ABSTRACT

Financial statements (or financial reports) are formal records of the financial
activities and position of a business, person, or other entity. Relevant financial
information is presented in a structured manner and in a form, which is easy to
understand. They typically include four basic financial statements accompanied
by a management discussion and analysis. Financial statement, any report of the
financial condition or of the financial results of the operations of a business, a
government, or other organization. The term is most often used in a more limited
sense in trade and financial circles to refer to the balance sheet, statement of
income, and statement of retained earnings of a business. The balance sheet
shows, as of a certain date, the amount and kinds of assets (properties) and
liabilities (debts) and the owners’ investment (excess of assets over liabilities).
The balance sheet indicates the liquidity of the concern and its probable solvency.
Liquidity is measured by the readiness with which assets may be converted into
cash. Solvency is measured by the firm’s ability to meet its debts when due.
Earnings statements are useful in portraying the elements of profitability when
details are given on sales or gross revenues, cost of goods sold, and certain
expenses such as depreciation, maintenance, taxes, interest, and rents. Good form
calls for the separation of income and expenses derived from the main operations,
such as the trading activities of a merchant, from similar data related to other
activities, such as interest and dividends from investments or other nonoperating
income.
 CONTENT

SL. NO. PARTICULARS PAGE NO.

1 Introduction 1
2 Meaning 1-2
3 Nature of financial statements 2-4
4 Objectives of Financial Statements 4
5 Types of Financial Statements 4-6
6 Contents of Balance Sheet 6-7
7 Contents of Income Statement 7
8 Characteristics of Ideal Financial Statements 8-9
9 Britannia industries Limited 10
10 Balance Sheet of Britannia company 11
11 Income Statements of Britannia company 12
12 Conclusion 13
13 Reference 14
Introduction:
In the preparation of final accounts of a firm, the financial statements display the net results
for the given year. They play a vital role in allowing a user of a financial statement, to
understand the results of a firm for a given year. Let us find out more about what a financial
statement is and their relevance. A financial statement is a formal record of the financial
activities, and position of a business, person, or other entity. It is presented in a structured
manner and in a form easy to understand. Financial statements are the final result of the
accounting system. Stakeholders interpret financial statements to help make business,
lending, and investment decisions. Each individual statement has an important role in helping
users understand more about the reporting entity. Only when all of the individual statements
and the notes to the financial statements are reported together does the user have a complete
financial picture. Financial statements are key indicators of the health of your business at
specific points in the company’s accounting year and on an ongoing basis. Your company’s
fundamental success is dependent on a complete understanding of these documents, so we
felt that a handy explainer would be useful for anyone wanting to know more.

Meaning of Financial Statements:

Financial statements are the means of communicating accounting information. A financial

statement is a collection of data organized accounting to logical and consistent accounting
procedures. Its purpose is to convey an understanding of some financial aspects of a business
firm, it may show a position at a moment in time, as in the case of a balance sheet, or may
reveal a series of activities over a given period of time, as in the case of an income statement.

Thus, the term ‘financial statements’ generally refers to the two statements:
(i) the position statement or the balance sheet; and

(ii) the income statement or the statement of profit and loss. These statements are used to
convey to management and other interested outsiders the profitability and financial position
of a firm. According to Section 2(40) of the Companies Act, 2013, Financial Statements in
relation to company include the following:
(i) a balance sheets at the end of the financial year
(ii) a statement of profit and loss for the financial year:
(iii) cash flow statement for the financial year:
(iv) a statement of changes in equity, if applicable; and Provided that the financial
statement, with respect to One Person Company, Small Company and explanatory
notes.

1
Financial statements are the basis for decision making by the management as well as other
outsider who are interested in the affairs of the firm such as investors, creditors, customers,
suppliers, financial institutions, employees, potential investors, government and the general
public.

NATURE OF FINANCIAL STATEMENTS

The financial statements are prepared on the basis of recorded facts. The recorded facts are
those which can be expressed in monetary terms. The statements are prepared for a particular
period, generally one year. The transactions are recorded in a chronological order, as and when
the events happen. The accounting records and financial statements prepared from these
records are based on historical costs. The financial statements, by nature, are summaries of
the items recorded in the business and these statements are prepared periodically. generally,
for the accounting period.

The American Institute of Certified Public Accountants states the nature of financial
statements as Financial Statements are prepared for the purpose of presenting a periodical
review of report on progress by the management and deal with the status of investment in the
business and the results achieved during the period under review. They reflect a combination
of recorded facts, accounting principles and personal judgements The American Accounting
Association expresses in its statement. "Every corporate statement should be based on
accounting principles which are sufficiently uniform. objective und well under wood to
justify opinions as to the condition and progress of business enterprise. Its basic assumption
was that the purpose of periodic financial statements of a corporation to furnish information
that is necessary for the formation of dependable judgements.

The following points explain the nature of financial statements:

1. Recorded Facts

The term 'recorded facts refers to the data taken out from the accounting records. The
records are maintained on the basis of actual cost data the original cost or historical cost is
the basis of recording various transactions the figures of Various accounts such as cash in
hand, cash in bank. bills receivables, sundry debtors, fixed assets etc. are taken as per the
figures recorded in the accounting books. The assets purchased at different times and at
different prices are put together and shown at cost prices. As recorded facts are not based on
replacement costs, the financial statements do not show current financial condition of the
concern.

2
2. Accounting Conventions

Certain accounting conventions are followed while preparing financial statements. The
convention of valuing inventory at cost or market price, whichever is lower, is followed. The
valuing of assets at cost less depreciation principle for balance sheet purposes is followed.
The convention of materiality is followed in dealing with small items like pencils, pens,
postage stamps, etc. These items are treated as expenditure in the year in which they are
purchased even though they are assets in nature. The stationery is valued at cost and not on
the principle of cost or market price whichever is less. The use of accounting conventions
makes financial statements comparable, simple and realistic.

3. Postulates

The accountant makes certain assumption while making accounting records. One of these
assumptions is that the enterprise is treated as a going concern. The other alternative to this
postulate Is that the concern is to be liquidated, this is untenable if management shows an
intention to liquidate the concern. So, the assets are shown on a going concern basis, another
important assumption is to presume that the value of money will remain the same in different
periods. Though there is a drastic change in purchasing power of money the assets
purchased at different times will be shown at the amount paid for them. While preparing
profit and loss account, the revenue is treated in the year in which the sale was undertaken
even though the sale price may be received in a number of years. The assumption is known
as realization postulate.

4. Personal Judgements

Even though certain standard accounting conventions are followed in realization postulate
preparing financial statements but still personal judgement of the accountant plays an
important pan for example, in applying the cost or market value whichever is less to
inventory valuation the accountant will have to use his judgement in computing the cost in a
particular case. There are a number of methods for valuing stock, viz: last in first out, first in
first out, average cost method. standard cost base stock method, etc.

3
The accountant will use one of these methods for valuing materials the selection of
depreciation method, to use one of the several methods for estimating uncollectable debts.
to determine the period for writing off intangible assets are some of the examples where
judgement of the accountant will play an important role in choosing the most appropriate
course of action.

OBJECTIVES OF FINANCIAL STATEMENTS

Financial statements are the sources of information on the basis of which conclusions are
drawn about the profitability and financial position of a concern, they are the major means
employed by firms to present their financial situation of owners, creditors and the general
public. The primary objective of financial statements is to assist in decision making. The
Accounting Principles Board of America (APB) states the following objectives of financial
statements:

• To provide reliable financial information about economic resources, and obligations

ofbusiness firm.
• To provide other needed information about changes in such economic resources
and obligation
• To provide reliable information about changes in net resources (resources less
obligations out of business activities
• To provide financial information that assists in estimating the potentials of business
• To disclose, to the extent other information related to the financial statements that
is relevant to the needs of the users of these statements.

TYPES OF FINANCIAL STATEMENTS

Financial statements primarily comprise two basic the position statement or the balance
sheet, and the income statement or the profit and loss account Generally Accepted
Accounting Principles (GAAP) specify that a complete set of financial statements must
include:
1. A Balance Sheet
2. An income statement (or statement of profit and Loss)
3. A statement of changes in owner’s account, and
4. A statement of changes in financial position

4
1. Balance Sheet.
The American Institute of Public Accountants defines Balance Sheet as, "A tabular
statement of balances (debits and credits carried forward after an actual and constructive
closing of books of account and kept according to principles of the purpose of the balance
sheet is to show the resources that the company and from where those resources come from,
its liabilities and investments by owners and outsiders. The balance sheet is one of the
important depicting the financial strength of the concern. shows on the one hand properties
that utilizes and other the sources of properties. The balance all the assets owned by the
concern and all the liabilities and claims owes and outsiders. The balance sheet is prepared
particular right-hand side properties and Normally there is sequence various liabilities. The
Companies Act, 2013 has prescribed a particular form for showing assets and liabilities in
the balance sheet for companies in Part of Schedule These companies also required give for
the previous year the current year's figures.

2. Income Statement (Or Profit and Loss Account Statement and Loss)
Income statement is prepared to determine the operational position of the concern. It is a
statement of revenues earned and the expenses incurred revenue. of it will show the
expenditures are more than their statement is prepared for a particular period, generally year.
When income statement prepared year ending on March 2015 then all revenue and
expenditures.
The income statement may be prepared in the form of a Manufacturing Account to find out
the conf of production, in the form of Trading Account to determines gross profit or gross
low, in the form of Profit and Loss Account to determine net profit or net loss. A statement
of Retained Earnings may also be prepared to show the distribution of profits.
The companies Act. 2013 has provided a specific format in Part II of Schedule III for
preparing the statement of profit and loss,

3. Statement of Changes in Owners' Equity (Or Retained Earnings)

The term 'owner’s equity refers to the claims of the owners of the business (Shareholders)
against the assets of the firm. It consists of two elements: (1) paid -up share capital, the initial
amount of funds invested by the shareholders and i retained earnings/ reserves and surplus
representing undistributed profits The statement of changes in owners equity simply shows
the beginning balance of each owner's equity account the reasons for increases and decreases
in each, and its ending balance.

5
 However, in most cases, the only owner's equity account that changes significantly is
Retained Earnings and the statement of changes in owners equity becomes merely a statement
of retained earnings: A statement of retained earnings it also known as Profit and Loss
Appropriation Account or Income Disposal Statement. As the name suggests it shows
appropriations of earnings. The previous year's balance is first brought forward. The net
profit during the current year is added to this balance. On the debit side. appropriations like
intern dividend paid, proposed dividend on preference and equity share capital amounts
transferred to debenture redemption fund, capital redemption funds general reserve, etc., are
shown. The balance in this account will show the amount of profit retained in hand and
carried forward. The appropriations cannot be more than the profits so this account will not
have a debit balance. There cannot be appropriations without profits.

4. Statement of Changes in Financial Position

The basic financial statements, i.e. the balance sheet and the profit and loss account or
income statement of a business reveal the net effect of the various transactions on the
operational and financial position of the company. The balance sheet gives a static view of
the resources of a business and the uses to which these resources have been put at a certain
point of time. The profit and loss account in a general way, indicates the resources provided
by operations. But there are many transactions that do not operate through profit and ant.
Thus, for a better understanding another statement called statement of changes in
financial position has to be prepared to show the changes in assets and liabilities from the
end of one period to the end of another point of time the objective of this statement is to
show the movement of funds (workingcapital or cash) during a particular period.

CONTENTS OF BALANCE SHEET

There is no specific form for the preparation of Balance Sheet in the case of proprietary
concerns and partnership firms. The balance sheet is generally divided into three parts le eti,
liabilities and capital the balance sheet in usually prepared in a horizontal form. The des are
shown on the right-hand side and capital and liabilities are shown on the let bund side the
order of assets and abilities is either liquidity basis e (on permanency basis). When balance
sheet ns prepared on liquidity basis the more liquid assets like cash in hand, cast at hank
investments, etc., are shown first and the least liquid assets will be shown at test. On
liabilities side. the liabilities to be paid in the short period are shows first long- term
liabilities next and capital on the last. Then balance sheet is prepared permanency basis, on
assets aide fixed assets are shown first and liquid assets are shown a la. On liabilities side the
capital is shows first.

6
long-term liabilities next short term and current liabilities in the Companies Act has adoption
permanency form for preparing balance sheet

The Companies Act, 2013 has prescribed a specific form for the preparation of Balance
sheet. This form is set in Part of Schedule III. Section 129(1) of the Act states that the
financial statements shall give a true and fair view of the state of affairs of the company or
companies, comply with the accounting standards notified under section 133 and shall be in
the form or form av may he provided for different class or classes of companies in schedule
III. Provided that nothing contained in this web section shall apply to any insurance or
banking company or any company engaged in the generation or supply of electricity, or so
any other class of company for which a form of financial statement has been specified in or
under the Act governing such class of company. Further, in preparation of balance sheet of a
company, de regard has also to be given to general instructions given under schedule IIL It
must be noted that schedule III does not offer any horizontal format for the preparation of a
balance sheet ofa company.

CONTENTS OF INCOME STATEMENT OR STATEMENT OF PROFIT AND LOSS

The income statement or statement of profit and loss is prepared according to the nature of
business. A trading concert will prepare trading and profit and loss account for finding out
gross profit and net profit respectively. A manufacturing concern will first prepare
manufacturing account for finding out the cost of production and then it will prepare
trading and profit and loss account. In case of sole proprietor under partnership concerns
there are no prescribed form for income statement. In case of joint stock companies, the
statement of profit and loss has to be prepared in the prescribed form Section 129 of the
Companies Act 2013 requires that financial statements (balance sheet as well as statement of
profit and loss) shall give a true and fair view of the affairs of the company and shall be in
form or forms as provided in Schedule II This form is set out in Part II of Schedule III. It
must however be remembered that this form does not apply to any insurance or banking
company or any company engaged in the generation or supply of electricity for which a
special form is printed under the Act.

7
CHARACTERISTICS OF IDEAL FINANCIAL STATEMENTS

The financial statements are prepared with a view to depict financial position of the concern
A proper analysis and interpretation of these statements enables a person to judge the
profitability and financial growth of the business. The financial statement should he prepared
in such a way that they are able to give a clear and orderly picture of the concern. The ideal
financial statements have the following characteristics

1. Depict True Financial Position:

The information contained in the financial statements should be such that a true and correct
idea taken about the financial position of the concern. No material information should be
withheld while preparing these statements.

2. Effective Presentation:

The financial statements should be presented in a simple and lucid way so as to make them
easily understandable. A person who is not well versed with accounting terminology should
also be able to understand the statements without much difficulty. This characteristic will
enhance the unity of these statements.

3. Relevance:

Financial statements geld be relevant to the objectives of the enterprise. This will be possible
when the person preparing these statements is able to properly in the accounting
information the information which is not relevant to the statements should be avoided.
otherwise it will be difficult to make a distinction between relevant and irrelevant data

4. Attractive:

The financial statements should be prepared in such a way that important information is
underlined so that it attracts the eye of the reader.

8
 5. Easiness.

Financial statements should be easily prepared. The balances of different ledger accounts
should be easily taken to these statements. The calculation work should be minimum
possible while comparing these statements.
The size of the statement should not be very large The column to be wed for giving the
information should also be less. This will enable the saving of time in preparing the
statements

6. Comparability.

The results of financial analysis should be in a way that can be compared to the previous
year’s statements. The statement can also be compared with the figures of other concerns of
the nature Sometimes budgeted figures are given along with the present figures, the
comparable figures with make the statements more useful. The Indian Companies Act, 1956
has made only on previous year's figures in the balance sheet the comparison of figures will
enable a proper assessment for the working of the concern.

7. Analytical Representation:

The information should be analyzed in such a way that similar data is presented at the same
place. A relationship can be established in similar type of information. This will be helpful in
analysis and interpretation of data.

8. Brief:

If possible, the financial semantic should be presented in brief. The reader will be as form an
idea about the figures on the other hand if figures are given in details then it will become
difficult to judge the working of the business

9. Promptness:

The financial statements should be prepared and presented at the earliest possible.
Immediatelyat the close of the financial year, statements should be ready.

9
 BRITANNIA INDUSTRIES LIMITED

Britannia Industries Limited is an Indian food and beverage company. Founded in 1892
and headquartered in Kolkata, it is one of India's oldest existing companies. It is now part of
the Wadia Group headed by Nusli Wadia. The company sells its Britannia and Tiger brands
of biscuits, breads and dairy products throughout India and in more than 60 countries across
the world. Beginning with the circumstances of its takeover by the Wadia group in the early
1990s, the company has been mired in several controversies connected to its management.
However, it does enjoy a large market share and is exceedingly profitable. The company
was established in 1892 by a group of British businessmen with an investment of Rs. 295 cr.
Initially, biscuits were manufactured in a small house in central Kolkata. Later, the enterprise
was acquired by the Gupta brothers, mainly Nalin Chandra Gupta, an attorney, and operated
under the name "V.S. Brothers." In 1918, C.H. Holmes, an English businessman based in
Kolkata, was taken on as a partner and The Britannia Biscuit Company Limited (BBCo) was
launched. The Mumbai factory was set up in 1924 and Peek Freans UK, acquired a
controlling interest in BBCo. Biscuits were in high demand during World War II, which gave
a boost to the company's sales. The company name was changed to the current "Britannia
Industries Limited" in 1979. In 1982, the American company Nabisco Brands, Inc. acquired
the parent of Peek Freans and became a major foreign shareholder. Dairy products contribute
close to 10% to Britannia's revenue. The company not only markets dairy products to the
public but also trades dairy commodities business-to-business. Its dairy portfolio grew to
47% in 2000-01 and by 30% in 2001-02. Its main competitors are Nestlé India, the National
Dairy Development Board (NDDB), and Amul (GCMMF).

Britannia holds an equity stake in Dynamix Dairy and outsources the bulk of its dairy
products from its associate.
On 27 October 2001, Britannia announced a joint venture with Fonterra Co-operative
Group of New Zealand, an integrated dairy company which handles all aspects of the value
chain from procurement of milk to making value-added products such as cheese and
buttermilk. Britannia intends to source most of the products from New Zealand, which they
would market in India. The joint venture will allow technology transfer to Britannia.
Britannia and New Zealand Dairy each hold 49% of the JV, and the remaining 2 percent will
be held by a strategic investor. Britannia has also tentatively announced that its dairy
business (probably including Dynamix) would be transferred to the joint venture.

10
 Comparative Balance Sheet of Britannia Industries Limited
Britannia Industries Limited
Comparative Balance Sheet as at 31st March 2019 and 2020
2018 2019 2020 Absolute Change
Particulars Mar-19 Mar-20
Rs. Rs. Rs.
Rs. Rs.
Equity and Liabilities
Shareholder's Funds
Share capital 24.00 24.00 24.01 - 0.01
Reserves and Surplus 1,676.16 2,557.98 3,211.27 881.82 653.29
Noncurrent Liabilities
Long term Borrowings 0.49 0.44 0.30 (0.05) (0.14)
Other long-term liabilities 21.05 24.30 25.69 3.25 1.39
Government grant 2.86 - - (2.86) -
Current Liabilities
Borrowings - - 9.01 - 9.01
Trade Payables 659.44 643.82 866.36 (15.62) 222.54
Other current liabilities 191.18 271.12 319.61 79.94 48.49
Provisions 492.08 174.48 171.05 (317.60) (3.43)
Total Equity and Liabilities 3,067.26 3,696.14 4,627.30 628.88 931.16
Assets

Noncurrent Assets
Tangible assets 626.13 812.47 1,008.31 186.34 195.84 29.76 24.10
Capital work in progress 74.50 29.77 200.28 (44.73) 170.51 (60.04) 572.76
Investment property - 15.25 14.99 15.25 (0.26) 15.25 (1.70)
Intangible assets 13.26 11.60 7.97 (1.66) (3.63) (12.52) (31.29)
Investments 551.25 514.18 450.65 (37.07) (63.53) (6.72) (12.36)
Loans 324.45 116.52 86.74 (207.93) (29.78) (64.09) (25.56)
Deferred tax assets 22.71 6.43 8.68 (16.28) 2.25 (71.69) 34.99
Other non-current assets 37.57 185.04 82.16 147.47 (102.88) 392.52 (55.60)
Current Assets
Inventories 384.01 602.61 594.58 218.60 (8.03) 56.93 (1.33)
Investments 343.63 85.73 735.48 (257.90) 649.75 (75.05) 757.90
Trade receivables 106.70 126.41 230.32 19.71 103.91 18.47 82.20
Cash and cash 24.80 53.55 97.25 28.75 43.70 115.93 81.61
equivalents
Loans 558.25 791.94 820.41 233.69 28.47 41.86 3.59
Other current assets - 344.64 289.48 344.64 (55.16) 344.64 (16.01)
Total Assets 3,067.26 3,696.14 4,627.30 628.88 931.16 20.50 25.19

13
11
 Comparative Profit and Loss of Britannia Industries Limited (Rs. in crores)
Britannia Industries Limited
Comparative Statement of Profit and Loss for the year ended 31st March 2019 and 2020
2018 2019 2020 Absolute change Percentage
change
Particulars Mar- Mar-20 Mar- Mar-
Rs. Rs. Rs. 19 19 20
Rs. Rs. % %
Revenue from 8,097.81 8,577.14 9,276.17 479.33 699.03 5.92 8.15
Operations
Less: Excise duty 228.92 270.02 76.11 41.10 (193.91) 17.95 (71.81)
Revenue from 7,868.89 8,307.12 9,200.06 438.23 892.94 5.57 10.75
Operations (net)
Other Operating Revenues 79.01 107.25 104.00 28.24 (3.25) 35.74 (3.03)
Other Income 98.21 144.78 155.93 46.57 11.15 47.42 7.70
Total Revenue (I+II) 8,046.11 8,559.15 9,459.99 513.04 900.84 6.38 10.52
Expenses
Cost of material 3,796.44 4,342.78 4,405.17 546.34 62.39 14.39 1.44
consumed
Purchase of stock in trade 833.01 904.78 1,372.46 71.77 467.68 8.62 51.69
Changes in inventories (7.12) (49.25) (4.18) (42.13) 45.07 591.71 (91.51)
Employee benefit 209.21 241.68 294.87 32.47 53.19 15.52 22.01
expenses

Finance cost 1.25 1.34 1.45 0.09 0.11 7.20 8.21

Depreciation and amortization
expenses 86.89 96.43 119.76 9.54 23.33 10.98 24.19

Other expenses 1,984.54 1,770.23 1,825.26 (214.31) 55.03 (10.80) 3.11

Total expenses 6,904.22 7,307.99 8,014.79 403.77 706.80 5.85 9.67
Profit before tax (III-IV) 1,141.89 1,251.16 1,445.20 109.27 194.04 9.57 15.51
Less: exceptional items (10.33) - - 10.33 - (100.00) -
Less: Tax 382.47 407.47 497.31 25.00 89.84 6.54 22.05
Profit after Tax (V-VI) 749.09 843.69 947.89 94.60 104.20 12.63 12.35

14
12
Conclusion:

Increase in size and complexities of factors affecting the business operations necessitate a

scientific and analytical approach in the management of modern business enterprises. The

management team requires up to date, accurate and systematic financial information for the

purposes. Financial statements help the management to understand the position, progress and

prospects of business vis-a-vis the industry. By providing the management with the causes of

business results, they enable them to formulate appropriate policies and courses of action

for the future. The management communicates only through these financial statements, their

performance to various parties and justify their activities and thereby their existence. A

comparative analysis of financial statements reveals the trend in the progress and position of

enterprise and enables the management to make suitable changes in the policies to avert

unfavorable situations. These statements enable the shareholders to know about the

efficiency and effectiveness of the management and also the earning capacity and

financial strength ofthe company.

15
13
Reference:

BOOKS REFERRED
• Amitabha Basu, Financial Accounts, Volume – 3, Edition - August- 2019, accounting
ratios for financial statement analysis, page – 829 – 835.
• Sarat Kumar Sahu, Pradeep Kumar Prusty, Edition – 2019, Fundamental of
Management Accounting, page 4.1 – 4.90
• Pradeep Kumar Prusty, Suresh Chand, Prasad Kumar Sahu: 2020: Nano Publication
Home: Pg. 568-579

SITE VISITED
• https://www.ibef.org/industry/steel.aspx
• https://money.rediff.com/index.html
• http://www.business-standard.com/article/companies/make-in-india-in-public-
procurement-companies-bag-rs-50-bn-govt-contracts-118040301360_1.html

16
14