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FINANCIAL STATEMENTS OF LIMITED COMPANIES

Statement of Changes in Equity

Statement of changes in equity shows the movement in:

1. Share Capital (issued share capital)
2. Share Premium
3. Nature of Reserves created
4. Un-appropriated Profit / Loss
5. Dividend Distributed

Share Premium

Share Premium is the amount received in excess of the face value of the share. Example: if a Rs. 10 share is sold for Rs, 12 then Rs. 2 is share premium. Share Premium can not be distributed among the share holders. It can be utilized:

1. To issue Bonus Shares
2. To write off Preliminary Expenses
3. To meet the difference of face value and cash received in case of shares issued at discount
4. To meet the expenses of issue of shares
5. For payment of premium on redemption of debentures.

Reserves

Capital Reserve and Fixed Asset Replacement Reserve are used for specific purpose. These are not distributed among share holders. General Reserve and undistributed profit` can be distributed among share holders. Revaluation Reserve is created when an asset is re-valued from cost to market value. Revaluation Reserve can not be distributed among the share holders. It can be utilized for:

1. Setting off any loss on revaluation
2. At the time of disposal of asset, the reserve relating to that asset is transferred to profit & loss account.

Cash Flow Statement

Cash Flow Statement shows the movement of cash resources during the year. It gives information about sources of income and account heads on which this amount is spent. It is an integral part of financial statements.

Notes to the Accounts

Notes to the accounts are the explanatory notes of all the items shown in the profit and loss account and the balance sheet. It is the requirement of the Companies Ordinance and the International Accounting Standards. Following are explained in Notes to the accounts:

1. Nature of business of the company
2. Accounting Policies of the company
3. Details and explanation of items given in the Profit and Loss Account and Balance Sheet.

Debentures

Debentures are acknowledgment of debt, owed by the company to the public at large for a defined period of time, and has a mark up (profit) rate attached to it. Debentures are issued under the common seal (Stamp) of the company. Debenture is an instrument for obtaining loan from general public. Mark up is paid on Debentures which is generally equal to the market rate.

Term Finance Certificate

Term Finance Certificates are issued for a defined period. These are also issued to obtain loan from public at large. Both Debentures and Term Finance Certificates are usually issued by Public Companies.

Illustration

Additional Information

• Closing stock is valued at Rs. 412,780.
• Accrue Auditors’ remuneration Rs. 71,000.
• Dividend is proposed @37.5% for the year.
• Depreciate plant & machinery @20% on cost.
• Of the motor hire, Rs. 55,000 is for selling purposes.
  • Directors’ remuneration has been as follows:

1. Chairman 46,640
2. Managing Director 51,500
3. Finance Director 46,000
4. Marketing Director 51,000

195,140

You are required to prepare profit & loss account as on June 30, 2002 and balance sheet for the reported period.

Solution

While presenting the financial Statements of the company, balance sheet is presented first and profit & loss account is presented later, but we cannot prepare balance sheet without preparing profit and loss account. So we will prepare profit and loss account first.

Balance Sheet

ABC Limited

Balance Sheet As At June 30, 2002

Particulars Note

Current Liabilities

Creditors Bills Payable Auditors Remuneration Payable Proposed Dividend

Working Capital

Net Assets Employed

Financed By: Authorized Capital 50,000 Shares of Rs. 10 each

Paid Up Capital 30,000 Shares of Rs. 10 each Share Premium General Reserve Accumulated Profit and Loss Account

Total

2,215,600

304,570 57,000 71,000 375,000

807,570

1,783,030

1,679,740

1,500,000

1,000,000 120,000 48,000 511,740

1,679,740

Profit & Loss Account