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STATEMENT OF CHANGES IN EQUITY

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Financial Accounting (Mgt-101)
VU
Lesson-38
STATEMENT OF CHANGES IN EQUITY
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Statement of changes in equity shows the movement in:
o  Share Capital (issued share capital)
o  Share Premium
o  Nature of Reserves created
o  Un-appropriated Profit / Loss
o  Dividend Distributed
SHARE PREMIUM
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Share Premium is the amount received in excess of the face value of the share. Example: if a Rs. 10
share is sold for Rs, 12 then Rs. 2 is share premium.
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Share Premium can not be distributed among the share holders.
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It can be utilized:
o  To issue Bonus Shares
o  To write off Preliminary Expenses
o  To meet the difference of face value and cash received in case of shares issued at discount
o  To meet the expenses of issue of shares
o  For payment of premium on redemption of debentures.
RESERVES
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Capital Reserve and Fixed Asset Replacement Reserve are used for specific purpose. These are not
distributed among share holders.
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General Reserve and undistributed profit` can be distributed among share holders.
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Revaluation Reserve is created when an asset is re-valued from cost to market value.
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Revaluation Reserve can not be distributed among the share holders.
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It can be utilized for:
o  Setting off any loss on revaluation
o  At the time of disposal of asset, the reserve relating to that asset is transferred to profit &
loss account.
CASH FLOW STATEMENT
Cash Flow Statement shows the movement of cash resources during the year. It gives information
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about sources of income and account heads on which this amount is spent.
It is an integral part of financial statements.
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NOTES TO THE ACCOUNTS
Notes to the accounts are the explanatory notes of all the items shown in the profit and loss account
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and the balance sheet.
It is the requirement of the Companies Ordinance and the International Accounting Standards.
o
Following are explained in Notes to the accounts:
o
o  Nature of business of the company
o  Accounting Policies of the company
o  Details and explanation of items given in the Profit and Loss Account and Balance Sheet.
DEBENTURES
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Financial Accounting (Mgt-101)
VU
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Debentures are acknowledgement of debt, owed by the company to the public at large for a defined
period of time, and has a mark up (profit) rate attached to it.
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Debentures are issued under the common seal (Stamp) of the company.
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Debenture is an instrument for obtaining loan from general public.
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Mark up is paid on Debentures which is generally equal to the market rate.
TERM FINANCE CERTIFICATE
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Term Finance Certificates are issued for a defined period.
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These are also issued to obtain loan from public at large.
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Both Debentures and Term Finance Certificates are usually issued by Public Companies.
ILLUSTRATION
ABC Limted
Trial balance as on June 30, 2002
Particulars
Amount
Amount
Dr. (Rs.)
Cr. (Rs.)
Authorized Share Capital (Face value Rs. 10 each)
1,500,000
Paid up Capital
1,000,000
Share Premium
120,000
General Reserve
48,000
Accumulated profit brought forward
139,750
Opening Stock
336,720
Sales
4,715,370
Purchases
2,475,910
Return outward
121,220
Return inward
136,200
Carriage inward
6,340
Carriage outward
43,790
Wages
410,240
Salesmen Salaries
305,110
Admin. Wages & salaries
277,190
Plant And Machinery
610,000
Motor vehicle hire
84,770
Provision for Depreciation: Plant & Machinery
216,290
General Selling Expenses
27,130
General admin. expenses
47,990
Directors' Remuneration
195,140
Rent received
37,150
Trade Debtors
1,623,570
Cash and Bank balances
179,250
Trade Creditors
304,570
Bills Payable
57,000
Total
6,759,350
6,759,350
ADDITIONAL INFORMATION
�  Closing stock is valued at Rs. 412,780.
�  Accrue Auditors' remuneration Rs. 71,000.
�  Dividend is proposed @37.5% for the year.
247
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Financial Accounting (Mgt-101)
VU
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Depreciate plant & machinery @20% on cost.
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Of the motor hire, Rs. 55,000 are for selling purposes.
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Directors' remuneration has been as follows:
o  Chairman
46,640
o  Managing Director
51,500
o  Finance Director
46,000
o  Marketing Director
51,000
�  195,140
You are required to prepare profit & loss account as on June 30, 2002 and balance sheet for the reported
period
SOLUTION
While presenting the financial Statements of the company, balance sheet is presented first and profit &
loss account is presented later, but we cannot prepare balance sheet without preparing profit and loss
account. So we will prepare profit and loss account first.
Balance Sheet
ABC Limted
Balance Sheet As At June 30, 2002
Particulars
Note
Fixed Assets at WDV
3-a
271,710
Current Assets
Debtors
1,623,570
Stock in Trade
412,780
Cash & Bank Balance
179,250
2,215,600
Current Liabilities
Creditors
304,570
Bills Payable
57,000
Auditors Remuneration Payable
71,000
375,000
Proposed Dividend
807,570
Working Capital
1,783,030
Net Assets Employed
1,679,740
Financed By:
Authorized Capital
50,000 Shares of Rs. 10 each
1,500,000
Paid Up Capital
30,000 Shares of Rs. 10 each
1,000,000
Share Premium
120,000
General Reserve
48,000
Accumulated Profit and Loss Account
511,740
Total
1,679,740
PROFIT AND LOSS ACCOUNT
ABC Limted
Profit and Loss Account for the Year Ending June 30, 20-2
248
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Financial Accounting (Mgt-101)
VU
Particulars
Note
Amount Rs.
Amount Rs
Sales
1
4,579,170
Less: Cost of Goods Sold
2
(2,695,210)
Gross Profit
1,883,960
Add: other income (rent received)
37,150
Less: Administrative Expenses
3
692,090
Less: Selling Expenses
4
482,030
(1,174,120)
746,990
Profit before tax
0
Less: Tax for the year
746,990
Profit after tax
139,750
Add: Accumulated Profit b/f
886,740
375,000
Less: Proposed Dividend @ 37.5%
5
Net Profit Carried Forward
511,740
Notes
Sales
Note # 1
Sales
4,715,370
Less: Return in
(136,200)
Net Sales
4,579,170
Cost of goods sold
Note # 2
Opening Stock
336,720
Add: Purchases
2,475,910
Wages
410,240
Less: Returns out
(121,220)
Add: Carriage in
6,340
Less: Closing Stock
(412,780)
Total
2,695,210
249
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Financial Accounting (Mgt-101)
VU
Note # 3
Administrative Expenses
Wages & salaries
277,190
Motor Hire
29,770
General Expenses
47,990
Directors Remuneration:
Chairman
46,640
Managing Director
51,500
144,140
Director Finance
46,000
Auditors Remuneration
71,000
Depreciation Plant & Machinery (Note # 3-a)
122,000
Total
692,090
Note # 3-a
Fixed Assets
Acc. Dep.
WDV
Cost
Rate
Opening For the Yr. Closing
Plant & Machinery
610,000 20%
216,290
122,000
338,290
271,710
Selling Expenses
Note # 4
Salesmen salaries
305,110
Carriage out
43,790
General Expenses
27,130
Motor Hire
55,000
Marketing Director's Remuneration
51,000
Total
482,030
Note # 5
Proposed Dividend
37.5% of 1,000,000 (issued capital)
375,000
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Table of Contents:
  1. Introduction to Financial Accounting
  2. Basic Concepts of Business: capital, profit, budget
  3. Cash Accounting and Accrual Accounting
  4. Business entity, Single and double entry book-keeping, Debit and Credit
  5. Rules of Debit and Credit for Assets, Liabilities, Income and Expenses
  6. flow of transactions, books of accounts, General Ledger balance
  7. Cash book and bank book, Accounting Period, Trial Balance and its limitations
  8. Profit & Loss account from trial balance, Receipt & Payment, Income & Expenditure and Profit & Loss account
  9. Assets and Liabilities, Balance Sheet from trial balance
  10. Sample Transactions of a Company
  11. Sample Accounts of a Company
  12. THE ACCOUNTING EQUATION
  13. types of vouchers, Carrying forward the balance of an account
  14. ILLUSTRATIONS: Ccarrying Forward of Balances
  15. Opening Stock, Closing Stock
  16. COST OF GOODS SOLD STATEMENT
  17. DEPRECIATION
  18. GROUPINGS OF FIXED ASSETS
  19. CAPITAL WORK IN PROGRESS 1
  20. CAPITAL WORK IN PROGRESS 2
  21. REVALUATION OF FIXED ASSETS
  22. Banking transactions, Bank reconciliation statements
  23. RECAP
  24. Accounting Examples with Solutions
  25. RECORDING OF PROVISION FOR BAD DEBTS
  26. SUBSIDIARY BOOKS
  27. A PERSON IS BOTH DEBTOR AND CREDITOR
  28. RECTIFICATION OF ERROR
  29. STANDARD FORMAT OF PROFIT & LOSS ACCOUNT
  30. STANDARD FORMAT OF BALANCE SHEET
  31. DIFFERENT BUSINESS ENTITIES: Commercial, Non-commercial organizations
  32. SOLE PROPRIETORSHIP
  33. Financial Statements Of Manufacturing Concern
  34. Financial Statements of Partnership firms
  35. INTEREST ON CAPITAL AND DRAWINGS
  36. DISADVANTAGES OF A PARTNERSHIP FIRM
  37. SHARE CAPITAL
  38. STATEMENT OF CHANGES IN EQUITY
  39. Financial Statements of Limited Companies
  40. Financial Statements of Limited Companies
  41. CASH FLOW STATEMENT 1
  42. CASH FLOW STATEMENT 2
  43. FINANCIAL STATEMENTS OF LISTED, QUOTED COMPANIES
  44. FINANCIAL STATEMENTS OF LISTED COMPANIES
  45. FINANCIAL STATEMENTS OF LISTED COMPANIES