Final answer:
Financial statements are meant to present a true and fair view of a company's financial standing per the Conceptual Framework, Companies Act, and IAS 1. They are essential for users to make economic decisions.
Step-by-step explanation:
Financial statements are required to give a true and fair view of a company's financial performance and position. The Conceptual Framework guides the preparation and presentation of financial statements, ensuring they are useful to a wide range of users for making economic decisions.
The Companies Act sets out the legal requirements for the content and form of accounts for public and private companies, emphasizing the need for financial statements to give a true and fair view of the business affairs.
IAS 1, "Presentation of Financial Statements," sets out the overall requirements for financial statements, including how they should be structured, the minimum requirements for their content, and the concepts such as going concern, accrual basis of accounting, consistency of presentation, and materiality.
This standard is designed to ensure that an entity's financial statements are comparable both with its own financial statements of previous periods and with those of other entities.
Financial capital relates to the funds that a company uses to finance its operations and growth, often obtained through borrowing, bonds, or issuing corporate stock. This capital is integral to a company's ability to generate profits, as it is used to invest in assets and fund operations that can lead to revenue generation.
Firms choose between sources of financial capital based on factors such as cost, repayment terms, and the potential dilution of ownership. Borrowing might mean taking a bank loan or line of credit, which requires repayment with interest and does not dilute ownership.
Bonds are a way to raise funds by borrowing from investors, to whom the company will then owe interest and eventual repayment of principal. Issuing corporate stock involves selling ownership stakes in the company and may be more suitable for companies that prefer not to increase their debt levels or are willing to dilute ownership in exchange for the capital.