unit 10 fin accounting & reporting
TRANSCRIPT
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SUBJECT: HND PEARSON EDEXCEL
UNIT NAME: PREPARATION OF FINANCIAL STATEMENTS,
COMPLYING WITH RELEVANT LEGAL AND
REGULATORY PROVISIONS
UNIT NO: 10
UNIT CODE: F/601/0864
WORDS COUNTS: 5624
STUDENT NAME: H!"U##$
COLLEGE: INSTITUTE OF %USINESS LEADERSHIP&I'#()*
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Table of contents
Sr No. Description Page
1 Task 1.1 The main users of Financial Statements
6
2 Task 1.1 The Information Needs of Users of Financial Statements
8
3 Task 1.2 (a) e!al and "e!ulator# influences on
$
Financial Statements
% Task 1.2 (&) 'o as"e!ulations are dealt ith
*ccountin! Standards
+ Task 2 (a) Total ,urchases for the #ear ended 31 *u!ust 2--3
1%
6 Task 2 (&) ,rofit and oss *ccount
1%
Task 3/ 0onsolidated Financial Statements *ne td
1+
8 Task 3/ 0onsolidated Income Statements *ne td
16
$ Task % (a) Imortance of 0oman# Financial Information to
18
different Stakeholders
1- Task % (&) Financial Statements for the #ear 4arch 315 2-12
1$
11 Task +.1 0alculatin! "atios *2 4otors
21
12 Task +.1 0alculatin! "atios Fashion 7o7o td
22
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Task +.2 Interretin! ratios *2 4otors
23
12 Task +.2 Interretin! ratios Fashion 7o7o td
2%
12 Task +.2 9eaknesses and imitations of ratio anal#sis/
2+
ACKNOWLEDGEMENT
I woul li!e to eicate "# wor! to "# respecta$le teac%er an "# parents
w%o alwa#s %elpe "e an supporte in "# stuies. I also eicate "#
wor! to t%e aut%or w%ose wor! pro&ie "e goo assistance in "#
assign"ent.
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Research Method:
I ha:e used secondar# methods for collection of data takin!
hel from different sources like Internet5 &ooks and different
articles etc5
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Task 1.1. The Main Users of Financial Statements:
The rimar# o&;ecti:e of financial statements is to ro:ide users ith adedards @ ?ell &elie:e that the accountin! information hels in e:aluatin!decisions5 thus contri&utin! to (>dards @ ?ell5 1$615 . %)/
monitorin! current e:ents in the roduction rocessA
formulatin! &etter decisions in the futureA
chan!in! the decisionmakin! rocess.*lthou!h the# &elie:e that Bthe ta= authorities5 &usiness oners5 anal#sts5 the!eneral u&lic should ro&a&l# &e amon! those that influence the t#e ofinformation roducedC (>dards @ ?ell5 1$615 . %)5 their information needs areconsidered less imortant than those of the mana!ement5 notin! that Bthe ointof :ie of e=ternal users of accountin! information cannot e=ercise si!nificantinfluence in the &usinessD decisionsC (>dards @ ?ell5 1$615 . 1-+).Therefore5 in >dardsD and ?ellDs :ie5 intended users ere e=istin! androsecti:e mana!ers. Unlike >dards and ?ell5 Sterlin! (Sterlin!5 1$-) doesnot distin!uish &eteen different t#es of users. 'e classifies users &eteenmana!ers and other stakeholders5 considerin! that the# could include creditors5oners5 emlo#ees5 and !o:ernment institutions (Sterlin!5 1$-5 . 132).In the UE5 the *ccountin! Standards Steerin! 0ommitteeD discussion aer5entitled BThe 0ororate "eortC5 ondon5 1$+5 lists users identified ith areasona&leri!ht to o&tain information/
the !rou of in:estors includin! shareholders and the holders ofsecuritiesA
the !rou of creditors includin! e=istin! and otential holders of &ondsandloans for stocks and shortterm secured and unsecured loan ro:idersA
the !rou of emlo#ees includin! current5 rosecti:e and formeremlo#eesA
the !rou of ad:isors5 anal#sts includin! financial anal#sts5 economists5
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;ournalists5 statisticians5 researchers and other ro:iders of ad:isor#ser:icesA
the !rou of &usiness artners includin! customers5 suliers andcometitors5 those interested in mer!ers and ac
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knonA for each case5 makin! a comarison &eteen &enefits o&tained and costs
incurred5 so methods ro:idin! the !reatest net &enefit are chosen."e!ardin! the identification of users of financial statements5 it can &e said thatonl# those for hich financial statements are useful ill use these financial
statements and ho the# ill &e used ill &e influenced information ro:ided these financial statements. Thus5 user identification deends on the !eneralconcetual frameork ofdraftin! financial statementsA also the de:eloment of the !eneral concetualframeorkdeends on these users.9e find in some authors a differentiation &eteen :arious t#es of users. Thus5some di:ide users into to !rous ("iahi?elkaoui5 2--%5 . 133)5 as follos/
irect users' consisting o() oners and shareholders of the economic entit#A
creditors and suliersA the mana!ement of the economic entit#A ta= authoritiesA emlo#ees of the economic entit#A clients.
inirect users' consisting o() financial anal#sts and consultantsA stock e=chan!esA la#ersA
financial ress and a!enciesA rofessional associationsA unionsA cometitionA the u&licA other !o:ernment a!encies.
T%e In(or"ation Nees o( *sers o( +inancial State"ents
(0#ert @ I;iri5 1$%5 . 2$) considered that formulatin! accountin! o&;ecti:es
needs to sol:e the conflict of interest re!ardin! e=istin! information needs5considerin!that financial statements are the result of the interaction &eteen three !rous5namel#/ economic entitiesA usersA accountin! rofession.>conomic entities are the main !rou directl# in:ol:ed in accountin!. Throu!h
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financial statements5 the# ro:ide a reflection of their &usiness5 consistin! ofoeratin!5 financial and e=traordinar# acti:ities. >conomic entities are alsoamon! those ho de:elo accountin! information.Users are the second !rou5 and their interests and their information needs e=ertdirect influence on the roduction of the accountin! information. The accountin!
rofession is the third !rou that influences the t#e of accountin! informationthat needs to &e included in financial statements.The Frameork for the ,rearation and ,resentation of Financial Statements5issued the I*S0 in *ril 1$8$5 esta&lished that financial statements meet Bthecommon information needs of a ide ran!e of usersC (2--5 . ar.6). "e!ardin!the identification of rimar# users5 e note that in accordance ith theFrameork for the ,rearation and ,resentation of Financial Statements5ara!rah 1-5 in:estors are rimordial users of financial statements as Bthesul# of financial statements that meet their needs ill satisf# most of the needsof others usersC. *lso ara!rah 3- of the Financial *ccountin! Standards ?oard(F*S?) BStatement of Financial *ccountin! 0oncets No. 1. &;ecti:es of
Financial "eortin! ?usiness >nterrisesC (1$8)5 stated that Bin:estors andcreditors and their ad:isers reresent the most rominent e=ternal !rou usin!information ro:ided financial reortin!C. In ara!rah 1.11. of 0hater 1/B&;ecti:es of Financial StatementsC in the BStatement of ,rinciles for Financial"eortin!C issued the *ccountin! Standard ?oard in 7ecem&er 1$$$5in:estors ere considered rimar# users5 hile also la#in! an emhasis on Bthecommon interest that all users ha:e in terms of an entit#Ds financial erformanceand financial ositionC. Information useful and necessar# to in:estors asro:ided to them throu!h financial statements5 hile their information not usefulto them as deemed unnecessar# to &e resented in financial statements. UnderB&;ecti:es of Financial StatementsC in the BStatement of ,rinciles for Financial"eortin!C issued the *ccountin! Standard ?oard in 7ecem&er 1$$$5 theinformation needs of in:estors are those relatin! to/ financial erformanceA financial ositionA !eneration and use of cashA financial adata&ilit#.The in:estorsD information need re!ardin! financial erformance comes fromthe fact that this financial erformance ro:ides information a&out/the mana!ementDs a&ilit# to administer the economic entit#5 as ell as ast andfuture financial erformance of the entit#AThe entit#Ds a&ilit# to !enerate cash flos usin! the a:aila&le resources5 and the
effecti:eness ith hich the entit# has used its resources. The in:estorsDinformation need re!ardin! financial osition is due to the folloin! reasons/ assessment of the mana!ementDs administration5 and the a&ilit# of an entit#
to !enerate future cash flos is &ased on information a&out the economicresources controlled the entit# and uses of these resources in the astA
assessment of ho future cash flos ill &e distri&uted to those ho ha:e aninterest in the entit# is &ased on information a&out the financial structureA
assessment of the entit#Ds a&ilit# to meet its o&li!ations at maturit# is &ased
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on information a&out li0).
*ll of the S>0Hs disclosure re0 !uidelines. For e=amle5 in 2--- theS>0 imosed ne re!ulations to eliminate the ractice of selecti:e disclosure5in hich &usiness leaders ro:ided earnin!s estimates and other :ital informationto anal#sts and lar!e institutional shareholders &efore informin! smaller in:estorsand the rest of the !eneral u&lic. The re!ulation forces comanies to makemarketsensiti:e information a:aila&le to all arties at the same time. 7ramaticand seein! amendments ere made to the S>0Hs disclosure rules in the
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summer of 2--2 ith the assa!e of the Sar&anes=le# *ct5 often referred tosiml# as Sar&anes=le#5 Sar&anes5 or SJ.
T%e Sar$anes1O2le# Act
The Sar&anes=le# *ct came a&out &ecause of the stunnin! and une=ected&ankrutc# filed >nron5 an enormous ener!#tradin! coman# in late 2--1.This &ankrutc# filin! as the lar!est to date in 2--15 it cost in:estors &illionsand emlo#ees lost far more than their ;o&s5 man# lost their life sa:in!s. The>nron de&acle ould ha:e &een re:ented if audits of the coman# had detectedaccountin! irre!ularities or if the coman# ould ha:e &een renronHsfailure as the result of corrut ractices. 0oncern
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reortin! re0 and to shareholders.
,u&licl# oned comanies reare to annual reorts5 one for the S>0 and onefor their shareholders. Form 1-E is the annual reort made to the S>05 and itscontent and form are strictl# !o:erned federal statutes. It contains detailed
financial and oeratin! information5 as ell as a mana!ement resonse tosecific
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oned comanies for their annual reortin!. The rosectus5 hich contains allinformation to &e resented to otential in:estors5 must include such items asaudited financial statements5 a summar# of selected financial data5 andmana!ementHs descrition of the coman#Hs &usiness and financial condition.The statement should also include a summar# of the coman#Hs material
&usiness contracts and list all forms of cash and noncash comensation !i:en tothe chief e=ecuti:e officer (0>) and the to fi:e officers. 0omensation aid toall officers and directors as a !rou must also &e disclosed. In essence5 acoman# seekin! to !o u&lic must disclose its entire &usiness lan.
Securities Inustr# 0egulations
*dditional disclosure las al# to the securities industr# and to the onershi ofsecurities. fficers5 directors5 and rincial stockholders (defined as holdin! 1-ercent or more of the coman#Hs stock) of u&licl# oned comanies mustsu&mit to reorts to the S>0. These are Form 3 and Form %. Form 3 is a
ersonal statement of &eneficial onershi of securities of their coman#. Form %records chan!es in such onershi. These reortin! re0.
Securities &rokerdealers must ro:ide their customers ith a confirmation formas soon as ossi&le after the e=ecution of an order. These forms ro:idecustomers ith minimum &asic information re
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disclosed are financial records5 accountin! olicies emlo#ed5 liti!ation inro!ress5 lease information5 and details of ension lan fundin!. Generall#5 fulldisclosure is re
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* countr#Hs accountin! s#stem ma# also reflect its cultural &ack!round. ar!ecomanies in France must u&lish a social &alance sheet detailin!comensation of their orkforces. Stron! antiinflation &iases are em&edded inGerman accountin! ractices as a reaction to the h#erinflation of the earl#
1$2-s (Griffin5 2--$).
*ccountin! s#stem structure is hea:il# influenced economic and oliticals#stems also. In centrall# lanned economies5 accountin! s#stems are desi!nedto ro:ide information hich shos ho state funds are used and hether statemandated roduction
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Task : &onsolidated Financial StatementsA-One ltd Consolidated Statement of Financial Statement
For the year ended 30 September 1997
inmillions!
"onc#rrent assets$
Tangible Fixed Assets (1280+440) 1,720
C#rrent assets
Stocks (300+20) 0
!ebto"s (280+10#100) 330
$as% and &ank (40+10) 0
Total assets%&'0
()#ity * +iabilities$
T"ade $"edito"s (80+1'0) 240
t%e" $"edito"s (1'0+70) 230
"o*isions o" iabilities and c%a"ges (4'0+20)480
"o-osed !i*idends 270
"dina". s%a"e ca-ital /1 (A#ne ltd onl.)00
"o- etained ea"nings () 02
5on#cont"olling inte"est (4) 28
Total e)#ity and liabilities%&'0
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Consolidated ,ncome Statement
For the year ended 30 September 1997
in
millions!
e*ene (1700+40) 210
$ost o sales (20+7) ()
"oss -"o6t 11''
-e"ating ex-enses (300+17) (47)
"o6t beo"e taxation &0
Tax (30+20) (0)
"o6t o" t%e .ea" &30
Att"ibtable to
"on-controllin. interest 30 / %0!
&
ro#p &30-&! &%2
1! ro#p Str#ct#re
A#ne td
80
ne td
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%! "et assets of 4-One +td 5al#es in 000!
9 ac:isition 9 "e-o"tingdate
S%a"e ca-ital 400,000400,000
etained ;a"nings 40100,000
2006020 '006000
3! ood ill
a"ent %olding (in*est
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7,'8
(80 x (00,000#400,040)(2))
ood ill (?3) (7,'0)
'0%600
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Tas! ; a/ I"portance o( Co"pan# +inancial In(or"ation to i((erentSta!e%olers
The o&;ecti:e of financial statements is to ro:ide information a&out the financialosition5 erformance and chan!es in financial osition of an enterrise that is
useful to a ide ran!e of users in makin! economic decisions (I*S? Frameork).Financial Statements ro:ide useful information to a ide ran!e of users/Managersre
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Tas! ; $/ Pro(it an Loss Account+or t%e #ear 7, Marc% -6,-
Sales ,'969'6
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6%65%+TOTAL ASSETS
,'86-'=;8
E>uit#)
Issued Share 0aital8--5---
"etained >arnin!s (1362-%O18$-2+283+%) 2$658+Transfers to reser:es (1--5---)
1$658+General "eser:e (12----O----)
1$-5---
Forei!n >=chan!e "eser:e (2----O3----) +-5---
1523658+
Lia$ilities)
*ccounts a#a&le 235+167i:idends ,a#a&le 2853+%
26+8-Total E>uit# ? Lia$ilities
,'86-'=;8
Task '.1: &alculation Ratios to measure erformance
A-@ Motors) -66:-6,6
0OCEP ,?IT 0aital >mlo#ed 3-2-+ P ,;2+26- P:.9
0eturn on E>uit#P ,*T rdinar# Share caitalO "eser:es 231%+ P ,91+16- P:.7
Gross Pro(it "arginP Gross Income Sales 2+++-- P8, 2++61- P ;-
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Net Pro(it "arginP eratin! Income Sales 23+-- P;.9 1+61-P -.;
Interest Co&erP ,?IT 7e&t Interest 3- P ;.-
ti"es 2+1- P -.8 ti"es
Current 0atioP 0urrent assets current lia&ilities 8-2+ P 7.-++2- P -.