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Lesson-
FINANCIAL STATEMENTS
Income Statement A typical and Standard Income Statement and Balance Sheet of a manufacturing concern would be as follows:-
INCOME STATEMENT/PROFIT & LOSS ACCOUNT MOOSA & CO. LTD FOR/DURING THE PERIOD 2005- Rs. in _______ Net Sales * 100 Cost of Goods Sold * Raw material 30 Salaries & wages (direct Labour) 10 Stores & spares 5 Utilities 5 Depreciation 5 Others 5
Total 60 Gross Profit (loss) 40
- Net Sales = Gross Sales – Sales returns – Sales allowances/discounts.
- Cost of Goods sold = Cost of production of goods actually sold; also called “cost of sales”: largest expense item.
Operating expenses
Selling & admin 5
Advertising 5
Depreciation & others 5
Total 15
Operating Profit (EBIT) 25
EBIT: Earning before Interest and Taxes.
Other expenses *
Financial charges i.e. interest 5 Loss on sale of assets 1 Purchase of goodwill 1 Total 7___ Profit before tax (EBT) 18 Provision for tax 5 Profit after tax 13
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Other income * Investment gains 7 Net Profit 20 ===== (bottom line)
Dividend paid 5
Retained earnings 15 (Added in shareholder’s equity and carried forward to Balance Sheet)
- Other expenses: also called non-operating expenses.
- Other income: Dividend revenue, Interest revenue, Gain on Assets Sales etc. The above is called Multiple – Step Income Statement.
Special items: These are one-time items that will not recur in the future, and are disclosed separately on Income Statement. Examples are: discontinued operations (firm selling a major portion of its business), extra ordinary transactions (unusual in nature), and cumulative effect of changes in accounting methods of Inventory and Depreciation.
Illustration # 1
The following Trial Balance has been extracted from the books of ABC Company. on 30-06-2002. From this, prepare an Income Statement and Balance Sheet for the year ended 30-06-2002.
Particulars Dr. Cr. Sales 200, Purchases 180, purchase return 2, Office salaries 3, Furniture & Fixture 16, Office Equipment 11, Rent 5, Accounts Payable(creditors) 28, Sales Salaries 3, Freight & custom duty on purchases 6000 Repair of office equipment 2, Accounts Receivable(debtors) 52, Freight on sales 1, Capital 41, Cash in hand 37, Loan from bank(for three years) 50, Bank charges 500 Interest on loan 5, Grand Total 322,000 322,
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Discounts Allowed 20, Carriage outward 35, Sales 1,500, Trade Debtors 250, Trade Creditors 220, Bank 165, Cash 110, Drawings 175, Capital July 01, 2001 863, Total 2,888,000 2,888,
Notes: Stock on June 30, 2002. o Raw Material 42, o Work in Process 56, o Finished Goods 60, 50% of electricity, insurance and salaries are charged to factory and balance to office. Depreciation to be charged on Plant & Machinery at 20%, Office Equipment at 10% and Vehicles at 20%on WDV. Write off bad debts Rs. 30,000. All the wages are direct.
Required: You are required to prepare profit and loss account for the year and balance sheet as on june30, 2002.
SOLUTION
Profit & Loss Account
Hassan Manufacturer Concern
Profit and Loss Account For the Year Ending June 30, 2002 Particulars Note Amount Rs.
Sales Less: Cost of Goods Sold 1
Gross Profit Less: Administrative Expenses 2 Less: Selling Expenses 3
Operating Profit 29,
Less: Bank Charges 8,
Net Profit Before Tax 20,779 docsity.com
NOTES TO THE ACCOUNTS
- Stock of Raw Material Jul 01, 2001 35, Note # 1 Cost of Goods Sold
- Add. Purchases 250,
- Add. Freight Inward 12, - 297,
- Raw Material Consumed 255, Less: Closing Stock of Raw Material (42,000)
- Direct labour 180,
- Factory Overheads 125, Factory Overheads
- Electricity (50% of 80,000) 40,
- Salaries (50% of 140,000) 70,
- Insurance (50% of 150,000) 75,
- Plant Depreciation (Note 5) 40,960 350,
- Total Factory Cost 786,
- Add: Work in Process Jul 01, 2001 42,
- Cost of Goods Manufactured 771, Less: Work in Process Jun 30, 2002 (56,500)
- Add: Finished Goods Stock Jul 01, 2001 85,
- Cost of Goods Sold 796, Less: Finished Goods Stock Jun 30, 2002 (60,000)
- Salaries (50% of 140,000) 70, Note # 2 Administrative Expenses
- General Expenses 60,
- Rent 200,
- Insurance (50% of 150,000) 75,
- Discount Allowed 20,
- Bad Debts 30,
- Office Electricity (50% of 80,000) 40,
- Depreciation Vehicles (Note 5) 20,
- Depreciation Office Equip. (Note5) 3,
- Administrative Expenses 518,
- Salesman Commission 120, Note # 3 Selling Expenses
- Carriage Outward 35,
- Selling Expenses 155,
