of the management’s stewardship of the resources entrusted to it.

OBJECTIVES OF F/S
Thus, F/S provide info about an entity’s: • Assets • Liabilities • Equity • Income and expenses, including gains and losses • Contributions by and distributions to owners in their capacity as owners • Cash flows

F/S – FREQUENCY OF REPORTING

Financial statements shall be presented at least annually.

STATEMENT OF FINANCIAL POSITION ( (or B/S)

• A formal statement showing the three elements comprising financial position, namely Assets, Liabilities, and Equity.

STATEMENT OF FINANCIAL POSITION ( (or B/S)

• Users such as Investors, Creditors, and Other statement Users analyze this F/S to evaluate the entity’s – –Liquidity –Solvency –Financial Structure, and –Capacity for Adaptation

ASSETS

• Resources controlled by the entity as a result of past transactions and events and from which future economic benefits are expected to flow to the entity. • Can be measured reliably.

ASSETS CLASSIFICATION

• CURRENT ASSETS

• NON-CURRENT ASSETS

OPERATING CYCLE

of an entity

• The time between the acquisition of assets for processing and their realization in cash or cash equivalents. • When the entity’s operating cycle is not clearly identifiable, its duration is assumed to be twelve months.

CURRENT ASSETS • Cash and cash equivalents • Held for trading • Realizable within twelve months after the reporting period • Entity intends to sell or consume it with the entity’s normal operating cycle.

CURRENT ASSETS - Presentation

• Presented in the order of Liquidity
• Line items are: o Cash and cash equivalents o Financial assets: Trading securities, available for sale securities, and other marketable financial assets. o Trade and other receivables o Inventories o Prepaid expenses

NONCURRENT ASSETS

• All other assets not classified as current assets

NONCURRENT ASSETS

• Include the following – –Property, plant and equipment –Long-term investments –Intangible assts –Other noncurrent assets

NONCURRENT ASSETS

Property, plant and equipment
“Tangible assets which are held by an entity for use in production or supply of goods and services, for rental to others, or for administrative purposes, and are expected to be used during more than one period”.

NONCURRENT ASSETS

Plant, Property and Equipment
Land Building Machinery Equipment
Furniture

• • • •

Fixtures Patterns Dies Molds

NONCURRENT ASSETS

Long-term Investments
“An investment is an asset held by an entity for the accretion of wealth through capital distribution (interest, royalties, dividends and rentals), for capital appreciation or for other benefits to the investing entity such as those obtained through trading relationship”.

NONCURRENT ASSETS

Intangible Assets
“Identifiable nonmonetary asset without physical substance”. Examples: Patent, Franchise, Copyright, Lease rights, Trademark and Computer Software

NONCURRENT ASSETS

Intangible Assets
Example of unidentifiable intangible asset:
Goodwill

OTHER NONCURRENT ASSETS

Those which do not fit into the definition of the previously mentioned noncurrent assets. Examples: o Long-term advances to officers, directors, shareholders and employees o Abandoned property o Long-term refundable deposit

LIABILITIES • “Present obligations of an entity arising from past transactions or events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits”.

LIABILITIES CLASSIFICATION

• CURRENT LIABILITIES

• NON-CURRENT LIABILITIES

CURRENT LIABILITIES

• The entity expects to settle within normal operating cycle. • Entity holds the liability primarily for the purpose of trading. • Due to be settled within twelve months after the reporting period. • Entity does not have an unconditional right to defer settlement for at least twelve months after the reporting period.s

CURRENT LIABILITIES - Line items

a. Trade and other payables b. Current provisions c. Short-term borrowing d. Current portion of long-term debt e. Current tax liability

NONCURRENT LIABILITIES

All liabilities not classified as current

NONCURRENT LIABILITIES - Line items

a. Noncurrent portion of long-term debt b. Finance lease liability c. Deferred tax liability d. Long-term obligations to company officers e. Long-term deferred revenue

EQUITY
• “The residual interest in the assets of the entity after deducting all of its liabilities”.

• “Net assets or total assets minus liabilities”.

EQUITY
• “The term equity may simply be used for all business entities

EQUITY
a. Owner’s equity in a proprietorship business b. Owners’ equity in a partnership c. Stockholders’ equity or shareholders’ equity in a corporation

SHAREHOLDERS EQUITY PHILIPPINE TERM
• • • • • • • Capital stock Subscribed capital stock Preferred stock Common stock Additional paid capital Retained earnings (deficit) Retained earnings appropriated • Revaluation surplus • Treasury Stock • • • • • • •

IAS TERM
Share capital Subscribed share capital Preference share capital Ordinary share capital Share premium Accumulated profits (loss) Appropriation reserve

• Revaluation reserve • Treasury share

NOTES TO FINANCIAL STATEMENT

“Provide narrative description or disaggregation of items presented in the financial statements and information about items that do not qualify for recognition”.

NOTES TO FINANCIAL STATEMENT

“Contain information in addition to that presented in the statement of financial position, income statement, statement of changers in equity and statement of cash flows”.

NOTES TO FINANCIAL STATEMENT

“Notes are used to report information that does not fit into the body of the statements in order to enhance the understanding of the statements”.

FORMS OF STATEMENT OF FINANCIAL POSITION

a. Report form b. Account form

FORMS OF STATEMENT OF FINANCIAL POSITION

Report form this form set forth the major sections in a downward sequence of assets, liabilities and equity

FORMS OF STATEMENT OF FINANCIAL POSITION

Account form The presentation follows that of account, meaning the assets are shown on the left side and the liabilities and equity on the right side of the statement of financial position.

Proprietorship – Account Form
JERICHO HEALTH FITNESS WORLD Statement of Financial Condition March 31, 2013 ASSETS LIABILITIES & OWNER'S EQUITY Cash P 232,500 Accounts Payable P 37,500 Supplies 6,000 Loans Payable 250,000 Prepaid Rent 75,000 Total Liability 287,500 Equipment 230,000 Store Renovation 80,000 Owner's capital 336,000 Total Assets P 623,500 P 623,500

Proprietorship – Account Form
JERICHO HEALTH FITNESS WORLD Statement of Financial Position March 31, 2013 ASSETS Cash Supplies Prepaid Rent Equipment Store Renovation Total Assets LIABILITIES & OWNER'S EQUITY P 37,500 250,000 287,500 336,000 P 623,500 6,000 Loans Payable 75,000 230,000 80,000 Owner's capital P 623,500 Total Liability P 232,500 Accounts Payable

Proprietorship – Report Form
Jericho Health Fitness World Statement of Financial Position 31-Mar-13

ASSETS Cash Supplies Prepaid Rent Equipment Store Renovation Total Assets P 232,500 6,000 75,000 230,000 80,000 623,500

LIABILITIES & OWNER'S EQUITY Accounts Payable P 37,500 Loans Payable 250,000 Total Liability 287,500 Owner's capital 336,000 P 623,500

SAMPLAR COMPANY Statement of Financial Position December 31, 2013 ASSETS Note Current assets: Cash and cash equivalents Financial assets at fair value Trade and other receivables Inventories Prepaid expenses Total current assets Noncurrent assets: Property, plant and equipment Investment in associate, at equity Long-term investments Intangible assets Other noncurrent assets Total noncurrent assets Total assets (1) (2) (3) (4) 500,000 200,000 700,000 900,000 50,000 2,350,000

(5) (6) (7) (8)

5,000,000 1,000,000 5,100,000 2,000,000 100,000 13,200,000 15,550,000

SAMPLAR COMPANY Statement of Financial Position December 31, 2013

LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade and other payables Note payable - short-term debt Current portion of bonds payable Warranty liability Total current liabilities Noncurrent liabilities: Bonds payable - remaining portion Note payable - short-term debt Deferred tax liability Total noncurrent liabilities Shareholders' equity Share capital, P100 par Reserves (10) Retained earnings Total shareholders' equity Total liabilities and shareholders' equity

(9)

750,000 400,000 200,000 50,000 1,400,000

1,800,000 600,000 100,000 2,500,000

5,000,000 3,000,000 3,650,000 11,650,000 15,550,000

SAMPLAR COMPANY NOTES TO FINANCIAL STATEMENTS December 31, 2013 Note 1 - Cash and cash equivalents Cash on hand 40,000 Cash in bank 300,000 Petty cash fund 10,000 BSP Treasury bill, purchased on December 1, 2013 and due March 1, 2014 150,000 Total cash and cash equivalents 500,000 Note 2 - Trade and other receivables Accounts receivable Allowance for doubtful accounts Notes receivable Accrued interest on notes receivable Advances to employees, collectible currently Total trade and other receivables 580,000 (20,000) 100,000 10,000 30,000 700,000

SAMPLAR COMPANY NOTES TO FINANCIAL STATEMENTS December 31, 2013

Note 3 - Inventories Finished goods Goods in process Raw materials Manufacturing supplies Total inventories Note 4 - Prepaid expenses Office supplies unused Prepaid insurance Total prepaid expenses Note 5 - Property, plant and equipment Land Building Machinery and equipment Furniture and fixtures Patterns, molds, dies and tools, net Total Accumulated depreciation Carrying amount Accumulated depreciation Building Machinery and equipment Furniture and fixtures Total accumulated depreciation 1,500,000 4,500,000 1,000,000 300,000 100,000 7,400,000 (2,400,000) 5,000,000 30,000 20,000 50,000 300,000 400,000 150,000 50,000 900,000

1,900,000 350,000 150,000 2,400,000

SAMPLAR COMPANY NOTES TO FINANCIAL STATEMENTS December 31, 2013

Note 6 - Long term investments Plant expansion fund Investment in bonds Cash surrender value Total other long-term investments Note 7 - Intangible assets Patent Franchise Total intangible assets Note 8 - Other noncurrent assets Long-term refundable deposit Long-term advances to officers Total other noncurrent assets Note 9 - Trade and other payables Accounts payable Notes payable Accrued interest on note payable Income tax payable Dividends payable Accrued expenses Total trade and other payables Note 10 - Reserves Share premium Retained earnings appropriated for Total reserves 2,000,000 contingencies1,000,000 3,000,000 350,000 150,000 15,000 50,000 100,000 85,000 750,000 20,000 80,000 100,000 500,000 1,500,000 2,000,000 2,000,000 3,000,000 100,000 5,100,000

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