FINANCIAL ACCOUNTING AND REPORTING 4/15/2011 1

ASSIGNMENT #1

FINANCIAL ACCOUNTING AND REPORTING

INSTRUCTOR:

AAMIR WAHID

SUBMITTED BY:

SULEMAN KHAN
ROLL .NO 029

ACCOUNTING:

“Accounting is an art of Recording, Classifying, Summarizing transactions with

financial character or a part of it and Interpreting the results thereof”
(INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS)

So basically accounting (or financial accounting) is involved with the following

main functions:

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 RECORDING: This is done basically in the “GENERAL JOURNAL” in which

all the transactions and every detail is recorded.
 CLASSIFYING: This is done in “LEDGERS” where different “accounts” are
maintained for different heads appearing in the “journal”
 SUMMARIZING: This is done in the “TRIAL BALANCE”. In which all the
heads are summarized in the form of a list, and this should balance .
 INTERPRETING:
For interpretation different “tools” can be used. They help the users of the
financial statements to draw inference about the enterprise. They are :
1. BALANCE SHEET : This shows the financial position of the
company. It is always mentioned in terms of a particular date.
2. PROFIT AND LOSS ACCOUNT: This shows the financial
performance of the entity. It is always mentioned in terms of a given
period of time(accounting period)
3. CASH FLOW STATEMENT: This shows the changes in the cash
flows of the company during a certain period of time. It can be
shown either by the;
o direct method or
o indirect method
4. NOTES TO THE ACCOUNTS: Giving complete detail on the face
of the statements is not possible so a complete detail is given in the
notes which not only gives the detail about the statements but also
gives important details like company policies and basis of
preparation of the financial statements and other important details.
As they relate to the whole period they are also mentioned with
reference to a whole period.
5. STATEMENT OF CHANGES IN EQUITY: This statement has
recently been included to be shown separately. This is just like a
profit and loss appropriation account. It is also shown with
reference to a whole period.

COMPANY AND ITS KINDS:

COMPANY: A company means “a company formed and registered under the

companies ordinance 1984 or an existing company”.
According to the CO1984 companies can be categorized into two heads:
a) Public company
b) Private company

KINDS OF COMPANIES:
1. Company limited by shares(s-15/2a)
2. Company limited by guarantee (s-15/2b)
3. Unlimited company (s-15/2c)
4. Association not for profit(s-42)

However there are still some “other classifications” like;

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a) Listed and unlisted companies

b) Holding company
c) Subsidiary company
d) Associated company

But here we will analyze the financial statements of the listed company. A
company is said to be listed if it’s a public company and its shares are listed or
quoted on a stock exchange. The company under consideration is SEARLE
PAKISTAN (Ltd).we are considering the accounting period of 2001 but if required
we will also consider the accounting period of 2000 both of which are given in the
annual report(which is a requirement of IAS-8).Furthermore we will analyze these
statements with respect to the questions given in the FINANCIAL STATEMENT
QUESTION(page enclosed). The explanation has been given in the notes(if
required) .All figures are in thousand rupees

A. CASH AND CASH EQUIVALENTS: (N-1)

2001 2000
Cash and bank balances 98,025 78,559
Running finance (250,877) (224,496)
TOTAL (152,852) (145,937)

B. TOTAL LIABILITIES: (N-2)

2001 2000
Total liabilities. 1,151,033 978,581

C. ACCOUNTING EQUATION:

ASSETS =LIABILITIES+SHAREHOLDERS EQUITY

FOR 2001:
1,478,967= 1,151,033 + 327,934

FOR 2000:
1,315,505 = 978,581 + 336,924

D. NET SALES /SALES/ REVENUE:

2001 2000
Turnover 1,343,461 1,171,049

NET PROFIT AFTER TAX:

2001 2000
Profit after taxation 10,066 35,165

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COMPARISON :

We will now compare the two accounting periods; there are different ways to
compare the performance of an entity. There can be a ratio analysis in which we
can analyze by;
 HORIZONTAL ANALYSIS.
 VERTICAL ANALYSIS.
However to keep things simple we can do this by simply comparing the
“significant” figures.

particulars 2001 2000

turnover 1,343,461 1,171,049
cost of goods sold 946,672 792,074
gross profit 396,789 378,975
operating profit 126,779 142,887
profit before tax 51,659 75,729

It is evident from the above figures that although the figures of gross profit of both
accounting periods show almost the same pattern, but the change in the
operating and net profit before tax is quite visible. This means that the
management has adequately controlled the operating expenses in the preceding
period but in the current period they failed to do so. And because of this the
current year’s operating profit and net profit doesn’t match with the levels of sales
and the pattern of the gross profit. This will be clearer if done through ratio
analysis.

Notes :
Note-1: CASH AND CASH EQUIVALENTS:

This is the most technical point which has come unfortunately. First of all we will
have to know the nature of the running finance. A running finance arrangement is
an arrangement in which the company will hypothecate some of its current
assets (usually it will be the stock of the company) with a bank and in turn it will
open an account with the bank. The bank will authorize the payment of up to a
certain limit to the company when it will require it. So it is a kind of cash
equivalent in the sense that the company can use it any time it wants. The bank
will charge a markup on the amount used. But basically it’s a kind of a loan that
the company will have to pay to the bank (a secured loan in fact). So basically it
is shown in the current liabilities in the balance sheet, but in calculating the cash
equivalents it is shown in the cash flow statement, because the company can use
it (up to the limit specified) whenever it wants. The same thing has been shown

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above. And there is an increase in the cash and bank balance of the company
during the year.

Note -2: TOTAL LIABILITIES:

Total liabilities have been calculated by adding:

1. Long term finance
2. Liabilities against assets subject to finance leases
3. Deferred liabilities
4. Deferred income
5. Current liabilities

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