fundamentals of accounting 1
TRANSCRIPT
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DFID Financial Sector DFID Financial Sector DFID Financial Sector DFID Financial Sector Deepening Uganda ProjectDeepening Uganda ProjectDeepening Uganda ProjectDeepening Uganda Project
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PRESENTS A Training Course in Fundamentals of Accounting One for Micro NEBBI TOWN 13TH –17TH FEB 2006
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Trainers and Consultants
�Kisaka and Company Certified Public Accountants Plot 77 Buganda Road
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Overview of FFAP 1-IntroductionDefinition of Accounting
● 3 key words
� Measurement
� Communicating information
� Economic information
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Overview of FFAP 1-IntroductionTypes of Accounting
� Financial Accounting
� Cost Accounting
� Management Accounting
� Public Accounting
� Government Accounting
� Social responsibility Accounting
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Overview of FFAP 1-IntroductionImportance of accounting
� Provide information for decision making
� Helps in planning e.g. Budgets
� Helps in evaluation of the organisation
� Accounts make tax assessments easy
� May be a regulatory requirement
� Eases monitoring of debtors and creditors
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Overview of FFAP 1-IntroductionImportance of accounting to MFIs
� MFI is like any other organisation
� Decision making
� Evaluation of performance
� Tax assessment
� Monitoring debtors and creditors
� Regulatory in tier 4 MFIs and NGOs
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Overview of FFAP 1-IntroductionUsers of accounting information
� Management
� Shareholders
� Creditors
� Government
� Donors
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Overview of FFAP 1-IntroductionAccounting policies/Concepts
� Accounting principle
� Accounting policy
� Accounting standard
� Accounting base
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Overview of FFAP 1-IntroductionAccounting policies/Concepts
� What is an accounting principle?
� Basic ground rules, which;
� Must be followed
� When preparing financial accounts
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Overview of FFAP 1-IntroductionAccounting policies/Concepts
● What is an accounting policy?
● Accounting bases that have been selected by
management to be appropriate for the
organisation.
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Overview of FFAP 1-IntroductionAccounting policies/Concepts
� What is an accounting standard?
� “Guidelines or rules issued by professional accounting bodies governing accounting practice in an area or country”
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Overview of FFAP 1-IntroductionAccounting policies/Concepts
● What is an Accounting Base?
● “Methods developed for applying accounting concepts/ principles to financial transactions”
● They are accounting treatments
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Overview of FFAP 1-IntroductionAccounting policies/Concepts
● Accounting Standards vs Accounting policy?
● Standard overrides
● (Standards prevail over policy)
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Overview of FFAP 1-Introduction Accounting principles
● Two categories of accounting principles
● Fundamental Accounting principles
● Other Accounting principles
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Overview of FFAP 1-Introduction Accounting principles
� Two Fundamental Accounting principles/concepts
� Going Concern concept
� Accrual concept
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Overview of FFAP 1-IntroductionAccounting principles
● Other Accounting Concepts
● Money Measurement Concept
● Business Entity Concept
● Prudence Concept
● Consistency Concept
● Dual Aspect Concept
● Matching Concept
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Overview of FFAP 1-IntroductionAccounting principles
● Other Accounting Concepts
● Substance over form Concept
● Realisation Concept
● Materiality concept
● Relevance Concept
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Overview of FFAP 1-IntroductionAccounting Equation
� What is the Accounting Equation?
� Very simple idea
� (Assets = Capital + Liabilities)
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Overview of FFAP 1-IntroductionAccounting Equation
� What are Assets?
� Resources owned by the organisation that aid
in the income generation process or facilitate
operation
� Anything of economic value owned by the
organisation or individual is an asset
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Overview of FFAP 1-IntroductionAccounting Equation
What are Liabilities?
� Obligations that are to be discharged or repaid
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Overview of FFAP 1-IntroductionAccounting Equation
� What is Capital?
� Owners funds or resources invested by the
owner in the organisation
� Claims of the owners of the business
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Overview of FFAP 1-IntroductionDouble Entry book keeping
� Meaning of Double Entry
� In Financial accounting, every transaction is
recorded twice
� A side that “receives” and another that “gives”
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Overview of FFAP 1-IntroductionDouble Entry book keeping
� Key rules of Double Entry
� 3 Basic rules about recording transactions in a
double entry system
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Overview of FFAP 1-IntroductionDouble Entry book keeping
� Debit “receiver” and credit “giver”
� Debit what comes in and credit what goes out
� Debit all expenses (and losses) and credit all
incomes and gains
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Overview of FFAP 1-IntroductionDouble Entry book keeping
� The T account principles
� Debit
� Credit
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Overview of FFAP 1-IntroductionDouble Entry book keeping
DrCrDrExpense
CrDrCrIncome
CrDrCrCapital & reserves
CrDrCrLiability
Debit (Dr)Credit (Cr)Debit (Dr)Asset
Normal Balance
DecreaseIncreaseType of accounts
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Overview of FFAP 1-IntroductionAccounting Cycle
� What is the accounting cycle?
� “Process which is followed by accountants and
book keepers in processing raw financial data
into Financial Statements”
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Overview of FFAP 1-IntroductionAccounting Cycle
� Stages in the accounting cycle
� Six stages
� Occurrence and documentation of business
transactions
� Entering transactions into Journals
� Posting to the ledgers
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Overview of FFAP 1-IntroductionAccounting Cycle
� Stages in the accounting cycle
� Preparation of the Trial Balance
� End of year adjustments and preparation of
Financial Statements (F/S)
� Analysis and Interpretation of Financial
Statements
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Overview of FFAP 1-IntroductionRecording of Transactions in a typical MFI
� Cash Books
� Records cheque and cash transactions
� Format of cash book
� Two column cash book
� Petty cash book
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Overview of FFAP 1-IntroductionRecording of Transactions in a typical MFI
� Detailed recording is done in subsidiary
ledgers
� Subsidiary ledgers include Debtors ledger,
Creditors ledger, Private ledger and Cash Book
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Overview of FFAP 1-IntroductionRecording of Transactions in a typical MFI
� Ledgers can either:
� Be T accounts
� Or vertical formats with running balances
� Balancing/ closing off accounts
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Overview of FFAP 1-IntroductionAccounting treatment for key transactions in MFIs
� Customer Deposits
� Necessary Books
� Customer withdrawals
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Overview of FFAP 1-IntroductionFixed Assets/Non Current Assets
� Assets acquired for retention by an MFI for the
purpose of providing services to the business
� Not held for sale in the normal course
� Entries passed:
� Dr Fixed Asset A/C
� Cr Cash/Bank
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Overview of FFAP 1-IntroductionFixed Assets/Non Current Assets
� Fixed Asset Depreciation
� What is Depreciation?
� Systematic allocation of depreciable amount of
an asset over its useful life
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Overview of FFAP 1-IntroductionFixed Assets/Non Current Assets
� Methods of charging Depreciation
� Straight Line Basis - uniform depreciation
charges every year
� Declining Balance – Depreciation is charged
on Written Down Value (WDV) of previous year
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Overview of FFAP 1-IntroductionFixed Assets/Non Current Assets
� Disposal of Assets
� Disposal can be:
� Sale of Asset
� Write off
� 3 Sets of entries:
� Dr Fixed Assets (Cost)
� Cr Fixed Asset A/C (Cost)
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Overview of FFAP 1-IntroductionFixed Assets/Non Current Assets
� Dr Accumulated Depreciation with
Accumulated depreciation
� Cr Fixed Asset Disposal A/C
� Dr Cash or Bank (Proceeds)
� Cr Fixed Asset Disposal A/C
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Overview of FFAP 1-IntroductionFixed Assets/Non Current Assets
� Revaluation of Fixed Assets
� Assessing of Current Value of the Asset
� Done by professional valuers
� But can also be done by management
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Overview of FFAP 1-IntroductionFixed Assets/Non Current Assets
� Valuer’s amount – Carrying amount =
Revaluation amount
� Entries include:
� Dr Fixed Asset (revaluation amount)
� Cr Revenue Reserves
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Overview of FFAP 1-IntroductionFixed Assets/Non Current
� Other revaluation issues
� Requirement of IFRS 16
� Revaluation can be reversed
� Revaluation losses
� Depreciation after revaluation
� Revaluation may increase useful life
� Treatment of revaluation reserves
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Overview of FFAP 1-IntroductionFixed Assets/Non Current
� What is a fully depreciated Asset?
� Not depreciated any further
� But still exists with MFI
� Maintain them at Nominal value, say, Shs 99 or
Shs 1000
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Overview of FFAP 1-IntroductionFixed Assets/Non Current
� What is a Fixed Asset register?
� Record of details of all Fixed Assets
� Is the Fixed Asset register necessary to an
MFI?
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Overview of FFAP 1-IntroductionFixed Assets/Non Current
� Helps to record:
� Nature of Asset
� Serial Numbers
� Historical Cost
� Date of acquisition
� Location/ user
� Useful Life
� Depreciation Details
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Overview of FFAP 1-IntroductionFixed Assets/Non Current
� Fixed Asset Controls
� Regularly check for existence
� Engrave assets with unique identification
marks
� Determine the conditions
� Control Assets’ movement
� Institute physical controls
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Overview of FFAP 1-IntroductionTrial Balance
� What is a Trial Balance?
� List of Balances – Credit and Debit balances
� T.B tests accuracy of Double Entry
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Overview of FFAP 1-IntroductionTrial Balance
� Errors Detected by the Trial Balance
� Arithmetic Errors
� Wrong Additions and Subtractions
� The TB will fail to balance because of
Arithmetic Errors
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Overview of FFAP 1-IntroductionTrial Balance
� Errors not affecting the Trial Balance Agreement
� Errors of original entry
� Errors of Commission (Fraud indicator)
� Errors of Principle
� Compensating Errors
� Complete reversal of Entries
� Transposition Errors
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Overview of FFAP 1-IntroductionTrial Balance
� How do we correct Errors?
� Prepare Journal entries
� Post Journal entries to Ledgers
� Check Additions and Subtractions again
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THE WORK SHEET
� What is a Work Sheet?
� An extension of the Trial Balance
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THE WORK SHEET
� What does it include?
� Unadjusted Trial Balance
� Adjustments
� Adjusted Trial Balance
� Income Statement
� Balance Sheet
� Not part of permanent accounting records
� Not a formal Financial Statement
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THE WORK SHEET
� Why prepare a Work Sheet?
� Enables accountants make adjustments to figures in it
� Provides assurance of period-end accounting procedures
� Source document for formal Financial Statements
� Shows Debits and Credits in formal Financial
Statements
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THE WORK SHEET
� Preparation of a Work Sheet
� Using details in Exercise 1, prepare a Work
Sheet for TK company
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THE WORK SHEET
� Reminders:
� T.B is a list of Debit and Credit balances extracted from
ledgers
� Debit Balance-Total debits on A/C exceed total credits
� Bal b/f is on debit side while bal c/f is on credit side
� Credit Balance- Total credits on A/C exceed total
debits
� Bal b/f is on credit side while bal c/f is on debit side
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THE WORK SHEET
� Reminders:
� All assets except bank overdrafts have debit
balances
� All expenses and Drawings have debit
balances
� All assets (except bank overdrafts) ,expenses
and drawings appear on debit side of TB
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THE WORK SHEET
� Reminders:
� Accounts which should have credit balances include:
� Revenues/Incomes
� Capital & Reserves
� Liabilities
� Accounts expected to appear on credit side of TB
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THE WORK SHEET
� Reminders:
� TB checks accuracy of A/C
� Especially observance of double entry rule and
arithmetic accuracy
� If TB fails to balance by an immaterial figure,
introduce suspense A/C
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THE WORK SHEET
� Reminders:
� Errors not detected by TB
� Errors of original entry
� Errors of Omission
� Errors of Commission
� Compensating errors
� Errors of Principle
� Complete reversal of entries
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THE WORK SHEET
� Reminders:
� Final accounts are prepared from adjusted TB
� A Work sheet is an extended TB
� Work sheet reflects year-end adjustments
� It shows whether Final accounts will balance
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THE WORK SHEET
� TK adjustments
4,000,000 2,000,0002,000,000Acc depM/V
CrDrCrDr
Adj TBAdjTBAccount
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THE WORK SHEET
� TK adjustments
8,000,0004,000,0004,000,000Acc dep
Equip
CrDrCrDr
Adj TBAdjTBAccount
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THE WORK SHEET
� TK adjustments
3,000,0001,000,0002,000,000Prov for
B/D
CrDrCrDr
Adj TBAdjTBAccount
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THE WORK SHEET
� TK adjustments
10,000,0002,000,0008,000,000Salaries
CrDrCrDr
Adj TBAdjTBAccount
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THE WORK SHEET
� TK adjustments
17,000,0002,000,00015,000,000Salaries
payable
CrDrCrDr
Adj TBAdjTBAccount
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THE WORK SHEET
� TK adjustments
900,000900,0001,800,000Rent
CrDrCrDr
Adj TBAdjTBAccount
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THE WORK SHEET
� TK adjustments
2,200,0001,000,0001,200,000Bad debts
CrDrCrDr
Adj TBAdjTBAccount
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THE WORK SHEET
� TK adjustments
900,000900,0000Prepaid rent
CrDrCrDr
Adj TBAdjTBAccount
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THE WORK SHEET
� TK adjustments
2,000,0002,000,0000Dep exp
M/V
CrDrCrDr
Adj TBAdjTBAccount
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THE WORK SHEET
� TK adjustments
4,000,0004,000,0000Dep exp
Equip
CrDrCrDr
Adj TBAdjTBAccount
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Preparation of Final Accounts (F/S)Income Statement
� Key Components
� Sales/Revenue/Income
� Cost of Sales
� Gross Profit
� Other income
� Distribution Expenses
� Administration Expenses
� Operating Expenses
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72
Preparation of Final Accounts (F/S)Income Statement
� Net Profit before tax
� Provision for Corporation tax
� Add Retained Earnings b/f
� Appropriations:
� Proposed dividends
� Transfers to reserves
� Cumulative retained earnings c/f
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73
Preparation of Final Accounts (F/S)Balance Sheet
� Key Components
� Fixed/Non Current Assets
� Current Assets
� Total Assets
� Equity and Liabilities
� Capital & Reserves
� Share/Owners’ equity
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74
Preparation of Final Accounts (F/S)Balance Sheet
� Retained Earnings
� Non- Current/ Long term Liabilities
� Current Liabilities
� Total Capital and Liabilities
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75
Preparation of Final Accounts (F/S)
� Exercise 2:
� Use information provided to prepare:
� Journal Entries for all adjustments
� Income Statement and Balance Sheet for Seed
Co Ltd
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76
Preparation of Final AccountsControl Accounts
� What is a Control Account?
� A Summary account
� Also referred to as “total” accounts
� Balance should reconcile to individual ledgers
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77
Preparation of Final AccountsControl Accounts
� Examples of Control Accounts:
� Debtors (Sales) Control Account
� Creditors (Purchases) Control Account
� Savings Control Account
� Loans Control Account
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78
Preparation of Final AccountsControl Accounts
� Why Control Accounts?
� Location of errors
� Detection of fraud
� Enhancing Management Efficiency
� Determination of Credit sales & Credit
purchases
� Entries in Control Accounts
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79
Preparation of Final AccountsControl Accounts
� Location of Errors
� Balance on control account should reconcile to
individual subsidiary ledgers
� Will not reconcile if errors exist
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80
Preparation of Final AccountsControl Accounts
� Detection of Fraud
� Easy to detect manipulation of accounts
� Under control of senior official
� Non reconciliation is an indicator of fraud
� Control accounts strengthen internal control
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81
Preparation of Final AccountsControl Accounts
� Enhancing Management Efficiency
� Creditors and debtors balances can be
obtained at first glance
� Time saving
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82
Preparation of Final AccountsControl Accounts
� Determination of Credit sales & Credit
purchases
� Figures always missing in:
� Single entry and incomplete records, and
� Receipts & Payments accounts
� Obtained from Control Accounts
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83
Preparation of Final AccountsControl Accounts
� Entries in Control Accounts
� Control accounts exist for other transactions
and records
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84
Preparation of Final AccountsControl Accounts
� Example:
� Use the given information to draw up Debtors’
and Creditors’ control accounts for Mugasa
Company Ltd
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85
Preparation of Final AccountsControl Accounts
� Debtors’ bal 1/1/05
� Creditors’ bal 1/1/05
� Cash paid to suppliers
� Cash received from
debtors
� 4,000,000
� 2,500,000
� 16,000,000
� 25,000,000
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86
Preparation of Final AccountsControl Accounts
� Credit purchases
� Discount received
� Bad debts written off
� Sales returns
� 17,000,000
� 500,000
� 100,000
� 200,000
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87
Preparation of Final AccountsControl Accounts
� Purchases returns
� Debtors cheque
dishonoured
� Discount allowed
� Credit sales
� 300,000
� 150,000
� 700,000
� 30,000,000
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88
Preparation of Final AccountsControl Accounts
� Example:
� You are required to draw up debtors and
creditors control accounts
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89
Preparation of Final AccountsControl Accounts-Debtors control
� Bal b/f
� Debtors cheque
� (Dishonoured)
� Credit sales
� 4,000,000
� 150,000
� 30,000,000
� 34,150,000
![Page 90: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/90.jpg)
90
Preparation of Final AccountsControl Accounts-Debtors control
� Cash
� Bad debts written off
� Sales returns
� Discount allowed
� Bal c/d
� 25,000,000
� 100,000
� 200,000
� 700,000
� 8,150,000
� 34,150,000
![Page 91: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/91.jpg)
91
Preparation of Final AccountsControl Accounts-Creditors control
� Cash paid to suppliers
� Discount received
� Purchase returns
� Bal c/d
� 16,000,000
� 500,000
� 300,000
� 2,700,000
� 19,500,000
![Page 92: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/92.jpg)
92
Preparation of Final AccountsControl Accounts-Creditors control
� Bal b/d
� Credit purchases
� 2,500,000
� 17,000,000
� 19,500,000
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93
Preparation of Final AccountsControl Accounts
� Exercise 3
� Use the information provided to:
� Prepare control accounts
� Make corrections to the control accounts of
Mosa company Limited
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94
Preparation of Final AccountsControl Accounts
� Savings Control Account
� Individual Ledgers Summary-Control a/c
� 10001 Member xxx
� 10002 Member xxx
� 10003 Member xxx
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95
Preparation of Final AccountsControl Accounts
� Procedure:
� Divide the Savings ledgers into batches of sub
ledgers
� Post daily withdrawals & deposits to pass
books & Ledgers
� Summarise transactions that belong to each
ledger on a day/transaction sheet
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96
Preparation of Final AccountsControl Accounts
� Day/Transaction sheet
� Date…12/07/2006……..
Ledger No……2……..
700,00050,000TOTAL
700,000Royal Complex378
50,000Turyamureba202
CreditDebitParticularsAccount
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97
Preparation of Final AccountsControl Accounts
� Control A/c Savings Ledger 2
Etc
3,180,000800,000380,000Day transaction12 July 06
2,000,00011 July 06
Balance CR
CreditDebitDetailsDate
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98
Preparation of Final AccountsKey Performance Measures
� Trend analysis
� Ratio analysis
� Comparative statement analysis
� Inter-Firm analysis
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99
Preparation of Final AccountsKey Performance Measures
� Trend Analysis:
� What is Trend Analysis?
� Analysis of direction of changes over a period
of years, or
� Comparison of financial ratios over a period
� Also called “trend-percentage method”
![Page 100: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/100.jpg)
100
Preparation of Final AccountsKey Performance Measures
� Ratio Analysis:
� What is Ratio Analysis?
� Indicated quotient of two mathematical
expressions, or
� Relationship between two or more accounting
figures, expressed mathematically
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101
Preparation of Final AccountsKey Performance Measures
� Types of Ratios:
� Liquidity ratios
� Leverage ratios
� Activity ratios
� Profitability ratios
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102
Preparation of Final AccountsKey Performance Measures
� Liquidity ratios:
� Measure firm’s ability to meet current
obligations
� Examples of liquidity ratios include,
� Current ratio
� Quick ratio
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103
Preparation of Final AccountsKey Performance Measures
� Liquidity ratios:
� Current ratio = Current assets
� Current Liabilities
� Quick ratio = Current assets – Inventories
� Current Liabilities
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104
Preparation of Final AccountsKey Performance Measures
� Leverage Ratios:
� Show proportions of debt and equity in
financing the firm’s assets
� Examples:
� Debt ratio
� Debt – Equity ratio
� Interest cover
![Page 105: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/105.jpg)
105
Preparation of Final AccountsKey Performance Measures
� Debt ratio = Total Debt
� Capital employed
� Debt – equity ratio = Capital employed
� Net Worth
� Interest cover = EBIT
� Interest
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106
Preparation of Final AccountsKey Performance Measures
� Activity Ratios:
� Reflect the firm’s efficiency in utilising its
assets
� Examples:
� Inventory turnover
� Debtors turnover
� Asset turnover
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107
Preparation of Final AccountsKey Performance Measures
� Inventory turnover = Cost of goods sold or
� Average inventory
� Sales
� Inventory
� Days of inventory holdings = Inventory x 365
� Sales
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108
Preparation of Final AccountsKey Performance Measures
� Profitability ratios:
� Measure the overall performance and
effectiveness of the firms
� Examples:
� Gross and Net Profit Margins
� Return on investment (R.O.I)
� Earnings Yield
![Page 109: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/109.jpg)
109
Preparation of Final AccountsKey Performance Measures
� Gross Profit Margin = Gross Profit
� Sales
� Net Profit Margin = Net Profit
� Sales
� Return on investment = EBIT
� Total Assets
![Page 110: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/110.jpg)
110
Preparation of Final AccountsKey Performance Measures
� Earnings Yield = Earnings per share
� Market value per share
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111
Preparation of Final AccountsKey Performance Measures
� Example:
� Using information given, prepare,
� Trend Analysis
� Key financial ratios for 2004 for HYT Company
Ltd
![Page 112: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/112.jpg)
112
Preparation of Final AccountsKey Performance Measures
� Sales
� Cost of goods sold
� Gross Profit
� Selling & admn exp
� Operating income
� Other income
� EBIT
� 2003 2004
� 2,338,900 2,825,690
� 1,929,040 2,322,800
� 409,860 502,890
� 239,720 262,100
� 170,140 240,790
� 15,240 25,380
� 185,380 266,170
![Page 113: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/113.jpg)
113
Preparation of Final AccountsKey Performance Measures
� Interest
� Provision for tax
� Profit after tax
� Share capital
� Reserves
� Net worth
� Long term debentures
� Others
� 2003 2004
� 59,840 124,980
� 41,790 30,000
� 83,750 111,190
� 225,000 225,000
� 286,130 357,950
� 511,130 582,950
� - 75,750
� 199,870 285,900
![Page 114: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/114.jpg)
114
Preparation of Final AccountsKey Performance Measures
� Total Long term debt
� Short term borrowing
� Total borrowing
� Capital employed
� Total non current assets
� Total current assets (incl. inventories)
� 2003 2004
� 199,870 361,650
� 442,920 641,390
� 642,790 1,003,040
� 1,153,920 1,585,990
� 546,700 663,620
� 866,080 1,404,550
![Page 115: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/115.jpg)
115
Preparation of Final AccountsKey Performance Measures
� Inventories
� Debtors
� Current Liabilities
� 2003 2004
� 476,280 778,890
� 253,160 340,610
� 258,860 482,180
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116
Preparation of Final AccountsKey Performance Measures
� Solution:
� Liquidity Ratios:
� Current Ratio = 1,404,550
� 482,180
� = 2.9:1
� Quick Ratio = 1,404,550 – 778,890
� 482,180
� = 1.3:1
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117
Preparation of Final AccountsKey Performance Measures
� Leverage Ratios:
� Debt Ratio = 1,003,040
� 1,585,990
� = 0.63
� D/E Ratio = 1,585,990
� 582,950
� = 2.7
![Page 118: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/118.jpg)
118
Preparation of Final AccountsKey Performance Measures
� Interest cover = 266,170
� 124,980
� = 2.13 times
� Activity Ratios:
� Inventory turn over = 2,322,800
� 778,890
� = 2.98 times
![Page 119: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/119.jpg)
119
Preparation of Final AccountsKey Performance Measures
� Debtors turn over = 2,825,690
� 170,305
� = 16.6 times
� Note:
� Average debtors = 340,610/2
� = 170,305
![Page 120: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/120.jpg)
120
Preparation of Final AccountsKey Performance Measures
� Asset turn over = 2,825,690
� (663,620 + 1,404,550)
� = 2,825,690
� 2,068,170
� = 1.37 times
� Gross Profit = 502,890
� 2,825,690
� = 0.178 or 17.8%
![Page 121: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/121.jpg)
121
Preparation of Final AccountsKey Performance Measures
� Net Profit margin = 111,190
� 2,825,690
� = 0.039 or 3.9%
� Return on Investment = 266,170
� 2,068,170
� = 0.129 or 12.9%
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122
Preparation of Final AccountsKey Performance Measures
� Trend Analysis:
� 2003 2004
� Sales 100 2,825,690 x 100
� 2,338,900
= 120.8
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123
Preparation of Final AccountsKey Performance Measures
� 2003 2004
� EBIT 100 266,170 x 100
� 185,380
� = 143.6
![Page 124: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/124.jpg)
124
Preparation of Final AccountsKey Performance Measures
� 2003 2004
� PAT 100 111,190 x 100
� 83,750
� = 132.8
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125
Preparation of Final AccountsKey Performance Measures
� 2003 2004
� Current assets 100 1,404,550 x 100
� 866,080
� = 162.2
![Page 126: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/126.jpg)
126
Preparation of Final AccountsKey Performance Measures
� 2003 2004
� Current Liabilities 100 482,180 x 100
� 258,860
� = 186.3
![Page 127: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/127.jpg)
127
Preparation of Final AccountsKey Performance Measures
� 2003 2004
� Fixed assets 100 663,620 x 100
� 546,700
� = 121.4
![Page 128: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/128.jpg)
128
Preparation of Final AccountsKey Performance Measures
� 2003 2004
� Total assets 100 = (663,620 + 1,404,550)
� (546,700 + 866,080)
� = 2,068,170
� 1,412,780
� = 146.4
![Page 129: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/129.jpg)
129
Preparation of Final AccountsKey Performance Measures
� 2003 2004
� Net Worth 100 = 582,950 x 100
� 511,130
� = 114.1
![Page 130: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/130.jpg)
130
Preparation of Final AccountsBank Reconciliation
� What is bank reconciliation?
� Process of bringing into agreement the balance
as per cash book (bank column) and the
balance as per bank statement
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131
Preparation of Final AccountsBank Reconciliation
� What is the importance of Bank Reconciliation?
� Strengthens an organisation’s internal control
system
� Leads to accuracy in records
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132
Preparation of Final AccountsBank Reconciliation
� Why is there discrepancy between cash book
and bank statement balances?
� Direct debits e.g. bank charges, standing
orders
� Direct credits e.g. interest received
� Un presented cheques
� Un credited cheques
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133
Preparation of Final AccountsBank Reconciliation
� Discrepancies cont’d
� Clerical errors
� Dishonoured cheques
� Unrecorded items (intentional)
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134
Preparation of Final AccountsBank Reconciliation
� Why should the bank dishonour a cheque?
� Insufficient funds (R/D)
� Amount in words and figures differ
� Signature on cheque different from specimen
� Cheque is stale
� No counter signature on alterations in words
and figures
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135
Preparation of Final AccountsBank Reconciliation
� No account title on cheque
� Payee’s identity doubted
� Payment vouchers not attached (if a BoU
cheque)
![Page 136: Fundamentals of Accounting 1](https://reader036.vdocuments.mx/reader036/viewer/2022081717/553cfbac550346e2498b4bf7/html5/thumbnails/136.jpg)
136
Preparation of Final AccountsBank Reconciliation
� Methods of Bank Reconciliation
� Cash book balance adjusted towards bank
balance
� Bank balance adjusted towards cash book
balance
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137
Preparation of Final AccountsBank Reconciliation
� Example:
� The following is a cash book and bank
statement for BTY Ltd for December 2005
� You are required to prepare a bank
reconciliation statement for BTY Ltd for
December 2005.
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Preparation of Final AccountsBank Reconciliation
� Date Details Amount
� 1/12 Bal b/f 80,000,000
� 2/12 Joel 60,000,000
� 10/12 Maria 24,000,000
� 14/12 Henry 10,000,000
� Date Details Amount
� 7/12 Moses 32,000,000
� 8/12 Patra 40,000,000
� 11/12 Pam 30,000,000
� 17/9 Otto 14,000,000
� 28/12 Jim 6,000,000
� 28/12 Jack 4,000,000
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139
Preparation of Final AccountsBank Reconciliation
� 16/12 Jane 4,000,000
� 28/12 Pat 34,000,000
� 30/12 Kim 13,000,000
� 30/12 Sarah 2,000,000
� Total 227,000,000
� 30/12 Jill 2,000,000
� 30/12 Stella 1,000,000
� 30/12 Peter 4,000,000
� Bal c/f 94,000,000
� Total 227,000,000
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140
Preparation of Final AccountsBank Reconciliation
Balance(Shs)Cr (Shs)Dr (Shs)DetailsDate
62,000,00024,000,000Maria14/12
38,000,00030,000,000Pam13/12
68,000,00040,000,000Patra10/12
108,000,00032,000,000Moses8/12
140,000,00060,000,000Joel5/12
80,000,000Bal b/f1/12
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141
Preparation of Final AccountsBank Reconciliation
Balance(Shs)Cr (Shs)Dr (Shs)DetailsDate
89,800,000200,000Bank charge
30/12
90,000,00016,000,000Grace26/12
74,000,0002,000,000Brenda25/12
76,000,00018,000,000Lillian20/12
58,000,00014,000,000Otto18/12
72,000,00010,000,000Henry16/12
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142
Preparation of Final AccountsBank Reconciliation
� Note:
� A cheque written to Jim on 28th December
2005, and one received from Jane and banked
on 16th December 2005 were dishonoured by
the bank.
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143
Preparation of Final AccountsBank Reconciliation
� Solution:
� Method 1 – Adjusting cash book towards bank
statement balance
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144
Preparation of Final AccountsBank Reconciliation
� Bal b/f 94,000,000
� Lillian 18,000,000
� Grace 16,000,000
� Jim 6,000,000
� (Dishonoured cheque)
� Total 134,000,000
� Jane 4,000,000
� Brenda 2,000,000
� Bank charge 200,000
� Bal c/f 127,800,000
� Total 134,000,000
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145
Preparation of Final AccountsBank Reconciliation
� Bank reconciliation for the month of December
2005
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146
Preparation of Final AccountsBank Reconciliation
11,000,0004,000,000Peter
1,000,000Stella
2,000,000Jill
4,000,000Jack
Add: un presented
cheques
127,800,000Bal as per adjusted cash book
ShsShs
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147
Preparation of Final AccountsBank Reconciliation
138,800,000
89,800,000Bal as per bank statement
49,000,0002,000,000Sarah
13,000,000Kim
34,000,000Pat
Less: un credited
cheques
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148
Preparation of Final AccountsBank Reconciliation
� Method 2:
� Bank statement balance adjusted towards the
cash book balance
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149
Preparation of Final AccountsBank Reconciliation
Un credited cheques:
2,200,000200,000Bank charges
2,000,000Brenda
Add: Direct debits
89,800,000Bal as per bank
statement
ShsShsShs
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150
Preparation of Final AccountsBank Reconciliation
145,000,000
55,200,0004,000,000Jane
Dishonoured
cheques
49,000,0002,000,000Sarah
13,000,000Kim
34,000,000Pat
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151
Preparation of Final AccountsBank Reconciliation
4,000,000Jack
Unpresented cheques:
34,000,00016,000,000Grace
18,000,000Lillian
Less: Direct credits
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152
Preparation of Final AccountsBank Reconciliation
94,000,000Bal as per cash
book
51,000,0006,000,000Jim
Dishonoured
cheque
11,000,0004,000,000Peter
1,000,000Stella
2,000,000Jill
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153
Preparation of Final Accounts (F/S)Cash Flow Statements
� What is a Cash Flow Statement?
� A Logical statement
� Summary of how cash flowed in and out of the
business (MFI) during the reporting period
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154
Preparation of Final Accounts (F/S)Cash Flow Statements
� Why Cash Flows?
� Assess ability to generate cash
� Show how the enterprise (MFI) utilised those
Cash Flows
� Used to assess future Cash Flows
� Users can evaluate changes in Net Assets
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155
Preparation of Final Accounts (F/S)Cash Flow Statements
� Major components of Cash Flow statements
� Cash Flows from operating activities
� Cash Flows from investing activities
� Cash Flows from financing activities
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156
Preparation of Final Accounts (F/S)Cash Flow Statements
� Net increase or decrease in cash and cash
equivalents
� Cash and cash equivalents at beginning of the
period
� Cash and cash equivalents at end of the period
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157
Preparation of Final Accounts (F/S)Cash Flow Statements
� What are operating activities?
� Principle revenue producing activities of an MFI
� Examples:
� Cash receipts from sales
� Other cash receipts
� Cash payments
� Cash to employees
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158
Preparation of Final Accounts (F/S)Cash Flow Statements
� What are investing activities?
� Acquisitions and disposals of long term assets
and other investments not included in cash
equivalents
� Examples:
� Cash paid to acquire property
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159
Preparation of Final Accounts (F/S)Cash Flow Statements
� What are Financing activities?
� Activities that result in changes in the size and
composition of the entity’s capital and
borrowing
� Examples:
� Cash proceeds from issuing shares
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160
Preparation of Final Accounts (F/S)Cash Flow Statements
� Exercise 3:
� Using information provided, prepare a Cash
Flow statement for Underwriters Limited
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161
International Accounting Standards (IASs) relevant to MFIs
� IAS 24- Related Parties
� Introduction
� The IAS is applied in identifying:
� Related party relationships & transactions
� Outstanding balances between an entity & its
related party
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162
International Accounting Standards (IASs) relevant to MFIs
� IAS 24- Related Parties
� Disclosures
� Determining disclosures to be made
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163
International Accounting Standards (IASs) relevant to MFIs
� IAS 24- Related Parties
� Who is a related party?
� An entity that:
� Directly or indirectly controls another through
intermediaries
� For example subsidiaries, associates or joint
ventures
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164
International Accounting Standards (IASs) relevant to MFIs
� IAS 24- Related Parties
� Who is a related party?
� An associate
� Who is an associate?
� Defined by IAS 28
� An entity whether incorporated or not, over which an investor has significant influence
� It is neither a subsidiary nor an interest in a joint venture
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165
International Accounting Standards (IASs) relevant to MFIs
� IAS 24- Related Parties
� Who is a related party?
� A Joint Venture
� What is a Joint Venture?
� Defined in IAS 31
� A contractual arrangement where two or more parties undertake an economic activity subject to joint control
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166
International Accounting Standards (IASs) relevant to MFIs
� IAS 24- Related Parties
� Who is a related party?
� A member of the key management personnel of the entity or its parent
� Close member of the family of member of management
� Post-employment benefit plan for the benefit of employees of entity or related party entity
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167
International Accounting Standards (IASs) relevant to MFIs
� IAS 24- Related Parties
� What is a related party transaction?
� A transfer of resources, services or obligations
between related parties, regardless of whether
a price is charged
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168
International Accounting Standards (IASs) relevant to MFIs
� IAS 24- Related Parties
� Who is a close family member?
� Expected to influence or be influenced by, an individual, in dealings with an entity. They include:
� Domestic partner and children
� Children of an individual’s domestic partner
� Dependants of an individual or individual’s domestic partner
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169
International Accounting Standards (IASs) relevant to MFIs
� IAS 24- Related Parties
� What is compensation?
� All forms of consideration paid, payable or
rendered to an entity
� Consideration paid on behalf of parent of entity
in respect of the entity
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170
International Accounting Standards (IASs) relevant to MFIs
� IAS 24- Related Parties
� What does compensation include?
� Short term employee benefits
� Post-employment benefits
� Other long term employee benefits
� Termination benefits
� Share based payment
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171
International Accounting Standards (IASs) relevant to MFIs
� IAS 24- Related Parties
� Who is a key management personnel?
� Person having authority and responsibility for planning, directing and controlling the activities of the entity
� Control may be direct or indirect
� Includes any director whether executive or otherwise
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172
International Accounting Standards (IASs) relevant to MFIs
� IAS 24- Related Parties
� Disclosure requirements
� They include:
� Relationships between parents and
subsidiaries, whether related or not
� Compensation for key management personnel
� Benefits to key management personnel
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173
International Accounting Standards (IASs) relevant to MFIs
� IAS 24- Related Parties
� Disclosure requirements cont’d
� Nature of related party relationship
� Information about transactions and outstanding
balances
� Amounts of transactions and outstanding
balances
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174
International Accounting Standards (IASs) relevant to MFIs
� IAS 24- Related Parties
� Disclosure requirements cont’d
� Provisions for doubtful debts related to
outstanding balances
� Expense of bad or doubtful debts recognised
during the period
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175
International Accounting Standards (IASs) relevant to MFIs
� IAS 24- Related Parties
� Note:
� Required disclosures should be made
separately for parent, joint ventures,
Subsidiaries, Associates, Key management
personnel and other related parties.
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176
International Accounting Standards (IASs) relevant to MFIs
� IAS 18 – Revenue
� The standard applies to revenue arising from:
� Sale of goods
� Rendering of services
� Use (by others) of entity assets yielding
interest, royalties and dividends
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177
International Accounting Standards (IASs) relevant to MFIs
� IAS 18 – Revenue
� What is revenue?
� Gross inflow of economic activities
� During a period
� Arising in course of ordinary activities of entity
� Inflows result in increases in equity, other than
contributions from equity participants
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178
International Accounting Standards (IASs) relevant to MFIs
� IAS 18 – Revenue
� Recognition of revenue
� Criteria is different for revenue from goods,
services, interest, royalties and dividends
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179
International Accounting Standards (IASs) relevant to MFIs
� IAS 18 – Revenue
� When is revenue from sale of goods
recognised?
� Entity has transferred, to the buyer, significant
risks and rewards of ownership of goods
� Entity retains neither managerial involvement
or effective control over goods sold
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180
International Accounting Standards (IASs) relevant to MFIs
� IAS 18 – Revenue
� When is revenue from sale of goods recognised?
� Revenue can be measured reliably
� It’s probable that economic benefits associated with transaction will flow to the entity
� Costs (to be) incurred on transaction can be measured reliably
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181
International Accounting Standards (IASs) relevant to MFIs
� IAS 18 – Revenue
� When is revenue from rendering of services
recognised?
� Amount of revenue can be measured reliably
� It’s probable that economic benefits associated
with the transaction will flow to the entity
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182
International Accounting Standards (IASs) relevant to MFIs
� IAS 18 – Revenue
� When is revenue from rendering of services
recognised?
� Stage of completion of transaction, at the
balance sheet date, can be measured reliably
� Costs incurred on transaction and costs to
complete transaction can be reliably measured
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183
International Accounting Standards (IASs) relevant to MFIs
� IAS 18 – Revenue
� Note:
� When the outcome of the transaction involving
rendering of services cannot be estimated
reliably, revenue is recognised only to the
extent of expenses recognised that are
recoverable
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184
International Accounting Standards (IASs) relevant to MFIs
� IAS 18 – Revenue
� When is revenue from interest, royalties and
dividends recognised?
� It’s probable that economic benefits associated
with the entity will flow to the entity
� Amount of revenue can be measured reliably
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185
International Accounting Standards (IASs) relevant to MFIs
� IAS 18 – Revenue
� What is the basis for recognising revenue from
interest, royalties and dividends?
� Interest – Effective interest method ( IAS 39)
� Royalties – Accrual basis
� Dividends – When shareholder’s right to
receive payment is established
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186
International Accounting Standards (IASs) relevant to MFIs
� IAS 18 – Revenue
� Measurement of Revenue
� Revenue is measured at the Fair Value of the
consideration received or receivable
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187
International Accounting Standards (IASs) relevant to MFIs
� IAS 18 – Revenue
� What is Fair Value?
� Amount for which an asset could be
exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s
length transaction
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188
International Accounting Standards (IASs) relevant to MFIs
� IAS 18 – Revenue
� Disclosure requirements
� Accounting policies adopted for recognition of revenue
� Stage of completion in respect of services rendered
� Amount of revenue arising from exchange of goods or services included in each category
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189
International Accounting Standards (IASs) relevant to MFIs
� IAS 18 – Revenue
� Disclosure requirements cont’d
� Amount of each significant category of revenue
recognised e.g. revenue from:
� Sale of goods
� Rendering of services
� Revenue from interest, royalties and dividends
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190
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� The standard is applied in accounting for
Property, Plant and Equipment
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191
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� What is Property, Plant and Equipment?
� Tangible items held in the production or supply
of goods or services, for rental to others, or for
administrative purposes
� Expected to be used during more than one
period
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192
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� When is Property, Plant and Equipment
recognised?
� It’s probable that future economic benefits
associated with the item will flow to the entity
� Cost of item can be measured reliably
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193
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� Measurement of PPE at recognition
� An asset shall be measured at Cost
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194
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� What is Cost?
� Amount of cash or cash equivalents paid
� Fair Value of other consideration given to acquire asset at time of acquisition or construction
� Amount attributable to an asset when initially recognised in accordance with other IFRSs
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195
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� Measurement after initial recognition
� An entity chooses either Cost model or
Revaluation model
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196
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� Cost model
� Items of PPE are carried at cost less accumulated depreciation and any accumulated impairment
� Impairment loss - amount by which carrying amount of an asset exceeds its recoverable amount
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197
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� Carrying amount – Amount at which an asset is
recognised after deducting any acc
depreciation and acc impairment
� Recoverable amount – Higher of Net Selling
Price and its Value-in-use
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198
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� Revaluation model
� Item of PPE is measured at revalued amount if
its fair value can be measured reliably
� Revalued amount = Fair Value – Subsequent
acc depreciation – Subsequent acc impairment
loss
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199
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� Revaluation model
� Note:
� Revaluations should be made with sufficient regularity
so that carrying amount does not differ materially from fair value at balance sheet date.
� Revaluation should be done for entire class of assets
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200
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� De-recognition of PPE
� On disposal of PPE
� When no future economic benefits are
expected from its use or disposal
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201
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� De-recognition of PPE
� Note:
� Gain or loss arising on derecognition of PPE is
included in P&L for the year as other income
and not classified as revenue
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202
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� Gain or Loss on disposal = Sales proceeds –
Carrying amount
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203
International Accounting Standards (IASs) relevant to MFIs
� Example:
PPE bought in 3rd Jan 2003 at a cost of Ushs 500,000 had a carrying amount of Ushs 200,000 by 24th Dec 2005. The PPE was sold for Ushs 270,000.
� What is the gain or loss on disposal?
� Show the accounting treatment for the above transaction.
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International Accounting Standards (IASs) relevant to MFIs
� Solution:
� Gain or Loss = Sales/Disposal Proceeds –
Carrying amount of PPE
� Gain = 70,000 (270,000 – 200,000)
� Accounting treatment
� Dr Cash/Bank 70,000
� Cr P&L 70,000
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205
International Accounting Standards (IASs) relevant to MFIs
� Solution:
� Dr Asset disposal 200,000
� Cr PPE 200,000
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206
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� Disclosure requirements
� Measurement bases for determining gross
carrying amount
� Depreciation methods used
� Useful lives or depreciation rates used
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207
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� Disclosure requirements cont’d
� Gross carrying amount, acc depreciation and
acc impairment at beginning and end of period
� Reconciliation of carrying amount at beginning
and end of period, showing:
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208
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� Disclosure requirements cont’d
� Additions
� Acquisitions through business combinations
� Assets held for sale or disposal (IFRS 5)
� Increases or decreases resulting from revaluation & impairment losses recognised or reversed directly in equity
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209
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� Disclosure requirements cont’d
� Impairment losses recognised in P&L
� Impairment losses reversed in P&L
� Depreciation
� Net exchange differences arising on translation
of financial statements
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210
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� Disclosure requirements cont’d
� Existence and amounts of restrictions on title &
PPE pledged as security for liabilities
� Amount of expenditure recognised in carrying
amount of item of PPE in course of
construction
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211
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� Disclosure requirements cont’d
� Amount of contractual commitments for
acquisition of PPE
� Amount of compensation from third parties for
items of PPE that were impaired, lost or given
up, that is included in P&L
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212
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� Disclosure requirements cont’d
� For PPE stated at revalued amounts,
� Effective date of revaluation
� Whether an independent valuer was used
� Methods and significant assumptions were
applied in estimating fair values
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213
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� Disclosure requirements cont’d
� Extent to which fair values were determined directly by reference to observable prices in an active market
� For each class of PPE, carrying amount that would have been recognised if assets were carried under the cost model
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214
International Accounting Standards (IASs) relevant to MFIs
� IAS 16 –Property, Plant and Equipment
� Disclosure requirements cont’d
� Revaluation surplus, indicating change for the
period and any restrictions on distribution of
balance to shareholders
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215
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Standard is applied to all general purpose
financial statements prepared and presented
in accordance with IFRSs
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216
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Components of Financial Statements
� Balance Sheet
� Income Statement
� Statement of changes in equity
� Cash Flow Statement
� Significant accounting policies & explanatory notes
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217
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� International Financial Reporting Stds (IFRSs)
� Standards and interpretations adopted by
International Accounting Standards Board
(IASB)
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218
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Standards include:
� IFRSs
� International Accounting Standards (IASs)
� Interpretations originated by IFRIC or former
SIC
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219
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Fair presentation and compliance with IFRSs
� Involves faithful presentation and disclosure
� F/S comply only when prepared in accordance
with requirements of IFRSs
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220
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� An entity which departs from requirements of
the standard or interpretation should disclose
that:
� Management concludes fairness of F/S
� Applicable standards & interpretations were
complied with
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221
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Nature & reason for departure from standard
� Financial impact of departure on F/S items
� Nature, reason & Financial impact of non
compliance in prior years should be disclosed
in the current year
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222
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Key disclosures in F/S
� Name of reporting entity
� Whether F/S are for individual entity or group
� B/S date or period covered by the F/S
� Presentation currency
� Level of rounding off
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223
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Reporting period
� At least one year
� For periods shorter or longer than one year,
reason & un comparability of prior year figures
should be disclosed
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224
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Balance Sheet presentation:
� Items to be presented on the face of B/S
include:
� PPE
� Investment property
� Intangible Assets
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225
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Balance Sheet presentation cont’d:
� Financial Assets
� Investments accounted for under equity
method
� Biological assets
� Inventories
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226
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Balance Sheet presentation cont’d:
� Trade & other receivables
� Cash & cash equivalents
� Trade & other payables
� Provisions
� Financial Liabilities
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227
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Balance Sheet presentation cont’d:
� Liabilities & assets for current tax (IAS 12)
� Deferred tax Liabilities & Assets (IAS 12)
� Minority interest, presented within equity
� Issued capital & reserves attributable to equity
holders of the parent
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228
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Balance Sheet presentation cont’d:
� Assets held for sale
� Liabilities included in disposal groups
� Headings and sub-totals
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229
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Balance Sheet presentation cont’d:
� Items presented either on face of B/S or in the
notes include:
� Number of shares
� Issued & Fully paid shares
� Issued but not fully paid shares
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230
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Balance Sheet presentation cont’d:
� Par value per share
� Bonus shares
� Reconciliation of shares at beginning and end
of period
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231
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Balance Sheet presentation cont’d:
� Rights, preferences and restrictions attached to
class of shares e.g. distribution of dividends &
repayment of capital
� Shares held by entity, subsidiaries or
associates
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232
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Balance Sheet presentation cont’d:
� Shares reserved for issue under options &
contracts for sale of shares
� Nature & purpose of each reserve within equity
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233
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Income Statement presentations:
� All items of income & expense recognised in a
period. They include:
� Revenue
� Finance costs
� Profit/loss of associates or joint ventures
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234
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Income Statement presentations cont’d:
� Tax expense
� Post-tax profit/Loss of Discontinued Operations
� Profit or Loss
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235
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Income Statement presentations cont’d:
� Profit/Loss attributable to Minority Interest
� Profit/Loss attributable to equity holders of
parent company
� Headings and sub-totals
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236
International Accounting Standards (IASs) relevant to MFI
� IAS 1 – Presentation of Financial Statements
� Statement of changes in equity presentations:
� Profit or Loss for the period
� Each item of income & expense recognised
directly in equity
� Income and expense for the period attributable
to parent and minority interest
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237
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Statement of changes in equity presentations:
� Effects of changes in accounting policies and
correction of errors
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238
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Statement of changes in equity presentations:
� Other disclosures include,
� Amounts of transactions with equity holders
� Retained earnings b/f, for the period & c/f
� Reconciliation of equity & reserves at
beginning & end of period
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239
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Cash Flow Statement presentations:
� Discloses information required by IFRSs that is
not presented on the face of the Balance
Sheet, Income Statement and Statement of
changes in equity.
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International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Other disclosures (in the notes) include:
� Proposed & declared dividends
� Amount of un recognised cumulative dividends
� Domicile & legal form of entity
� Country of incorporation
� Address of entity’s registered office
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241
International Accounting Standards (IASs) relevant to MFIs
� IAS 1 – Presentation of Financial Statements
� Other disclosures (in the notes) cont’d:
� Nature of entity’s operations & principal
activities
� Name of parent and ultimate parent of the
group