FINANCIAL MANAGEMENT (IE 210)

COMPREHENSIVE INCOME STATEMENT

The change in equity during a period resulting from transactions and other events, other than changes resulting from transactions with owners in their capacity as owners.

COMPREHENSIVE INCOME STATEMENT - Presentations

1. Two statements: a. Income Statement - showing the components of profit b. Statement of Comprehensive Income - beginning with profit or loss as shown in the income statement plus or minus the components of other comprehensive income.

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 managements stewardship of the resources entrusted to it.

OBJECTIVES OF F/S
Thus, F/S provide info about an entitys: 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 entitys 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 entitys 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 entitys 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. Owners 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

REPRESENTS THE RESULTS OF OPERATIONS REVENUES, EXPENSES, NET PROFIT OR LOSS, FOR THE ACCOUNTING PERIOD

USES OF INCOME STATEMENT TO MANAGEMENT

- Strategize profitability - Control expenses

MAJOR ELEMENTS OF INCOME STATEMENT

Revenues / Sales Cost of Goods Sold/Cost of Sales Gross Profit Overhead / Operating Expenses Net Income / Profit

revenue and gains earned by the entity during the accounting period.

Income represents

Revenue arises from the ordinary

activities of an entity. Examples: service fees, sales, interest, dividends, royalties, rent, etc.

Gains are other incomes that

arise from the ordinary or extra ordinary activities of an entity.

earn revenues during the accounting period. Examples: 1. Cost of Goods Sold (also known as Cost of Sales)

Expenses represent the amount of resources used up by the entity to

2. Administrative or general expenses

3. Selling expenses

Cost of Goods Sold (also known as

Cost of Sales) represents the costs of producing or purchasing the goods sold by the company.

Administrative or General Expenses

include all expenses incurred by the administration. Examples: Salaries and fringe benefits, Taxes, Utilities, Depreciation, etc.

Selling Expenses (marketing expenses) are cost necessary to

sell the finished product or service. Examples: Advertising, Sales travel, Shipping, Sales salaries and commissions, finished goods warehousing.

Gross Profit or Gross Margin is

computed as revenue or sales minus cost of goods sold or cost of sales.

Operating Profit or Net Profit before Tax is equal to gross profit minus operating expenses (administrative
and selling expenses).

represents the companys profit or loss after paying income tax.

Net Profit or (Net loss)

Cost of Sales or Cost of Goods Sold (Merchandising Concern) Beginning inventory Net purchases Goods available for sale Less: Ending inventory Cost of sales 500,000 2,000,000 2,500,000 300,000 2,200,000

Gross purchases 1,900,000 Freight-in 150,000 Total 2,050,000 Less: Purchases returns, allowances & discounts 50,000 Net purchases 2,000,000

Cost of Sales or Cost of Goods Sold (Mnufacturing Concern) Beginning raw materials Net purchases Raw materials available for use Less: Ending raw materials Raw materials used Direct labor Factory overhead Total manufacturing costs Beginning goods in process Total cost of goods in process Less: Ending goods in process Cost of goods manufactured Beginning finished goods Goods available for sale Less: Ending finished goods Cost of goods sold 500,000 2,000,000 2,500,000 300,000 2,200,000 3,000,000 1,300,000 6,500,000 900,000 7,400,000 1,000,000 6,400,000 1,600,000 8,000,000 1,500,000 6,500,000

Service Business Weddig "R" Us Income Statement For the month ended May 31, 2013 REVENUES Consulting revenues Referral revenues Total EXPENSES Salaries expense Utilitie expense Rent expense Deepreciation expenses-Service Vehicle Interest expense Supplies expense Insurance expense Depreciation Expense-Office Equipment Total PROFIT

67,700 4,000 71,700 15,600 4,400 4,000 4,000 3,500 3,000 1,200 1,000 36,700 35,000

EXEMPLAR COMPANY Income Statement Year Ended December 31, 2013 Note (1) (2)

Net sales revenue Cost of sales Gross income Other income Investment income Total income

9,000,000 5,400,000 3,600,000 900,000 500,000 5,000,000

(3) (4)

Expenses: Distribution costs Administrative expenses Other expenses Finance cost Income before tax Income tax expense Net income

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

1,350,000 1,000,000 320,000 200,000

2,870,000 2,130,000 580,000 1,550,000

Note 1 Net sales revenue Gross sales Sales return and allowance Sales discount Net sales

9,300,000 (100,000) (200,000) 9,000,000

Note 2 Cost of sales Inventory, January 1 Purchases Freight in Total Purchase return and allowance Purchase discount Goods available for sale Inventory, December 31 Cost of sales

1,500,000 6,000,000 300,000 6,300,000 (150,000) (250,000) 5,900,000 7,400,000 2,000,000 5,400,000

Note 3 Other income Interest revenue Dividend revenue Rent revenue Gain from expropriation Total Note 4 Investment income Share in net income of associate (25%)

180,000 120,000 100,000 500,000 900,000

500,000

Note 5 Distribution costs Sales salaries SSS and Philhealth - sales Sales commission Advertising Store supplies expense Delivery expense Depreciation - store equipment Total distribution costs

600,000 20,000 180,000 100,000 50,000 250,000 150,000 1,350,000

Note 6 Administrative expenses Office salaries SSS and Philhealth - office Bonuses Office supplies expense Taxes and licenses Doubtful accounts Depreciation - office equipment Total administrative expenses

650,000 30,000 100,000 70,000 20,000 40,000 90,000 1,000,000

Note 7 Other expenses Loss on sale of investment Loss on sale of property Casualty loss from earthquake Total Note 8 Finance cost Interest expense on bank loan Interest expense on bonds payable Total finance cost

30,000 120,000 170,000 320,000

50,000 150,000 200,000

Statement of Comprehensive Income

Starts with the profit or loss as shown in the income statement plus or minus the components of other comprehensive. The purpose of this statement is to provide a more comprehensive information on financial performance measured more broadly than the income as traditionally computed.

EXAMPLAR COMPANY Statement of Comprehensive Income Year Ended December 31, 2013 Net income Other comprehensive income to be reclassified to profit or loss Foreign currency translation gain 150,000 Unrealized loss on derivative contract designated as cash flow hedge (100,000) Comprehensive income 1,550,000

50,000 1,600,000

EXAMPLAR COMPANY Statement of Comprehensive Income Year Ended December 31, 2013 Net sales Cost of sales Gross income Other income Investment income Total income Expenses Distribution costs 1,350,000 Administrative expenses 1,000,000 Other expenses 320,000 Finance cost 200,000 Income before tax Income tax expense Net income Other comprehensive income to be recalssified to profit or loss: Foreign currency translation gain 150,000 Unrealized loss on derivative contract designated as cash flow hedge (100,000) Comprehensive income 9,000,000 (5,400,000) 3,600,000 900,000 500,000 5,000,000

2,870,000 2,130,000 580,000 1,550,000

50,000 1,600,000

Statement of Retained Earnings

Shows the changes affecting directly the retained earnings of an entity and relates the income statement to the statement of financial position.

The important data affecting the retained earnings that should be clearly disclosed in the statement of retained earnings are:

a. Profit or loss for the period b. Prior period errors c. Dividends declared and paid to shareholders d. Effect of change in accounting policy e. Appropriation of retained earnings

EXAMPLAR COMPANY Statement of Retained Earnings Year Ended December 31, 2013 Retained earnings, January 1 Correction of error resulting from prior year underdepreciation Change in accounting policy from weighted average to FIFO inventory valuation resulting in an increase Corrected beginning balance Net income for the period Dividends declared during the year Appropriated for contingencies Retained earnings, December 31 1,000,000 (100,000)

300,000 1,200,000 1,550,000 (400,000) (200,000) 2,150,000

Statement of Changes in Equity

A basic statement that shows the movements in the elements or components of the shareholders equity.

An entity shall present a statement of changes in equity showing the following: 1. Total comprehensive income for the period. 2. For each component of equity, the effects of changes in accounting policies and corrections of errors. 3. For each component of equity, a reconciliation between the carrying amount at the beginning and end of the period, separately disclosing changes from: a. Profit or loss b. Each item of other comprehensive income c. Transactions with owners in their capacity as owners showing separately contributions by and distribution to owners.

EXAMPLAR COMPANY Statement of Changes in Equity Year Ended December 31, 2013 Share capital 5,000,000 Reserves 2,000,000 Retained earnings 1,000,000 (100,000) 300,000 1,000,000 250,000 500,000 250,000 1,550,000 50,000 (400,000) 200,000 3,000,000 (200,000) 2,150,000

Balances - January 1 Correction of error resulting from prior year underdepreciation Change in accounting policy from weighted average to FIFO - credit Issuance of 10,000 ordinary shares with P100 par at P150 per share Issuance of 5,000 preference shares with P50 par at P100 per share Comprehensive income: Net income Other comprehensive income Dividends paid during the year Current appropriation for contingencies Balances - December 31

6,250,000