PREPARATION OF

FINANCIAL STATEMENTS
(SOPL&SOFP)
 ACCOUNTING CYCLE

1. SOURCE
DOCUMENT JOURNALIZE

5. FINANCIAL
STATEMENTS
2. BOOK OF PRIME
ENTRY/JOURNALS

PREPARE

4. TRIAL POST
BALANCE 3.
LEDGERS

EXTRACT
BALANCES
FINANCIAL STATEMENTS CONSISTS OF:

1. Statement of Profit & Loss (SOPL)

2. Statement of Financial Position
(SOFP)

3
PREPARATION OF SOPL
Company Name
AF SDN. BHD.
Statement of Profit and Loss for the year ended Report title
31 December 2016
RM RM
NET SALES XXXX
(-) COST OF (XXXX)
SALES
GROSS XXX
PROFIT Amount recorded
must be for 12
(+) OTHER XXX months (1 year)
INCOME
(-) (XXX)
EXPENSES
NET PROFIT XX
PREPARATION OF SOFP Company Name
AF SDN. BHD.
Statement of Financial Position as at Report title
31 December 2016
RM
NON CURRENT ASSETS

CURRENT ASSETS

TOTAL ASSETS XXX

FINANCE BY:
OWNER’S EQUITY
NON CURRENT Amount
LIABILITIES must be
the same
CURRENT LIABILITIES

TOTAL EQUITY AND XXX

LIABILITIES
 PART C: DEPRECIATION
(A) Capital & Revenue Expenditure
(B) Causes
PART A: (C) Method:
ACCRUALS AND - Straight Line
PREPAYMENT - Reducing Balance

PART B: BAD DEBTS

(A) Bad debts written off
(B) Bad debts recovered
(C) Allowance for
Doubtful Debt
PART A: ACCRUALS AND PREPAYMENT
• Revenue/income are earned when goods are sold or
services are provided, not when the money is
collected/received.

• Expenses are incurred when goods/services are

consumed/ used, not when payments are made.

• Only revenue earned and expenses incurred during

the period are to be included in the SOPL.

• Amounts related to another period are shown as

accruals and prepayment in the SOFP.
ACCRUALS PREPAYMENT
Accrued Prepaid
Revenue: Revenue:
Not yet Received in
received (CA) advance (CL)

Accrued Prepaid
Expenses: Expense:
Not yet paid Paid in
(CL) advance (CA)
 ACCRUALS
ACCRUED
EXPENSES
• Expenses incurred during the
accounting period but not yet paid.
• This expenses is shown as CURRENT
LIABILITIES in the SOFP.
• Double Entry:
Dr Expenses (SOPL)
Cr Accrued Expenses (SOFP)
ACCRUED
REVENUE
• Revenue earned during the
accounting period but not yet
received.
• This revenue is shown as
CURRENT ASSETS in the SOFP.
• Double Entry:
Dr Accrued Revenue (SOFP)
Cr Revenue (SOPL)
 ACCRUALS
ACCRUED
EXPENSES
Example: AF Trading
• Accounting period: 1 Jan – 31 Dec
• During the year, AF Trading paid
RM1,000 being electricity bill for
Jan’15 to Nov’15. The bill for
Dec’15 amounting to RM120 was
still outstanding.
Please prepare the:
• Double entry adjustment
• SOPL & SOFP
ACCRUED
REVENUE
Example: Alif Corp.
• Accounting period: 1 Jan – 31 Dec
• Alif Corp. charged out rental
amounted to RM500/month.
During the year, the company
received only RM5,500 being
rental from Jan’15 to Nov’15.
Please prepare the:
• Double entry adjustment
• SOPL & SOFP
 PREPAYMENT
PREPAID
EXPENSES
• Expenses for the following
accounting period paid in
advance in the current period.
• Shown as CURRENT ASSETS in
the SOFP.
• Double entry:
Dr Prepaid Expenses (SOFP)
Cr Expenses (SOPL)
PREPAID
REVENUE
• Revenue received in advance
during the current year for the
goods or services which yet to
be sold or rendered.
• Shown as CURRENT LIABILITIES
in the SOFP.
• Double entry:
Dr Revenue (SOPL)
Cr Prepaid revenue (SOFP)
 PREPAYMENT
PREPAID
EXPENSES
Example: H Trading
• Accounting period: 1 Jan – 31 Dec
• During the end of the year, H
Trading has paid RM24,500. Salary
payable per month were RM2,000.
The RM500 was given to a worker
as advance salary payment.
Please prepare the:
• Double entry adjustment
• SOPL & SOFP
PREPAID
REVENUE
Example: Hazim Corp.
• Accounting period: 1 Jan – 31 Dec
• Hazim Corp. is an agent that
received monthly commission
amounted to RM500/month.
During the year, the company
received RM6,500 being
commission from Jan’15 to
Jan’16.
Please prepare the:
• Double entry adjustment
• SOPL & SOFP
 ACCRUALS PREPAYMENT

REVENUE CURRENT ASSET CURRENT LIABILITY

EXPENSES CURRENT LIABILITY CURRENT ASSET

TUTORIAL:
1. TEXT BOOK PAGE 112 (Q3)
2. TEXT BOOK PAGE 113 (Q6)
PART B: BAD DEBTS
• Bad Debts – Debts that are uncollectible from the debtors. Bad debts is
an expense to the company and should be charged to SOPL.
• Reasons for not able to collect:
a) Death
b) Financial difficulties / bankruptcy
c) Purposely do not want to pay
d) Migrate to other country

(1. Bad Debts Write-off)

• Double Entry:
Dr. Allowance for Doubtful Debts/ Bad debts (expense)
Cr. Account Receivable (CA)
• Example: In the books of a sole trader on 1 Dec 2015, it was found that
Ali and Ahmad owed RM300 & RM500 respectively. Total Trade
receivable is RM10,500. A few reminders had been sent but they failed
to settle the debt. The sole trader decided to write off the whole
amount as bad debts on 31 Dec 2015.
(2. Bad Debts Recovered)
• Receipts of payment to an account that was written off earlier as bad
debts.

• Double entry:
a) Reinstate Receivable
Dr. Acc Receivable
Cr. Bad debts Recovered (revenue)
b) Record payment of bank or cash received.
Dr. Bank / Cash
Cr. Acc Receivable
b) Closing Entry
Dr. Bad debts Recovered
Cr. SOPL

• Example: On 1 Oct 2015, a receivable, Ali whose account had been

written off as bad debts paid RM300 cheque to settle amount he
owed. Year ended 31 Dec 2015. Total bank account is RM4,200.
3. ALLOWANCE FOR DOUBTFUL DEBTS

• Amount owed by the debtors that may not be collected by the

business.

• Estimation should be made by the business since the amount can’t

be collected in the year sales occurred.

• Shown in SOFP as reduction of total debtors.

• In the first accounting period, the AFDD will be recorded in full. In

the next accounting period, record only the increase or decrease in
estimation.
• Method: Percentage of account receivable
AFDD: TOTAL ACC RECEIVABLE (Net amount) x %

• Double entry:
a) Increase in AFDD:
Dr. Bad debts Dr. SOPL
Cr. AFDD Cr. Bad Debts

b) Decrease in AFDD:
Dr. AFDD Dr. Bad Debts
Cr. Bad Debts Cr. SOPL

• Example: The total amount of accounts receivable at the end of

accounting period is RM20,000. It is estimated that 2% of these
account receivable will eventually go bad due to certain reasons but
there is no evidence whether they are bankrupt or dead.
 TUTORIAL:
1. TEXT BOOK PAGE 126 (Q1)
2.TEXT BOOK PAGE 126 (Q2)
PART C: DEPRECIATION
 Capital expenditure happened when the company spends money to buy
NCA or add value of the existing NCA
 It includes: purchase cost + all other costs necessary in bringing the asset
to a ready for use condition.
 Delivery cost
 Installation cost
 Inspection and testing cost
 Architect fees
 Demolition cost

 Revenue expenditure incurred in running the business on day-to-day

basis which does not increase the value of the NCA.
 Example:
 Petrol cost
 Repainting cost
 Road tax, license and insurance renewal
 DEPRECIATION
 Depreciation is charged as an expense in the SOPL
 The cost allocated for each year (depreciation) is added or
accumulated in an account called Provision for
Depreciation or Accumulated Depreciation
Account.
 Accumulated depreciation is transferred to the SOFP

CAUSES OF DEPRECIATION
 Wear and Tear – due to rust, decay, exposure of rain and sun.
 Natural disaster – flood, wind, tsunami and earthquake.
 Obsolescence – out dated or obsolete
 Time factor – a limitation of period such as leases, patents,
copyright (expired date)
 Reduction in market value – caused by inflation and economic crisis
that may decrease the value of non-current assets.
 METHODS OF DEPRECIATION
1) STRAIGHT-LINE METHOD

 Calculate depreciation based on “COST”

 Equal/constant amount of depreciation expenses every year

a) Percentage:
Depreciation per year = (Cost-scrap value) x Depreciation rate

b) Formula:
Depreciation per year = Cost – estimated residual value
Number of years of expected useful Life
EXAMPLE-STRAIGHT-LINE METHOD (PERCENTAGE )

Calculate the annual depreciation of a machine costing RM 5,000 if

the annual rate of depreciation is 10% per year on cost. The scrap
value is estimated at RM 800

Depreciation per year = (Cost- scrap value) x rate of

depreciation
= (RM 5,000 – RM 800) x 10 %
= RM 420/ year
EXAMPLE-STRAIGHT-LINE METHOD (FORMULA)

Machine A was bought for RM 2,000 and the estimated useful life is 5
years. The scrap value at the end of 5 years is estimated at RM 200.
calculate the annual depreciation for Machine A.

Depreciation per year = Cost-estimated residual value

No of years of useful life
= RM 2,000 – RM 200
5
= RM 360 / year
2) REDUCING BALANCE METHOD

 Depreciation is calculated based on the “NET BOOK VALUE” of

NCA
 For the 1st year of non-current assets, the depreciation will be
calculated using the original cost
 In the following year, depreciation will be calculated using the net
book value of non-current assets.
 To determine the depreciation:
1st Year = % x Cost
2nd year and above = % x NBV

NBV = Cost – Accumulated Depreciation

* Please refer example 10.2 (Page 136)