Financial Statements of Limited Companies             - Balance Sheet
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Financial Statements of Limited Companies - Balance Sheet. learning objectives financial statements the three key financial statements the main elements of the balance sheet the main elements of the profit and loss account the main elements of the cash flow statement.

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learning objectives Balance Sheetfinancial statements the three key financial statementsthe main elements of the balance sheetthe main elements of the profit and loss accountthe main elements of the cash flow statement

Session Summary (1)


a typical horizontal balance sheet format Balance Sheetcapital and reserves or shareholders’ equity liabilitiesthe relationship between risk and returnassetsa vertical format balance sheetvaluation of assets

Session Summary (2)


explain the differences in accounting treatment of capital expenditure and revenue expenditureidentify the financial information shown in the financial statements of a company: balance sheet; profit and loss account; cash flow statementconstruct simple financial statementsoutline the structure of the balance sheet of a limited companyclassify the broad balance sheet categories of shareholders equity; liabilities; assets

Learning Objectives (1)


outline the alternative balance sheet formats expenditure and revenue expenditureprepare a balance sheet evaluate some of the alternative methods of asset valuationappreciate the limitations of the conventional balance sheet

Learning Objectives (2)


Capital Expenditure and Revenue Expenditure expenditure and revenue expenditure

Revenue expenditure relates to expenditure on those items where the full benefit of making that expenditure is received within the current accounting period

Capital expenditure relates to the cost of acquiring, producing or enhancing fixed assets, the full benefit of which is received within future accounting periods


Limited companies are required to periodically prepare three main financial statements:balance sheetprofit and loss accountcash flow statement

Financial Statements (1)


Financial statements are required for main financial statements:the shareholdersthe Registrar of Companiesand are also used by, for exampleanalystspotential investorscustomerssuppliers

Financial Statements (2)


The Three Key Financial Statements main financial statements:


The Main Elements of the Balance Sheet main financial statements:




A Typical Horizontal Balance Sheet Format main financial statements:


Capital share premiums retained earnings
capital main financial statements:share premiumsretained earnings

Capital and Reserves or Shareholders’ Equity


current, or short-term, liabilities main financial statements:short-term financial debttrade creditors (or accounts payable)accrualslong-term liabilitieslong-term financial debtlong-term trade creditors (or accounts payable)provisions

Liabilities


The Relationship Between Risk and Return main financial statements:


Fixed assets tangible fixed assets intangible fixed assets financial assets current assets
fixed assets main financial statements:tangible fixed assetsintangible fixed assetsfinancial assetscurrent assets

Assets (1)


Stocks debtors or accounts receivable cash prepayments
stocks main financial statements:debtors (or accounts receivable)cashprepayments

Assets (2)


A Vertical Format Balance Sheet (1) main financial statements:


fixed assets (FA) + current assets (CA) main financial statements: – current liabilities (CL) – long-term liabilities (LTL)=equity (E)FA + (CA – CL) – LTL = E 

A Vertical Format Balance Sheet (2)


valuation of items within the balance sheet is covered by the Companies Act 1985/1989, accounting concepts and standardsproblems arise from differences in approach, and alternative methods used to value the different categories of assets and liabilities:

Valuation of Assets (1)

fixed assets brand names goodwill research and development costs stocks debtorsforeign currency transactions


There are limitations to the conventional balance sheet arising not only from the fact that it is an historical document, but from inconsistencies in its preparationdue todifferences between companies and industriesemployment of various asset valuation methodsoff-balance sheet financingwindow dressing

Valuation of Assets (2)


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