Summary
Summary Financial Management 214 Notes
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Summary of chapters 2-5 and 7-10
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Fi a cial S a eme, I d ci
The objective of the financial statements is to provide a summary of a
c a f a ca ef a ce, f a c a a d he cha ge he
financial position during a certain period of time
Financial position
o Influenced by the economic resources and financial structure
o E a a ed b f c g he a e , ab e a d he ha eh de
equity
o Indicated in the statement of financial position
Financial performance
o Refe he c a ab ge e a e rnover with its available
assets
o Evaluated by focusing on the turnover and expenses
o Provided in the statement of comprehensive income
Change in the financial position
o Depends on the investment, financing and operating activities of the
company during the year
o Statement of cash flow summarises these activities
Major Stakeholders of a company:
Shareholders
o They will use the information in the financial statements to evaluate its
current and future financial performance
o They can decide if an investment in the shares of the company will
provide the required return
Management
o This stakeholder should always be informed about the financial position
of the enterprise
o This information is used to determine if management objectives have
been achieved, and also for future planning and control
, Providers of debt capital
o They are especially interested in the amount of debt capital in the
c a f a ca c e
o The c a ab h ca a ede a d ee
payments is important
Government organisations
o In order to determine if tax calculations are correct, SARS requires that
companies should provide annual financial statements
Requirements of Financial Statements
Understandable
Relevant
o The information should enable the user to evaluate the historic, current,
as well as future changes that could have an effect on the company
o Significance: if the exclusion or the inaccurate measurement of an
item could have a major impact on the decision of the users of the
statements
o Timeliness: information would only be relevant if it is made available
d g he e d he e d ha e a effec he e dec
Reliable
o The information should be accurate and objective
Comparable
o The financial statements should be comparable over time and between
different enterprises
, The S a eme f Fi a cial P i i
P de a a fac a f a ca a ec f c da e
1. Assets
Non-Current Assets
Property, plant All physical non-current assets that are utilised by an
and equipment enterprise are classified as PPE.
(PPE) at cost
price They are indicated at their cost price: Major weakness of the
Financial Statement
The enterprise may have been using the PPE for a very long
time and the cost price is not an accurate measure of the
current replacement value
To solve this problem, provision has to be made for a
revaluation reserve
The asset is indicated at its replacement value and the
difference between the cost price and the replacement value
is indicated in the revaluation reserve
Accumulated All the depreciation that is provided for in the statement of
Depreciation comprehensive income
This item provides an indication of the total amount of
depreciation that has been provided for the PPE
PPE at Carrying PPE at Cost Price minus Accumulated Depreciation
Value
When PPE is sold, the sales proceeds are then compared to
the carrying value to determine if a profit or loss has been
generated
Immaterial Goodwill, patent rights and manufacturing licenses
Assets Valuation is a problem
Investments in When a company owns between 20% 50% of the shares of
associates another company
Other share All investments in the shares of other companies where the
investments shareholding is less than 20%
Loans Granted
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