Small Business Accounting - Trading Profit and Loss Account for the Year to 30th June 2012 - Essay Example

TRADING PROFIT AND LOSS ACCOUNT FOR THE YEAR TO 30TH JUNE 2012     $ $ sales     1349400 return inwards     3000 opening stock   75000   purchases   273600   return outwards   1800   closing stock   90000   cost of sales   256800   Gross profit     1089600 discount received     1800 gain on sale of fixtures     1800 Interest on late payments.     480 expenses       bad debts   13800   discount allowed   3600   utilities   6720   rent   82800   maintenance   49800   MV expenses   21600   General expense   18600   contractors payment   186000   Provision for depreciation building.   37312   motor Vehicle   20160   fixtures and fittings   8400   total expenses   448792   Net profit.     644888         Appropriation statement. Net profit.     644888 add interest on drawing       Gretel   3462   Hansel   6792   less Salary       Gretel   90000   Hansel   120000         445142 balance in PSR 1:1       Gretel   222571   Hansel   222571         445142         Classified cash flow statement for the year ended 30th June 2012. Cash flow from operating activities.     Receipts. $   tours and classes 1020000   wool products. 289800   interest from debtors 480         payments     contractor payments 186000   rent 75000   general expenses 18600   Creditors 280800   MV expenses 21600   maintenance expense 49800   sales returns 3000   utilities 9900   Net income from operating activities 665580         Cash flow from investing activities.     proceeds from sale of the fixtures and fittings 37800   purchase of building 103200   net income for investing activities -65400         Cash flow from financing activities.     withdrawals 168000   retained earnings     net increase or decrease in cash 432180   cash at beginning 2400   cash at the end 2400               balance sheet as at 30th June 2011 ASSETS.       fixed assets cost accumulated depreciation NBV. Building 535200 110512 424688 motor Vehicle 168000 51360 116640 Fixtures and fittings     99000       640328 Current assets.       Cash 2400     Stock 90000     Debtors 94200     Prepaid rent 4800     bank 87096         278496   Current liabilities       trade creditors 7200     accrued utilities expense 1800   269496       909824 LONG TERM LIABILITIES       Bank loan   207000   CAPITAL ACCOUNT       Gretel   270000   Hansel   270000   Current Account.       Gretel   312409   Hansel   225679         1285088         Partners Current account.   Gretel Hansel   Gretel Hansel interest on drawing 3462 6792 Balanceb/d 53400 12000 drawing 48000 120000 salary 90000 120000 balc/d 312409 225679 profit share 220471 220471                         NB. 1. credit sales=closing debtors+ bad debt written off+ Return inwards+ Discount allowed + receipts from debtors-Opening debtors. 2. Credit purchases=Closing creditors balance + payments to creditors+ discount received+ return outwards-opening creditors balance. 3. Closing bank balance=Opening balance+ all receipts-all payments. 4. Drawing interest rates calculated on monthly basis. Part B. Reporting entity concept is a way of reporting business financial statements through use and adhering to certain standards either set internationally or locally. Different reporting concepts are used by different entities. The two tiers of reporting as advocated for by the Australian Accounting Standards board include Tier 1 which involves the use of full international financial reporting standards and tier 2 which have different options like adapting the IFRS for SMEs, Status Quo and Reducing the disclosure Burden (Australian Accounting Standard Board,2009). The two tiers apply to different entities.To begin with full IFRS reporting standards apply to the entities which are publicly accountable and to other private entities and not for profit organizations which are required by their regulators to apply the full IFRS reporting concept. On the other hand tier 2 options are to be used by organizations which are not publicly accountable but are required to publish General Public Financial Statements (GPFS) (Australian Accounting Standard Board, 2009). It will also apply to the private companies which meet the requirements of being termed as public listed company, which have two of the following characteristics: have an assets worth $12.5M, with more than 50 employees and revenue $25M. On top of that tier 2 will also be applicable to not for profit organizations which operate in private sector in preparing the GPFS if not required by their financiers to use full IFRS (KPMG, 2010). It also applies to the public sector organizations which are not required by the Australian Accounting Standard Board to use full IFRS, although it also depends on the regulators requirements. Introduction of differential reporting standards affects entities already reporting under full IFRS as it reduces the disclosure of the organizations financial information to the public. Through this the crucial characteristics of the financial statements is lost. Reporting by the subsidiary firm listed or other firms owned by foreigners renders the financial statements reports to be questionable as far as their presentation relevance as well as being understandable to its users is concerned. In addition to that subsidiary could also adopt certain reporting standards which are not adopted by Mother Company ending up diluting the major purpose of the financial reporting (Picker, 2008). Use of different reporting standards may bring about inconsistence in reporting making the financial information immaterial (Australian Accounting Standard Board, 2010).to add on that consolidated financial statementsof the parent company might not disclose the financial position of the company due to fluctuations which are caused by different reporting standards. Some entities will be categorized to use full IFRS while others will be free to use the IFRS for SMEs, different subsidiaries will therefore use different reporting standards which will make it difficult for the financial users and auditors to use them appropriately. Introduction of the IFRS for the SMEs is advocated for to do away with certain accounting practices allowed under IFRS and to remove certain topics and disclosures which are of no use to the SMEs. The reporting will be based on Full IFRS though simplified to ensure that it suites the entities. SMEs reporting under tier 2 will be of great use to them as they will not be required to publicize the financial statements which they are required to, under full IFRS, they will only be allowed to publicize information when there is need.(Australian Accounting Standard Board, 2009). The tier aims at reducing the disclosure and ensuring that the company only reports financial information depending on who are your financial statement users. Therefore SMEs will require the tier especially entities which are mother companies and have to prepare consolidated financial statements for general use to the public. Though SMEs will be required to report under Tier 2 the entities which are not listed will be free to decide on which financial statement to disclose and which not to as unlike Full IFRS. IFRS for SMEs do away with practices which give the SMEs mandate to decide on the financial information to disclose unless their regulators requires them to use the full IFRS (Australian Accounting Standard Board, 2009). Even if SMEs entities will be required to report under tier 2 they will do it effectively as the complexity of using full IFRS and burdens given to firms due to requirements to disclose their financial statements on reporting entities will have reduced. The entities will use either of the method in publicizing their general public financial statements as it doesn’t matter the reporting one uses in publishing the statements but just to pass the information to the users. (Australian Accounting Standard Board, 2009). Some organizations which are not publicly accountable and which have not been reporting using the full International Financial reporting standards; and those which are privately owned may not be able to use the tiers. This is because the organizations need not to publicise their financial statements as the standards are made for ensuring that, organizations which publicise the General Public Financial Statements adhere to the requirements and regulated guidelines (Australian Accounting Standard Board, 2010). The idea of not including the entities which are privately owned and which are not accountable to the publicis a good idea as it will assist in minimizing the entities cost which are incurred in publicizing the organizations financial statements. But on the other hand failure might be of great loss to the government as they may not be in a position to disclose their financial position accurately in case of taxation cases, though they could adopt other reporting standards which suit their business entities. Therefore the use of the IFRS for SMEs will enhance financial reporting in Australia particularly to Small and Medium enterprises. References. 1. Australian Accounting Standard Board. (July, 2009). Application Tiers of Australian Accounting Standards. From www.aasb.gov.au accessed on 30th Aug 2012. 2. Australian Accounting Standard Board. (July, 2009). Deferential Financial reporting reducing disclosure requirements. From www.aasb.gov.au accessed on 30th Aug 2012. 3. KPMG (Jan 2010). The IFRS for SMEs: Considering the alternatives. Retrieved from www.kpmg.com. 4. Ruth Picker (Dec 2009).Practical Problem in the Reporting entity concept. Australian Accounting Reviews, V1, (2) :2-10. Read More