Mada za sehemu hiiPrepare and maintain accounting recordsMada 2
- Prepare and maintain accounting records and financial statements relating to dissolution and amalgamation of partnerships (accounts and statements before and after dissolution and amalgamation)
- Prepare and maintain accounting records and financial statements relating to limited companies (ledger accounts for issue of shares, statements of profit/loss and other comprehensive income, financial position, cash flows and changes in equity excluding debentures, forfeiture and reissue of shares and redemption of preference shares)
Company Accounting Records and Financial Statements
A company is a business organisation formed by law with a separate legal identity from its owners. Unlike sole proprietorships, a company can raise capital by issuing shares to the public. This study note explains how to record the issue of shares in ledger accounts and how to prepare the main financial statements of a company.
A company must prepare four main financial statements:
- Statement of Profit or Loss and Other Comprehensive Income
- Statement of Financial Position (Balance Sheet)
- Statement of Changes in Equity
- Statement of Cash Flows
4.1 Income Statement (Statement of Profit or Loss)
Shows revenue, expenses, and net profit for a period.
Format:
| MBL Company Ltd. | ||
|---|---|---|
| Income Statement for year ended 31 Dec 2023 | ||
| TZS | TZS | |
| Sales | 585,000,000 | |
| Less: Cost of Goods Sold | ||
| Opening inventory | 20,000,000 | |
| Add: Purchases | 200,000,000 | |
| Goods available | 220,000,000 | |
| Less: Closing inventory | 33,000,000 | (187,000,000) |
| Gross Profit | 398,000,000 | |
| Less: Operating Expenses | ||
| Depreciation | 62,500,000 | |
| Repairs | 22,000,000 | |
| Wages and salaries | 121,000,000 | |
| Other expenses | 103,150,000 | (313,650,000) |
| Profit Before Tax | 84,350,000 | |
| Income Tax | (22,400,000) | |
| Profit After Tax | 61,950,000 | |
| Less: Dividends | (30,000,000) | |
| Retained Profit | 31,950,000 |
4.2 Statement of Financial Position
Shows assets, liabilities, and equity at a specific date.
Format:
| MBL Company Ltd. | |||
|---|---|---|---|
| Statement of Financial Position as at 31 Dec 2023 | |||
| TZS | TZS | TZS | |
| Non-Current Assets | |||
| Freehold property | 165,000,000 | ||
| Motor lorries (cost) | 360,000,000 | ||
| Less: Accumulated depreciation | (172,500,000) | 187,500,000 | 352,500,000 |
| Current Assets | |||
| Bank and cash | 20,000,000 | ||
| Closing inventory | 33,000,000 | ||
| Prepayments | 4,000,000 | 57,000,000 | |
| Total Assets | 409,500,000 | ||
| Equity and Liabilities | |||
| Equity | |||
| Equity share capital | 100,000,000 | ||
| Preference share capital | 100,000,000 | ||
| General reserve | 2,000,000 | ||
| Retained earnings (70M + 31.95M) | 101,950,000 | 303,950,000 | |
| Non-Current Liabilities | |||
| 10% Debentures | 50,000,000 | 50,000,000 | |
| Current Liabilities | |||
| Unpaid claims | 150,000 | ||
| Unpaid interest | 5,000,000 | ||
| Proposed dividends | 20,000,000 | ||
| Tax payable | 8,000,000 | 33,150,000 | |
| Total Equity and Liabilities | 409,500,000 |
4.3 Statement of Changes in Equity
Shows changes in share capital, reserves, and retained earnings during a period.
Format:
| Mjerumani Limited | ||||
|---|---|---|---|---|
| Statement of Changes in Equity for year ended 31 Mar 2024 | ||||
| Ordinary Share Capital TZS | General Reserve TZS | Retained Earnings TZS | Total TZS | |
| Balance 1 Apr 2023 | 600,000 | 62,000 | 55,000 | 717,000 |
| Profit for the year | 70,000 | 70,000 | ||
| Dividend paid | (32,000) | (32,000) | ||
| Transfer to general reserve | 12,000 | (12,000) | ||
| Balance 31 Mar 2024 | 600,000 | 74,000 | 81,000 | 755,000 |
4.4 Statement of Cash Flows
Shows cash receipts and payments classified by activity: operating, investing, and financing.
Methods:
- Direct Method: Shows major cash receipts and payments
- Indirect Method: Starts with net profit and adjusts for non-cash items and working capital changes
Using Indirect Method (Five Steps):
- Start with profit before tax
- Add back non-cash expenses (depreciation)
- Adjust for changes in current assets and liabilities
- Account for investing activities (purchase/sale of long-term assets)
- Account for financing activities (share issues, loans, dividends)
Example: Bembo Co. Ltd. (2023)
| Cash Flow from Operating Activities | TZS '000 | TZS '000 |
|---|---|---|
| Net profit | 82,000 | |
| Add: Decrease in debtors | 6,000 | |
| Add: Increase in creditors | 7,500 | |
| Add: Depreciation | 10,000 | |
| 23,500 | ||
| Less: Increase in stock | (15,000) | 8,500 |
| Cash generated from operations | 90,500 | |
| Less: Tax paid | (19,500) | |
| Net Cash from Operating Activities | 71,000 | |
| Cash Flow from Investing Activities | ||
| Purchase of fixed assets | (15,000) | |
| Net Cash from Investing Activities | (15,000) | |
| Cash Flow from Financing Activities | ||
| Issue of shares | 1,000 | |
| Redemption of debentures | (20,000) | |
| Dividend paid | (35,000) | |
| Net Cash from Financing Activities | (54,000) | |
| Net Increase in Cash | 2,000 | |
| Add: Opening cash balance | 15,000 | |
| Closing Cash Balance | 17,000 |
- Share premium must be maintained separately from share capital
- Dividends are appropriations of profit, not expenses
- Financial statements must be prepared annually
- Current assets/liabilities are those expected within one year
- Non-current assets are long-term (land, buildings, equipment)
- Cash flows are classified into operating, investing, and financing activities
In Tanzania, when a company like MADINA Bottlers Plc or TANESCO issues shares to raise capital for expansion, accountants must record every payment (application, allotment, calls) in the proper ledger accounts. The financial statements produced help shareholders and investors decide whether to buy or sell shares on the Dar es Salaam Stock Exchange (DSE), enabling companies to attract funding for growth and development projects across Tanzania.
Swali
According to the Companies Act 2002 and the textbook, which of the following is NOT a component of the financial statements of a company?
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