Question

PART A

The following information is provided concerning the accounts of Jazzy Ltd .
You are asked to identify how each of these items is shown in the financial statements.

(a)	gain on revaluation of available-for-sale investments
(b)	dividends paid during the year
(c)	revaluation gain on building (not reversing any previous revaluation)
(d)	transfer to dividend equalisation reserve
(e)	Unsecured notes issued

PART B

Explain why comparative information is required to be provided in the financial statements.

Answer 1

Part A

a) Gain on revaluation of available-for –sale investments

The gain on revaluation of available for sale investment is part of other comprehensive income in statement of stockholders’ equity

b) Dividends paid during the year.

Dividends paid during the year are shown as deduction from the Retained earnings balance in Statement of stockholders equity

c) Revaluation gain on buildings (not reversing any previous revaluation)

The revaluation gain on buildings is part of other comprehensive income in statement of stockholders’ equity

d) Transfer to dividend equalisation reserve

Dividend equalisation reserve is built during the year out of retained earnings. It is shown as deduction from the retained earnings.

e) Unsecured notes issued

Unsecured notes issued are part of long term liabilities if it is greater than 1 year and current liabilities if it is less than one year.

Part B

Comparative information is provided in financial statements for year on year. It helps in following ways

· It helps in comparing and understanding movement from one year to another year

· It helps in analysing the financial statement for example: Increase in profit , increase in cost of goods sold ,etc

· It helps in having previous year information in one place and saves the time needed for compilation

· It helps in analysing financial statements for decision making. For example: vertical analysis, horizontal analysis , ratio analysis, etc