Financial Statement Analysis and Currency Exchange

This assignment involves the preparation and analysis of financial statements in both USD and AUD currencies. It includes calculating and comparing values between the two currencies using a given exchange rate. The student is required to prepare an income statement and balance sheet for a company, convert these statements to Australian dollars, and provide a detailed explanation of the process. The assignment also explores the relationship between assets, liabilities, and shareholder equity, highlighting the importance of considering both sides of the financial equation.

CORPORATE ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
(1) Prepatation of income statement and balance sheet.............................................................1
(2)Currency exchange of values in income statement and balance sheet........................................3
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Income statement and balance sheet are considered as one of the most important financial
statements that firms need to make in order to measure their financial performance. Sometimes
errors remain while preparing these statements. In such situation adjustments are made in
accounts. In current report also changes are made in income statement and true profitability as
well as financial position is computed. At end of the report currency exchange of values is done
and conclusion is formed.
(1) Prepatation of income statement and balance sheet
Table 1Income statement of company
Sales revenues
160000
0
Cost of sales:
Opening inventories
14000
0
Purchases
84000
0
98000
0
Closing inventories
28000
0 700000
Gross profit 900000
Expenses:
Depreciation
11400
0
Other
31240
0 426400
Profit before income tax 473600
Income tax expense 200000
Profit 273600
Retained earnings as at 1 July 2017 200000
473600
Dividend paid
20000
0
0
Dividend declared 200000
Retained earnings as at 30 June 2018 273600
Table 2Balance sheeet of firm
2014 2013
1 | P a g e

Current assets:
Inventories 280000 140000
Accounts receivable 20000 130000
Cash 20000 570000
Total current assets 253600 840000
Non-current assets:
Patent 80000 80000
Plant 840000 600000
Accumulated
depreciation
-
130000 -80000
Land 700000 300000
Buildings
102000
0 820000
Accumulated
depreciation
-
120000 -80000
Total non-current assets
239000
0
164000
0
Total assets
264360
0
248000
0
Current liabilities:
Provisions 500000 620000
Accounts payable 320000 940000
Bank loan 420000
Total current liabilities
112000
0
156000
0
Non-current liabilities:
Loan from Westland Ltd 530000
Total liabilities
165000
0
156000
0
Net assets 993600 920000
Equity:
Share capital 720000 720000
Retained earnings 273600 200000
Total equity 993600 920000
Interpretation
Income statement and balance sheet are the one of the most important statements that are
used to make decisions in respect to the business. As per requirement some of adjustments are
made in the income statement. Changes are made in plant, land and building value and value of
2 | P a g e

these assets are increased by certain amount. Plant value increased by $120000 and land value
increased by $200000. In same way building value increased by $100000. There is not sufficient
cash, in balance sheet and due to this reason it is assumed that entire purchase amount will be
arranged from bank loan (Romney and Steinbart, 2012). Interest percentage of 8% is also
charged on bank loan amount. Calculated amount is subtracted from income from statement of
income. Retained earning amount is transferrd to balance sheet. By same amount current assets
value is also reduced as there is less cash balance. As per rules dividend can be given only by
using current year profit not past year profit (Interim dividend appropriation, 2017). Dividend
wrongly included, related to previous year is recorded in current statement and this unnecesarily
declined the profit. Thus, dividend amount reduced to zero in income statement and amount
equivalent to it is reduced from current liability section in balance sheet (Larcker and Rusticus,
2010). This is because dividend amount is deducted as expense in income statement and in same
manner it is included in current liability. Hence, in this manner balance sheet is been balanced.
(2)Currency exchange of values in income statement and balance sheet
Table 3Exchange of values in AUD
Sales revenues 2432000
Cost of sales:
Opening inventories 212800
Purchases
127680
0
148960
0
Closing inventories 425600 1064000
Gross profit 1368000
Expenses:
Depreciation 173280
Other 474848 648128
Profit before income tax 719872
Income tax expense 304000
Profit 415872
Retained earnings as at 1 July 2017 304000
719872
Dividend paid 304000
0
Dividend declared 304000
Retained earnings as at 30 June 2018 415872
3 | P a g e

Table 4Exchange in values in balance sheet in AUD
2014 2013
Current assets:
Inventories 425600 212800
Accounts receivable 30400 197600
Cash 30400 866400
Total current assets 385472 1276800
Non-current assets:
Patent 121600 121600
Plant 1276800 912000
Accumulated depreciation -197600 -121600
Land 1064000 456000
Buildings 1550400 1246400
Accumulated depreciation -182400 -121600
Total non-current assets 3632800 2492800
Total assets 4018272 3769600
Current liabilities:
Provisions 760000 942400
Accounts payable 486400 1428800
Bank loan 638400 0
Total current liabilities 1702400 2371200
Non-current liabilities:
Loan from Westland Ltd 805600 0
Total liabilities 2508000 2371200
Net assets 1510272 1398400
Equity:
Share capital 1094400 1094400
Retained earnings 415872 304000
Total equity 1510272 1398400
Interpretation
Firm wants to obtain presentation of financial statements in AUD and as such relevant
exchange rate is taken in to consideration for exchange of income, expenditures, assets and
liability (Foreign currency, 2017). As per rules, in order to prepare consolidated financial
statements it is necessary to ensure that all values are in same currency on last date of accounting
year. Due to this last date exchange rate that was at end of accounting year is taken in to account
to prepare income statement and balance sheet at AUD exchange rate.
4 | P a g e

Table 5Currency translation verification
Currency translation adjustments
Pre adjustment
Retained earnings as at 1 July 2017 304000 0
Sales revenues
160000
0 0
Gross profit 900000 0
Total current assets 253600 840000
Total non-current assets
239000
0 1640000
Total current liabilities
112000
0 1560000
Net assets
151027
2 1398400
Post adjustment
Retained earnings as at 1 July 2017 304000 0
Sales revenues
243200
0 0
Gross profit
136800
0 0
Total current assets 385472 1276800
Total non-current assets
363280
0 2492800
Total current liabilities
170240
0 2371200
Net assets
151027
2 1398400
5 | P a g e

Figure 1Formula used for exchange of values in currency
Interpretation
It can be observed that on conversion of values in AUD , financial statement got changed.
Currency exchange rate which is 1.52 for month of June is multiplied to each item of income
statement and balance sheet in order to determine amount in AUD. Image given above indicate
currency exchange rate 1.52 is multiplied to values of all elements of income statement and
balance sheet . By doing so it is ensured that all calculations are done perfectly and there is no
error in calculation.
CONCLUSION
It is concluded that there is relationship between assets, liability and shareholder equity.
Subtraction value of liability from assets is always equal to shareholder equity. Thus, one must
focus more on assets and liabilities while making adjustment in accounts.
6 | P a g e

REFERENCES
Books and Journals
Larcker, D.F. and Rusticus, T.O., 2010. On the use of instrumental variables in accounting
research. Journal of Accounting and Economics, 49(3), pp.186-205.
Romney, M.B. and Steinbart, P.J., 2012. Accounting information systems. Boston: Pearson.
Online
Inrterium dividend appropriation. 2017. [Online]. Available through:<
http://www.futureaccountant.com/funds-flow-cash-flow/study-topics/interim-dividend-
appropriation-payment/f264/#.WeYGKo-CyM8>. [Acessed on 17th October 2017].
Foreign currency. 2017. [Online]. Available through:<
https://www.pwc.com/us/en/cfodirect/issues/foreign-currency.html>. [Accessed on 17th
October 2017].
7 | P a g e