Financial statements are crucial for providing information that is relevant to a wide range of users. Relevance means the information in the statements can be used to make decisions.

• Investors: Need information about a company's profitability, solvency, and future prospects to decide whether to invest. They want to know if the company is likely to generate returns.
• Creditors (Banks): Require information on a company's ability to repay loans. They assess the company's financial stability and cash flow.
• Management: Use financial statements to monitor performance, make operational decisions, and plan for the future. They need to understand how different parts of the business are performing.
• Customers & Suppliers: May want to assess the long-term viability of a company they do business with.
• Tax Authorities: Use financial statements to verify tax liabilities.

If financial statements are not relevant (e.g., they don't show the true financial position or performance), users will not be able to make informed decisions. This can lead to poor investment choices, lending decisions, or business strategies.

Answer:

The trial balance is a list of all the account balances in a business at a specific point in time. It is prepared to check whether the total debits equal the total credits. It provides a summary of all the accounts and their balances, helping to identify any errors in bookkeeping (e.g., incorrect totaling of debits and credits). It does not show the actual financial position of the business.

The statement of financial position (also known as the balance sheet) shows a company's assets, liabilities, and equity at a specific point in time. It presents a snapshot of what the company owns (assets), what it owes (liabilities), and the owners' stake in the company (equity). The fundamental accounting equation (Assets = Liabilities + Equity) is reflected in the statement of financial position. It provides information about the company's financial health and solvency.

Key Differences Summarized:

• Purpose: Trial balance checks for arithmetical accuracy; Statement of Financial Position shows financial position.
• Information: Trial balance lists account balances; Statement of Financial Position shows assets, liabilities, and equity.
• Timing: Trial balance can be prepared at any time; Statement of Financial Position is prepared at a specific point in time (e.g., end of a financial year).

The concept of relevance is paramount when a business makes significant investments like purchasing new machinery. Relevant information is information that could influence a decision. The business needs to gather information that helps them assess the potential benefits and risks of the investment.

Here are three examples of relevant information:

• Estimated Production Increase: A forecast of how much more output the new machinery will generate. This helps determine potential revenue growth.
• Cost of the Machinery: The purchase price, installation costs, and any ongoing maintenance expenses. This is a direct cost associated with the investment.
• Expected Lifespan of the Machinery: How long the machinery is expected to be useful. This impacts depreciation and the long-term return on investment.
• Market Demand for the Product: An assessment of whether there is sufficient demand for the product the machinery will produce. Low demand would reduce the benefit of increased production.
• Interest Rates on Loans: If the machinery is financed through a loan, the interest rate will affect the overall cost of the investment.

Without relevant information, the business could make a poor investment decision that negatively impacts its financial future.