Analyzing Financial Statements of Emirates Traders Ltd

This assignment tasks students with analyzing the comprehensive income statement for Emirates Traders Ltd. The statement details revenue, cost of sales, operating income, expenses (categorized by function), and ultimately, the company's comprehensive income. Students are expected to interpret these figures, understand how different expense classifications impact financial reporting, and demonstrate knowledge of accounting standards like IFRS & IAS.

Prepare financial reports for a
corporate entity

Table of Contents
INTRODUCTION ..........................................................................................................................1
QUESTION 1...................................................................................................................................1
Journal entries for purchase combination...............................................................................1
Journal entries for settlement..................................................................................................2
QUESTION 2...................................................................................................................................3
Statement of taxable income..................................................................................................3
Journal entries of tax expense and tax effect of temporary difference...................................3
QUESTION 3...................................................................................................................................5
Prepare cash flow from operating activities...........................................................................5
QUESTION 4 ..................................................................................................................................6
CONCLUSION ...............................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
In the business unit, it is highly required for the manager to prepare accounts and present
report about the same in a highly structured way. Moreover, reports furnish information about
the financial position and performance of firm. Consolidated financial statements may be defined
as a framework that combines assets, liabilities, equity, income, expenses and cash flows of
parent and subsidiary company into one. In IAS 27, rules are mentioned in relation to the
preparation and presentation of consolidated accounts. In this, report will describe the manner in
which consolidated statements can be prepared for presenting information more effectually.
QUESTION 1
Journal entries for purchase combination
Table 1: Journal entries for Purchase of business
Particulars Debit Credit
Net assets acquired a/c Dr 494000
To purchase consideration 494000
Net assets acquired a/c Dr 494000
Goodwill a/c Dr 6000
To purchase consideration 500000
Inventory a/c Dr 100000
Accounts receivable a/c Dr 200000
Land a/c Dr 300000
Buildings a/c Dr 170000
Motor vehicle a/c Dr 5000
Goodwill a/c Dr 6000
To accounts payable 181000
To bank overdraft 100000
To purchase consideration 500000
Working notes
W.N.1
1

Table 2: Calculation of net asset acquired
Particulars Book Value Fair value
Assets
Inventory 145000 100000
Accounts receivable 225000 200000
Land 50000 300000
Building 80000 170000
Motor vehicle 40000
24000 16000 5000
Fittings and equipment 60000
Accumulated
depreciation 25000 35000 0
Total assets 551000 775000
Liabilities
Accounts payable 181000
Bank overdraft 100000
Total liabilities 281000
Net assets acquired 494000
Journal entries for settlement
Table 3: Purchase consideration settlement
Particulars Debit Credit
Purchase consideration
a/c Dr 500000
To Capital-Thomas
woods 125000
To Capital-John woods 125000
To cash 250000
Working notes
W.N.1
Particulars Amount
2

Capital-John woods 125000
Capital-Thomas Woods 125000
Cash (Balancing figure) 250000
Purchase consideration 500000
QUESTION 2
Statement of taxable income
Particulars Amount
Accounting profit 80000
Add: Accounting expenses that are not tax deductible
Transfer to warranty expense 10000
Transfer to Doubtful debt allowance 13000
Add/Less: Difference between accounting expenses and tax deductions
Warranty expenses 7000
Less: Accounting revenue that are not taxable
Capital profit on asset sale 15000
Taxable income 81000
Rent received in advance 7000
Net taxable income 74000
Working notes
W.N.1
Particulars Amount
Taxable income 74000
Less: Tax deductions
Tax for depreciation 16500
Taxable income 22200
Tax @30% 6660
3

Journal entries of tax expense and tax effect of temporary difference
Particulars Debit Credit
Income tax expense a/c Dr 6660
To Current tax liability 6660
Narration: Being income tax expense recognised for the current year
Table 4: Statement of temporary differences
Particulars
Carrying
amount Tax base
Temporary
difference
Deductible
temporary
difference
Taxable
temporary
difference
Assets
Plant and
equipment 100000 100000 0
Accumulated
depreciation 60000 62500 -2500 2500
Accounts
receivable 40000 37500 2500 2500
Liabilities
Provision for
warranty 10000 0 10000 10000
Rent received
in advance 7000 0 7000 7000
Calculation of deferred tax asset
Particulars Amount Tax rate Deferred tax asset
Provision for warranty 10000 30.00% 3000
Rent received in
advance 7000 30.00% 2100
Calculation of deferred tax liability
Particulars Amount Tax rate Deferred tax asset
4

Accumulated
depreciation -2500 30.00% -750
Accounts receivable 2500 30.00% 750
Deferred tax assets: It may be defined as asset that is mentioned on the statement of
financial position for reducing the level of taxable income. As per IAS 12, deferred tax assets
imply for the income tax which will be recovered in future period. (IAS 12- Recognition of
deferred tax assets for unrealised losses, 2017) Such assets include deductible temporary
differences, carry forward tax losses and credits.
Deferred tax liabilities: It refers to the amount of income tax payable which will be paid
in near future in relation to temporary differences assessed (International accounting standard,
2017).
By making assessment of such aspects deferred tax assets and liabilities can be determined
in an appropriate manner. For the purpose of taxation several bases are considered by an
accountant such as temporary differences, taxable and deductible deficiencies.
QUESTION 3
Prepare cash flow from operating activities
Operating activities from cash flow statement: It can state as the net cash inflow and
outflow from the business activities of providing services, buy and sell of merchandise etc. It
will be excluded the amount of capital expenditure such as new facility and equipment etc. In
other words, it is the core activities of business that are mainly involves marketing and selling of
product, distributing and manufacturing. It is usually given the majority of organisation's cash
flow and measure their profitability. It is separated section from the investing and financing
activities of cash flow statement.
Duo Ltd
For the year ended 30th June 2010
Table 5: Cash flow from operating activities
Particulars Amount
Net income 62000
Add: Non-cash expenses
5

Depreciation 17000
Net income after non-cash expenses 79000
Add: Non-operating losses
Loss on sale 25000
Net eliminations in consolidation worksheet
income after no-operating losses 104000
Add: Decrease in current assets
Accounts receivable 13000
Interest receivable accrued 300
Increase in current assets
Inventory 3000
Prepayment 400
Increase in current liabilities
Dividend payable 5000
Current tax payable 1200
Rent received in advance 1400
Decrease in current liabilities
Accruals 600
Accounts payable 2000
Net cash flow from operating activities 187900
Working notes
W.N.1
Table 6: Calculation of net income
Particulars Amount
Operating profit after tax 104000
Depreciation 17000
Loss on sale 25000
Net income 62000
6

QUESTION 4
Comprehensive income: It is that type of statement that involve all revenue and
expenses for a particular time period. Therefore, it mainly involves finance cost, profit share,
discounted operations and tax expenses etc. Most of the enterprise has prepared comprehensive
income report in an individual statement from the income. It is one of the significant financial
statement that show the overview of expenses and sales. Therefore, it only involves revenue
come from business operations and it is occurred to day-to-day activities. The income is mainly
constituted of all the expenses, revenues, loss and gains which caused stakeholders equity.
Material concept: It is the accounting principle that shows materiality errors which
mislead the company's decision maker. It can be define the errors, significance of transaction and
balance restrained the financial statements. It will have a direct impact on the financial statement
of the company.
Emirates traders Ltd
For the year ended 30 June 2010
Table 7: Statement of comprehensive income
Particulars Amount
Sales revenue 8280
Cost of sales 1105
GP 7175
Other income
Dividend received 126
Interest received 65
Total other income 191
Operating income 7366
Expenses
Selling costs 450
Administration costs 1550
Finance costs 16
Depreciation costs 345
Material items
7

Audit of accounts 20
Information technology controls device 5
Valuation of trading accounts 250
Total expenses 2636
Income before tax 4730
income tax 1500
Comprehensive income 3230
Working notes
W.N.1
Particulars Amount
Valuation of loss on trading investments 250
Audit of accounts 20
Information technology controls device 5
Total material items 275
According to the Australian accounting standards, comprehensive income statement has
prepared by classification of all kinds of expenses incurred in an entity on the basis of functions.
On the basis of functions costs are classified on various categories such as administration costs,
selling costs, finance costs, depreciation costs.
CONCLUSION
From the above report, it has been concluded that by preparing common statement firm
can present suitable and fair view of financials in front of shareholders. Besides this, it can be
inferred that accounting personnel should follow specific rules and regulations mentioned in
IFRS & IAS while preparing as well as presenting accounts. Further, by following the guidelines
of IAS taxable income can be determined by accounting personnel.
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