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i MINISTRY OF FINANCE ACADEMY OF FINANCE Student: Lương Thanh Tùng Class: CQ54/21CL.02 Topic: “The preparation and analysis of financial statements in DUYENHAI Trading and Manufacturer, Ltd” GRADUATION THESIS Major: Business Accounting Supervisor: MSc . Nguyễn Bá Linh HÀ NỘI, Year 2020 Lương Thanh Tùng – CQ54/21CL.02
ii LETTER OF DECLARATION I hereby declare that this thesis the results of my own research and has never been published in any work of others. During the process of making this thesis, I have seriously taken research ethics; all findings of this project are results of my own research and surveys; all references in this project are clearly cited according to regulations. I bear full responsibility to the fidelity of the number and data and other contents of my work. Hanoi,(day)… … (month)… … … (year) 20….. Student (Signature and Full name) Lương Thanh Tùng – CQ54/21CL.02
iii ACKNOWLEDGEMENT Firstly, I am deeply indebted to my supervisor MSc. Nguyen Ba Linh whose help, stimulating suggestions and encouragement helped me all the time of research for and writing of this thesis. I also want to thank Duyehai Trading and Manufacturer, Ltd for giving me permission to commence this thesis in the first instance, to do the necessary research work and to use departmental data. I have furthermore to thank the Vice Director and Chief Accountant as well as all seniors at Duyenhai Trading and Manufacturer, Ltd who gave and confirmed this permission and encourage me to go ahead with my thesis. Friends from Accounting Faculty also supported me in my thesis; I want to thank them for all their support, interest and valuable conversations. Especially, I would like to give my special thanks to my family whose patient love enabled me to complete this work. Finally, because of limitation of time and knowledge, mistakes are unuavoidable, so I wish to have more opportunities. I also wish to receive more contribution and suggestions to make my thesis better. Lương Thanh Tùng – CQ54/21CL.02
iv ABSTRACT In the modern economic, Viet Nam business organizations face not only opportunities but also great chanllenges. In order to catch up with the progress and avoid being “eliminated”, all organizations are expected to always perfecting and developing their managing system, especially on the aspect of accounting, for having a good accounting system plays an important role in making decisions and policies. If by any chance a certain item on the reports (including balance sheet, cash flow statement, income statement) was mispresented, any decisions based on that result may become unsuitable, which will lead to failure. Therefore, my thesis with the topic “The preparation and analysis of financial statements in Duyenhai Trading and Manufacturer, Ltd” will point out the importance of financial statements, components of financial statements and analysis of financial statements. The main content is reflected in three chapters. The first chapter is about the general theory of financial statements preparation and analysis in enterprises. In chapter 2, by taking a scenario in Duyenhai Trading and Manufacturer, Ltd, the thesis focuses on a real practice of preparing and analyzing their financial statements. From that, chapter 3 points out some of company’s strength and weaknesses and suggests some solutions to improve the preparation and analysis of company’s financial statements. In conclusion, the thesis has already been complete in comparison wiith proposed objectives and targets in the introduction. Lương Thanh Tùng – CQ54/21CL.02
v LIST OF DIAGRAMS No. Content of diagram Pages Management mechanism in Duyenhai Trading and 2.1 70 Manufacturer Company, Ltd Accounting system in Duyenhai Trading and Manufacturer 2.2 72 Company, Ltd LIST OF TABLES No. Content of table Pages 2.1 Main indicators reflects business results of the company 68 in 2019 2.2 Main indicators reflects financial position of the 69 company in 2019 2.3 Analysis of business results of the company in 2019 83 2.4 Overall assessment of company’s performance 85 2.5 Company’s financial structure 87 2.6 The asssets structure of the Company 89 2.7 Overview of company’s liquidity 91 2.8 Overall assessment of company’s debt ratio 93 Lương Thanh Tùng – CQ54/21CL.02
vi TABLE OF CONTENT PREFACE..................................................................................................................................1 Sincerely thanks!........................................................................................................................3 CHAPTER I...............................................................................................................................4 GENERAL THEORY OF FINANCIAL STATEMENTS PREPARATION AND ANALYSIS IN ENTERPRISES...................................................................................................................4 1.1. General overview of financial statements and financial statements analysis in enterprises.....................................................................................................................................4 1.1.1. The basics of financial statements..................................................................................4 1.1.1.1. Financial accounting information................................................................................4 Accounting is the process of identifying, measuring, and communicating economic information to permit informed judments and decisions by the users of the information, as defined by The American Accounting Association. This information is primalily financial−stated in money terms. Accounting, then, is a measuring and communicating tool used to reflect on the activities of profit−seeking business organizations and not−for−profit organizations. As measurement and communication process for business, accounting supplies information that permits informed judments and decisions by users of the data........................4 Accounting information is the information that arises from business transactions. Once identified, the information is then classified and recorded, and it eventually finds its way into various reports..........................................................................................................................4 The process of providing information....................................................................................4 1) Identify stakeholders (users of accounting information): usually, the users of accounting information are divided into two factions:.................................................................................4 Internal users: includes owners, managers, employees......................................................4 External users: includes customers, creditors, government................................................4 2) Assess stakeholders’s informational needs: each kind of user has a different motives and objectives, therefore holds different needs of accounting information......................................4 Owners: need to assess how well their business is performing. They are also interested in knowing how risky their business is and can be........................................................................5 Managers: need accounting information to plan, monitor and make business decisions....5 Employees: need accounting information to get a better understanding of the company’s business, so that they may have proper plans for future development.......................................5 Investors: need accounting information to know how well their investment is performing, therefore decide should they keep investing or stop..................................................................5 Lương Thanh Tùng – CQ54/21CL.02
vii Lendors: need accounting information to assess their credit worthiness, their ability to pay back loan.............................................................................................................................5 Suppliers: need accounting information to assess the credit-worthiness of its customers before offering goods and services on credit.............................................................................5 Tax Authorities: need accounting information of suppliers and consumers in order to identify potential tax evaders. Occasionally, tax authorities conduct audits of the tax returns filed by businesses in order to verify the information with the underlying accounting records. 5 3) Design the accounting information system to meet stakeholders’s needs..............................5 An accounting information system (AIS) is a structure that a business uses to collect, store, manage, process, retrieve and report its financial data so it can be used by accountants, consultants, business analysts, managers, chief financial officers (CFOs), auditors, regulators, and tax agencies......................................................................................................5 4) Record economic data about business activities and events..................................................5 5) Prepare accounting report for stakeholders...........................................................................5 1.1.1.2. Definition and objectives of financial reporting...........................................................6 a) Definition..........................................................................................................................6 Financial reporting is the financial results of an organization that are released to its stakeholders and the public. This reporting is a key function of the controller, who may be assisted by the investor relations officer if an organization is publicly held. Financial reporting typically encompasses the following documents and postings:.................................................6 Financial statements, which include the income statement, balance sheet, and statement of cash flows.............................................................................................................................6 Accompanying footnote disclosures, which include more detail on certain topics, as prescribed by the relevant accounting framework.....................................................................6 Any financial information that the company chooses to post about itself on its website. . .6 Annual reports issued to shareholders...............................................................................6 Any prospectus issued to potential investors concerning the issuance of securities by the organization...............................................................................................................................6 Financial statements are written records that convey the business activities and the financial performance of a company. Financial statements are often audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes........6 b) Objectives.........................................................................................................................6 Financial reportings provide information about the reporting entity that is useful to existing and potential investors, lendors and other creditors in making decisions about providing resources to the entity................................................................................................6 Lương Thanh Tùng – CQ54/21CL.02
viii The information provided about financial performance helps existing and potential investors, lenders and other creditors to understand the return the entity has produced on its economic resources...................................................................................................................7 Decisions by invetors are about buying, selling or holding euity and debt instruments depend on the returns that they expect from an investment in those instruments, eg dividends, principal and interest payments or market price increase..........................................................7 Decisions by ledors are about providing or selling loans and other forms of credit depend on the principal and interest payments of other returns that they expect...................................7 The information must reflect the effect on performance of changes in market prices and/or interest rates...................................................................................................................7 1.1.1.3. Requirements of financial statements presentation.......................................................7 According to Article 101 of circular 200/2014/TT-BTC about “Requirements for information presented in financial statements”, the following are requirements for information presented in financial statements:..................................................................................................................7 1. Information presented in the financial statements must be recorded honestly and reasonably the financial situation, trading situation and income of enterprises. To ensure honesty, the information must be complete, objective, unmistaken...............................................................7 - Information is only complete when including all the necessary information to help users of financial statements to understand the nature, forms and risks of transactions and events. For some items, the full presentation must also describe more information about the quality, the factors and circumstances that may affect the quality and nature of the items...........................7 - Objective presentation is unbiased selection or description on financial information. Objective presentation must ensure neutrality which do not focus, emphasis or reduce as well as perform other acts to alter the impact of the financial information to become beneficial or unbeneficial for users of financial statements............................................................................8 - No errors mean no omissions in the description of the phenomenon and no errors in the process of providing reporting information selected and applied. No errors do not mean complete accuracy in all respects, for example, estimating unobservable cost and value is difficult to determine to be correct or incorrect. The presentation of an estimate is considered to be honest, if the estimated value is described clearly, and the nature and limitation of the estimating process is explained and there is no error in the selection of appropriate figures in the estimate................................................................................................................................8 2. Financial information must be appropriate to help users of financial statements to predict, analyze and make economic decisions......................................................................................8 3. Financial information must be presented fully in all important respects. Information is considered to be important in case information is not sufficient or inaccurate information may affect the decisions of users of financial information of the reporting unit. Materiality shall be based on the nature and magnitude, or both, of the relevant items presented in the financial statements of a particular unit....................................................................................................8 4. Information must be verifiable, timely and understandable...................................................8 Lương Thanh Tùng – CQ54/21CL.02
ix 5. Financial information must be presented consistently and must be comparable among the accounting periods and enterprises............................................................................................8 1.1.2. Types of financial statements.........................................................................................8 1.1.2.1. Balance sheet................................................................................................................8 * Definition of balance sheet...................................................................................................9 Balance sheet is a statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period..........................................................................................................9 * Nature and purpose of balance sheet..................................................................................9 The purpose of the balance is to set out the financial position of a business at a particular point in time..............................................................................................................................9 It gives a snap shot of the assets, liabilities and equity position of the entity at a particular point in time..............................................................................................................................9 It sets out the assets of the entity on the one hand, and the claims against it on the other..9 * Format of balance sheet.......................................................................................................9 There are two formats of presenting assets, liabilities and owners’ equity in the balance sheet – account format and report format. In account format, the balance sheet is divided into left and right sides like a T account. The assets are listed on the left hand side whereas both liabilities and owners’ equity are listed on the right hand side of the balance sheet. If all the elements of the balance sheet are correctly listed, the total of asset side (i.e., left side) must be equal to the total of liabilities and owners’ equity side (i.e., right side)........................................................9 .......10 Lương Thanh Tùng – CQ54/21CL.02
x Picture 1: Example of account format.....................................................................................10 The report format (vertical format) is used more frequently. In vertical format, the balance sheet elements are presented vertically i.e., assets section is presented at the top and liabilities and owners equity sections are presented below the assets section..........................................10 BALANCE SHEET As at 31 December 2019 Unit: VND ASSETS Codes Notes Closing balance Opening balance A - CURRENT ASSETS 100 2,690,917,843 3,664,521,286 I. Cash and cash equivalents 110 1,012,242,498 978,675,637 1. Cash 111 4 1,012,242,498 978,675,637 II. Short-term receivables 130 137,502,696 1,525,113,700 1. Short-term trade receivables 131 137,502,696 33,004,453 2. Short-term loan receivables 135 - 1,350,000,000 3. Other short-term receivables 136 - 142,109,247 III. Inventories 140 5 575,873,906 494,591,731 1. Inventories 141 575,873,906 494,591,731 IV. Other short-term assets 150 965,298,743 666,140,218 2. Value added tax deductibles 152 965,298,743 666,140,218 B. NON-CURRENT ASSETS 200 7,665,712,732 6,904,337,220 I. Fixed assets 220 7,385,419,635 6,258,944,559 1. Tangible fixed assets 221 6 7,385,419,635 6,258,944,559 - Cost 222 16,449,101,428 14,572,436,428 - Accumulated depreciation 223 (9,063,681,793) (8,313,491,869) 5. Held-to-maturity investments 255 - - II. Other long-term assets 260 280,293,097 645,392,661 1. Long-term prepayments 261 280,293,097 645,392,661 TOTAL ASSETS (270=100+200) 270 10,356,630,575 10,568,858,506 ................................................................................................................................................11 Lương Thanh Tùng – CQ54/21CL.02
xi ................................................................................................................................................11 1.1.2.4. Financial statement footnotes........................................................................................20 * Definition..................................................................................................................................20 Financial statement footnotes are explanatory and supplemental notes that accompany a firm’s financial statements. The exact nature of these footnotes varies, depending upon the accounting framework used to construct the financial statements (such as GAAP or IFRS).20 * Purpose of financial statement footnotes...............................................................................20 Refer to additional information provided in a company’s financial statements..........20 Describe the items that are left out of the balance sheet and income statement...........20 Helps to clarify they would cloud the data reported in the financial statements.........20 May also include information regarding future activities that are anticipated to have a notable impact on the business or its activities........................................................................20 * Format of financial statements footnotes..............................................................................20 Notes to the financial statements of a company are shown in three groups:........................20 Structural............................................................................................................................20 Adopted principles..............................................................................................................20 Other related affairs...........................................................................................................20 Lương Thanh Tùng – CQ54/21CL.02
xii Structural....................................................................................................................................20 1. How far the accounting standard has been adopted.......................................................20 2. The followed principles of accounting and measuring methods....................................20 3. The helping information of the accounting items presented in financial statements...21 4. Other matters such as contingent liabilities, detailed disclosure of financial and non- financial matters.........................................................................................................................21 Preparation of adopted principles of accounting.....................................................................21 1. The basis of preparation of financial statements.............................................................21 2. The accounting principles adopted in the preparation of financial statements. Besides, for their easy understanding the information regarding who has used and analyzed the methods which have been adopted in measuring money with its historical cost, current cost, realization cost or present cost should be stated in detail. Besides, methods adopted in case of;.........................................................................................................................................21 earning a profit...................................................................................................................21 the merger of business........................................................................................................21 the joint venture..................................................................................................................21 depreciation or write off of assets.....................................................................................21 loan.......................................................................................................................................21 contract of construction.....................................................................................................21 investment............................................................................................................................21 financial documents............................................................................................................21 research and development cost..........................................................................................21 inventory..............................................................................................................................21 income tax............................................................................................................................21 reserve..................................................................................................................................21 employee’s benefit expense................................................................................................21 foreign exchange.................................................................................................................21 business and geographical affairs.....................................................................................22 cash and cash equivalent....................................................................................................22 Lương Thanh Tùng – CQ54/21CL.02
xiii overvaluation.......................................................................................................................22 government contribution...................................................................................................22 the lease is to be taken into consideration........................................................................22 Other matters..............................................................................................................................22 In preparation of financial statements the business organizations will also have to mention the following matters if not stated otherwise:..........................................................................22 1. Size of company, legal entity, its structure, registration, address and any other place where business is run or registered...........................................................................................22 2. Business activities of the company and detailed, information regarding expansion of the business..................................................................................................................................22 3. Source of the company, source of the entire group of companies, information regarding the company..............................................................................................................22 4. Some employees in a year or a particular period............................................................22 1.1.3. The basics of financial statement analysis.......................................................................22 * Definition of financial statements analysis:......................................................................22 Financial statement analysis (or financial analysis) is the process of reviewing and analyzing a company's financial statements to make better economic decisions to earn income in future. These statements include the income statement, balance sheet, statement of cash flows, notes to accounts and a statement of changes in equity (if applicable). Financial statement analysis is a method or process involving specific techniques for evaluating risks, performance, financial health, and future prospects of an organization.......................................................22 * Purpose of financial statements analysis:.........................................................................22 In an open economy, businesses that want to survive and develop must always backing−up their financial potentials and constantly improve their competitiveness. Through the calculation and assestment of financial ratios, financial analysis helps users to have control over all business activities informations, and know the position of the company in the market. In the field of business, there must be an honest view of the financial situation of the enterprise as well as its development potential, clearly determining the cause and level of indicators affecting the financial situation. From that, we can take advantage of business opportunities and make appropriate financial decisions to maintain and develop the business operation. Therefore, financial statements analysis is the concern of many different subjects such as: Board of Directors, investors, shareholders, creditors, customers, managers, even employees themselves. Each subject has a different need from the financial statements, uses the indicators and information obtained to make different decisions.......................................23 Financial statements analysis to business’s owner..............................................................23 To business’s owner, financial statements analysis has purposes as follow:...........................23 Lương Thanh Tùng – CQ54/21CL.02
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