The Financial Statements - Example

Midland company limited Financial statements report For the year ended 30th June 2013 Table of Contents Table of Contents 1 2.0The statement of financial position 4 3.0The statement of changes in equity 6 4.0Notes to Financial Statement 7 4.1Note 1: preparation of the financial statement 7 4.2Note 2: Accounting policies and estimates 8 4.3Note3: revenue 8 4.4Note 4: inventories 9 4.5Note 5: unearned revenue 9 4.6Note 6: bank loan 9 4.7Note 7: warranties 9 4.8Note 8: dividends 9 4.9Note 9: issue of shares 10 4.9.1Note 10: general reserve 10 4.9.2Note 11: doubtful debts 10 4.9.3Note 12: legal expenses 11 4.9.4Note 13: post balance date events 11 5.0The director’s declaration. 12 6.0Annual director’s report 13 7.0Annual auditor’s report 13 7.1Financial statements 13 7.2Director’s responsibility on the financial statements 14 7.3Auditor’s responsibility 14 7.4Our independence 15 7.5Our opinion 15 References 16 1.0The comprehensive income statement Midlands Company Limited Statement of Comprehensive Income For the year ended 30 June 2013 $s $s Revenue: Sales and services 184,500,000 Commission revenue 24,200,300 Sale of non current assets 29,750,000 Total revenue 283,450,300 283,450,300 Costs of sales (67,400,200) Contribution 171,050,100 Expenses: Staff salaries 14,900,000 Wages to staff 37,600,000 General costs of operating 18,900,200 Delivery expenses 2,300,000 Annual leave expenses 4,900,000 Audit fees 1,230,000 Bank overdraft charges 94,300 Retirement expenses 400 Loan interest expenses 720,000 Warranties paid 2,540,000 Legal expenses 13,700,000 Office supplies 1,710,000 Depreciation of delivery vehicles 210,250 Depreciation of furniture 520,000 Depreciation of machinery 3,860,000 Buildings depreciation 1,600,000 Total expenses (121,455,150) Earnings before interest and tax 49,594,950 Income tax payable (14,878,485) Income after tax 34,716,465 2.0The statement of financial position Midlands Company Limited Statement of Financial Position As at 30 June 2013 ASSETS; Current assets, Account receivables 34,500,200 Inventory 25,600,800 Accrued revenue 4,350,000 Less current liabilities, Doubtful debt provision (1,400,500) Bank overdraft (980,000) Provisions for leave and warranties (8,500,000) Legal case provision (4,800,000) Unearned revenue (7,430,000) Accounts payable (22,700,800) Net current assets 18,639,700 Noncurrent assets; Trademark 7,200,300 Furniture and equipments 4,380,000 Delivery vehicles 1,690,000 Buildings 24,700,900 Land 9,600,400 Machinery 32,800,200 Less long term loan (12,000,000) Net assets 87,011,500 Equity; General reserve 8,000,000 Share capital 18,760,000 Retained earnings 28,411,400 Profit for the year 34,716,465 Total equity 89,887,865 3.0The statement of changes in equity Midlands Company Limited Statement of Changes in Equity For the year ended 30 June 2013 Share capital General reserve Retained earnings Total Balance as at 1 July 2012 15,960,000 8,000,000 28,411,400 52,371,400 Bonus share issued on December 2012 2,800,000 - - 2,800,000 Transfer to retained earnings from reserve (4,000,000) 4,000,000 - Dividends declared and paid - - (1,910,000) (1,910,000) Declared dividends (10 cents per share)on 29 june 2013 - - (1,876,000) (1,876,000) Comprehensive income for the year - - 34,716,465 34,716,465 Balance as at 30 June 2013 18,760,000 4,000,000 63,341,400 86,101,865 4.0Notes to Financial Statement For the year ended 30 June 2013 4.1Note 1: preparation of the financial statement Midlands Company limited has prepared these financial statements according to the rules and regulations of the corporations Act of 2001 and the ASX rules. The management have exercised the due professional care and competence in the preparation of the financial statements to the shareholders and other stakeholders of this company. The statements reflect how the company have performed for the last year. This period is from 1 July 2013 as from the last day of the preparation of the last financial results of the company. The management have prepared this financial statements using the accounting policies of the company which were adopted from the corporations Act of 2001 and the Australian accounting standards boards(AASBs) accounting policies. These financial statements have fulfilled all the requirements of the AASB and the corporations Act of 2001 fully. The company is a public limited company with issued share capital and is listed in the stock exchange. The company has positive net current assets. This means that it is able to meet its current obligations as and when they fall due. These financial statements have been prepared using the historical cost basis apart from the provisions and other aspects that need to be prepared using the fair value as required by the corporations Act of 2001.these financial report are yet to be authorised by the board of directors. They will be approved in august by the board. 4.2Note 2: Accounting policies and estimates The company has made provisions for annual leave and warranties. The Australian accounting standards board requires that a company provisions be discounted to their present values so as to reflect the tome value of money. The company have provided for these provisions at present value to reflect the time value for money. The risks for specific liabilities have also been taken care of by using pre tax rate to reflect the market condition of time value for money. 4.3Note3: revenue The company generated the income from various sources. The sales and the services revenue involve sale of the company goods, this is the main business for this company (to produce and sell goods to make profit).this is at a percentage of sixty percent (60%) of the sales and services revenue. Services revenue is derived from the services that the company offers. These services are offering consultancy services to the members of the public at a fee. This accounts for forty percent (40%) of the sales and services revenue the company also generates revenue from commissions. This is as a result of selling products of other companies at some of the companies own retail premises. Revenue from sale of non-current asset includes the sale of part of land which the company owns. This land was sold for $21,500,000. The company also sold an item of machinery at a price of $8,250,000. 4.4Note 4: inventories The company have reported inventories at the lower of cost and the net realisable value. This is so as to reflect the actual value of the inventories. 4.5Note 5: unearned revenue This revenue amount is for payment in advance for the orders from a number of company’s product. 4.6Note 6: bank loan The company obtained a loan from Big bank in the year 1 july2004. This loan is supposed to be paid back by the year 30 June 2014. The loan attracts an interest of six percent (6%) annually. The interest is paid in arrears at the end of each and every year. The loan was of $12,000,000 principle amount. The loan will be paid in full in one payment on 30 June 2014. 4.7Note 7: warranties The company has a provision for warranties. The provision for the current period is $3,100,000. The company estimates to use twenty five percent (25%) of these warranties in the next financial year. The company also has provision for annual leave for its employees. In total the company used an amount of $1,830,000 in paying its employees for annual leave. It estimates to use an amount of $5,400,000 as annual leave payments. 4.8Note 8: dividends The company had $1,910,000 as dividends which were declared and paid during the financial year. An amount of $1,430,000 was declared on 3rd July 2012 and was paid on 1st September of the same year from the retained earnings. They were not subject to approval. The management also declared interim dividends of $480,000 on 1st march 2013 and paid from the retained earnings. They were not subject to approval. The directors declared final dividends of 10 cents per share held on 29th June 2013from the retained earnings. They were not subject to approval. 4.9Note 9: issue of shares The company issued a new issue of shares on December 2012.this was a bonus share issue of 1 bonus share for each 11 ld at an issue price of $2.80.this were issued from the general reserve. The company collected a total of $2,800,000 amount of shares 1,000,000 from the bonus issue. This increased the capital of the company. The directors issued a prospectus for a new share issue for three million ordinary shares at an issue price of $3.00 per share on 10th august 2013, this did not affect the current financial period. It will be affected the next financial period. 4.9.1Note 10: general reserve The management transferred an amount of $4,000,000 from the general reserve to the retained earnings. The general reserve is created for the purposes of transferring funds from the retained earnings. 4.9.2Note 11: doubtful debts The company decided to relax its credit terms during the year ending 30th june 2013. This was as a means to increase sales from its customers. This has resulted in an increase in sales and as a result a 35% increase from the amount of doubtful debts is anticipated. The doubtful debt expense and its allowances were increased for the current year. 4.9.3Note 12: legal expenses The company had provided for a legal amount of $10,000,000 at the starting of the financial year. However the legal case which related to a case where the company was being sued by a number of employees for unfair dismissal was increased by an amount of $3,700,000. This amount was not catered for in the financial statements. The legal expenses are for this case sine it was not provided for in the previous year. The case was ruled against the company. The company is also facing another court case where the company suppliers have sued the company for returning an inventory. The company lawyers project that the company will be liable for 40% of this case. The supplier wants the company to accept the inventory and pay the suppliers costs for producing and delivering this inventory. 4.9.4Note 13: post balance date events Some of the events taking place after the preparation of the financial statements are; the issue of new shares by the company, the company is looking to outsource some services in foreign countries which have low labour cost in order to reduce costs. This was projected to reduce costs by 4% the next period and 7% in the years there after. 5.0The director’s declaration. In the view of directors of midland company limited i) The financial report and the accompanying notes are prepared in accordance to AASBs and the companies Act of 2001. ii) There are reasonable reasons that the company will be able to meet all its obligations as and when they fall due. This is very important. iii) The financial statements have been prepared in accordance with international financial reporting standards and the international accounting standards. 6.0Annual director’s report This company continue to excel tremendously year after tear. This has been shown by every part of this company. The efforts putting up by the company employees in achieving the goals is very evident. The goals set by each and every part and division of the midland has shown. The management has the responsibility of ensuring that the financial statements are free from errors and fraud. They represent a true performance of the company for the financial year ended 30th June 2013.the Company has sold some of its noncurrent assets. The company sold a part of land and machinery. The proceeds were included as part of the revenues generated by the company. 7.0Annual auditor’s report 7.1Financial statements We the auditors of midland company limited have audited the financial statements which include the statement of comprehensive income, the statement of statement of financial position,the statement of changes in equity and the notes to the financial statements . 7.2Director’s responsibility on the financial statements It is the responsibility of the management of midland company limited to prepare and present the financial statements according to the requirements of AASBs and the corporations Act of 2001,it is not our responsibility. The management is responsible for designing, implementing and maintaining the internal control system in line to the preparation of the financial statement. This is to ensure that they are free from material misstatements due to fraud or error, and also making estimates that are reasonable while applying the accounting policies. 7.3Auditor’s responsibility Our responsibility is to express an opinion on the prepared financial statements based on the audit we carry out. Our audit was conducted according to Australia auditing standards that require auditors to comply with the ethical requirements, plan, and perform their audit in order to obtain a reasonable assurance of whether the financial statements are free from material misstatements. This involves performing procedures to obtain audit evidence of the amounts and disclosures in the financial statements. These procedures depend on our judgment including an assessment of risk of material misstatements that might be in the financial statements. We evaluate the internal control system of the company in order to design audit procedures. We believe that the audit evidence that we have obtained is enough and sufficient and also appropriate to give a basis for our opinion. 7.4Our independence The corporation Act of 2001 requires that auditors to provide a declaration of independence to the directors of the company (midlands company limited). As the main auditors of the financial statements of midland company limited, for the year ended 30th June 2013 declare that to the best of our knowledge that we have conducted our audit with requirements of the corporations Act of 2001in relation to audit and that we have applied all applicable code of professional ethics in carrying our audit. 7.5Our opinion In our opinion the financial statements; i) Give a true and fair view of the results of the company’s operations as at 30th june 2013 ii) They have been prepared in accordance with the requirements of the AASBs, the international financial reporting standards and the corporations Act of 2001. Kiragu and Co. Chartered public Accountants Peth, Australia 04th May 2013. References AASB (Australian Accounting Standards Board), 2004. Framework for the Preparation and Presentation of Financial Statements. Melbourne: Australian Accounting Standards Board. Aktaş, R., 2011. Timeliness of Reporting and the Quality of Financial Information. Finance and Economics, 63(63), p.71-77. CCH Editors, 2008. Australian Master Accountants Guide. Sydney: CCH Australia Limited IASB (International Accounting Standard board) 1 “Presentation of Financial Statements” International Monetary Fund 2010. The Uses and Abuses of Sovereign Ratings. Global Financial Stability Review, October, p.85-122. Valletta, R.M., 2005. Clear as glass: transparent financial reporting. Healthcare financial management journal of the Healthcare Financial Management Association, 59(8), p.58-64, 66. Read More