Balance Sheet and Income Statement

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Assets
Current assets
1. Cash and cash equivalents
2. Accounts receivable
3. Inventories
4. Prepaid expenses for future services that will be used within a year
on!current assets "#ixed assets$
1. Property% plant and equip&ent
2. Invest&ent property% such as real estate held for invest&ent purposes
3. Intan'ible assets
4. #inancial assets "excludin' invest&ents accounted for usin' the equity &ethod% accounts
receivables% and cash and cash equivalents$
(. Invest&ents accounted for usin' the equity &ethod
). *iolo'ical assets% which are livin' plants or ani&als. *earer biolo'ical assets are plants
or ani&als which bear a'ricultural produce for harvest% such as apple trees 'rown to
produce apples and sheep raised to produce wool.
+1,-
Liabilities
.ee /iability "accountin'$
1. Accounts payable
2. Provisions for warranties or court decisions
3. #inancial liabilities "excludin' provisions and accounts payable$% such as pro&issory
notes and corporate bonds
4. /iabilities and assets for current tax
(. 0eferred tax liabilities and deferred tax assets
). 1nearned revenue for services paid for by custo&ers but not yet provided
Equity
2he net assets shown by the balance sheet equals the third part of the balance sheet% which is
3nown as the shareholders4 equity. It co&prises5
1. Issued capital and reserves attributable to equity holders of the parent co&pany
"controllin' interest$
2. on!controllin' interest in equity
#or&ally% shareholders4 equity is part of the co&pany4s liabilities5 they are funds 6owin'6 to
shareholders "after pay&ent of all other liabilities$7 usually% however% 6liabilities6 is used in the
&ore restrictive sense of liabilities excludin' shareholders4 equity. 2he balance of assets and
liabilities "includin' shareholders4 equity$ is not a coincidence. 8ecords of the values of each
account in the balance sheet are &aintained usin' a syste& of accountin' 3nown as double!entry
boo33eepin'. In this sense% shareholders4 equity by construction &ust equal assets &inus
liabilities% and are a residual.
8e'ardin' the ite&s in equity section% the followin' disclosures are required5
1. u&bers of shares authori9ed% issued and fully paid% and issued but not fully paid
2. Par value of shares
3. 8econciliation of shares outstandin' at the be'innin' and the end of the period
4. 0escription of ri'hts% preferences% and restrictions of shares
(. 2reasury shares% includin' shares held by subsidiaries and associates
). .hares reserved for issuance under options and contracts
,. A description of the nature and purpose of each reserve within owners4 equity
Sample balance sheet
2he followin' balance sheet is a very brief exa&ple prepared in accordance with I#8.. It does
not show all possible 3inds of assets% liabilities and equity% but it shows the &ost usual ones.
*ecause it shows 'oodwill% it could be a consolidated balance sheet. :onetary values are not
shown% su&&ary "total$ rows are &issin' as well.
Balance Sheet of XYZ, Ltd.
As of 31 December 2009
ASSES
!"rrent Assets
Cash and Cash Equivalents
Accounts Receivable (Debtors)
Less : Allowances for Doubtful Accounts
Inventories
Prepaid Expenses
Investment Securities (Held or tradin!)
"ther Current Assets
#on$!"rrent Assets %&'(ed Assets)
Propert#$ Plant and Equipment (PPE)
Less : Accumulated Depreciation
Investment Securities (Available or sale%Held&to&maturit#)
Investments in Associates
Intan!ible Assets (Patent$ Cop#ri!ht$ 'rademar($ etc))
Less : Accumulated Amortization
*ood+ill
"ther ,on&Current Assets$ e)!) Deerred 'ax Assets$ -ease Receivable
L*AB*L**ES and S+A,E+-LDE,S. E/0*Y
L*AB*L**ES
!"rrent L'ab'l't'es %!red'tors1 amo"nts fall'n2 d"e 3'th'n one 4ear)
Accounts Pa#able
Current Income 'ax Pa#able
Current portion o -oans Pa#able
Short&term Provisions
"ther Current -iabilities$ e)!) .nearned Revenue$ Deposits
#on$!"rrent L'ab'l't'es %!red'tors1 amo"nts fall'n2 d"e after more than one
4ear)
-oans Pa#able
Issued Debt Securities$ e)!) ,otes%/onds Pa#able
Deerred 'ax -iabilities
Provisions$ e)!) Pension "bli!ations
"ther ,on&Current -iabilities$ e)!) -ease "bli!ations
S+A,E+-LDE,S. E/0*Y
5a'd$'n !a6'tal
Share Capital ("rdinar# Shares$ Preerence Shares)
Share Premium
Less: Treasury Shares
,eta'ned Earn'n2s
,e7al"at'on ,eser7e
Acc"m"lated -ther !om6rehens'7e *ncome
#on$!ontroll'n2 *nterest
Usefulness and limitations of income statement
Inco&e state&ents should help investors and creditors deter&ine the past financial perfor&ance
of the enterprise% predict future perfor&ance% and assess the capability of 'eneratin' future cash
flows throu'h report of the inco&e and expenses.
;owever% infor&ation of an inco&e state&ent has several li&itations5
• Ite&s that &i'ht be relevant but cannot be reliably &easured are not reported "e.g. brand
reco'nition and loyalty$.
• .o&e nu&bers depend on accountin' &ethods used "e.g. usin' #I#< or /I#< accountin'
to &easure inventory level$.
• .o&e nu&bers depend on =ud'&ents and esti&ates "e.g. depreciation expense depends on
esti&ated useful life and salva'e value$.
& I,C"0E S'A'E0E,' *REE,HAR/"R --C &
1or the #ear ended DECE0/ER 23 4535
6 6
Debit Credit
Revenues
*R"SS RE7E,.ES (includin! I,'ERES' income) 489$28:
&&&&&&&&
Expenses;
AD7ER'ISI,* 9$255
/A,< = CREDI' CARD 1EES 3>>
/""<<EEPI,* 4$2?5
S./C",'RAC'"RS @@$555
E,'ER'AI,0E,' ?$??5
I,S.RA,CE :?5
-E*A- = PR"1ESSI",A- SER7ICES 3$?:?
-ICE,SES 924
PRI,'I,*$ P"S'A*E = S'A'I",ERA 245
RE,' 32$555
0A'ERIA-S :>$>55
'E-EPH",E 3$555
.'I-I'IES 3$>83
&&&&&&&&
'"'A- EBPE,SES (38?$?34)
&&&&&&&&
,E' I,C"0E 355$@@?
>uidelines for state&ents of co&prehensive inco&e and inco&e state&ents of business entities
are for&ulated by the International Accountin' .tandards *oard and nu&erous country!specific
or'ani9ations% for exa&ple the #A.* in the 1....
a&es and usa'e of different accounts in the inco&e state&ent depend on the type of
or'ani9ation% industry practices and the require&ents of different =urisdictions.
If applicable to the business% su&&ary values for the followin' ite&s should be included in the
inco&e state&ent5
+3-
Operating section
• Revenue ! Cash inflows or other enhance&ents of assets of an entity durin' a period
fro& deliverin' or producin' 'oods% renderin' services% or other activities that constitute
the entity4s on'oin' &a=or operations. It is usually presented as sales &inus sales
discounts% returns% and allowances.?very ti&e a business sells a product or perfor&s a
service% it obtains revenue. 2his often is referred to as 'ross revenue or sales revenue.
+4-
• Expenses ! Cash outflows or other usin'!up of assets or incurrence of liabilities durin' a
period fro& deliverin' or producin' 'oods% renderin' services% or carryin' out other
activities that constitute the entity4s on'oin' &a=or operations.
o Cost of oods Sold !COS" # Cost of Sales ! represents the direct costs
attributable to 'oods produced and sold by a business "&anufacturin' or
&erchandi9in'$. It includes material costs% direct labour% and overhead costs "as
in absorption costin'$% and excludes operatin' costs "period costs$ such as sellin'%
ad&inistrative% advertisin' or 8@0% etc.
o Selling$ eneral and Administrative expenses !S%A or SA" ! consist of the
co&bined payroll costs. .>A is usually understood as a &a=or portion of non!
production related costs% in contrast to production costs such as direct labour.
 Selling expenses ! represent expenses needed to sell products "e.'.
salaries of sales people, commissions and travel expenses, advertising,
freight, shipping, depreciation of sales store buildings and equipment%
etc.$.
 eneral and Administrative !%A" expenses ! represent expenses to
&ana'e the business "salaries of officers / executives, legal and
professional fees, utilities, insurance, depreciation of office building and
equipment, office rents, office supplies% etc.$.
o &epreciation # Amorti'ation ! the char'e with respect to fixed assets A intan'ible
assets that have been capitalised on the balance sheet for a specific "accountin'$
period. It is a syste&atic and rational allocation of cost rather than the reco'nition
of &ar3et value decre&ent.
o Research % &evelopment !R%&" expenses ! represent expenses included in
research and develop&ent.
Expenses reco'nised in the inco&e state&ent should be analysed either by nature "raw
&aterials% transport costs% staffin' costs% depreciation% e&ployee benefit etc.$ or by function "cost
of sales% sellin'% ad&inistrative% etc.$. "IA. 1.BB$ If an entity cate'orises by function% then
additional infor&ation on the nature of expenses% at least% C depreciation% a&ortisation and
e&ployee benefits expense C &ust be disclosed. "IA. 1.1D4$ 2he &a=or exclusive of costs of
'oods sold% are classified as operatin' expenses. 2hese represent the resources expended% except
for inventory purchases% in 'eneratin' the revenue for the period. ?xpenses often are divided into
two broad sub classicifications sellin' expenses and ad&inistrative expenses.
+4-
(on)operating section
• Other revenues or gains ! revenues and 'ains fro& other than pri&ary business
activities "e.'. rent% income from patents% 'oodwill$. It also includes unusual 'ains that are
either unusual or infrequent% but not both "e.'. gain from sale of securities or gain from
disposal of fixed assets$
• Other expenses or losses ! expenses or losses not related to pri&ary business operations%
"e.'. foreign exchange loss$.
• *inance costs ! costs of borrowin' fro& various creditors "e.'. interest expenses% bank
charges$.
• +ncome tax expense ! su& of the a&ount of tax payable to tax authorities in the current
reportin' period "current tax liabilitiesA tax payable$ and the a&ount of deferred tax
liabilities "or assets$.
+rregular items
2hey are reported separately because this way users can better predict future cash flows !
irre'ular ite&s &ost li3ely will not recur. 2hese are reported net of taxes.
• &iscontinued operations is the &ost co&&on type of irre'ular ite&s. .hiftin' business
location"s$% stoppin' production te&porarily% or chan'es due to technolo'ical
i&prove&ent do not qualify as discontinued operations. 0iscontinued operations must be
shown separately.
Cumulative effect of changes in accounting policies !principles" is the difference between the
boo3 value of the affected assets "or liabilities$ under the old policy "principle$ and what the
boo3 value would have been if the new principle had been applied in the prior periods. #or
exa&ple% valuation of inventories usin' /I#< instead of wei'hted avera'e &ethod. 2he chan'es
should be applied retrospectively and shown as ad=ust&ents to the beginning balance of affected
co&ponents in ?quity. All co&parative financial state&ents should be restated. "IA. E$
;owever% changes in estimates "e.'. esti&ated useful life of a fixed asset$ only requires
prospective chan'es. "IA. E$
(o ite&s &ay be presented in the inco&e state&ent as extraordinary items under I#8.
re'ulations% but are per&issible under 1. >AAP. "IA. 1.E,$ Extraordinary items are both
unusual "abnor&al$ and infrequent% for exa&ple% unexpected natural disaster% expropriation%
prohibitions under new re'ulations. +ote5 natural disaster &i'ht not qualify dependin' on
location "e.'. frost da&a'e would not qualify in Canada but would in the tropics$.-
Additional ite&s &ay be needed to fairly present the entity4s results of operations. "IA. 1.E($
&isclosures
Certain ite&s &ust be disclosed separately in the notes "or the state&ent of co&prehensive
inco&e$% if &aterial% includin'5
+3-
"IA. 1.BE$
• Frite!downs of inventories to net realisable value or of property% plant and equip&ent to
recoverable a&ount% as well as reversals of such write!downs
• 8estructurin's of the activities of an entity and reversals of any provisions for the costs
of restructurin'
• 0isposals of ite&s of property% plant and equip&ent
• 0isposals of invest&ents
• 0iscontinued operations
• /iti'ation settle&ents
• <ther reversals of provisions
Earnings per share
*ecause of its i&portance% earnin's per share "?P.$ are required to be disclosed on the face of
the inco&e state&ent. A co&pany which reports any of the irre'ular ite&s &ust also report ?P.
for these ite&s either in the state&ent or in the notes.
2here are two for&s of ?P. reported5
• ,asic5 in this case 6wei'hted avera'e of shares outstandin'6 includes only actual stoc3s
outstandin'.
• &iluted5 in this case 6wei'hted avera'e of shares outstandin'6 is calculated as if all stoc3
options% warrants% convertible bonds% and other securities that could be transfor&ed into
shares are transfor&ed. 2his increases the nu&ber of shares and so ?P. decreases.
&iluted E-S is considered to be a more reliable .ay to measure E-S/
Sample income statement
2he followin' inco&e state&ent is a very brief exa&ple prepared in accordance with I#8.. It
does not show all possible 3inds of ite&s appeared a fir&% but it shows the &ost usual ones.
Please note the difference between I#8. and 1. >AAP when interpretin' the followin' sa&ple
inco&e state&ents.
1itness Equipment -imited
I,C"0E S'A'E0E,'S
(in millions)
Aear Ended 0arch 23$ 4558 455@
455:
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&
&&&&
Revenue C 3>$?@5)4 C 33$855)> C
@$485)2
Cost o sales (9$:>5)4) (?$9?5)3)
(>$?4>)4)
&&&&&&&&&&&&& &&&&&&&&&&&&
&&&&&&&&&&&&
Gross profit 7,8!"! #,$%!"&
&,7##"'
&&&&&&&&&&&&& &&&&&&&&&&&&
&&&&&&&&&&&&
S*A expenses (2$94>)9) (2$489)2)
(2$52>)5)
&&&&&&&&&&&&& &&&&&&&&&&&&
&&&&&&&&&&&&
Operating profit $ 4,215.4 $ 2,954.0 $
732.1
&&&&&&&&&&&&& &&&&&&&&&&&&
&&&&&&&&&&&&
*ains rom disposal o ixed assets >9)2 & &
Interest expense (338):) (34>)3)
(3>4)@)
&&&&&&&&&&&&& &&&&&&&&&&&&
&&&&&&&&&&&&
Proit before tax >$3>4)5 4$@48)8
?@8)2
&&&&&&&&&&&&& &&&&&&&&&&&&
&&&&&&&&&&&&
Income tax expense (3$9?9)@) (3$324)5)
(42?):)
&&&&&&&&&&&&& &&&&&&&&&&&&
&&&&&&&&&&&&
Profit (or loss) for the year $ 2,485.2 $ 1,97.9 $
353.
DEB'ERI'A I,C) A,D S./SIDIARIES
C",S"-IDA'ED S'A'E0E,'S "1 "PERA'I",S
(In millions)
Aear Ended December 23$ 4558 455@
455:
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&
Revenue C 29$?4?)8 C 48$@4:)9
C 43$3@9)@
Cost o sales (3@$?>?)@) (3?$@?@)@)
(33$:>?)?)
&&&&&&&&&&&
&&&&&&&&&&& &&&&&&&&&&&&
Gross profit '7,(8!"' '&,(#8"8
(,'"&
&&&&&&&&&&&
&&&&&&&&&&& &&&&&&&&&&&&
"peratin! expenses;
Sellin!$ !eneral and administrative expenses (>$3>4)3) (2$:24)2)
(2$>8@)9)
Depreciation (954)>) (?@>)?)
(?94)2)
AmortiDation (458)8) (3>3)8)
(333)@)
Impairment loss (3:$88:)3) E
E
&&&&&&&&&&&
&&&&&&&&&&& &&&&&&&&&&&&
'otal operatin! expenses (44$8?3)?)
(>$>?@):) (>$3:4):)
&&&&&&&&&&&
&&&&&&&&&&& &&&&&&&&&&&&
Operating profit (or loss) $ (4,971.4) $ 9,510.1
$ 5,28.
&&&&&&&&&&&
&&&&&&&&&&& &&&&&&&&&&&&
Interest income 4?)2
33): 34)5
Interest expense (:3@)8)
(:>4)8) (:88)3)
&&&&&&&&&&&
&&&&&&&&&&& &&&&&&&&&&&&
Proit (or loss) rom continuin! operations
before tax$ share o proit (or loss) rom
associates and non&controllin! interest C (?$99?)5) C
@$::@)8 C >$>@3)?
&&&&&&&&&&&
&&&&&&&&&&& &&&&&&&&&&&&
Income tax expense (3$9:@)9) (2$?35)?)
(3$:@8)8)
Proit (or loss) rom associates$ net of ta) (45)@)
5)3 (2:)2)
Proit (or loss) rom non&controllin! interest$
net of ta) (?)3) (>):)
(2)2)
&&&&&&&&&&&
&&&&&&&&&&& &&&&&&&&&&&&
5rof't %or loss) from cont'n"'n2 o6erat'ons 8 %9,3:;.9) 8 <,2=3.;
8 2,=<1.0
&&&&&&&&&&&
&&&&&&&&&&& &&&&&&&&&&&&
Proit (or loss) rom discontinued operations$
net of ta) (3$585)2) (@54)>)
39>)9
&&&&&&&&&&&
&&&&&&&&&&& &&&&&&&&&&&&
Profit (or loss) for the year $ (8,439.0) $ 4,41.4
$ 2,815.
,ottom line
6*otto& line6 is the net inco&e that is calculated after subtractin' the expenses fro& revenue.
.ince this for&s the last line of the inco&e state&ent% it is infor&ally called 6botto& line.6 It is
i&portant to investors as it represents the profit for the year attributable to the shareholders.
After revision to IA. 1 in 2DD3% the .tandard is now usin' profit or loss for the year rather than
net profit or loss or net income as the descriptive ter& for the botto& line of the inco&e
state&ent.
Requirements of +*RS
<n ) .epte&ber 2DD,% the International Accountin' .tandards *oard issued a revised IAS !
"resentation of #inancial Statements% which is effective for annual periods be'innin' on or after
1 Ganuary 2DDB.
A business entity adoptin' I#8. &ust include5
• a Statement of Comprehensive +ncome or
• t$o separate state&ents co&prisin'5
1. an Income Statement displayin' co&ponents of profit or loss and
2. a Statement of %omprehensive Income that begins with profit or loss "botto& line
of the inco&e state&ent$ and displays the ite&s of other co&prehensive inco&e
for the reportin' period. "IA.1.E1$
All non!owner chan'es in equity "i.e. comprehensive income $ shall be presented in either in the
state&ent of co&prehensive inco&e "or in a separate inco&e state&ent and a state&ent of
co&prehensive inco&e$. Co&ponents of co&prehensive inco&e &ay not be presented in the
state&ent of chan'es in equity.
%omprehensive income for a period includes profit or loss "net inco&e$ for that period and other
co&prehensive inco&e reco'nised in that period.
All ite&s of inco&e and expense reco'nised in a period &ust be included in profit or loss unless
a .tandard or an Interpretation requires otherwise. "IA. 1.EE$ .o&e I#8.s require or per&it that
so&e co&ponents to be excluded fro& profit or loss and instead to be included in other
co&prehensive inco&e. "IA. 1.EB$
+tems and disclosures
2he statement of comprehensive income should include5
+3-
"IA. 1.E2$
1. 8evenue
2. #inance costs "includin' interest expenses$
3. .hare of the profit or loss of associates and =oint ventures accounted for usin' the equity
&ethod
4. 2ax expense
(. A single a&ount co&prisin' the total of "1$ the post&tax profit or loss of discontinued
operations and "2$ the post&tax 'ain or loss reco'nised on the disposal of the assets or
disposal 'roup"s$ constitutin' the discontinued operation
). Profit or loss
,. ?ach co&ponent of other co&prehensive inco&e classified by nature
E. .hare of the other co&prehensive inco&e of associates and =oint ventures accounted for
usin' the equity &ethod
B. 2otal co&prehensive inco&e
2he followin' ite&s &ust also be disclosed in the state&ent of co&prehensive inco&e as
allocations for the period5 "IA. 1.E3$
• Profit or loss for the period attributable to non!controllin' interests and owners of the
parent
• 2otal co&prehensive inco&e attributable to non!controllin' interests and owners of the
parent
'o ite&s &ay be presented in the state&ent of co&prehensive inco&e "or in the inco&e
state&ent% if separately presented$ or in the notes as extraordinary items.

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