Chapter 3 - Statement of Financial Position and Income Statement
Chapter 3 - Statement of Financial Position and Income Statement
Chapter 3 - Statement of Financial Position and Income Statement
Organisational structure
Users of accounts
Introduction to financial
statements
Basic
The income statement accounting
statements
CAPITAL
ASSETS EQUAL
LIABILITIES
Assets
Text
Classification depends on the nature of the business
Example
Assets
Non-current Current
assets assets
• Land • Cash
• Office building • Inventory
• Factory • Receivables
• Machinery • Etc.
• Office equipment Text
• Etc.
Discussion
Current or non-current?
Non-
current
Non-
current
Curre
nt
Non-
current
Curre
nt
Liabilities
Liabilities
Non-current Current
liabilities liabilities
Shows in detail how the profit or loss of a period has been made.
Income statement
breakdown
Income statement
Compares Different
revenue with between gross
cost of goods profit and total
sold (direct Text overheads
costs) (indirect
costs).
Capital expenditure vs. revenue
expenditure
Incurred in:
Results in: • For the purpose of
• The acquisition of
the trade of the
non-current business.
assets; or • To maintain the
• An improvement
existing earning
in their earning capacity of non-
capacity. current assets.
Exam focus
Capital and revenue income
Exam focus
Discussion
‘Capital' or 'revenue' expenditure or income?
(a) Purchase of leasehold premises
CE
(b) Solicitors' fees in connection with the
purchase of leasehold premises
CE
(c) Costs of adding extra storage capacity to
a mainframe computer used by the
business
CE
Discussion
of the
busine Trade
Owner ss
s of contac
the ts
busine Users
ss
of
accou
Manag nts Provid
ers of ers of
the financ
busine e to
Tax autho rities
ss the
busine
ss
What’s what?
(a) Freehold property
Non-current asset
(b) Payment of wages for a director with a
two year service contract
Expense
(c) Payments into a pension fund
Expense
What’s what?
(d) A trade receivable who will pay in 18
months time
Non-current asset
(e) An irrecoverable debt written off
Expense
(f) A patent
Non-current asset
(g) A company car
Non-current asset
What’s what?
(h) Interest on a bank overdraft
Expense
(i) A bank loan repayable in five years
Non-current liability
(j) Petty cash of $25
Current asset
(k) The portion of local taxes paid covering the
period after the reporting date
Current asset: prepayment
QB 5
Net profit was calculated as being $10,200. It was
later discovered that capital expenditure of $3,000
had been treated as revenue expenditure, and
revenue receipts of $1,400 had been treated as
capital receipts.
The correct net profit should have been
A $5,800
B $8,600
C $11,800
D $14,600
Answer: D