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NCEA Level 3 Accounting study materials
NCEA Level 3 Accounting study resources

NCEA Level 3 Accounting: Preparing company financial statements

NCEA Level 3 Accounting · Work through your exam, one topic at a time.

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Preparing company financial statements

Preparing company financial statements

This domain assesses whether you can prepare a company's statement of comprehensive income, statement of changes in equity, and statement of financial position from a trial balance, applying the Companies Act 1993 and NZ IAS 1. Marks come from correct classification, valid adjustments, and the statements articulating with each other.

Core rules

  • A company is a separate legal entity. Equity contains share capital, reserves (including revaluation and translation reserves), and retained earnings. Dividends are a distribution of profit, not an expense, and are recognised when declared.
  • Profit before tax is adjusted for non-deductible and non-taxable items to find taxable profit; tax expense is matched to accounting profit, while income tax payable is a current liability. Provisional tax paid reduces the payable.
  • Other comprehensive income includes revaluation gains under the revaluation model, remeasurements, and foreign currency translation differences. It is added to profit after tax to give total comprehensive income.
  • Current/non-current classification depends on the entity's operating cycle and when the item will be settled or recovered.

Worked example

A trial balance shows profit before tax of $120,000. Tax is 33%, so tax expense is $39,600 and profit after tax is $80,400. Opening retained earnings are $80,000 and dividends declared are $20,000. Closing retained earnings = 80,000 + 80,400 - 20,000 = $140,400. If ordinary share capital was $200,000 and $50,000 of new shares were issued, total equity = 250,000 + 140,400 = $390,400. The statement of changes in equity shows each movement in its own column and proves the closing balance.

Traps

Including GST in revenue or expenses; treating dividends as an expense; confusing tax expense with the tax payable balance; putting a revaluation gain through profit or loss instead of OCI; forgetting closing inventory, depreciation, or accrued expenses; and omitting the share issue from both the cash and equity sections.