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(225)-FINANCIAL STATEMENTS

Monday, December 13, 2010

Financial Statements

Terminology

The term “financial statements” is usually taken to include the balance sheet, profit and loss account and cash flow statement together with notes to the accounts. The term will include the additional statements and notes required by financial reporting standards (FRS).

Accounting conventions
  1. Pure historical cost
    Financial statements some companies are usually prepared on the basis of the historical cost. This is taken to mean the monetary amount scarified or lay out at the date of acquisition. This basis is used both for asset measurement and profit measurement.
    2. Modified historical cost
    However, it is common for some companies to incorporate fixed assets valuations into their balance sheets. This means that under statement of standards accounting practice (SSAP) the depreciation charge will be based on the revalued amount. On a sale of the asset, the profit or loss on sale will be determined by comparing, proceeds of sale and net book value at the date of sale, based on revalued amount. The implementations of both these matters are important from the viewpoint of financial reporting standards (FRS).
  2. Current cost accounting
    Some companies draw up their financial statements on a current cost basis. For example, electrical companies present current cost information.

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