(A Level) Financial statements, inventory valuation and depreciation

Learning objectives

Explain what a statement of profit or loss shows and work down it from revenue and cost of sales to gross profit, profit from operations, profit for the year, dividends and retained earnings.

Explain what a statement of financial position shows and how non-current and current assets, current and non-current liabilities, net current assets, net assets, reserves and equity fit together.

Amend both statements after a given change and explain how items in the two statements are linked.

Explain why inventory is difficult to value and apply the net realisable value method.

Calculate straight-line depreciation as (cost − residual value) ÷ useful life and explain its effect on both statements.