balance sheet assets, liabilities & shareholders’ equity “old accountants never die; they...
TRANSCRIPT
Balance Sheet
Assets, Liabilities & Shareholders’ Equity
“Old accountants never die; they just lose their balance”
--Anonymous
The Balance SheetAlso called the statement of condition or
statement of financial position
Financial ConditionFinancial Condition
Liabilities + Stockholders’ equityLiabilities + Stockholders’ equityAssets =Assets =
Assets =Assets = What the firm What the firm ownsowns
Liabilities =Liabilities = What the firm What the firm owesowes to to outsidersoutsiders
Stockholders’ equity =Stockholders’ equity = What the firm What the firm owesowes to to
Internal ownersInternal owners
Assets
Should provide probable future economic benefits
Owned or controlled by the entity
As a result of past transactions/events
Cost/value should be determinable
Generally presented in order of liquidity
A Few DefinitionsCurrent Assets-Cash or other assets
expected to be converted into cash within one year or one operating cycle, whichever is longer
Operating Cycle-Time required to purchase or manufacture inventory, sell the product, and collect the cash
Current Assets-1
Cash and Cash EquivalentsValued at fair value- nominal amounts
Short-term Investmentsa.k.a-TRADING SECURITIESa.k.a-FINANCIAL ASSETSa.k.a-MARKETABLE SECURITIESValued at fair value or amortized cost
Current Assets-2RECEIVABLES Trade Receivables
Accounts Receivable Notes Receivable Post dated cheques receivable
Due From Related Parties Receivable from Employees Others
Valued at amortized cost (net of interest) and reported at NET REALIZABLE VALUE
- Allowance for Doubtful - Allowance for Doubtful AccountsAccounts
Net Realizable Value =Net Realizable Value =Accounts ReceivableAccounts Receivable
A Word on the “Allowance…”
Management must estimate the dollar amount of accounts receivable they expect to be uncollectible
Affects balance sheet valuation AND bad debt expense on income statement
Can be important in assessing earnings quality--changes should be analyzed
Analysis of Receivables
2004 2005 GrowthNet Sales 484.217.501 533.179.059 10%Accounts Receivable, total 40.766.849 53.580.885 31%Allowance for doubtful accounts 294.505 550.191 87%Allowance as a % of receivables 0,7% 1,0%
Current Assets-3
Inventories Measured by FIFO or Weighted Average Valued at Lower of Cost or Net Recoverable
Amount
Biological Assets (at fair value until the point of harvest)Assets Held for Sale Other Current AssetsDeferred Tax Assets
Long-term Assets-1
Trade Receivables
Other Receivables
Biological Assets
Long-term Financial InvestmentsValued at fair value or amortized cost or
equity method of accounting
Deferred Tax Assets
Long-term Assets-2
Property, plant and equipment1. Option: Property, plant & equipment are valued
at cost less accumulated depreciation and allowance for impairment
2. Option: Property, plant & equipment are valued at revalued amount less accumulated depreciation and allowance for impairment
Book value = original cost/revalued amount - accumulated depreciation to date – impairment
losses
Long-term Assets-2Intangible Assets Identifiability- Control- Future economic benefits- Reliable measurement of cost
recorded at cost initially and then carried at cost less any accumulated amortization and any accumulated impairment losses. The life can be limited or indefiniteLimited amortize over the useful life Indefinite NO AMORTIZATION
Long-term Assets-3
GOODWILLArise from business combinations
Investment Property
Liabilities obligations of an entity to make a future obligations of an entity to make a future
payment or to deliver goods or services to payment or to deliver goods or services to the third parties in the future in return for the third parties in the future in return for cash borrowed or service used or goods cash borrowed or service used or goods acquiredacquired
Classified according to their due datesClassified according to their due dates due within one year or the operating cycle are due within one year or the operating cycle are
classified as current liabilitiesclassified as current liabilities loans or credits that mature in more than one loans or credits that mature in more than one
year are classified as long-term liabilitiesyear are classified as long-term liabilities
Liabilities-1
Current Portion of Long-term Debt
Financial LiabilitiesBank LoansBonds issuedFinance Lease Liabilities
Liabilities-2
Trade PayablesAccounts PayableNotes Payable
Other PayablesDue to Related PartiesPayable to employeesTaxes payable, etc…
Liabilities-3
Accrued Liabilities
Unearned Revenues, a.k.a. Deferred Income, Advances Received
Deferred TaxationResult of temporary differences in the
recognition of revenue and expense for taxable income relative to reported financial income
Deferred Taxation
Machinery IFRS Tax LegisCost 50.000 50.000 Life 10 5Rate 10% 20%EBD 50.000 50.000
IFRS EBD Depr EBT taxyear 1 50.000 5.000 45.000 9.000 year 2 50.000 5.000 45.000 9.000 year 3 50.000 5.000 45.000 9.000 year 4 50.000 5.000 45.000 9.000 year 5 50.000 5.000 45.000 9.000 year 6 50.000 5.000 45.000 9.000 year 7 50.000 5.000 45.000 9.000 year 8 50.000 5.000 45.000 9.000 year 9 50.000 5.000 45.000 9.000 year 10 50.000 5.000 45.000 9.000 Total 50.000 90.000
Tax Leg. EBD Depr EBT taxyear 1 50.000 10.000 40.000 8.000 year 2 50.000 10.000 40.000 8.000 year 3 50.000 10.000 40.000 8.000 year 4 50.000 10.000 40.000 8.000 year 5 50.000 10.000 40.000 8.000 year 6 50.000 - 50.000 10.000 year 7 50.000 - 50.000 10.000 year 8 50.000 - 50.000 10.000 year 9 50.000 - 50.000 10.000 year 10 50.000 - 50.000 10.000 Total 50.000 90.000
Provisions and Contingent Liabilities
a potential liability arising from a past transaction and that depends on a future event could be disclosed in the body of the balance
sheet with the liabilities could be disclosed within notes to financial
statements
certainty of the amount and the payment date determines where they will be disclosed
Is the amount of the liability known? YES
Recognize liabilityon the balance
sheet
NO
Can the amount of Liability be reasonablyEstimated?
YES Is the liability likely to occur? (Probable)
YES
Disclose in the notes To the financial
Statements(CONTINGENT LIABILITY)
NONO
Provisions
Post Retirement Benefits
Restructuring Provisions
Environmental Liabilities
Product Warranties,
Others such as litigations,
On November 24, 2003 , 26 passengers on Paris Airlines Flight No. 901 were injured upon landing when the plane skidded off the runway. Personal injury suits for
damages totaling $5.000.000 were filed on January 11, 2004 against the airline by the 18 injured passengers. The airline carries no insurance. Legal counsel has studied
each case and advised Paris that it can reasonably expect to pay 60% of the damages claimed. The financial statements for the year ended 31 December 2003 were issued
February 27, 2004.
Agazzi Corporation, a dishwasher machine manufacturer, is the defendant in a patent infringement lawsuit. The attorney of the company claims that, if the suit goes against Agazzi, the loss may be as much as $4.000.000; however, the attorney believes the loss of this suit to be only possible.
Animaniacs company entered into a contract on 21 January 2008 which will probably result in a significant loss to the company. The financial statements as of 31 December 2007, that were issued to public on 1 February 2008 do not reflect any provision for the probable loss.
Shareholders’ Equity
Share Capital
Additional paid-in Capital
Treasury Stocks (contra equity)
Revaluation Fund
Retained Earnings
Comprehensive IncomeNon-owner changes to equity and includesNet Income for the yearOther comprehensive income
Adjustments to fair value for available-for-sale securities
Foreign currency translation adjustmentGains/losses on cash flow hedge derivativesGains/losses on investment hedge instrumentsAdjustments related to under funding a defined
benefit pension plan
Statement of Shareholders’ Equity
Provides details of changes in Equity
Stock
Other comprehensive income
Retained earnings
Includes beginning and ending balances in accounts
Company A Company BCurrent Assets 343.485.717 439.980.188 Property Plant and Equipment 826.801.982 1.026.117.794 Other Long-term Assets 124.702.064 189.943.503
Total Assets 1.294.989.763 1.656.041.485
Current Liabilities 302.800.391 189.489.327 Long-term Liabilities 257.035.615 328.989.213 Shareholders' Equity 735.153.757 1.137.562.945 Total Liabilities and Shareholders' Equity 1.294.989.763 1.656.041.485
Company A Company BCurrent Assets 27% 27%Property Plant and Equipment 64% 62%Other Long-term Assets 10% 11%
Total Assets 100% 100%
Current Liabilities 23% 11%Long-term Liabilities 20% 20%Shareholders' Equity 57% 69%Total Liabilities and Shareholders' Equity 100% 100%