Financial Statements with Example

Welcome Friends, you are welcome to learnvern. I am Anshu Sachan.

In the last session we saw What are Financial Statements. Today we will try to do practical analysis of Financial Statement, okay? So let’s move forward.

As you can see on the screen, I have kept a financial statement on the screen, okay? On the right hand corner is the Registered Number, the company’s Registered Number. Every Private Limited company has a registered number. So the registered number will be seen here. What comes next? Financial Statement for the Year Ended. Friends, focus on what is written in the title - Financial Statement for the Year Ended 31st May 2020. This financial statement is on 31st May 2020. Therefore, the information will be of the financial year 2020, okay? What is written here? Year ended, that means it is for 1 year. When will it start? From 1st of June 2019 to 31st May 2020. Which means they have followed the financial year from June to May. I had told you that you can follow the financial year, okay? The financial statements are made for a year and they have kept the year from June to May 2020.

This is the title, that Financial Statement Statement for the Year Ended, that is for the whole year, okay? Let’s move ahead. What is next? On the second page it is written Contents of Financial Statement. It means Index as in, in Index we write what we will find on each page. So the contents are mentioned here so that the reader can easily read & find on which page he will get what information. That is why we make an index that if you want company’s information, you will find it on page 1, if you want a balance sheet, you will find it on page 2, if you want Notes to Financial Statements, that is Notes to Accounts, can be seen on the 4th page. Okay?

Let’s move ahead slowly. You will find the Company Information here. There are Directors here. You have to show who the directors are during the year. Who are the company directors of the statement that you are making? Okay? Then comes the Secretary. If you have a company secretary who handles your account, you have to mention them here. Next is the Registered Office. What is the location of your company’s registered office. So this is where the company’s registered office is, okay? Then comes the registered number. The number we saw on the first page corner, the same number will be shown here. Then is Accountant. Who has certified the Financial Statement? Which Chartered Accountant did it? That Chartered Accountant’s name will appear here.

So this page is Company Information where the Company’s Name, the Company Directors name, Company Secretary name, Company Registered number, Company’s Accountant, Company’s CA will also be shown here. You will find this information on the first page. Let’s move ahead.

Up next is the Balance sheet. You can see the comparative balance sheet is made. You can see two years here, right? That means it is a Comparative Balance Sheet. Generally what happens is, unless & until, this is the first year of your business, then only a single year is present here. Otherwise, whenever a balance sheet or any financial statement is made, they will always be comparative. Stand alone financial statements are never made. They are made only in 1 condition: that is when it is your first year of incorporation. Means you have just started your business & this is your first year and you are making a financial statement in that year only otherwise you will always get comparative.

If we see its format, first is fixed asset, below it’s written Tangible Asset. Do you remember I had taught you tangible assets & intangible assets? The ones you can touch are tangible & the ones you can’t touch are tangible. I have given you examples of Tangible assets such as Furniture, Computer equipment, land & building, plant & machinery, all of these are tangible assets, okay? What is written here? Tangible assets are 7,81,959, okay? If you want its details, then you can see the 4th number notes, okay? And its comparative values can also be seen here. Then comes Current Assets. In Current Assets, there are cash & bank, stock, trade debtors, okay? There is bank balance, fixed deposits which will be realised in 90 days, short term investments.

What does it have? Cash & Bank. There’s only a bank so the bank is seen here. Okay? Further ahead are creditors. In Creditors it is written ‘Amount falling due within one year’. That means these 6,572 are those creditors, that kind of liability which you have to pay in 12 months. So 12 months from when? From 31st May 2020, you have to pay this much in the next 12 months. So what was this for the company? It is a liability, okay? What will we call it? Current Liability. If we subtract Current Liability from Current Asset, we will get Net Current Asset & Net Current Liability. This 2,736 is Net Current Asset. What is Net Current Asset? Current Asset minus Current Liability. What will we get? Net Current Asset. What is my Current Asset? 9,308 & what is my liability? 6,572. So what will be the difference? 2,736. This is your Net Current Asset, okay?

What if this was negative? What if the liability was more than the asset? It would have come in negative, okay? Then it would have been your Current Liability. Moving ahead to ‘Total Asset Less Current Liabilities’. What is in Total Asset? Fixed Asset plus Current Asset. That is Total Assets. What did we subtract from Total Assets? We subtracted Current Liability. We got 7,21,695, okay? Then we got Creditors. ‘Amount falling due after more than one year’. So this 3,94,540 is your liability which you have to pay but it is not that one which you have to pay in the next 12 months, okay? You have to pay that after 12 months. So what will be shown here? It will go in Current Liability & in other non current liability.

The one you have to pay in less than a year will be your current liability, the one you have to pay after a year will be your non-current liability, okay? What will come next? Capital & Reserves. Means what your share capital is. The share capital is 100. What is second? Retained Earnings. What are retained earnings? From when you started your business, from when you had started making financial statements, what is the profit from then until now. What is it? Accumulated Profit. You can call it Retained Earnings, Profit & Loss Account Reserve, General Reserve, okay? So these are the reserves. That your book profit is this much.

How much Book Profit is there? 3,27,055. Okay? Here, Assets & Liabilities are matching. That means my balance sheet matches. If we analyse a bit, we will get to know that the company has fixed assets the most, 7,18,959. But besides that, there are many liabilities: 3,94,540 & 6,572. And the company has a bank balance of 9,308. And what is the company’s profit until now? 3,27,055. Means the company has assets also as well as the profit, okay? We can see this analysis here. What happens then? Then comes the Balance Sheet continued and the signing authority signs the balance sheet.

Then let’s come below towards Notes to Financial Statement, that is Notes to Account, okay? What is it? Like I said, Notes to Accounts. It will have Financial Information. That I have made this whole financial statement according to which rule? See there is UK Gap, US Gap, Indian Gap. These are the different principles & laws on the basis of which we have to make a Financial Statement.

The first information is about the same that we have made Financial Statements according to that. Then comes Accounting Policies. What basic accounting policies have I used in my financial statement? Such as how have we raised the turnover, then how have we used Depreciation Policies that are Tangible assets. We can see Plant & Machineries - 25% on reducing balance, that is Written Down Value. Okay? What’s next? Fixtures & Fittings - 25% on reducing balance. That means I am depreciating fixed assets at 25% reducing balance, okay? That means every time I calculate 25% on the opening of the fixed assets & charge in the depreciation.

I also showed when I book turnover, how do I recognise taxation, how do I record it, what treatment have I made of Deferred tax, that means the tax in future. So through Accounting Policy, you can know how to recognise these figures, how we have calculated them, we can know about that from Notes to Accounts, okay?

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Moving forward, these are the average number of employees throughout the year. This is a requirement of every government of every country that if you are a company & you have made a financial statement, then you will have to show this much information. The financial statement that we took as an example, in that country you have to show on an average how many employees were employed in your business. It is written NIL here, that means there were none. It was only the director.

Then comes Tangible Asset. You know Note number 4 is written here, 7,18,959. Where will we get the detailed bifurcation? In Note number 4. So let’s check note number 4. In note number 4, you can see first is Freehold property. Here you can see the value, the reevaluation and the amount, okay? This was the depreciation until now, I calculated this depreciation & this is the total depreciation. This is my Net Book Value, okay. It is called NBV, Net Book Value. Total Cost - Total Depreciation results in Net Book Value. Okay?

In the same way, I have Plant & Machinery, Fixture & Fittings, Computer Equipment. All of these are examples of Tangible Asset, that is why Tangible Fixed Asset is written there. Are you understanding so far? See, here it is written Tangible Assets. If it was Goodwill, Patent or any development expense written here, then Intangible would have been written here. You would have seen Tangible as well as Intangible here. But here, we have only Tangible assets so we have kept a bifurcation of Tangible Assets. Understood?

Here after the total, the bifurcation of 7,18,959 looks like this & goes into the balance sheet. Alright? Onto the next.

Creditors. The 6572 creditors that I had to pay in a year, its bifurcation is -

Trade Creditors 109. Trade creditors are the suppliers, those who supply the stock to us & whom we have to pay are 109. Next is Taxation. 2692 is the amount of Tax that I have to pay. Then comes the Director's current account. Which means that I have to pay the Director. The company had less money or there might be some expense which the director must have paid. So I have to return it back to the director. That amount is 2612. Then comes Accrued Expense. If you remember, I had shown Accrual expenses in general posting.