Accounting and Finance Unit 4 Topic 4 Part A – Preparation of Company Financial Reports – Statement of Comprehensive Income

USERS OF FINANCIAL REPORTS INCLUDE: Present and potential shareholders Employees Lenders Suppliers and trade creditors Customers Governments The general public

Statement of Comprehensive Income Statement of Financial Position THE CORPORATIONS ACT SPECIFIES THE FOLLOWING STATEMENTS MUST BE INCLUDED IN A COMPANY’S FINANCIAL REPORT Statement of Comprehensive Income Statement of Financial Position Statement of Cash flows (this will be covered in Topic 5) ACCOUNTING STANDARDS REQUIRE THE PRODUCTION OF A Statement of Changes in Equity

The “Statement of Comprehensive Income” is a financial statement that details the total comprehensive income of a company for a given period representing the change in equity over that period, other than changes resulting from transaction with owners in their capacity as owners. This comprises all income (revenue and gains) and expenses, including taxable income. This financial statement allows users to assess the profitability of a company. The “Statement of Financial Position” (also known as a Balance Sheet) lists the assets, liabilities and equity of a company and enables users to evaluate the stability, liquidity and value of the company. The “Statement of Changes in Equity” is a financial statement that details and explains the changes during the period in the three elements that make up a company’s equity – share capital, retained earnings, and reserves.

1. Preparing a Statement of Comprehensive Income Example 1 – Busy Traders

Workings… Depreciation on Buildings = 100,000 – 10,500 x .25 = $22,375 Salaries 70,100 + 700 = 70,800 Insurance expense 9,000 – 800 = 8,200 Interest Income 500 + 50 = 550 Rental income earned 30,000 – 3,000 = 27,000 Doubtful debts = 600

Allowance for Doubtful debts Opening balance 900CR Bad debts 700 200CR Doubtful debts 800CR 600

In a Statement of Comprehensive Income Main source of income (example sales or fees is called “Revenue” Any other incomes (discount received, rent revenue, interest income etc) is called “Other Income” Expenses are grouped together as one item called “Expenses (excluding financial costs)” Except for any expenses which are considered financial costs – these are grouped together as one item called “Finance Costs”

Calculations of other income for Statement of Comprehensive Income Discount received 800 + interest income 550 + rental income 27,000

Calculations of expenses for Statement of Comprehensive Income Need to add up all expenses (excluding finance costs) for this statement: Depreciation 22,375, + Salaries 70,800 + Insurance 8,200, Rates and taxes 39,100 + Advertising 7,900 + Freight outwards 9,500 = 157,875 Finance costs = Interest expense 3,600 + doubtful debts 600 = 4,200

Example 2 – Statement of Comprehensive Income Example 2 – 9.2 page 311 of textbook

QUESTIONS ON STATEMENT OF COMPREHENSIVE INCOME

9.17

9.18

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Test Question 2011 - Merry Ltd

Merry Ltd

Chemhow Ltd