5IFRS - Intermediate Accounting (Kieso)

Question

Presented below is the balance sheet for Tomkins plc, a British company.

Tomkins plc Consolidated Balance Sheet (amounts in £ million)

Particular	Amount £
Non-Current Assets
Goodwill	436
Other tangible assets	78
Property, plant, and equipment	1,122.80
Investment in associates	20.6
Trade and other receivables	81.1
Deferred tax assets	82.9
Post-employment benefits surpluses	1.3
	1,822.7
Current assets
Inventories	590.8
Trade and other receivables	753
Income tax recoverable	49
Available for sale investment	1.2
Cash and Cash equivalents	445
	1,839
Assets held for sale	11.9
Total assets	3,673.6
Current liabilities
Bank overdraft	4.8
Bank and other loans	11.2
Obligations under finance leases	1
Trade and other payables	677.6
Income tax liabilities	15.2
Provisions	100.3
	810.1
Non-Current liabilities
Bank and other loans	687.3
Obligations under financial leases	3.6
Trade and other payables	27.1
Post-Employment benefits obligations	343.5
Deferred tax liabilities	25.3
Income tax liabilities	79.5
Provisions	19.2
	1,185.5
Total liabilities	1,995.6
Net assets	1,678
Capital reserve
Ordinary share capital	79.6
Share premium account	799.2
Own shares	(8.2)
Capital redemption reserve	921.8
Currency translation reserve	(93)
Available for sale reserve	(0.9)
Accumulated deficit	(161.9)
Shareholder’s equity	1,536.6
Minority interest	141.4
Total equity	1,678

 

Instructions 

(a) Identify at least three differences in balance sheet reporting between British and U.S. firms, as shown in Tomkins’ balance sheet. 

(b) Review Tomkins’ balance sheet and identify how the format of this financial statement provides useful information, as illustrated in the chapter.

Step-by-Step Solution

Answer

1. Difference in reporting form, classification, and terminologies used.

2. Information helps determine financial ratios, financial stability, and performance of the business entity.

Definition of Shareholder’s Equity

Shareholder’s equity can be defined as the portion of capital invested by shareholders in the business. Common stock, preferred stock, and retained earnings are included in shareholder’s equity only.

Difference in Reporting

1. Reporting form and Subtotals: Company uses a modified form of reporting information in the balance sheet. The company first calculated net current assets and then calculated total net assets. Total net assets are equal to the total of capital and reserves.
2. Classification: The business entity does not arrange the assets in the balance sheet to decrease liquidity.
3. Terminology: The company uses different terminology for line items such as share premium account instead of additional-paid-in-capital.
4. Currency: The business entity reports the balance sheet in pounds.

Usefulness of the information provided by the balance sheet

1. Classifying all the assets and liabilities as current and non-current helps determine when each of them will provide a benefit or will become due.
2. It provides various figures that will assist in calculating financial ratios.
3. It provides information about the most liquid asset and assets with the least liquidity.