Chapter11

IntroductiontoSingleCompanyAccountsTopicsCovered11.1DifferencesbetweenSingleCompanyAccountsandSoleTraderAccounts 11.2FormatofStatementofProfitorLoss 11.3FormatofStatementofFinancialPosition 11.4FormatofStatementofChangesinEquity 11.5QuickSummaryofThisChapter11.1DifferencesbetweenSingleCompanyAccountsandSoleTraderAccountsThenameforsomeitemsisdifferent.Morecomplicateditems.Moredisclosuresshouldbemadeincompanies'accountsthaninsoletraderaccounts.Stricterrulestofollow.11.2FormatofStatementofProfitorLossStatementofprofitorlossfortheyearended31DEC20X8Revenue:itisdividedintocashsalesandcreditsales.Costofsales:thecosttoberecognisedwhenthestocksaresold.Grossprofit:theprofitbeforeconsideringotherincomeandexpenses.Thisistheprofitgeneratedfromthesaleofproductstomeasurethecompetitivenessofthecompany'sproductsorservicesinthemarket.Otherincome:thiscouldbeexampleslikerentalincome,dividendincomeandinterestincome.Distributioncost:alsoknownas“carriageoutwardscost”.Thisiswhenthebusinesssellsgoodsandpaysthetransportationcosts.Administrativeexpense:thisisthecostincurredtoadministerthebusiness.Profitbeforeinterestandtax:alsoknownasearningsbeforeinterestandtaxorEBIT.Thisistheprofitearnedbythebusinessbeforedeductinglesscontrollablecostselements,suchasinterestexpenseandtaxexpenses.Financecosts:theinterestexpensepaidbythebusinessformoneyborrowedfromothers.Profitbeforetax:theprofitearnedbythebusinessafterconsideringavarietyofincomeandexpensesexceptfortaxexpenses.Taxexpenseisthencalculatedbymultiplyingthecorporateincometaxratebythetaxableprofits.Thisisthegeneralruleformostcompaniesinmostcountries.Incometaxexpense:thisincludesthecorporateincometaxestimatedforthecurrentperiod,andwhethertheexpensehasbeenover-orunder-providedrelatingtothelastperiod'sprofit.Thismayalsoincludethedeferredtaxcharge.Profitaftertax:alsoknownasprofitfortheyearornetprofit.Thisistheprofitafterconsideringalltypesofincomeandexpenses.Thisistheprofitlefttotheshareholders.Othercomprehensiveincome(gainsonpropertyrevaluations):accordingtotheInternationalFinancialReportingStandards(IFRSs),propertiesmayberevaluedupwards.Thename:Theterm“fortheyearended”meansthattheincome,expenseandprofitarefortheentireaccountingperiod,normallyoneyear.Theincome,expense,andprofitarenotaccumulatedtillthenextyear.Alltheincome,expenseandprofitwillstartfromzerowhenthenextyear’saccountisprepared.Intotal:thesumoftotalprofitfortheyearandthetotalothercomprehensiveincomebecomestotalcomprehensiveincomefortheyear.11.3FormatofStatementofFinancialPositionStatementoffinancialpositionasat31DEC20X8Property,plantandequipment:land,factory,buildings,machineryandotherequipmentthecompanyuses.Thisisanexampleofthenon-currentassetwhichmaybeusedbythebusinessformorethanoneyear.Intangibleasset:couldincludepurchasedpublishingtitles,customerlists,developmentcosts,patents,performingrights,authorshiprightsandgoodwill.Inventories,tradereceivablesandbank:thesameaswelearnedinearliersoletraderaccounting.Sharecapital:representsthemoneyshareholdersinitiallypaid.Thesharecapitalisrecordedattheparvaluewhichistheminimumvalueoftheshare.Revaluationreserve:underInternationalAccountingStandard16Property,PlantandEquipment,thepropertiesmayberevaluedbythebusiness.Hence,theexcessvalueofthepropertybecauseofrevaluationisrecordedasrevaluationreserveintheequitysectionofthestatementoffinancialposition.Retainedearnings:theaccumulatedprofitsearnedbythebusinessfromthedateitwasincorporated.8%loannote:anexampleofthelongtermornon-currentliabilities.Redeemablepreferenceshare:thisistheshareissued/soldbythebusinesstoinvestors,usuallycarryingnovotingrights.Thismeansthatwhentheinvestorbuysthepreferenceshare,theinvestorcouldgetthefixedamountcashfromthebusiness.Taxation:thetaxliabilityestimatedbythebusinessasattheyearend.Thismeansthatthebusinessestimateshowmuchtaxexpenseitwillpayregardingtheprofitsearnedinthecurrentperiod.11.4FormatofStatementofChangesinEquityStatementofchangesinequityfortheyearended31DEC20X8Shareissue:thismeansthebusinesshasissuedsharestoinvestorsduringtheyear.Hencebothsharecapitalandpremiumhaveincreased.Gainsonrevaluation:representingthepropertyvalue'sincreaseduringtheyear.Reserves:twotypesofreserves,i.e.,capitalandrevenuereserves.Anexampleofcapitalreserveistherevaluationreserve,whiletherevenuereservecanbedistributedasdividendstoshareholders,i.e.,retainedearnings.Profitfortheyear:thisisthenetprofitearnedbythebusinessduringtheyear.Thisfigureisshowninthestatementofprofitorloss,statementofchangesinequityandthestatementoffinancialposition.Dividendsdeclaredorpaid:thisreducesthe