IFRS Adoption and Financial Statement †Free Samples to Students

Question: Discuss about the IFRS Adoption and Financial Statement. Answer: Introduction The main purpose of this report is to analyze the financial statements of Just Wear it ltd. The report will be considering the profit and loss account of the company in order to determine whether the business has earned profit or loss during the year and also be analyzing the retained earnings which has been generated by the business during the year (Brochet, Jagolinzer Riedl, 2013). In addition to this, report will be commenting on the various aspects of the balance sheet of the company and analyze the financial position of the company as for the month of January. The main focus is to ascertain the level of profits generated and also determine the financial performance of the company in respect of previous years performance (Collier, 2015). Analysis of Profit and Loss Statement As per the Income Statement of Just Wear ltd for the month of January, shows that the company has an annual sales revenue of $ 120,804 and also has the additional revenues which is shown in the Income statement as investment revenues and interest revenues. The expenses of the company comprise of various expenses which are of variable nature such as phone expenses, petrol expenses, electricity expenses and similar other expenses (Oberholzer, 2013). The expenses which relates to depreciation is shown for Van, furniture and equipment and on the value of property. Such depreciation expenses represent the non-cash expenses of the business which is result of the reduction in the value of assets which needs to be recorded in the financial statement. The total expenses of the company for the month of January shows a figure of $ 61,415. It can be said that the company has incurred less amount of costs in terms of the sales which is generated by the company. The income statement of any company is prepared so that the statement can provide clear information about how much profits is earned by the business, how much costs are incurred by the business and how much sales revenue is generated by the business. The statement of income clearly states the revenue which is earned by a company during a year and also the expenses which are incurred by the company during the month (Weygandt, Kimmel Kieso, 2015). The profit of the business is obtained by deducting the expenses from the income. In the case of Just Wear it ltd, the company has earned a net profit of $ 60,714 for the year. The performance of the company is quite splendid as the company has earned a profit of around 50% approx. of the total revenue generated during the month which is an indication that the business has good policy of cost reduction. The business can compare the performance of the company by analyzing the financial statement of previous year. The business can determine whether they have had growth in terms of profit and sales from the previous year figures or not. The business can improve the profitability of the company by increasing the sales of the business and also can also follow the cost reduction strategy which will allow the business to reduce the cost further and thereby increase the profits of the business (Ball et al., 2015). Retained earnings may be defined as the part of the profits which is generated by the business which is not distributed by the business as dividends but which can be used for the purpose of reinvesting the amount in the business (Thirumalaisamy, 2013). In the case of Just Wear it ltd, the retained earnings of the company for the month of January amounts to $ 2,47,514 which is more than the retained earnings for the month of December which was $ 1,96,800. There has been an increase in the amount of retained earnings in the business which suggest that the business is performing well. Retained earnings are financial indicators that the business is financially strong and reliant. As per the statement of Retained earning prepared for the month of January, the company has declared and paid a amount of $ 10,000 as dividends to the shareholders of the company. This is a positive sign for the business as it shows that business can retain a major part of the profit as retained earnings and sti ll provide dividends to the shareholders which shows the financial strength of the company. The retained earnings of the business can be used in times of emergency or financing project and is an effective source of financing. The company can improve the retained earnings of the business by increasing the sales of the business and also by reducing the costs of the business. In this way the business will be able to generate profits which in turn can be apportioned into retained earnings and dividends. Analysis of the Financial Position of the business The balance sheet of the company reflects the financial position of the company during a year. This is the statement on the basis of which potential investors decide whether or not to invest in the shares of the company (Bazley et al., 2013). The balance sheet also checks the accuracy of the financial statement as the assets total must always match the total of equity and liabilities as per the matching concept in accounting (Aiken, Lu Ji, 2013). As per the balance sheet of Just Wear it ltd, there has been changes in the value of cash due to the various expenses which the business has undertaken during the month. Then there is the revenues which the business has earned. The inventory of the company has decreased which suggest that the company has used more stocks for increasing the sales. The figure of account payable has increased from the previous month which suggest that the company has taken some credit during the year. There was a bank overdraft which was paid off in the month of January which is not shown in the balance sheet of January. The management of the company can improve the cash balance by reducing costs which results in cash outflow and engage in revenue generating activities. Moreover, the company needs to control the creditors as too much debt is not good for business. Conclusion The analysis of the financial statement of the company Just Wear it ltd shows that the business is performing well. In comparison with the previous years performance the company is doing extremely well as there are lot of positive indicators such as increase in cash, repayment of bank overdraft, increase in sales and profit. The financial statements of the company suggest that the company is achieving growth for the business. In order to further improve the profitability of the business in future the company needs to reduce the costs or increase the sales of the business. Reference Aiken, M., Lu, W., Ji, X. D. (2013). The new accounting standard in China.Perspectives on Accounting and Finance in China (RLE Accounting),8, 159. Ball, R., Gerakos, J., Linnainmaa, J. T., Nikolaev, V. V. (2015). Deflating profitability.Journal of Financial Economics,117(2), 225-248. Bazley, M., Hancock, P., Fisher, C., Lovell, A., Berk, J., DeMarzo, P., ... DeMarzo, P. (2013). Financial Accounting: An Integrated.Thomson Pty Ltd, South Melbourne. Brochet, F., Jagolinzer, A. D., Riedl, E. J. (2013). Mandatory IFRS adoption and financial statement comparability.Contemporary Accounting Research,30(4), 1373-1400. Collier, P. M. (2015).Accounting for managers: Interpreting accounting information for decision making. John Wiley Sons. Oberholzer, M. (2013). A non-parametric comparison among firms' income statement-based and balance sheet-based performance.The International Business Economics Research Journal (Online),12(11), 1467. Thirumalaisamy, R. (2013). Firm Growth and Retained Earnings BehaviorA Study on Indian Firms.European journal of business and management,5(57), 40-57. Weygandt, J. J., Kimmel, P. D., Kieso, D. E. (2015).Financial managerial accounting. John Wiley Sons.