Question 2 Sha Do you know something about the Statement Of

Question 2 Sha: \"Do you know something about the Statement Of Financial Position (SOFP)?\" Don: \"What\'s that?\" Sha: \"The SoFP is actually not a part of the double entry system.\" Are you sure? But when I close the ledgers, its balances are all shown in the SOFP Sha: \"Yup, I am pretty sure. Did you forget that the SOFP doesn\'t have closing balances?\" Don: \"Oh yeah...\" Required: Based on the above conversation, discuss on the implications in which the Statement Of Financial Position (SOFP) not being part of the double entry system. (3 marks)

Solution

Answer(1): Statement of Financial position- It is the balance sheet that tells financial, liquidity and solvency position of a company. It reports assets, liabilities and shareholder\'s equity for a particular financial year. There are some formats, specified for balance sheet but it always work on accounting equation which is:

Assets = Liabilities + Shareholder\'s Equity

Statement of financial statement is not the part of the double accounting system, it is the part of financial reporting of business. There is a relationship between double entry system and statement of financial accounts as the balance sheet is made with the help of ledgers and ledger is made with the help of double entry system. It is not necessary that all the double entry items should reflect in balance sheet.

Answer(2): (a): Firstly the ethical issue is how to report the amount that is given because the negative consequences of product of the company. This huge amount can affect the company\'s balance sheet if it is reported all in one time, balance sheet will be misleading for stakeholders. Company should write off the percentage of this amount every year so that accurate financial position of the company can be known. This heavy payment may also affect company\'s cash flow.

Answer(b): If BAT does not tell the truth, it will not be good for company because at the time of audit, auditor will ask about this amount and also tell its impact on the financial statements. Company may face some financial issues if not telling the truth.