106 Accounting: Business Reporting for Decision Making
(continued)Martina, James and Brigitte — Accountants
Balance sheet as at 31 December 2016
Partners’ equity
Capital
— Martina
— James
— Brigitte100 000
400 000
60 000 560 000
Current
— Martina
— James
— Brigitte2 179
8 714
1 307 12 200
Total partners’ equity $572 200Company reports — private company
The simplified financial statements in illustrative example 3.7 demonstrate the financial performance
and position of Coconut Plantations Pty Ltd for four months to 31 December 2016. Here, the company’s
statement of profit or loss shows tax being deducted directly from company profit. As discussed earlier,
sole traders and partnerships do not pay tax directly on the business profits — it is up to the individuals
to include the business income in their individual tax returns. Coconut Plantations Pty Ltd is a manu-
facturing company which is involved in the conversion of raw materials, such as coconut, other plant
extracts and water, to produce coconut soaps, candles and detergents. These finished goods are then sold
to wholesale retailers.
In the company balance sheet, the shareholders’ equity section shows share capital instead of owners’
or partners’ capital, and also reports retained earnings, which represent the sum of the profit retained in
the business after the deduction of dividends or allocation to another equity account.
ILLUSTRATIVE EXAMPLE 3.7Financial statements for a proprietary company
Coconut Plantations Pty Ltd
Statement of profit or loss for 4 months ended 31 December 2016Income
Sales
Cost of sales$ 500 000
275 000
Gross profit 225 000
Other incomeOperating expenses
Warehouse
Distribution
Finance
Selling and marketing
Administration$32 000
10 000
5 000
3 000
30 0005 00080 000
Profit before tax
Income tax expense150 000
45 000
Profit after tax $ 105 000