Summary
Highlights
Insurance expense requires adjustment for a prepaid portion. The instructor explains how to determine the amount of insurance paid for the next financial period (prepaid expense) and deduct it from the total insurance recorded, ensuring only the current period's expense is recognized.
Director's fees are adjusted to include an amount owed for the current period but due for payment in the next. Depreciation is calculated for equipment (straight-line method on cost) and vehicles (diminishing balance method on carrying value), with the total depreciation added as an operating expense.
The video explains how to adjust for stationery: the initial expense is reduced by the value of stationery remaining on hand at year-end, as this is considered an asset for the next period. Bad debts are calculated by adding new write-offs and any increase in the provision for bad debts to the initial bad debt figure.
The video introduces the statement of comprehensive income, or income statement, and explains that it uses the nominal account section of the trial balance, which contains incomes and expenses. It highlights the importance of the financial year-end date (December 31, 2018) for accurate calculations.
The calculation begins with sales, taking the amount from the trial balance and adjusting for sales returns. Since there is no additional information impacting sales, the initial sales figure is reduced by sales returns to arrive at the net sales.
The video demonstrates how to calculate the cost of sales. This involves starting with opening inventory, adding purchases and carriage on purchases (expenses incurred to bring inventory to a saleable condition), and then subtracting closing inventory. The closing inventory is obtained from physical stock-taking information.
The instructor reviews the trial balance for other income. Finding none in this example, the video moves to listing operating expenses. Each expense from the trial balance is considered, with careful attention to additional information that may require adjustments.
Municipal rates are analyzed, noting a change in monthly rates mid-year. The video explains how to calculate the correct municipal rate for the entire financial year (six months at one rate, six months at another) and why the reported figure in the trial balance needs adjustment for the accrued amount.
All operating expenses are summed and deducted from the gross profit to arrive at the operating profit. Interest expense on debentures is calculated based on the bond percentage and amount, then deducted. Finally, known company tax is applied, leading to the profit after tax, completing the statement of comprehensive income.