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THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA . Thilanka Warnakulasooriya B.Com Special (Col), ACA . POSTGRADUATE DIPLOMA IN BUSINESS AND FINANCE - 2013/2014 Principles of Financial and Cost Accounting. Preparation of Financial Statements- LKAS 1 .

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THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA

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  1. THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA Thilanka WarnakulasooriyaB.Com Special (Col), ACA POSTGRADUATE DIPLOMA IN BUSINESS AND FINANCE - 2013/2014Principles of Financial and Cost Accounting

  2. Preparation of Financial Statements- LKAS 1 • The objective of financial statements is 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. • A complete set of financial statements comprises. • (a) Statement of Financial Position • (b) Statement of Comprehensive Income • (c) Statement of Changes in Equity • (d) Statement of Cash Flows • (e) Notes, comprising a summary of significant accounting policies and other explanatory information

  3. Statement of Financial Position • Statement of Financial Position provides the financial status of the company as at a prescribe date. This prescribe date is the date where financial accounts are prepared. As discussed in the accounting process, at the financial period end all accounts of the ledger are closed and the balances of nominal accounts are transferred to statement of Comprehensive income where as personal and real accounts whose balances are carried forward. These Balances will be shown in the Statement of financial position.

  4. Statement of Comprehensive Income • Objective of Statement of Comprehensive Income is to find out the profitability of the financial period. Profitability is the Performance of the organization.

  5. Statement of Cash Flows • Statement of Cash Flows explains the cash & cash equivalent generated & how it is distributed with in the period. This enables users to evaluate the changes in net asset of an enterprise, its financial structure, and its ability to affect the amount and timing of cash flows in order to adopt to changing circumstances and opportunities.

  6. Statement of Changes in Equity An entity shall present a statement of changes in equity showing in the statement: • Total comprehensive income for the period, showing separately the total amounts attributable to owners of the parent and to non-controlling interests; • For each component of equity, the effects of retrospective application or retrospective restatement recognized in accordance with LKAS 8; and • For each component of equity, reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing changes resulting from: • Profit or loss; • Each item of other comprehensive income; and • Transactions with owners in their capacity as owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control.

  7. Disclosure of accounting policies An entity shall disclose in the summary of significant accounting policies: • The measurement basis (or bases) used in preparing the financial statements, and • The other accounting policies used that are relevant to an understanding of the financial statements.

  8. Key Adjustments need in FS • Following key adjustments are expected to make when preparing financial statements using trial balance. • Closing stock adjustment • Adjustments for Deprecation • Bad & doubtful debtors • Accruals • Adjustments for EPF/ETF/PAYE • Adjustments for Pre-paid expeses & income received in advance

  9. Closing Stock Adjustment • Generally closing stock is arrived at by a Physical stock count. Stock should be valued under LKAS 2. (Lowest between the cost & the nest realizable value) • Adjustment entry are as follows. Stock Account Debit Trading Account Credit (Reduction from purchases during the year )

  10. Adjustments for Deprecation • The property, plant & equipment that are in use for carry out business have to depreciated in line with LKAS 16. • Depreciation is the systematic allocation of the depreciable amount of an asset over its estimated useful life • The depreciable amount of an asset is its cost (or substitute) less its residual value Annual depreciation of the particular asset is concern can be calculate using following methods. • Straight line • Reducing balance • Units of production

  11. In accounting there are two methods applied for deprecation • Written down method • Provision for deprecation Method Written down method According to this method Deprecation is charged to the asset account. Accordingly double entry would be Deprecation Account Debit Asset Account Credit Provision for deprecation Method According to this method Deprecation is charged to Provision for deprecation account instead writing off against asst account. Accordingly Assets account shows the cost of the asset ( Unless it is revalued)

  12. Double Entry • Deprecation Account Debit • Provision for deprecation account Credit Here Deprecation account is transferred to Statement of comprehensive income as expense and provision for depreciation balance will be deducted from the respective asset value at the year end in statement of financial position.

  13. Bad & Doubtful debtors • Debts that are not recoverable from Debtors are treated as Bad debts. If the amount not received can be ascertained accurately treated as the bad debt. Bad debtors (exp) Debit Debtors Credit If debt already written off is received 01. If already written off debt is received in the same year. Cash Debit Bad debt account Credit 02. If Debt Written off in a previous year is received • Cash Debit • Bad Debt Already Written off Account Credit

  14. Provision for Bad Debts A doubtful debtor is a provision made in line with prudent concept and such value depicts the uncertainty of recoverability. This estimation is done as per LKAS 10. Bad Debt Provision is mainly in two types, There are 1. General Provision 2. Specific Provision Specific Provision is made with regard to an indentified debtor or set of debtors. Other wise it is required a general provision.

  15. Accruals Income and expenditures will be recorded regardless whether they actually paid or received by cash only if such income and expenditures are relevant to the particular financial period. Expenditures : Relevant expenditure A/C Debit ( I/S) Accrued Expense A/C/payables A/C Credit (SFP) Income: Income receivables A/C Debit (SFP) Relevant income A/C Credit ( I/S)

  16. Pre-incurred expenditures and income received in advance Prepaid Expenses The value relevant to current financial year should only be treated as an expenditure in I/S and value pertaining to subsequent financial year should shown as an asset in the statement of Financial Position. Prepayment Expenditure A/C Debit (SFP) Cash Credit Income received in advance: Any income received for subsequent years should not be treated as a income for this current financial year but should be shown as a liability in the statement of Financial Position Cash Debit Income received in advance A/C Credit

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