Preparation of Financial Statements

This assignment involves preparing the financial statements of International Manufacturers Ltd, including a trial balance, income statement, and statement of financial position. The provided information includes accounts payable, bank loans, other loans, dividend paid, land, buildings, plant and equipment, franchise, goodwill, cash in hand, cash on deposit, accounts receivable, allowance for doubtful debts/impairments, and closing stock. The assignment requires calculations to be done using the given information, and then preparing the required financial statements based on the results. This will demonstrate an understanding of the preparation of financial statements and their limitations.

FINANCIAL ACCOUNTING FOR
REPORTING ENTITIES

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Part A..........................................................................................................................................1
Part B...........................................................................................................................................2
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Financial accounting is a special branch of accounting that tracks an organisation's
financial transactions. Reporting based upon standardized guidelines for record and summarized
the transactions while preparing financial report. This reports covers that major limitations of a
statement of financial position and calculated financial trial balance with adjustments. profit or
loss and comprehensive income for international manufactures, statement of changes in equity
and statement of financial position for international manufactures Ltd. are presented in this report
accordance with AASB 101.
MAIN BODY
Part A
Statements of financial position are reports prepared by an organization's management to
present the financial position and performance at a point in time. It states the liabilities, assets
and owner's equity on particular time (Limitations of financial statements 2018). These
statements are prepared to spring users outside of an organisation, like creditors and investors,
more than information about company's financial positions. Financial statements have some
limitations, they are as follows -
1. Do not give exact position
The financial statements are verbalised in monetary values, so they come out to give final and
accurate position. In the balance sheet, amount of fixed assets neither represents the amount of
which fixed assets can be sold nor the value which will be required to replace these assets. For
the preparation of balance sheet using assumption of going concern. According to this concern
business will continue in future (Adams and Simnett, 2011). So, on fixed cost are shown cost
less accumulated depreciation. There are definite assets in the financial statement like as discount
on issue of shares, preliminary expenses, goodwill which will recognise nothing at the time of
settlement though are shown in the balance sheet. Intangible assets are not recorded as assets in
balance sheet. Alternatively, any expenditure made to move on intangible assets are instantly
charged to expenses. This policy can drastically estimation the amount of an enterprise,
especially one that has exhausted a large value to develop a brand picture or to create new
products (Brown, Beekes and Verhoeven 2011). It is a specific trouble for start up companies
that have created rational property, but which have to create distant minimal sales.
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2. Only interim Reports
Financial statement do not show a concluding image of the going concern. These statements
shown only approximate data. The real status can only be discovered when the business
organization is liquidated or sold. However, the balance sheet have to be prepared for various
accounting periods, broadly one year, during the life time period of the going concern. The
incomes and costs be taken over to various periods with a aspect to find out earnings
(Badertscher, Burks, and Easton, 2011). The allocation of incomes and expenses will look on the
personal opinion of the accountant. The state of contingent liabilities and assets also makes the
statements imprecise. So balance sheet do not give actual and final picture and they are at the
most interim reports.
3. Historical Cost
The financial statements of an organisations are oven-ready on the basis of original costs and
historical costs. The amount of assets flexure with the section of time current value accusation
are not interpreted into account (Simnett, and Huggins, 2015). While preparing statements,
prevalent economic condition were not taken into account. The financial statements suffer the
significant of existence an index of current economic actuality. Likewise, the profit shown by
income statement may not shows the earning capacity of the going concern. The change in net
income may be due to some abnormal causes and due to increases in prices and not collect to
increases in ratio. The decision drawn from financial statements may not spring a clean picture of
the going concern (Norwani, Zam, and Chek, 2011).
Part B
1. International Manufacturers Ltd – Trial Balnce as at 30 June 2018
Particulars DR ($’000) CR ($’000)
Sales - 5120
Interest income - 34
Sundry income - 25
Cost of sales 2465 -
Employee benefit expenses 856 -
Depreciation expense 244 -
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Amortisation - franchise 25 -
Rental expense 120 -
Advertising expense (selling) 147 -
Insurance expense 48 -
Freight out expense 11 -
Doubtful debts expense 16 -
Interest expense 36 -
Borrowing costs 9 -
Other expenses 8 -
Income tax expense 320 -
Cash on hand 960 -
Cash on deposit, at call 82 -
Accounts Receivables 665 -
Allowance for doubtful debts/ Impairments 24 -
Other debtors 27 -
Finished goods inventories, 30 June 2018 600 -
Work in Progress inventories 30 June 2018 105 -
Land 94 -
Buildings 230 -
Accumulated depreciation – buildings 60 -
Plant and equipment 1385 -
Accumulated depreciation – plant and equipment 330 -
Franchise 140 -
Accumulated amortisation of franchise 50 -
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Goodwill 620 -
Bank loans - 92
Other loans - 440
Accounts payable - 696
Provision for employee benefits - 116
Income tax payable - 35
Deferred tax liability - 140
Retained earnings, 30 June 2017 - 225
Dividends paid - 135
Cash flow hedge reserve - 20
Share capital - 2698
Totals 9776 9776
2. International Manufacturers Ltd – Income Statement as at 30 June 2018
Particulars
Amount Amount
Income
Sales 5120000 -
Interest income 34000
Sundry income 25000
(A): Total income - 5179000
Expenditures:
Cost of sales 2465000 -
Employee benefit expenses 856000 -
Depreciation expense 244000 -
Amortisation – franchise 25000 -
Rental expense 120000 -
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Advertising expense 147000 -
Insurance expense 48000 -
Freight out expense 110000 -
Doubtful debts expense 16000 -
Interest expense 36000 -
Borrowing costs 9000 -
Other expenses 8000 -
(B): Total Expenditures - 4084000
Profit before tax (A-B) - 1095000
Less: Income tax expenses - 320000
Profit after tax - 775000
3. Statement of Changes in equity of international manufactures Ltd as on 30th June,2018
Amounts($) Amounts($)
Equity Share Capital as on 30th June, 2017 (350000 shares
@5.00 each) 1750000 -
Retained earnings as on 30th June, 2017 225000 -
Equity as on 30th June, 2017 - 1975000
Add:
75000 shares issued (75000 shares @4.00 per share) 300000 -
Profit after tax (as calculated in note 1) 775000 -
Gain from cash flow hedging 20000 -
- 1095000
- 3070000
Less:
Dividend paid 135000 -
Final proposed dividend 51850 -
Employee benefits to be settled within a year 32000 -
Bank loans repayable within 1 year 25000 -
Bank loans repayable within 1 year 90000 -
- 333850
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Equity as on June 30, 2017 - 2736150
4. Statement of financial position for international manufactures Ltd
AASB 101:
The Australian accounting standards boards(AASB), is an Australian government
agency which maintain and acquire the financial reports which is applicable for the business of
the Australian economy. It's powers and functions are commenced in Australian Securities And
Investment Commission Act 2001. The AASB made accounting standard AASB 101
Presentation of Financial Statements which comes under section 334 of the Corporation act
2001. The objectives of this standard to assist the person so that they interpret the performance
and position of an organisation. The nature and purpose of AASB 101, if any errors occurs
while applying it, then the risk increases for customers or failed to provide them sufficient
information.
Particulars
As at 30 June,
2018
(A) EQUITY AND LIABILITIES
1. Share holders fund
Share capital 2698000
2. Non current liabilities
Deferred tax liability 140000
Retained earnings as on 30th June, 2017 225000
Provision for employee benefits 116000
3. Current liabilities
Accounts payable 696000
Bank loans 92000
Other loans 440000
4. Other current liabilities
Dividend paid 135000
TOTAL (A) 4542000
(B) ASSETS
1.Non current Assets
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Land 94000
Buildings 230000
Less: Accumulated depreciation -60000 170000
Plant and equipment 1385000
Less: Accumulated depreciation -330000 1055000
Franchise 140000
Goodwill 620000
Current Assets
Cash in hand 960000
Cash on deposit, at call 82000
Accounts receivable 665000
Allowance for doubtful debts/ Impairments 24000
Other debtors 27000
closing stock 705000
TOTAL (B) 4542000
5. Note (1)
Income tax treatment on the basis of AASB 112 and an entity presents items of other
compherensive income -
(a) Net of refelected tax effects
(b) Before related tax effects with one value shown for the collective sum of tax relating items.
CONCLUSION
It is cocluded that AASB101 represent the financial statement of of the accounts.
Identified limitations of a statement of financial position and know that financial statements not
expressed actual position, showing only interim reports and based on historical cost rather than
actual cost. With the help of given information, calculation is done and then trial balance, income
statement and statement of financial position of international manufactures Ltd have been
prepared.
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