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5IFRS

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Intermediate Accounting (Kieso)
Found in: Page 263

Short Answer

Presented below is the balance sheet for Tomkins plc, a British company.

Tomkins plc Consolidated Balance Sheet (amounts in £ million)

Particular

Amount £

Non-Current Assets

Goodwill

436

Other tangible assets

78

Property, plant, and equipment

1,122.80

Investment in associates

20.6

Trade and other receivables

81.1

Deferred tax assets

82.9

Post-employment benefits surpluses

1.3

1,822.7

Current assets

Inventories

590.8

Trade and other receivables

753

Income tax recoverable

49

Available for sale investment

1.2

Cash and Cash equivalents

445

1,839

Assets held for sale

11.9

Total assets

3,673.6

Current liabilities

Bank overdraft

4.8

Bank and other loans

11.2

Obligations under finance leases

1

Trade and other payables

677.6

Income tax liabilities

15.2

Provisions

100.3

810.1

Non-Current liabilities

Bank and other loans

687.3

Obligations under financial leases

3.6

Trade and other payables

27.1

Post-Employment benefits obligations

343.5

Deferred tax liabilities

25.3

Income tax liabilities

79.5

Provisions

19.2

1,185.5

Total liabilities

1,995.6

Net assets

1,678

Capital reserve

Ordinary share capital

79.6

Share premium account

799.2

Own shares

(8.2)

Capital redemption reserve

921.8

Currency translation reserve

(93)

Available for sale reserve

(0.9)

Accumulated deficit

(161.9)

Shareholder’s equity

1,536.6

Minority interest

141.4

Total equity

1,678

Instructions

(a) Identify at least three differences in balance sheet reporting between British and U.S. firms, as shown in Tomkins’ balance sheet.

(b) Review Tomkins’ balance sheet and identify how the format of this financial statement provides useful information, as illustrated in the chapter.

1. Difference in reporting form, classification, and terminologies used.

2. Information helps determine financial ratios, financial stability, and performance of the business entity.

See the step by step solution

Step by Step Solution

Definition of Shareholder’s Equity

Shareholder’s equity can be defined as the portion of capital invested by shareholders in the business. Common stock, preferred stock, and retained earnings are included in shareholder’s equity only.

Difference in Reporting

  1. Reporting form and Subtotals: Company uses a modified form of reporting information in the balance sheet. The company first calculated net current assets and then calculated total net assets. Total net assets are equal to the total of capital and reserves.
  2. Classification: The business entity does not arrange the assets in the balance sheet to decrease liquidity.
  3. Terminology: The company uses different terminology for line items such as share premium account instead of additional-paid-in-capital.
  4. Currency: The business entity reports the balance sheet in pounds.

Usefulness of the information provided by the balance sheet

  1. Classifying all the assets and liabilities as current and non-current helps determine when each of them will provide a benefit or will become due.
  2. It provides various figures that will assist in calculating financial ratios.
  3. It provides information about the most liquid asset and assets with the least liquidity.

Most popular questions for Business-studies Textbooks

E5-9 (L02,3) (Current Assets and Current Liabilities) The current assets and current liabilities sections of the balance sheet of Allessandro Scarlatti Company appear as follows.

ALLESSANDRO SCARLATTI COMPANY

BALANCE SHEET PARTIAL

December 31, 2017

Cash

$40,000

Account payable

$61,000

Accounts receivables

$89,000

Note payable

67,000

Less: Allowance for doubtful accounts

(7,000)

82,000

$128,000

Inventory

171,000

Prepaid expenses

9,000

$302,000

The following errors in the corporation’s accounting have been discovered:

1. January 2018 cash disbursements entered as of December 2017 included payments of accounts payable in the amount of $39,000, on which a cash discount of 2% was taken.

2. The inventory included $27,000 of merchandise that had been received at December 31 but for which no purchase invoices had been received or entered. Of this amount, $12,000 had been received on consignment; the remainder was purchased f.o.b. destination, terms 2/10, n/30.

3. Sales for the first four days in January 2018 in the amount of $30,000 were entered in the sales journal as of December 31, 2017. Of these, $21,500 were sales on account and the remainder were cash sales.

4. Cash, not including cash sales, collected in January 2018 and entered as of December 31, 2017, totaled $35,324. Of this amount, $23,324 was received on account after cash discounts of 2% had been deducted; the remainder represented the proceeds of a bank loan.

Instructions

(a) Restate the current assets and current liabilities sections of the balance sheet in accordance with good accounting practice. (Assume that both accounts receivable and accounts payable are recorded gross.)

(b) State the net effect of your adjustments on Allessandro Scarlatti Company’s retained earnings balance.

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