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DEPARTAMENTO DE CONTABILIDAD Y ECONOMA FINANCIERA

ESCUELA UNIVERSITARIA DE ESTUDIOS EMPRESARIALES

FINANCIAL ACCOUNTING

(DIPLOMATURA EN CIENCIAS EMPRESARIALES, 2 CURSO, GRUPO 5)

2008-2009

EXERCISES LESSON 7 CASH FLOW STATEMENT

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CASH FLOW STATEMENT: LESSON 7 EXERCISE 1 LESSON 7 Company ABC, created at the beginning of 2007, had at the beginning of 2008 a working capital composed exclusively by cash. The cash account had a balance of 4.000 . During 2008 the operations of the company have been the following: The services rendered during the year amount 600 received in cash. Personnel expenses

and other operating expenses of 400 have been paid in cash during the year. The fixed assets depreciation expense for the year amounts 110 . The 1st of October the company obtained a long-term loan of 4.000 from the CHASE

MANHATTAN BANK, which will be paid back at the end of 2012. The annual interest rate is 3% on the total amount, payable at the beginning of each quarter.

At the end of the year the company has bought new fixed assets with a cost of 12.000 : 8.000 paid in cash and the other 4.000 will be paid in 24 months.

The tax rate is 30%. REQUIRED: Prepare the Cash Flow Statement for year 2008. EXERCISE 2 LESSON 7 Company ABC, created at the beginning of 2007, published the following financial statements at the end of 2008: ASSETS 2008 2007 LIABILITIES 2008 2007

A) NON-CURRENT ASSETS A) EQUITY

II. Tangible fixed assets. 21,890 10,000 A-1) Shareholders' equity.

B) CURRENT ASSETS I. Capital. 14,000 14,000

III. Trade accounts receivables and other r. VII. Income for the year. 42 0

1. Trade accounts receivables for sale and services. 348 0 B) NON-CURRENT LIABILITIES

6. Other receivables from Public Authorities 1,824 0 II. Long-term debt.

VII. Cash and cash equivalents. 2. Long-term debt payable to credit institutions. 4,000 0

1. Cash. (1,872) 4,000 5. Other financial liabilities 4,000 0

TOTAL ASSETS 22,190 14,000 C) CURRENT LIABILITIES

III. Short-term debt.

2. Short-term debt payable to credit institutions. 30 0

V. Trade accounts payables and other p.

4. Salary payable 100 0

5. Liability for current tax. 18 0

TOTAL LIABILITIES 22,190 14,000

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2008 A) CONTINUING OPERATIONS

1. Net turnover. 600

6. Personnel expenses. (400)

8. Fixed assets depreciation expense. (110)

A.1) OPERATING INCOME (1+2+3+4+5+6+7+8+9+10+11) 90

13. Financial expenses. (30)

A.2) FINANCIAL INCOME (12+13+14+15+16) (30)

A.3) INCOME BEFORE TAXES (A.1+A.2) 60

17. Income tax. (18)

A.4) INCOME FROM CONTINUING OPERATIONS (A.3+17) 42

A.5) INCOME FOR THE YEAR 42

During 2008 the operations of the company have been the following: The services rendered during the year amount 600 (50% of these revenues have been collected in

cash during 2008). Personnel expenses were 400 (75% of these expenses have been paid in cash during 2008).

The fixed assets depreciation expense for the year amounts 110 . The 1st of October the company obtained a long-term loan of 4.000 from the CHASE

MANHATTAN BANK, which will be paid back at the end of 2012. The annual interest rate is 3% on the total amount, payable at the end of each semester.

At the end of the year the company has bought new fixed assets with a cost of 12.000 : 8.000 and the V.A.T. paid in cash and the other 4.000 will be paid in 24 months.

The tax rate is 30%, payable in June of the next year. V.A.T. is 16%. REQUIRED: Prepare the Cash Flow Statement for year 2008. SOLUTION JOURNAL 2008 348 348

Cash Accounts receivables

to Services rendered V.A.T. collected

600 96

400 Wages and salaries to Cash Salary payable

300 100

110 Tangible fixed assets depreciation expense

to Accumulated depreciation of tangible fixed assets

110

4000 Cash to Long-term loan payable to financial institutions

4000

30 Interest expense to Interest payable 30 12000 1920

Tangible fixed assets V.A.T. paid

to Cash Long-term debt with suppliers of fixed assets

9920 4000

600 Services rendered to Operating income 600 510 Operating income to Wages and salaries

Tangible fixed assets depreciation expense

400 110

30 Financial income to Interest expense 30 90 Operating income to Financial income

Income before taxes 30 60

18 Income tax expense to Payable to public authorities 18

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(Income tax) 60 Income before taxes to Income tax expense

INCOME FOR THE YEAR 18 42

96 1824

V.A.T. collected Receivable from public authorities (V.A.T.)

to V.A.T. paid 1920

A) CASH FLOWS FROM OPERATING ACTIVITIES 200X 1. Income before taxes 60 2. Adjustments to income

a) Depreciation of fixed assets (+). 110 b) Value corrections for impairment (+/-). c) Change in provisions (+/-). d) Transfer of grants (-). e) Income from disposal of non-current assets (+/-). f) Income from disposal of financial instruments (+/-). g) Financial revenues (-). h) Financial expenses (+). 30 i) Exchange differences (+/-). j) Change in fair value of financial instruments (+/-). k) Other revenues and expenses (-/+).

3. Changes in working capital a) Inventory (+/-). b) Accounts receivables and other receivables (+/-). -2172 c) Other current assets (+/-). d) Accounts payables and other payables (+/-). 100 e) Other current liabilities (+/-). f) Other non-current assets and liabilities (+/-).

4. Other cash flows from operating activities a) Cash payments of interests (-). b) Cash receipts of dividends (+). c) Cash receipts of interests (+). d) Cash receipts (payments) for income taxes (+/-). e) Other cash payments (receipts) (-/+)

5. Cash flows from operating activities (+/-1+/-2+/-3+/-4) -1872 B) CASH FLOWS FROM INVESTMENT ACTIVITIES 6. Cash payments for investments (-)

a) Subsidiaries and associated companies. b) Intangible assets. c) Tangible fixed assets. -8000 d) Investment property. e) Other financial assets. f) Non-current assets held for sale. g) Other assets.

7. Cash receipts from disinvestments (+) a) Subsidiaries and associated companies. b) Intangible assets.

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c) Tangible fixed assets. d) Investment property. e) Other financial assets. f) Non-current assets held for sale. g) Other assets.

8. Cash flows from investment activities (7-6) -8000 C) CASH FLOWS FROM FINANCING ACTIVITIES 9. Cash receipts and payments for equity instruments

a) Issuing of equity instruments (+). b) Amortization of equity instruments (-).

c) Acquisition of the own equity instruments (-). d) Disposal of the own equity instruments (+). e) Grants, donations and legacies received (+).

10. Cash receipts and payments for debt instruments a) Issuing of

1. Debentures and other negotiable securities (+). 2. Long term debt payable to credit institutions (+). 4000 3. Long term debt payable to subsidiaries and associated companies (+). 4. Other debt (+).

b) Refunds and amortization of 1. Debentures and other negotiable securities (-). 2. Long term debt payable to credit institutions (-). 3. Long term debt payable to subsidiaries and associated companies (-). 4. Other debt (-).

11. Cash payments of dividends and remuneration of other equity instruments. a) Dividends (-). b) Remuneration of other equity instruments (-).

12. Cash flows from financing activities (+/-9+/-10-11) 4000 D) Effect of changes in exchange rates E) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS -5872 Cash and equivalents at the beginning of the period 4000 Cash and equivalents at the end of the period -1872

EXERCISE 3 LESSON 7 Classify the following operations by type of activity according to the model of the Cash Flow Statement established in the P.G.C. Indicate also the amount of the cash collection or payment. Operations Investing Financing No effect Cash payment to a supplier for a purchase of inventory made in the previous year: 1,000

Cash receipt from the shareholders to compensate losses accumulated in previous years: 20,000

Cash receipt of a loan received from a financial institution: 100,000

Cash payment of interests generated by a debt with financial institutions: 3,400

Cash receipt from customers for sales made this year and in the previous year: 8,000

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Cash payment to the City Council for the local taxes: 500

Cash payment of the wages to the employees: 40,000 Cash payment the Tax Agency for the IRPF withholdings to the employees: 4,200

Cash payment for the acquisition of an investment in shares that are classified as held for trading: 3,000

Purchase of a machinery by 20,000. 30% of this amount paid in 18 months time.

Cash payment to the Tax Agency for the income tax of the previous year: 38,000

Increase in the fair value of the held for trading portfolio: 1,100

Sale in cash by 26,000 of a land that had a book value of 12,000

Cash payment of the rent of a building for November and December of this year and January of next year: 570

Cash collection of a subvention from the City Council to compensate operating losses: 40,000

Cash collection of a grant, obtained at the end of the previous year, to finance the purchase of a new machinery: 87,000

Transfer to income for the year of a portion of a capital grant: 8,700

Cash payment of a fine of 45,200 for environmental damage. The company had registered a long-term provision of 46,000.

Increase in capital stock of 20,000 with a share premium of 1,000. Uncalled subscribed capital receivable is 10,000.

Income for the year is 15,000 and 10,000 are distributed to dividends. The previous year the company had paid 1,000 as dividends paid in advance.

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SOLUTION Operations Investing Financing No

effect Cash payment to a supplier for a purchase of inventory made in the previous year: 1,000

(1,000)

Cash receipt from the shareholders to compensate losses accumulated in previous years: 20,000

20,000

Cash receipt of a loan received from a financial institution: 100,000

100,000

Cash payment of interests generated by a debt with financial institutions: 3,400

(3,400)

Cash receipt from customers for sales made this year and in the previous year: 8,000

8,000

Cash payment to the City Council for the local taxes: 500

(500)

Cash payment of the wages to the employees: 40,000

(40,000)

Cash payment the Tax Agency for the IRPF withholdings to the employees: 4,200

(4,200)

Cash payment for the acquisition of an investment in shares that are classified as held for trading: 3,000

(3,000)

Purchase of a machinery by 20,000. 30% of this amount paid in 18 months time.

(14,000)

Cash payment to the Tax Agency for the income tax of the previous year: 38,000

(38,000)

Increase in the fair value of the held for trading portfolio: 1,100

XXX

Sale in cash by 26,000 of a land that had a book value of 12,000

26,000

Cash payment of the rent of a building for November and December of this year and January of next year: 570

(570)

Cash collection of a subvention from the City Council to compensate operating losses: 40,000

40,000

Cash collection of a grant, obtained at the end of the previous year, to finance the purchase of a new machinery: 87,000

87,000

Transfer to income for the year of a portion of a capital grant: 8,700

XXX

Cash payment of a fine of 45,200 for environmental damage. The company had registered a long-term provision of 46,000.

(45,200)

Increase in capital stock of 20,000 with a share premium of 1,000. Uncalled subscribed capital receivable is 10,000.

11,000

Income for the year is 15,000 and 10,000 are distributed to dividends. The previous year the company had paid 1,000 as dividends paid in advance.

(9,000)

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EXERCISE 4 LESSON 7 Company ABC, Ltd. has disclosed the following financial statements at the end of year 2009. Assets 2009 2008 Equity and Liabilities 2009 2008

Constructions 1,800 2,000 Capital stock 5,550 5,000 Machinery 4,950 5,300 Legal reserves 850 700 Long-term receivable from buyers of fixed assets 50 - Income for the year 506 400

Inventories (finished products) 1,500 2,200 Dividends paid in advance - 200 Accounts receivable 2,700 2,250 Capital grants 280 -

Receivable from public authorities (capital grants) 200 -

Long-term debt payable to credit institutions Deferred tax liability

1,024

120 1,324

-

Cash 650 710 Short-term debt payable to credit institutions 700 1,220

Accounts payable for purchases 2,250 2,950 Accounts payable for services 570 750 Liability for current tax 200 116 Total 11,850 12,460 Total 11,850 12,460 2009 A) CONTINUING OPERATIONS 1. Net turnover. 30,176 a) Sales. 30,176 4. Procurements. (20,700) a) Consumption of goods for sale. (20,700) 7. Other operating expenses. (7,670) a) Outside services. (7,620) c) Losses, impairment and change in provisions for trade operations. (50) 8. Fixed assets depreciation expense. (1,200) 11. Impairment and income from disposal of non-current assets. 50 b) Income from disposals and others. 50 A.1) OPERATING INCOME (1+2+3+4+5+6+7+8+9+10+11) 656 12. Financial revenues. 50 b) From marketable securities and other financial instruments. 50 A.2) FINANCIAL INCOME (12+13+14+15+16) 50 A.3) INCOME BEFORE TAXES (A.1+A.2) 706 17. Income tax. (200) A.4) INCOME FROM CONTINUING OPERATIONS (A.3+17) 506 A.5) INCOME FOR THE YEAR (A.4+18) 506 COMPLEMENTARY INFORMATION: 1.- During 2009 the company made the distribution of 2008 net income. A portion of this income was distributed as reserves and another was paid as dividends in 2009. Moreover, the company made a payment of interim dividends at the beginning of June. 2.- A machinery was sold during 2009 for 100 m.u. Its adquisition price was 250 m.u. and the accumulated depreciation was 200 m.u. A new machinery has also been bought with a cost of 700 m.u.

REQUIRED: Prepare the Cash Flow Statement for 2009.

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SOLUTION

A) CASH FLOWS FROM OPERATING ACTIVITIES 2009 1. Income before taxes 706 2. Adjustments to income

a) Depreciation of fixed assets (+). 1.200 e) Income from disposal of non-current assets (+/-). - 50

g) Financial revenues (-). - 50 3. Changes in working capital

a) Inventory (+/-). 700

b) Accounts receivables and other receivables (+/-). - 450

d) Accounts payables and other payables (+/-). - 880 4. Other cash flows from operating activities

c) Cash receipts of interests (+). 50

d) Cash receipts (payments) for income taxes (+/-). - 116 5. Cash flows from operating activities (+/-1+/-2+/-3+/-4) 1.110 B) CASH FLOWS FROM INVESTMENT ACTIVITIES 6. Cash payments for investments (-)

c) Tangible fixed assets. -700 7. Cash receipts from disinvestments (+)

c) Tangible fixed assets. 50 8. Cash flows from investment activities (7-6) -650 C) CASH FLOWS FROM FINANCING ACTIVITIES 9. Cash receipts and payments for equity instruments

a) Issuing of equity instruments (+). 550 e) Grants, donations and legacies received (+). 200

10. Cash receipts and payments for debt instruments b) Refunds and amortization of

4. Other debt (-). -820 11. Cash payments of dividends and remuneration of other equity instruments.

a) Dividends (-). -450 12. Cash flows from financing activities (+/-9+/-10-11) -520 D) Effect of changes in exchange rates E) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS -60 Cash and equivalents at the beginning of the period 710 Cash and equivalents at the end of the period 650

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EXERCISE 5 LESSON 7 Company XYZ, Ltd. has published the following financial statements in year 2009: Assets 2009 2008 Equity and Liabilities 2009 2008Tangible fixed assets 23,350 23,300 Capital stock 35,000 35,000 Long term financial investments 15,100 15,500 Legal reserves 9,650 9,000 Inventories 11,850 10,900 Income for the year 1,950 1,300 Accounts receivable 9,200 8,600 Capital subventions 560 630 Cash 500 700 Long-term debt payable to credit institut. 2,400 -

Deferred tax liability Short-term debt payable to credit institut. 240 600

270800

Interest payable 75 - Accounts payable for purchases 8,475 11,300 Liability for current tax 1,050 700 Total 60,000 59,000 Total 60,000 59,000 2009 A) CONTINUING OPERATIONS 1. Net turnover. 20,150 a) Sales. 20,150 4. Procurements. -11,850 a) Consumption of goods for sale. - 11,850 6. Personnel expenses. - 1,800 a) Wages, salaries and similar expenses. - 1,800 7. Other operating expenses. - 800 a) Outside services. - 800 8. Fixed assets depreciation expense. - 2,100 9. Transfer of grants of non-financial non-current assets and others. 100 11. Impairment and income from disposal of non-current assets. - 250 b) Income from disposals and others. - 250 A.1) OPERATING INCOME (1+2+3+4+5+6+7+8+9+10+11) 3,450 12. Financial revenues. 50 a) From holdings in equity instruments. 50 13. Financial expenses. - 100 b) Of third parties. - 100 16. Impairment and income from disposal of financial instruments. - 400 a) Impairment and losses. - 400 A.2) FINANCIAL INCOME (12+13+14+15+16) -450 A.3) INCOME BEFORE TAXES (A.1+A.2) 3,000 17. Income tax. - 1,050 A.4) INCOME FROM CONTINUING OPERATIONS (A.3+17) 1,950 A.5) INCOME FOR THE YEAR (A.4+18) 1,950 Additional information: The 15th of June of 2009 the company made the distribution of the income of the previous year, half

of it was taken to reserves and the other half was paid as dividends. The 1st of October of 2009 a vehicle was sold in cash for 600 m.u. This vehicle had been bought the

1st of January of 2004 for 2,000 m.u. and has been depreciated by a 10% each year. The 30th of September of 2009 a new vehicle was bought with a cost of 3,000 m.u. To finance the

purchase, that same day the company obtained a loan form a financial institution for the same amount, which will be given back in 5 years at equal amounts. The annual interest is 10% on the outstanding amount and will be paid at the end of each year.

The 12th of February of 2009 the company paid the final portion of a long-term loan received in a previous year.

REQUIRED: Prepare the Cash Flow Statement for year 2009.

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SOLUTION A) CASH FLOWS FROM OPERATING ACTIVITIES 2009 1. Income before taxes 3.000 2. Adjustments to income

a) Depreciation of fixed assets (+). 2.100 b) Value corrections for impairment (+/-). 400 d) Transfer of grants (-). - 100 e) Income from disposal of non-current assets (+/-). 250

g) Financial revenues (-). - 50

h) Financial expenses (+). 100 3. Changes in working capital

a) Inventory (+/-). - 950

b) Accounts receivables and other receivables (+/-). - 600

d) Accounts payables and other payables (+/-). - 2.825 4. Other cash flows from operating activities

a) Cash payments of interests (-). - 25

b) Cash receipts of dividends (+). 50

d) Cash receipts (payments) for income taxes (+/-). - 700 5. Cash flows from operating activities (+/-1+/-2+/-3+/-4) 650 B) CASH FLOWS FROM INVESTMENT ACTIVITIES 6. Cash payments for investments (-)

c) Tangible fixed assets. -3000 7. Cash receipts from disinvestments (+)

c) Tangible fixed assets. 600 8. Cash flows from investment activities (7-6) -2400 C) CASH FLOWS FROM FINANCING ACTIVITIES 10. Cash receipts and payments for debt instruments

a) Issuing of 2. Long term debt payable to credit institutions (+). 3000

b) Refunds and amortization of 2. Long term debt payable to credit institutions (-). -800,00

11. Cash payments of dividends and remuneration of other equity instruments. a) Dividends (-). -650

12. Cash flows from financing activities (+/-9+/-10-11) 1550 D) Effect of changes in exchange rates E) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS -200 Cash and equivalents at the beginning of the period 700 Cash and equivalents at the end of the period 500

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EXERCISE 6 LESSON 7 Company ARTEL, Ltd, has available the following information at the end of X1: BALANCE SHEET AT THE END OF X1 31/12/X1 31/12/X0 A) NON-CURRENT ASSETS II. Tangible fixed assets

1. Land and structures

630

630

700

700

B) CURRENT ASSETS II. Inventory 1. Comercial 6. Advances to suppliers III. Trade accounts receivables and other receivables 1. Trade accounts receivables for sale and services 3. Sundry accounts receivables V. Short-term financial investments 1. Holdings in equity VI. Accrual accounts VII. Cash and cash equivalents 1. Cash

820

770 50

260260 ---

2525

2040

40

615

615 ---

310 280 30

15 15

---- 20

20 TOTAL ASSETS 1,795 1,660

31/12/X1 31/12/X0 A) EQUITY A-1) Equity I. Capital 1. Registered capital III. Reserves 1. Legal and statutory VII. Income for the year VIII. (Dividends paid in advance)

805805

370370

98(50)

675 675

395 395

52 ---

B) NON-CURRENT LIABILITIES II. Long term debt 2. Long term debt payable to credit institutions

89

89

---

--- C) CURRENT LIABILITIES III. Short term debt 2. Short term debt payable to credit institutions 5. Other financial liabilities V. Trade accounts payable and other payables 1. Trade accounts payable for purchases and services 3. Sundry accounts payable 5. Liability for current tax 6. Other payables to public authorities VI. Accrual accounts

110

--- 110

373270 35 18 50

----

160

160 ---

328 256 60 12 ---

50 TOTAL LIABILITIES 1,795 1,660

The list of expenses and revenues that compose the income of year X1 are the following:

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Amount Sales revenue Other operating revenue Profits from held for trading portfolio Consumption of goods for sale Personnel expenses Depreciation of tangible fixed assets External services Financial expenses Losses from the sale of tangible fixed assets Reversion of impairment of tangible fixed assets Sale discounts for early payments Income tax expense

4,800 70 10 3,120 1,222 30 33 103 150 10 100 34

Income for the year 98 Additional information: 1.- The distribution of income of year X0 is the following: 40 m.u. are distributed to reserves and 12 m.u. were paid as dividends. Moreover, in X1 the company has paid a dividend in advance of the income of that year, as it can be seen from the balance sheet. 2.- A building has been sold in cash. The acquisition price had been 270 m.u. and the accumulated depreciation in the moment of the sale was 60 m.u. At the end of the year a new building was bought with a cost of 160 m.u. (50 m.u. were paid in cash and the remaining will be paid at the end of next year). These are the only transactions with the tangible fixed assets. 3.- At the end of X1 the company has obtained a long-term loan of 92 m.u. from a financial institution. The opening fees were 3.2 %. 4.- The company has issued capital stock. Half of the amount has been paid by the shareholders and the other half has been transferred from reserves. 5.- Accrual accounts in the current assets are interest paid in advance that correspond to the debt with financial institutions. Accrual accounts in the current liabilities are revenues received in advance. 6.- The profits from the held from trading portfolio were registered at the end of the year for the valuation at fair value of that portfolio. REQUIRED: Prepare the Cash Flow Statement of year X1.

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SOLUTION A) CASH FLOWS FROM OPERATING ACTIVITIES 1. Income before taxes 132 2. Adjustments to income 263

a) Depreciation of fixed assets (+). 30 b) Value corrections for impairment (+/-). -10 c) Change in provisions (+/-). 0 d) Transfer of grants (-). 0 e) Income from disposal of non-current assets (+/-). 150 f) Income from disposal of financial instruments (+/-). 0 g) Financial revenues (-). 0 h) Financial expenses (+). 103 j) Change in fair value of financial instruments (+/-). -10

3. Changes in working capital -166 a) Inventory (+/-). -205 b) Accounts receivables and other receivables (+/-). 50 d) Accounts payables and other payables (+/-). 39 e) Other current liabilities (+/-). -50

4. Other cash flows from operating activities -151 a) Cash payments of interests (-). -123 d) Cash receipts (payments) for income taxes (+/-). -28

5. Cash flows from operating activities (+/-1+/-2+/-3+/-4) 78 B) CASH FLOWS FROM INVESTMENT ACTIVITIES 6. Cash payments for investments (-) -50

c) Tangible fixed assets. -50 7. Cash receipts from disinvestments (+) 60

c) Tangible fixed assets. 60 8. Cash flows from investment activities (7-6) 10 C) CASH FLOWS FROM FINANCING ACTIVITIES 9. Cash receipts and payments for equity instruments 65

a) Issuing of equity instruments (+). 65 10. Cash receipts and payments for debt instruments -71

a) Issuing of 2. Long term debt payable to credit institutions (+). 89

b) Refunds and amortization of 2. Long term debt payable to credit institutions (-). -160

11. Cash payments of dividends and remuneration of other equity instruments. -62 a) Dividends (-). -62

12. Cash flows from financing activities (+/-9+/-10-11) -68 D) Effect of changes in exchange rates E) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 20 Cash and equivalents at the beginning of the period 20 Cash and equivalents at the end of the period 40

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EXERCISE 7 LESSON 7 Company G-3, Ltd discloses the following information: INCOME STATEMENT 31/12/20X1 20X1 A) CONTINUING OPERATIONS 1. Net turnover. a) Sales. 4. Procurements. a) Consumption of goods for sale. d) Impairment of goods for sale. 5. Other operating revenues. a) Accessory and other ordinary income. 6. Personnel expenses. a) Wages, salaries and similar expenses. b) Employee welfare expenses. 7. Other operating expenses. a) Outside services. b) Taxes other than income tax. 8. Fixed assets depreciation expense. 9. Transfers of grants of non-financial non-current assets and others. A-1) OPERATING INCOME 13. Financial expenses. b) Of third parties. A-2) FINANCIAL INCOME A-3) INCOME BEFORE TAXES 17. Income tax. A-4) INCOME FROM CONTINUING OPERATIONS A-5) INCOME FOR THE YEAR

17.150.000 17.150.000 (10.475.000) (10.500.000) 25.000 500.000 500.000 (3.425.000) (2.250.000) (1.175.000) (650.000) (150.000) (500.000) (250.000) 125.000

2.975.000 (75.000) (75.000)

(75.000)

2.900.000 (590.000)

2.310.000 2.310.000

BALANCE SHEET AT THE END OF 20X1 31/12/X1 31/12/X0 A) NON-CURRENT ASSETS II. Tangible fixed assets. 1. Land and structures. V. Long-term financial investments. 1. Holdings in equity.

15.250.00015.250.000

140.000140.000

12.500.000 12.500.000

100.000 100.000

B) CURRENT ASSETS II. Inventories. 1. Commercial. 6. Advances to suppliers. III. Trade accounts receivables and other receivables. 1. Trade accounts receivables for sale and services 3. Sundry accounts receivables. V. Short-term financial investments. 1. Holdings in equity. VI. Accrual accounts. VII. Cash and cash equivalents.

2.975.0002.475.000

500.0001.050.0001.000.000

50.000--

12.000710.000

3.700.000 3.450.000

250.000 770.000 750.000 20.000

200.000 200.000

- 150.000

TOTAL ASSETS 20.137.000 17.420.000

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31/12/X1 31/12/X0 A) EQUITY A-1) Shareholders equity. I. Capital. 1. Registered capital. 2. (Uncalled subscribed capital). II. Additional paid-in capital. III. Reserves. 1. Legal and statutory. VII. Income for the year. A-2) Adjustments for changes in value I. Financial instruments available for sale. A-3) Grants, donations and legacies received.

10.250.00011.000.000

(750.000) 250.000 2.000.0002.000.000

2.310.000

28.000612.500

10.000.000 10.000.000

- -

1.200.000 1.200.000 1.500.000

- -

B) NON-CURRENT LIABILITIES I. Long-term provisions. 4. Other provisions. II. Long-term debt. 3. Long-term debt from leasing contracts. IV. Deferred tax liability

250.000250.000

900.000900.000274.500

-

- -

C) CURRENT LIABILITIES III. Short-term debt. 2. Short-term debt payable to credit institutions. 3. Short-term debt from leasing contracts. V. Trade accounts payables and other payables. 1. Trade accounts payables for sale and services. 3. Sundry accounts payables. 5. Liability for current tax. 6. Other payables to public authorities.

1.100.0001.000.000 100.000

2.162.0001.175.000 87.000 500.000 400.000

3.000.000 3.000.000

- 1.720.000 1.000.000 95.000 325.000 300.000

TOTAL LIABILITIES 20.137.000 17.420.000 ADDITIONAL INFORMATION: 1. Accrual accounts refer to interest paid in advance for the interest expenses of a short-term debt with credit institutions. 2. Distribution of income of X0 has been the following: Legal reserve 800,000; Dividends 700,000. 3. The company issued new capital stock: 1,000 shares were issued at a nominal value of 1,000 m.u. and an issuing value of 1,250 m.u. 4. The capital grant was obtained at the beginning of X1. 5. At the beginning of the year a long-term provision was registered to account for the risk of paying a possible compensation to an employee for an accident in the workplace. 6. In June of X1 the company sold in cash the holdings in equity that had as a short-term investment and that were considered as held for trading. These shares were acquired in X0 for a price of 190,000 m.u. and their value was increased at the end of year X0 because of an increase in its fair value. 7. Land and structures has the following breakdown:

31/12/X1 31/12/X0 Land 5.000.000 4.000.000 Structures 12.000.000 10.000.000 Accumulated depreciation of structures (1.750.000) (1.500.000)

The debt from leasing contracts corresponds to the acquisition of a new building with a cost of 1,000,000 m.u.

REQUIRED: Prepare the Cash Flow Statement of year X1.

17

SOLUTION A) CASH FLOWS FROM OPERATING ACTIVITIES 200X 1. Income before taxes 2.900.000 2. Adjustments to income

a) Depreciation of fixed assets (+). 250.000 b) Value corrections for impairment (+/-). c) Change in provisions (+/-). 250.000 d) Transfer of grants (-). - 125.000 e) Income from disposal of non-current assets (+/-). f) Income from disposal of financial instruments (+/-). g) Financial revenues (-). h) Financial expenses (+). 75.000 i) Exchange differences (+/-). j) Change in fair value of financial instruments (+/-). k) Other revenues and expenses (-/+).

3. Changes in working capital a) Inventory (+/-). 725.000 b) Accounts receivables and other receivables (+/-). - 280.000 c) Other current assets (+/-). d) Accounts payables and other payables (+/-). 267.000 e) Other current liabilities (+/-). f) Other non-current assets and liabilities (+/-).

4. Other cash flows from operating activities a) Cash payments of interests (-). - 87.000 b) Cash receipts of dividends (+). c) Cash receipts of interests (+). d) Cash receipts (payments) for income taxes (+/-). - 415.000 e) Other cash payments (receipts) (-/+)

5. Cash flows from operating activities (+/-1+/-2+/-3+/-4) 3.560.000 B) CASH FLOWS FROM INVESTMENT ACTIVITIES 6. Cash payments for investments (-)

a) Subsidiaries and associated companies. b) Intangible assets. c) Tangible fixed assets. - 2.000.000 d) Investment property. e) Other financial assets. f) Non-current assets held for sale. g) Other assets.

7. Cash receipts from disinvestments (+) a) Subsidiaries and associated companies. b) Intangible assets. c) Tangible fixed assets. d) Investment property. e) Other financial assets. 200.000 f) Non-current assets held for sale.

18

g) Other assets. 8. Cash flows from investment activities (7-6) - 1.800.000 C) CASH FLOWS FROM FINANCING ACTIVITIES 9. Cash receipts and payments for equity instruments

a) Issuing of equity instruments (+). 500.000 b) Amortization of equity instruments (-).

c) Acquisition of the own equity instruments (-). d) Disposal of the own equity instruments (+). e) Grants, donations and legacies received (+). 1.000.000

10. Cash receipts and payments for debt instruments a) Issuing of

1. Debentures and other negotiable securities (+). 2. Long term debt payable to credit institutions (+). 3. Long term debt payable to subsidiaries and associated

companies (+). 4. Other debt (+).

b) Refunds and amortization of 1. Debentures and other negotiable securities (-). 2. Long term debt payable to credit institutions (-). 3. Long term debt payable to subsidiaries and associated

companies (-). 4. Other debt (-). - 2.000.000

11. Cash payments of dividends and remuneration of other equity instruments.

a) Dividends (-). - 700.000 b) Remuneration of other equity instruments (-).

12. Cash flows from financing activities (+/-9+/-10-11) - 1.200.000 D) Effect of changes in exchange rates E) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 560.000 Cash and equivalents at the beginning of the period 150.000 Cash and equivalents at the end of the period 710.000

19

EXERCISE 8 LESSON 7 From exam of course 0708 Company XYZ, Ltd. has prepared the following financial Statements at the end of 2009: ASSETS 2009 2008 LIABILITIES 2009 2008

A) NON-CURRENT ASSETS 18.790.000 13.950.000 A) EQUITY 12.100.000 8.000.000

I. Intangible assets. 8.750.000 7.000.000 A-1) Shareholders' equity. 11.050.000 7.300.000

1. Development. 5.000.000 5.000.000 I. Capital. 7.500.000 5.000.000

5. Computer software. 3.750.000 2.000.000 1. Registered capital. 8.000.000 5.000.000

II. Tangible fixed assets. 9.240.000 6.050.000 2. (Uncalled subscribed capital). - 500.000

1. Land and structures. 5.750.000 4.950.000 III. Reserves. 2.300.000 2.600.000 2. Plant and machinery, tools, furniture and other tangible assets. 3.490.000 1.100.000 1. Legal and statutory. 1.600.000 1.600.000

III. Investment property. 800.000 900.000 2. Other reserves. 700.000 1.000.000

2. Structures. 800.000 900.000 VII. Income for the year. 1.450.000 - 300.000

B) CURRENT ASSETS 2.795.000 2.450.000 VIII. (Dividends paid in advance). - 200.000

II. Inventories. 900.000 950.000 A-3) Grants, donations and legacies received. 1.050.000 700.000

1. Commercial (goods for sale). 900.000 950.000 B) NON-CURRENT LIABILITIES 4.200.000 3.800.000 III. Trade accounts receivables and other receivables. 400.000 750.000 I. Long-term provisions. 500.000 500.000

1. Trade accounts receivables for sale and services. 400.000 600.000 4. Other provisions. 500.000 500.000

3. Sundry accounts receivables. - 150.000 II. Long-term debt. 3.250.000 3.000.000

V. Short-term financial investments. 1.000.000 - 2. Long-term debt payable to credit institutions. 1.500.000 3.000.000

1. Holdings in equity. 500.000 5. Other financial liabilities (Long-term debt with suppliers of tangible fixed assets). 1.750.000

2. Loans to companies (Short-term receivable from buyers of fixed assets) 500.000 IV. Deferred tax liability. 450.000 300.000

VI. Accrual accounts. 250.000 50.000 C) CURRENT LIABILITIES 5.285.000 4.600.000

VII. Cash and cash equivalents. 245.000 700.000 III. Short-term debt. 2.150.000 2.070.000

TOTAL ASSETS 21.585.000 16.400.000 2. Short-term debt payable to credit institutions. 2.150.000 2.070.000

V. Trade accounts payables and other payables. 3.135.000 2.530.000

1. Trade accounts payables for purchases and services. 1.000.000 850.000

3. Sundry accounts payable. 950.000 150.000

4. Salary payable. 50.000 300.000

5. Liability for current tax. 395.000

6. Other payables to public authorities. 740.000 1.030.000

7. Customer advances. - 200.000

TOTAL LIABILITIES 21.585.000 16.400.000

20

2009 A) CONTINUING OPERATIONS 1. Net turnover. 20.000.000 a) Sales. 20.000.000 4. Procurements. - 11.850.000 a) Consumption of goods for sale. - 12.000.000 d) Impairment of goods for sale, raw materials and other consumables. 150.000 5. Other operating revenues. 1.000.000 a) Accesory and other ordinary income. 1.000.000 6. Personnel expenses. - 3.000.000 a) Wages, salaries and similar expenses. - 3.000.000 7. Other operating expenses. - 3.200.000 a) Outside services. - 3.200.000 8. Fixed assets depreciation expense. - 700.000 9. Transfer of grants of non-financial non-current assets and others. 100.000 11. Impairment and income from disposal of non-current assets. - a) Impairment and losses (reversion of impairment) 300.000 b) Income from disposals and others. - 300.000 A.1) OPERATING INCOME (1+2+3+4+5+6+7+8+9+10+11) 2.350.000 12. Financial revenues. 50.000 b) From marketable securities and other financial instruments. 50.000 b 2) Of third parties. 50.000 13. Financial expenses. - 500.000 b) Of third parties. - 500.000 14. Change in fair value of financial instruments. 50.000 a) Held for trading and others. 50.000 A.2) FINANCIAL INCOME (12+13+14+15+16) - 400.000 A.3) INCOME BEFORE TAXES (A.1+A.2) 1.950.000 17. Income tax. - 500.000 A.4) INCOME FROM CONTINUING OPERATIONS (A.3+17) 1.450.000 1. The profits from the held from trading portfolio were registered at the end of the year for the

valuation at fair value of that portfolio. 2. The losses of year 2008 have been compensated against reserves. Moreover, in 2009 the company has

paid a dividend in advance of the income of that year, as it can be seen from the balance sheet. 3. Accrual accounts in the current assets are expenses paid in advance. 4. A new grant has been received at the end of 2009 for the acquisition of new machinery. The company

has also registered the transfer to income of the corresponding portion of a previous grant. 5. The breakdown of the short-term debt with credit institutions is the following:

31/12/2009 31/12/2008 Short-term debt with credit institution

2,000,000 2,000,000

Interest payable 150,000 70,000 REQUIRED: Prepare the Cash Flow Statement of year 2009 (only cash flows from operations and cash flows from financing activities).

21

SOLUTION A) CASH FLOWS FROM OPERATING ACTIVITIES 200X 1. Income before taxes 1.950.000 2. Adjustments to income 1.000.000

a) Depreciation of fixed assets (+). 700.000 b) Value corrections for impairment (+/-). - 300.000 d) Transfer of grants (-). - 100.000 e) Income from disposal of non-current assets (+/-). 300.000 g) Financial revenues (-). - 50.000 h) Financial expenses (+). 500.000 j) Change in fair value of financial instruments (+/-). - 50.000

3. Changes in working capital 410.000 a) Inventory (+/-). 50.000 b) Accounts receivables and other receivables (+/-). 350.000 c) Other current assets (+/-). - 200.000 d) Accounts payables and other payables (+/-). 210.000

4. Other cash flows from operating activities - 475.000 a) Cash payments of interests (-). - 420.000 c) Cash receipts of interests (+). 50.000 d) Cash receipts (payments) for income taxes (+/-). - 105.000

5. Cash flows from operating activities (+/-1+/-2+/-3+/-4) 2.885.000 C) CASH FLOWS FROM FINANCING ACTIVITIES 9. Cash receipts and payments for equity instruments 3.100.000

a) Issuing of equity instruments (+). 2.500.000 e) Grants, donations and legacies received (+). 600.000

10. Cash receipts and payments for debt instruments - 1.500.000 b) Refunds and amortization of

2. Long term debt payable to credit institutions (-). - 1.500.000 11. Cash payments of dividends and remuneration of other equity instruments. - 200.000

a) Dividends (-). - 200.000 12. Cash flows from financing activities (+/-9+/-10-11) 1.400.000

22

EXERCISE 9 LESSON 7 From exam of course 0708 Company XYZ, Ltd. has prepared the following financial Statements at the end of 2009: ASSETS 2009 2008 LIABILITIES 2009 2008

A) NON-CURRENT ASSETS 27.050 21.050 A) EQUITY 25.644,5 19.510

I. Intangible assets. 3.000 3.050 A-1) Shareholders' equity. 24.227 18.425

3. Intelectual property, trademarks and others. 3.000 3.050 I. Capital. 20.000 14.700

II. Tangible fixed assets. 20.700 13.500 1. Registered capital. 20.000 20.000

1. Land and structures. 5.700 2.500 2. (Uncalled subscribed capital). - - 5.300

2. Plant and machinery, tools, furniture and other. 15.000 11.000 III. Reserves. 3.200 2.800

III. Investment property. 1.900 2.000 1. Legal and statutory. 1.800 1.800

2. Structures. 1.900 2.000 2. Other reserves. 1.400 1.000

V. Long-term financial investments. 1.450 2.500 VII. Income for the year. 1.027 925

1. Holdings in equity. 1.450 2.500 A-2) Adjustments for changes in value. 157,5 35

B) CURRENT ASSETS 3.222 4.025 I. Financial instruments available for sale. 157,5 35

II. Inventories. 1.400 900 A-3) Grants, donations and legacies received. 1.260 1.050

1. Commercial (goods for sale). 1.400 900 B) NON-CURRENT LIABILITIES 2.107,5 2.965 III. Trade accounts receivables and other receivables. 440 500 I. Long-term provisions. 500 500

1. Trade accounts receivables for sale and services. 100 200 2. Environmental actions. 500 500

3. Sundry accounts receivables. 300 250 II. Long-term debt. 1.000 2.000

4. Employee receivables. 40 50 2. Long-term debt payable to credit institutions. 1.000 2.000

V. Short-term financial investments. 60 1.050 IV. Deferred tax liability 607,5 465

1. Holdings in equity. 600 500 C) CURRENT LIABILITIES 2.520 2.600

2. Loans to companies. 550 III. Short-term debt. 2.010 2.010

VI. Accrual accounts. 10 20 2. Short-term debt payable to credit institutions. 2.010 2.010

VII. Cash and cash equivalents. 772 1.555 V. Trade accounts payables and other. 510 590

TOTAL ASSETS 30.272 25.075 1. Trade accounts payables for purchases & s. 80 50

3. Sundry accounts payable. 50 20

5. Liability for current tax. 300 200

6. Other payables to public authorities. 80 220

7. Customer advances. - 100

TOTAL LIABILITIES 30.272 25.075

23

2009 A) CONTINUING OPERATIONS 1. Net turnover. 4.500 a) Sales. 4.500 4. Procurements. - 1.150 a) Consumption of goods for sale. - 1.250 d) Impairment of goods for sale, raw materials and other consumables. 100 5. Other operating revenues. 350 a) Accesory and other ordinary income. 200 b) Operating subventions included in income for the year. 150 6. Personnel expenses. - 650 a) Wages, salaries and similar expenses. - 500 b) Employee welfare expenses. - 150 7. Other operating expenses. - 450 a) Outside services. - 450 8. Fixed assets depreciation expense. - 2.100 9. Transfer of grants of non-financial non-current assets and others. 500 11. Impairment and income from disposal of non-current assets. 350 a) Impairment and losses - 50 b) Income from disposals and others. 400 A.1) OPERATING INCOME (1+2+3+4+5+6+7+8+9+10+11) 1.350 12. Financial revenues. 75 a) From holdings in equity instruments. 50 a2) Of third parties. 50 b) From marketable securities and other financial instruments. 25 b 2) Of third parties. 25 13. Financial expenses. - 111 b) Of third parties. - 111 14. Change in fair value of financial instruments. 175 b) Transfer to income for the year for available for sale financial instruments. 175 A.2) FINANCIAL INCOME (12+13+14+15+16) 139 A.3) INCOME BEFORE TAXES (A.1+A.2) 1.489 17. Income tax. - 462 A.4) INCOME FROM CONTINUING OPERATIONS (A.3+17) 1.027 A.5) INCOME FOR THE YEAR (A.4+18) 1.027

Additional information (transactions of 2009): 1. Short-term holdings in equity are a portfolio of stocks classified as held for trading. There has been

no profit or loss due to a change in the fair value of these stocks. 2. Long-term holdings in equity are a portfolio of stocks classified as available for sale. The portfolio

includes 100 shares acquired in October of 2008 for a price of 24,5 m.u. per share. The fair value at the end of 2008 was 25 m.u. In June of 2009 half of the portfolio has been sold for a price of 28 m.u. per share. The fair value at the end of 2009 is 29 m.u.

3. The distribution of income of year 2008 is the following: 400 m.u. are distributed to reserves and 525 m.u. were paid as dividends.

4. The uncalled subscribed capital has been called and the company has collected in cash the outstanding amount from the shareholders during 2009.

5. A new capital subvention has been received at the end of the year. 6. Accrual accounts in the current assets are interest paid in advance that correspond to the debt with

financial institutions.

24

7. During 2009, machinery that had a cost of 4,000 m.u. has been sold. The accumulated depreciation was 800 m.u. and the profit obtained in the sale was 400 m.u. This was the only sale of tangible fixed assets.

8. There have been several acquisitions of tangible fixed assets. The breakdown of the fixed assets depreciation expense is the following:

2009 Depreciation expense of intangible assets 50Depreciation expense of structures 500Depreciation expense of plant and machinery 1,500Depreciation expense of investment property 50Total fixed assets depreciation expense 2,100

REQUIRED: Prepare the Cash Flow Statement of year 2009. SOLUTION During 2009, machinery that had a cost of 4,000 m.u. has been sold. The accumulated depreciation was 800 m.u. and the profit obtained in the sale was 400 m.u. This was the only sale of tangible fixed assets. Sale of machinery BV= 4000-800=3200 Selling price= 3200+400 = 3600 Short-term holdings in equity are a portfolio of stocks classified as held for trading. There has been no profit or loss due to a change in the fair value of these stocks. Long-term holdings in equity are a portfolio of stocks classified as available for sale. The portfolio includes 100 shares acquired in October of 2008 for a price of 24,5 m.u. per share. The fair value at the end of 2008 was 25 m.u. In June of 2009 half of the portfolio has been sold for a price of 28 m.u. per share. The fair value at the end of 2009 is 29 m.u.

(250) Long term holdings in equity 2.450 Purchase 50 Adjustment 150 Adjustment 200 Adjustment

1.400 Sale

1.450 Final balance

(133) Adjustments for changes in value

122,5 Sale

35 105 FV 140 FV

157,5Final balance

(479) Tax liability 52,5 Sale

15 45 60

67,5 Final balance

25

2009 transactions: Increase in value of the 50 shares that are going to be sold: N Debit Credit 250 Long term holdings in equity 150 900 Profits from available for sale financial assets 150 N Accounts Debit Credit 8301 Deferred tax 45 479 Tax liability for taxable temporary differences 45 Sale of 50 shares: N Debit Credit 572 Cash 1.400 250 Long term holdings in equity 1.400 N Debit Credit 802 Transfers of profits from available for sale financial

assets 175

7632 Profits from available for sale portfolio 175 N Accounts Debit Credit 479 Tax liability for taxable temporary differences 52,5 8301 Deferred tax 52,5 Change in fair value (50 shares than remain): N Debit Credit 250 Long term holdings in equity 200 900 Profits from available for sale financial assets 200 N Accounts Debit Credit 8301 Deferred tax 60 479 Tax liability for taxable temporary differences 60 Regularization of group 8 & 9 accounts: N Debit Credit 900 Profits from available for sale financial assets 150 8301 Deferred tax 45 1330 Adjustments for changes in value of financial instruments

available for sale 105

N Debit Credit 8301 Deferred tax 52,5 1330 Adjustments for changes in value of financial instruments

available for sale 122,5

802 Transfers of profits from available for sale financial assets

175

N Debit Credit 900 Profits from available for sale financial assets 200

26

8301 Deferred tax 60 1330 Adjustments for changes in value of financial instruments

available for sale 140

A new capital subvention has been received at the end of the year.

(130) Grants, donations and legacies 350 transfer 1.050 Previous grant

560 New grant

1.800 Final Balance

(479) Tax liability 150

450 240

540 Final balance N Debit Credit 4708 Receivable from public authorities 800 940 Revenues of official capital grants 800 N Accounts Debit Credit 8301 Deferred tax 240 479 Tax liability for taxable temporary differences 240 N Debit Credit 572 Cash 800 4708 Receivable from public authorities 800 Moreover, 500 have been transfer of the former grant: N Debit Credit 840 Transfer of official capital grants 500

746 Capital grants, donations, and legacies transferred to income for the year 500

N Accounts Debit Credit 479 Tax liability for taxable temporary differences 150 8301 Deferred tax 150 Regularization of group 8 & 9 accounts: N Debit Credit 940 Revenues of oficial capital grants 800 8301 Deferred tax 240 130 Grants, donations and legacies 560

27

N Debit Credit 8301 Deferred tax 150 130 Grants, donations and legacies 350 840 Transfer of official capital grants 500 The breakdown of the fixed assets depreciation expense is the following:

2009 Depreciation expense of intangible assets 50Depreciation expense of structures 500Depreciation expense of plant and machinery 1,500Depreciation expense of investment property 50Total fixed assets depreciation expense 2,100

Acquisitions of non-current assets: Initial

Balance - Dep expense

+/- impairment

- sales +purchases = Final Balance

Intangible 3050 -50 0 3000 Land and Structures

2500 - 500 3700 5700

Plant and machinery

11000 -1500 -3200 8700 15000

Investment property

2000 -50 -50 1900

28

A) CASH FLOWS FROM OPERATING ACTIVITIES 200X 1. Income before taxes 1.489 2. Adjustments to income 1.111

a) Depreciation of fixed assets (+). 2.100 b) Value corrections for impairment (+/-). 50 d) Transfer of grants (-). - 500 e) Income from disposal of non-current assets (+/-). - 400 f) Income from disposal of financial instruments (+/-). - 150 g) Financial revenues (-). - 75 h) Financial expenses (+). 111 j) Change in fair value of financial instruments (+/-). - 25

3. Changes in working capital - 620 a) Inventory (+/-). - 500 b) Accounts receivables and other receivables (+/-). 60 d) Accounts payables and other payables (+/-). - 180

4. Other cash flows from operating activities - 388 a) Cash payments of interests (-). - 101 b) Cash receipts of dividends (+). 50 c) Cash receipts of interests (+). 25 d) Cash receipts (payments) for income taxes (+/-). - 362

5. Cash flows from operating activities (+/-1+/-2+/-3+/-4) 1.592 B) CASH FLOWS FROM INVESTMENT ACTIVITIES 6. Cash payments for investments (-) - 12.500

c) Tangible fixed assets. - 12.400 e) Other financial assets. - 100

7. Cash receipts from disinvestments (+) 5.550 c) Tangible fixed assets. 3.600 e) Other financial assets. 1.950

8. Cash flows from investment activities (7-6) - 6.950 C) CASH FLOWS FROM FINANCING ACTIVITIES 9. Cash receipts and payments for equity instruments 6.100

a) Issuing of equity instruments (+). 5.300 e) Grants, donations and legacies received (+). 800

10. Cash receipts and payments for debt instruments - 1.000 a) Issuing of

2. Long term debt payable to credit institutions (+). - 1.000 11. Cash payments of dividends and remuneration of other equity instruments. - 525

a) Dividends (-). - 525 12. Cash flows from financing activities (+/-9+/-10-11) 4.575 E) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS - 783 Cash and equivalents at the beginning of the period 1.555 Cash and equivalents at the end of the period 772

29

EXERCISE 10 LESSON 7 From exam of course 0708 Company XYZ, Ltd. has prepared the following financial Statements at the end of 2009: ASSETS 2009 2008 LIABILITIES 2009 2008 A) NON-CURRENT ASSETS 199.500 163.750 A) EQUITY 190.050 123.140 II. Tangible fixed assets. 199.500 162.000 A-1) Shareholders' equity. 183.400 116.000 1. Land and structures. 161.100 124.000 I. Capital. 137.500 100.000 2. Plant and machinery, tools, furniture and other tangible assets. 38.400 38.000 1. Registered capital. 150.000 100.000

V. Long-term financial investments. - 1.750 2. (Uncalled subscribed capital). - 12.500 - 1. Holdings in equity. - 1.750 III. Reserves. 16.000 20.000 B) CURRENT ASSETS 64.985 29.450 1. Legal and statutory. 15.000 15.000 II. Inventories. 20.000 14.000 2. Other reserves. 1.000 5.000 1. Commercial (goods for sale). 20.000 14.000 VII. Income for the year. 29.900 - 4.000 III. Trade accounts receivables and other receivables. 15.000 5.000 A-2) Adjustments for changes in value. - 140

1. Trade accounts receivables for sale and services. 9.000 5.000 I. Financial instruments available for sale. - 140

4. Employee receivables. 6.000 - A-3) Grants, donations and legacies received. 6.650 7.000

VII. Cash and cash equivalents. 29.985 10.450 B) NON-CURRENT LIABILITIES 51.350 63.060 1. Cash. 29.985 10.450 II. Long-term debt. 48.500 60.000 TOTAL ASSETS 264.485 193.200 2. Long-term debt payable to credit institutions. 48.500 60.000 IV. Deferred tax liability 2.850 3.060 C) CURRENT LIABILITIES 23.085 7.000 III. Short-term debt. 13.500 - 2. Short-term debt payable to credit institutions. 13.500

V. Trade accounts payables and other payables. 9.450 7.000

1. Trade accounts payables for purchases and services. 600 6.500

5. Liability for current tax. 8.750 6. Other payables to public authorities. 100 500 VI. Short term accrual accounts. 135 TOTAL LIABILITIES 264.485 193.200

2009 A) CONTINUING OPERATIONS 1. Net turnover. 55.000 a) Sales. 55.000 4. Procurements. - 15.200 a) Consumption of goods for sale. - 15.200 5. Other operating revenues. 29.955 a) Accessory and other ordinary income. 26.000 b) Operating subventions included in income for the year. 3.955 6. Personnel expenses. - 8.000 a) Wages, salaries and similar expenses. - 8.000 7. Other operating expenses. - 1.200 a) Outside services. - 1.200 8. Fixed assets depreciation expense. - 14.000 9. Transfer of grants of non-financial non-current assets and others. 2.000 11. Impairment and income from disposal of non-current assets. - 1.000

30

b) Income from disposals and others. - 1.000 A.1) OPERATING INCOME (1+2+3+4+5+6+7+8+9+10+11) 47.555 12. Financial revenues. 45 b) From marketable securities and other financial instruments. 45 b 2) Of third parties. 45 13. Financial expenses. - 1.800 b) Of third parties. - 1.800 14. Change in fair value of financial instruments. 200 b) Transfer to income for the year for available for sale financial instruments. 200 A.2) FINANCIAL INCOME (12+13+14+15+16) - 1.555 A.3) INCOME BEFORE TAXES (A.1+A.2) 46.000 17. Income tax. - 16.100 A.4) INCOME FROM CONTINUING OPERATIONS (A.3+17) 29.900 A.5) INCOME FOR THE YEAR (A.4+18) 29.900 Additional information (transactions of 2009): 1. The losses of 2008 have been compensated against reserves. 2. The company has increased the capital stock at the beginning of 2009. 3. Long-term holdings in equity are a portfolio of stocks classified as available for sale that has been

sold in 2009. The increase in fair value of this portfolio was 200 in 2008. REQUIRED:

Register the operations of 2009 described in the additional information. Prepare the Statement of Changes in Equity of year 2009. Prepare the Cash Flow Statement of year 2009 (only cash flows from operations and cash

flows from financing activities). SOLUTION 1. The losses of 2008 have been compensated against reserves. N Accounts Debit Credit 112 Voluntary reserves 4,000 129 Income for the year (X-1) 4,000 2. The company has increased the capital stock at the beginning of 2009. N Accounts Debit Credit 103 Uncalled subscribed capital receivable 12,500 572 Cash 37,500 100 Capital stock 50,000 3. Long-term holdings in equity are a portfolio of stocks classified as available for sale that has

been sold in 2009. The increase in fair value of this portfolio was 200 in 2008. Sale: N Debit Credit 572 Cash 1,750 250 Long term holdings in equity 1,750 N Debit Credit

31

802 Transfers of profits from available for sale financial assets

200

7632 Profits from available for sale portfolio 200 N Accounts Debit Credit 479 Tax liability for taxable temporary differences 60 8301 Deferred tax 60 Regularization of group 8 & 9 accounts: N Debit Credit 8301 Deferred tax 60 1330 Adjustments for changes in value of financial instruments

available for sale 140

802 Transfers of profits from available for sale financial assets

200

FROM THE BALANCE SHEET AND INCOME STATEMENT: A new capital grant has been received at the end of the year, and a portion of a previous capital grant has been transferred to income.

(130) Grants, donations and legacies 1,400 transfer 7,000 Previous

grant 1,050 New grant (net of taxes)

6,650 Final Balance

(479) Tax liability 600 3,000

450 2,850 Final balance N Accounts Debit Credit 572 Cash 1,500 940 Revenues of official capital grants 1,500 N Accounts Debit Credit 8301 Deferred tax 450 479 Tax liability for taxable temporary differences 450 N Accounts Debit Credit 940 Revenues of official capital grants 1,500 8301 Deferred tax 450 130 Official capital grants 1,050 Transfer of a portion of the capital grants from previous years: N Accounts Debit Credit 840 Transfers of official capital grants 2,000

32

746 Capital grants, donations and legacies transferred to income for the year 2,000

N Accounts Debit Credit 479 Tax liability for taxable temporary differences 600 8301 Deferred tax 600 N Accounts Debit Credit 8301 Deferred tax 600 130 Official capital grants 1,400 840 Transfers of official capital grants 2,000

STATEMENT OF RECOGNIZED REVENUES AND EXPENSES

2009

A) Income for the year 29900

Revenues and expenses recognized directly in equity

I. From valuation of financial instruments

1. Gains/losses from available for sale financial assets

2. Other revenues/expenses

II. From hegding operations

III. Grants, donations and legacies 1500

IV. From actuarial gains and losses and other adjustments

V. Tax effect (450) B) Total revenues and expenses recognized directly in equity (I+II+III+IV+V) 1050

Transfers to the income statement

VI. From valuation of financial instruments

1. Revenues/expenses from available for sale financial assets -200

2. Other revenues/expenses

VII. From hegding operations

VIII. Grants, donations and legacies -2000

IX. Tax effect 660

C) Total transfers to the income statement (VI+VII+VIII+IX) -1540

TOTAL RECOGNIZED REVENUES AND EXPENSES (+A+B+C) 29410

33

Capital

STATEMENT OF ALL CHANGES IN EQUITY Registered Uncalled

Additional paid-in capital

Reserves Prior years' income Other

owners' contributions

Income for the year

(Dividend paid in

advance)

Adjustments for changes in

value

Grants, donations

and legacies received

TOTAL

C. BALANCE, END OF YEAR 200X 1 100.000 20.000 -4.000 140 7.000 123.140 I. Adjustments for changes in accounting policies, 200X-1. II. Adjustments for errors, 200X-1. D. ADJUSTED BALANCE, BEGINNING OF YEAR 200X 100.000 20.000 - 4.000 140 7.000 123.140 I. Total recognized revenues and expenses. 29.900 -140 -350 29.410 II. Transactions with equity holders. 1. Capital increases. 50.000 -12.500 37.500 2. ( - ) Capital reductions. 3. Conversion of financial liabilities in equity.

(conversion of debentures, debts writting off).

4. ( - ) Dividends distributions. - 5. Transactions with the entity's shares (net).

6. Increase (reduction) of equity from a business combination.

7. Other transactions with equity holders - III. Other changes in equity. - 4.000 4.000 0 E. BALANCE, END OF YEAR 200X 150.000 -12.500 16.000 - 29.900 - 0 6.650 190.050

34

A) CASH FLOWS FROM OPERATING ACTIVITIES 200X 1. Income before taxes 46.000 2. Adjustments to income 14.555

a) Depreciation of fixed assets (+). 14.000 b) Value corrections for impairment (+/-). c) Change in provisions (+/-). d) Transfer of grants (-). - 2.000 e) Income from disposal of non-current assets (+/-). 1.000 f) Income from disposal of financial instruments (+/-). g) Financial revenues (-). - 45 h) Financial expenses (+). 1.800 i) Exchange differences (+/-). j) Change in fair value of financial instruments (+/-). - 200 k) Other revenues and expenses (-/+).

3. Changes in working capital - 16.300 a) Inventory (+/-). - 6.000 b) Accounts receivables and other receivables (+/-). - 4.000 c) Other current assets (+/-). d) Accounts payables and other payables (+/-). - 6.300 e) Other current liabilities (+/-). f) Other non-current assets and liabilities (+/-).

4. Other cash flows from operating activities - 8.970 a) Cash payments of interests (-). - 1.800 b) Cash receipts of dividends (+). c) Cash receipts of interests (+). 180 d) Cash receipts (payments) for income taxes (+/-). - 7.350 e) Other cash payments (receipts) (-/+)

5. Cash flows from operating activities (+/-1+/-2+/-3+/-4) 35.285 C) CASH FLOWS FROM FINANCING ACTIVITIES 9. Cash receipts and payments for equity instruments 39.000

a) Issuing of equity instruments (+). 37.500 b) Amortization of equity instruments (-).

c) Acquisition of the own equity instruments (-). d) Disposal of the own equity instruments (+). e) Grants, donations and legacies received (+). 1.500

10. Cash receipts and payments for debt instruments 2.000 a) Issuing of

1. Debentures and other negotiable securities (+). 2. Long term debt payable to credit institutions (+). 3. Long term debt payable to subsidiaries and associated companies (+). 4. Other debt (+). 13.500

b) Refunds and amortization of 1. Debentures and other negotiable securities (-). 2. Long term debt payable to credit institutions (-). 3. Long term debt payable to subsidiaries and associated companies (-). 4. Other debt (-). - 11.500

11. Cash payments of dividends and remuneration of other equity instruments. - a) Dividends (-). b) Remuneration of other equity instruments (-).

12. Cash flows from financing activities (+/-9+/-10-11) 41.000 D) Effect of changes in exchange rates E) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 19.535 Cash and equivalents at the beginning of the period 10.450 Cash and equivalents at the end of the period 29.985

35

EXERCISE 11 LESSON 7 From exam of course 0708 Company RST, Ltd. provides the following information at the end of 2009: ASSETS 2009 2008 EQUITY AND LIABILITIES 2009 2008 A) NON-CURRENT ASSETS 6,750 8,300 A) EQUITY 8,746 7,350 II. Tangible fixed assets. 6,750 7,300 A-1) Shareholders equity. 8,431 7,000 2. Plant and machinery, Tools, furniture and other tangible fixed assets. 6,750 7,300 I. Capital. 6,550 6,000

III. Investment property 1,000 1. Registered capital. 6,550 6,000 1. Land 1,000 III. Reserves. 850 700 B) CURRENT ASSETS 7,575 5,560 1. Legal and statutory. 850 700 II. Inventories. 1,500 2,200 VII. Income for the year. 1,031 400 1. Comercial (goods for sale). 1,500 2,200 VIII. (Dividend paid in advance) (100)

III. Trade accounts receivables and other receivables. 2,700 2,250 A-3) Grants, donations and legacies received. 315 350

1. Trade accounts receivables for sale and services. 2,700 2,250 B) NON-CURRENT LIABILITIES 1,859 1,474 V. Short-term financial investments. 525 II. Long-term debt. 1,724 1,324

1. Holdings in equity. 525 2. Long term debt payable to credit institutions. 1,024 1,324

VI. Accrual accounts. 10 5 5. Other financial liabilities. 700 VII. Cash and cash equivalents. 2,840 1,105 IV. Deferred tax liability 135 150 1. Cash. 2,840 1,105 C) CURRENT LIABILITIES 3,720 5,036 III. Short-term debt. 700 1,220

2. Short term debt payable to credit institutions. 700 1,220

V. Trade accounts payables and other payables. 3,020 3,816

1. Trade accounts payables for purchases. 2,250 2,950 3. Sundry accounts payable. 580 750 TOTAL ASSETS 14,325 13,860 5. Liability for current tax. 190 116 TOTAL EQUITY AND LIABILITIES 14,325 13,860

Income for the year 2009 has the following components: ACCOUNT AMOUNTChange in inventory of goods for sale 700Grants, donations and legacies transferred to income for the year 50

Income tax expense 200Interest of debt from financial institutions 1,020Losses for uncollective accounts 50Losses from impairment of trade accounts receivable 50Operating grants, donations and legacies 176Profits from disposal of investment property 500Profits from disposal of tangible fixed assets 50Profits from held for trading portfolio 25Purchase of goods for sale 20,000Revenue form holdings in equity instruments, other companies 50

Sale of goods for sale 30,500Sale returns of goods for sale 500Social security in charge of the company 1,000Supplies 600Tangible fixed assets depreciation expense 1,200

36

Wages and salaries 5,000 Additional information (transactions of 2009): 1.- The distribution of income of 2008 has been the following: reserves: 150; dividends: 250. 2.- A machinery has been sold for 100 m.u. during 2009. The acquisition value of the machinery was 250 m.u. and the accumulated depreciation in the moment of the sale was 200 m.u. Moreover, a new machinery was bought at the end of the year. 3.- Investment property (land) has been sold as well. 4.- The capital grant was obtained and received in cash at the end of 2008. The grant was received to finance the acquisition of new equipment that has an annual depreciation expense of 50 m.u. 5.- Accrual accounts in the current assets are interest expenses paid in advance. 6.- During 2009 the company has bought an investment in shares of the BBVA that has been classified as held for trading. 7.- The company has increased the capital stock at the beginning of 2009. REQUIRED:

Prepare the Income Statement of year 2009. Prepare the Statement of Changes in Equity of year 2009. Prepare the Cash Flow Statement of year 2009.

37

SURNAME____________________________________ NAME_____________ D.N.I._________________

INCOME STATEMENT (Debit) Credit 2009 A) CONTINUING OPERATIONS 1. Net turnover. 30,000 a) Sales. 30,000 b) Services rendered. 2. Change in inventory of finished goods and work-in process. 3. Work performed for own assets. 4. Procurements. -20,700 a) Consumption of goods for sale. -20,700 b) Consumption of raw materials and other consumables. c) Work performed by other companies. d) Impairment of goods for sale, raw materials and other consumables. 5. Other operating revenues. 176 a) Accessory and other ordinary income. b) Operating subventions included in income for the year. 176 6. Personnel expenses. -6,000 a) Wages, salaries and similar expenses. -5,000 b) Employee welfare expenses. -1,000 c) Provisions. 7. Other operating expenses. -700 a) Outside services. -600 b) Taxes other than income tax. c) Losses, impairment and change in provisions for trade operations. -100 d) Other operating expenses. 8. Fixed assets depreciation expense. -1,200 9. Transfer of grants of non-financial non-current assets and others. 50 10. Excess of provisions. 11. Impairment and income from disposal of non-current assets. 550 a) Impairment and losses. b) Income from disposals and others. 550 A.1) OPERATING INCOME (1+2+3+4+5+6+7+8+9+10+11) 2,176

38

12. Financial revenues. 50 a) From holdings in equity instruments. a1) Of subsidiaries and associated companies. a2) Of third parties. 50 b) From marketable securities and other financial instruments. b 1) Of subsidiaries and associated companies. b 2) Of third parties. 13. Financial expenses. -1,020 a) Of subsidiaries and associated companies. b) Of third parties. -1,020 c) From capitalization of provisions. 14. Change in fair value of financial instruments. 25 a) Held for trading and others. 25 b) Transfer to income for the year for available for sale financial instruments. 15. Exchange diferences. 16. Impairment and income from disposal of financial instruments. a) Impairment and losses. b) Income from disposals and others. A.2) FINANCIAL INCOME (12+13+14+15+16) -945 A.3) INCOME BEFORE TAXES (A.1+A.2) 1,231 17. Income tax. -200 A.4) INCOME FROM CONTINUING OPERATIONS (A.3+17) 1,031 B) DISCONTINUED OPERATIONS 18. Post-tax income of discontinued operations. A.5) INCOME FOR THE YEAR (A.4+18) 1,031

39

SURNAME____________________________________ NAME_____________ D.N.I._________________

STATEMENT OF RECOGNIZED REVENUES AND EXPENSES 2009

A) Income for the year 1,031

Revenues and expenses recognized directly in equity

I. From valuation of financial instruments

1. Gains/losses from available for sale financial assets

2. Other revenues/expenses

II. From hegding operations

III. Grants, donations and legacies

IV. From actuarial gains and losses and other adjustments

V. Tax effect B) Total revenues and expenses recognized directly in equity (I+II+III+IV+V)

Transfers to the income statement

VI. From valuation of financial instruments

1. Revenues/expenses from available for sale financial assets

2. Other revenues/expenses

VII. From hegding operations

VIII. Grants, donations and legacies -50

IX. Tax effect 15

C) Total transfers to the income statement (VI+VII+VIII+IX) -35

TOTAL RECOGNIZED REVENUES AND EXPENSES (+A+B+C) 996

40

Capital

STATEMENT OF ALL CHANGES IN EQUITY

Registered Uncalled

Additional paid-in capital

Reserves Prior years' income Other

owners' contributions

Income for the year

(Dividend paid in

advance)

Other equity

instruments

Adjustments for changes in

value

Grants, donations and

legacies received

TOTAL

C. BALANCE, END OF YEAR 2008 6,000 700 400 -100 350 7,350 I. Adjustments for changes in accounting policies, 2008 II. Adjustments for errors, 2008 D. ADJUSTED BALANCE, BEGINNING OF YEAR 2009 6,000 700 400 0 -100 350 7,350 I. Total recognized revenues and expenses. 1,031 -35 996 II. Transactions with equity holders. 1. Capital increases. 550 550 2. ( - ) Capital reductions. 3. Conversion of financial liabilities in equity. (conversion of debentures, debts writting off).

4. ( - ) Dividends distributions. -250 100 -150 5. Transactions with the entity's shares (net). 6. Increase (reduction) of equity from a business combination. 7. Other transactions with equity holders. III. Other changes in equity. 150 -150 0 E. BALANCE, END OF YEAR 2009 6,550 850 0 1,031 0 315 8,746

41

A) CASH FLOWS FROM OPERATING ACTIVITIES 1. Income before taxes 1.2312. Adjustments to income 1.545

a) Depreciation of fixed assets (+). 1.200b) Value corrections for impairment (+/-). c) Change in provisions (+/-). 0d) Transfer of grants (-). -50e) Income from disposal of non-current assets (+/-). -550f) Income from disposal of financial instruments (+/-). 0g) Financial revenues (-). -50h) Financial expenses (+). 1.020i) Exchange differences (+/-). j) Change in fair value of financial instruments (+/-). -25k) Other revenues and expenses (-/+).

3. Changes in working capital -620a) Inventory (+/-). 700b) Accounts receivables and other receivables (+/-). -450c) Other current assets (+/-). 0d) Accounts payables and other payables (+/-). -870e) Other current liabilities (+/-). 0f) Other non-current assets and liabilities (+/-).

4. Other cash flows from operating activities -1.101a) Cash payments of interests (-). -1.025b) Cash receipts of dividends (+). 50c) Cash receipts of interests (+). 0d) Cash receipts (payments) for income taxes (+/-). -126e) Other cash payments (receipts) (-/+)

5. Cash flows from operating activities (+/-1+/-2+/-3+/-4) 1.055B) CASH FLOWS FROM INVESTMENT ACTIVITIES 6. Cash payments for investments (-) -500

a) Subsidiaries and associated companies. b) Intangible assets. c) Tangible fixed assets. d) Investment property. e) Other financial assets. -500f) Non-current assets held for sale. g) Other assets.

7. Cash receipts from disinvestments (+) 1.600a) Subsidiaries and associated companies. b) Intangible assets. c) Tangible fixed assets. 100d) Investment property. 1.500e) Other financial assets. f) Non-current assets held for sale. g) Other assets.

8. Cash flows from investment activities (7-6) 1.100

42

C) CASH FLOWS FROM FINANCING ACTIVITIES 9. Cash receipts and payments for equity instruments 550

a) Issuing of equity instruments (+). 550b) Amortization of equity instruments (-).

c) Acquisition of the own equity instruments (-). d) Disposal of the own equity instruments (+). e) Grants, donations and legacies received (+).

10. Cash receipts and payments for debt instruments -820a) Issuing of

1. Debentures and other negotiable securities (+). 2. Long term debt payable to credit institutions (+). 3. Long term debt payable to subsidiaries and associated

companies (+).

4. Other debt (+). b) Refunds and amortization of

1. Debentures and other negotiable securities (-). 2. Long term debt payable to credit institutions (-). -8203. Long term debt payable to subsidiaries and associated

companies (-).

4. Other debt (-). 11. Cash payments of dividends and remuneration of other equity instruments. -150

a) Dividends (-). -150b) Remuneration of other equity instruments (-).

12. Cash flows from financing activities (+/-9+/-10-11) -420D) Effect of changes in exchange rates E) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 1.735Cash and equivalents at the beginning of the period 1.105Cash and equivalents at the end of the period 2.840