Understand The Purpose Of The Trial Balance: Introduction To Financial Reporting Assignment, TCD, Ireland

Trial Balance
Learning Objectives

On completing this chapter, you should be able to:
1. Understand the purpose of the trial balance
2. Using a fund’s books and records, prepare a multi-day trial balance for the fund and calculate the net asset value (NAV) per share on each day.

Introduction

In this chapter, we will look at the preparation of the Trial Balance. This financial statement provides the necessary information for the calculation of the NAV. As stated previously the NAV is a key calculation as it is the price of a unit/share in the fund, it is the price at which units/shares will be issued and redeemed at.

The Trial Balance is a list of the balance on each ledger account at a particular point in time. The Trial Balance is prepared daily for a fund. To ensure the accuracy of the NAV a fund will implement a series of checks and controls.

Trial balance entries, compilation and calculating the NAV per share
As seen in Chapter 2, the trial balance provides the starting point for preparing a fund’s accounts.

At a high level, all the revenue, expenses, gains and losses balances are presented in the profit and loss accounts to determine the profit or loss for the period. The remaining balances on accounts (assets, liabilities and capital) listed in the trial balance are presented in the balance sheet to detail the financial position of the fund.

All journal entries are accounted for as ledger entries and input into the trial balance. To complete a trial balance, you should create the journal entries and label them according to what type of ledger entry they are, and then feed them into the trial balance. The categories in the trial balance are as follows:
• Assets (A)
• Liabilities (L)
• Income (I)
• Expenses (E)
• Capital (C)
• Gain/loss (G/L)
• Distributions (D)2

E2 Fund – Background

You are the Fund Reviewer on this Fund – asset management daily priced fund. The base currency of the fund is US Dollars. Today is the 30th of March 2021 and the following accounting information is applicable to your fund
for this date:

The Fund receives total subscription orders for 7,000 shares into the fund to be processed and settled on the same day basis. The subscription price is based on yesterday’s calculated NAV per share.

The Investment Manager’s fees are 1.54% (per annum) and Custody Fees of 0.25% (per annum) of the previous day’s Net Asset Value and Legal Fees are expected to be $17,000 per annum. The Fund The administrator on the fund earns a fee of 0.10% (per annum), calculated daily based on the fund’s priority NAV, subject to a minimum calculation fee of €30,000 per annum.

The Fund holds (bought to open) 67 March Nasdaq Futures contracts @ $5772. The contract size is $65 per contract and the Initial margin was $6,000 per contract.