STUDY UNIT 4

FORMAT OF COMPANIES: FINANCIAL STATEMENTS

YEAR-END PROCEDURE
Pre-adjustment trial balance
On the last day of the financial year a trial balance is drawn up from the
balances of the General ledger accounts. It is a summary of all transactions
during the financial year. It is drawn up before any changes have been
made

Adjustments
(General journal entries)
Changes are made to certain amounts to reflect the correct position for the
12 months. Post to the
ledger

Post-adjustment trial balance

It is a list of balances from the general ledger accounts after changes
(adjustments) have been made

Closing transfers
(General journal entries)
The accounts in the nominal accounts section are income and expense
accounts and are applicable for a specific financial year. They are all closed Post to the
off at the end of the financial year. ledger

Final accounts
All nominal accounts are closed off to the Final accounts.
Final accounts consist of:

Trading account Profit and Loss account

It is drawn up to calculate the It is drawn up to calculate the
gross profit net profit
Gross profit = sales – cost of sales Net profit = gross profit + other income - expenses

Net profit
is carried over to the
Appropriation account

Appropriation account
It indicates how much of the profit is distributed towards
income tax, dividends for shareholders and to increase /
decrease the reserves

Post-closing trial balance

It consists of only balance sheet accounts.
All nominal accounts were closed off to the Trading, Profit
and loss and Appropriation accounts.

ACCE 312: Study Unit 4 / Financial Statements of a Company/ Format 1

 STATEMENT OF COMPREHENSIVE INCOME (INCOME STATEMENT)

Use the following method to prepare the Income Statement:

1 Draw up the skeleton of the Income Statement (format) without entering any
figures.

2 Use the figures in the Nominal accounts section of the Pre-Adjustment Trial
Balance. Enter these amounts in brackets next to the details, e.g.
Packing material (4 000
Bad debts (500

3 Start with the adjustments in numerical order. Decide whether the accounts have to
be debited or credited, e.g.
• Packing material in stock R580 (must be credited/decreased)
• Write off bad debts of R250 (must be debited/increased)
Now enter these amounts in the Income Statement, e.g.
Packing material (4 000 – 580)
Bad debts (500 + 250)

4 After you have completed all adjustments, enter the final amounts in the amount
column. Leave the workings in brackets. These workings can earn part-marks or
method marks in the examination.
Example
Packing material (4 000 – 580) 3 420
Bad debts (500 + 250) 750

ACCE 312: Study Unit 4 / Financial Statements of a Company/ Format 2

 COMPANIES

STATEMENT OF COMPREHENSIVE INCOME

(INCOME STATEMENT)
Notes R
Sales xxxxx
Cost of sales ( xxx)
Gross Profit xxxxx
Other Operating Income xxxxx
Discount received xxx
Rent income xxx
Profit on sales of assets xx
Bad debts recovered xxx
Provision for bad debts adjustment (if decreased) xxx
Etc. xxx
Gross Operating Income xxxxx
Operating Expenses (xxx)
Advertising xxx
Salaries and wages xx
Insurance xxx
Provision for bad debts adjustment (if increased) xxx New
Bad debts xxx expense
Sundry expenses xxx accounts
Audit fees xxx unique to
Directors fees xxx companies
Trading stock deficit xx
Depreciation xx
Loss on sale of assets xx
Etc. xxx
Operating Profit (Loss) xxxxx
Interest Income 1 xx
Profit (loss) before interest expense / finance cost xxxxx
Interest expense / Finance cost 2 (xx)
Profit (Loss) before tax xxxxx
Taxation (xx)
Net Profit (Loss) for the year 9 xxxxx

Income tax is
shown in the
Income
statement
(subtracted)

ACCE 312: Study Unit 4 / Financial Statements of a Company/ Format 3

 NOTES TO FINANCIAL STATEMENTS ON 28 FEBRUARY 2015

1. Interest income / Investment income

From investments xx
From overdue debtors xx
From current account xx
xx

2. Interest expense / Finance costs

On mortgage bond xx
On overdraft xx
On overdue creditors xx
xx

3. Tangible / Fixed assets / Land and Vehicles Equip- Total

buildings ment
Cost xxxx xxxx xxxx xxxxx
Accumulated depreciation (xx) (xx) (xxx)
Carrying value beginning of year xxxx xxxx xxxx xxxxx

Movement
Additions at cost xx xx xx xx
Disposals at carrying value (xx) (xx) (xx)
Depreciation for the year (xx) (xx) (xx)
Carrying value end of current year xxxx xxxx xxxx xxxx
Cost xxxxx xxxxx xxxxx xxxxx
Accumulated Depreciation (xx) (xx) (xx)

4. Inventories
Trading stock xxxx
Consumables stores on hand xx
(includes stationary on hand)
xxxx

5. Trade and other receivables (debtors)

Trade debtors xxxx
Provision for bad debts (xx)
Net trade debtors xxxx
Prepaid expenses xx
Accrued income xx
Deposit for water and electricity xx
SARS (Income tax) xx
xxxx

If SARS has a
debit balance

ACCE 312: Study Unit 4 / Financial Statements of a Company/ Format 4

 6. Cash and cash equivalents
Fixed deposits (maturing in 12 months) xxx
Savings account xxx
Bank xxx
Cash float xx
Petty cash xx
xxxx

Equity note for companies

Equity note for
companies

7. Ordinary share capital

Authorised
xxx ordinary shares xxxxx
Issued
xx shares in issue at beginning of the year xxxxx
xx shares issued during financial year at issue price of Rxx each xxxxx
xx shares repurchased during the financial year (xx)
xx shares issued and outstanding at end of the year xxxxx

8. Accumulated profits / Retained income

Balance at beginning of the year xxxx
Net profit (loss) after tax for the year xxx
Repurchase of xxx shares above average issue price (xx)
Dividends on ordinary shares (xx)
Paid (xx)
Recommended (xx)
Balance at end of the year xxxx

9. Trade and other payables (creditors)

Trade creditors xxx
Accrued expenses xx
Income received in advance xx
Creditors for salaries xxx
Pension Fund xx
Medical Aid Fund xx
Unemployment Insurance Fund xx
Shareholders for dividends xx
SARS (Income tax) xx
SARS (PAYE) xx
xxxx
If SARS has a
credit balance

ACCE 312: Study Unit 4 / Financial Statements of a Company/ Format 5

 STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)
ON 28 FEBRUARY2020
Notes R
ASSETS
NON-CURRENT ASSETS
Tangible/ Fixed assets 3

Financial assets
Fixed deposit

CURRENT ASSETS
Inventories 4
Trade and other receivables (debtors) 5
Cash and cash equivalents 6
TOTAL ASSETS

EQUITY AND LIABILITIES

CAPITAL AND RESERVES / SHAREHOLDERS’ EQUITY
Ordinary share capital 7
Contributed capital
Accumulated profit / Retained income 8

NON-CURRENT LIABILITIES
Mortgage bond (maturation period longer than 12 months)

CURRENT LIABILITIES
Trade and other payables (creditors) 9
Bank overdraft
Current portion of long-term loan
TOTAL EQUITY AND LIABILITIES

ACCE 312: Study Unit 4 / Financial Statements of a Company/ Format 6