A86045 Accoun,ng and Financial Repor,ng (2016/2017)

A86045Accoun,ngandFinancialRepor,ng(2016/2017)

Session7ReviewSession

PaulG.SmithB.A.,F.C.A.

SESSION7OVERVIEW

A86045Accoun,ngandFinancialRepor,ng 2

Session4Overview

Mins

Sessionoverviewandobjec,ves 5

Reviewofpre-workandsessions1-6recap 5

Doubleentrybookkeeping 15

FinancialStatementsunderIAS1 15

Ra,oanalysis,trendanalysis,commonsizeanalysis 45

Revenues 25

Costsandexpenses 15

Requiredreadingandassignmentfornextsession 5

Summaryandvalida,on,overviewofsession5 5

135

3A86045Accoun,ngandFinancialRepor,ng

CourseObjec,ves


Attheendofthiscoursestudentswillbeableto:•  Readandperformahighlevelinterpreta2onofthefinancialstatementsofcompaniesapplyinginterna9onalaccoun9ngstandards

•  Iden2fyandevaluatetheimpactonacompaniesaccountsofalterna9veaccoun9ngmethods

•  Carryoutahighlevelassessmentofthetheeconomic-financialposi9onofacompanyrepor9ngunderIAS/IFRS.

CourseOverview


1.Financialrepor,ngunderIFRS 14.Midtermtest

2.Financialanalysisandra,os 15.Accountsreceivable

3.Financialanalysisandra,os-cont’d 16.Inventories

4.Revenues 17.Construc,oncontracts

5.Costsandexpenses 18.Reviewsession

6.Non-currentassets-Intangibleassets 19.Taxa,on(directandindirect)

7.Reviewsession 20.OtherNon-financialliabili,es

8.Non-currentassets-Tangibleassets 21.CashFlowStatement

9.Financialleases 22.Reviewsession

10.Reviewsession 23.Groupaccounts

11.Impairmentofassets 24.Reviewsession

12.Non-currentfinancialassets/liabili,es 25.Businesscombina,ons

13Reviewsession 26.Finaltest

SESSION1-6RECAPANDPRE-WORK


Sessions1-3Summary

•  The4basicfinancialstatements,presenta,onop,onsandbasicunderlyingassump,ons

•  Linkagesbetweenthefinancialstatements•  Basicbookkeeping•  Financialanalysis,ra,oanalysis,commonsizeanalysisandtrendanalysis

•  Importanceofindustrycontextandunderstanding


Session4Summary

•  Revenues–largestnumberintheincomestatementandtheareamostsuscep,bletomanipula,on

•  Fivestepapproachtorevenuerecogni,on•  Importanceofindustrycontextandunderstanding

•  Frameworkforrevenuerecogni,on•  IFRS15,IAS18andIAS11


Session5Summary

•  Classifica,onofcosts/expensesbynatureorbydes,na,on

•  Costofgoodssold•  Othercosts/expenses–accruals/deferrals•  Employeeexpenses– Payroll– Pensions– Stockop,ons


Session6Summary•  Intangiblesdefini,on/examples•  Criteriaforrecogni,onandmeasurementc.f.Apple

•  Finitevs.Indefiniteandusefullifeconsidera,ons•  DifferentTypes– Acquired– Goodwillandbusinesscombina,ons–  Internallygenerated– Governmentgrant,exchanges(FairValue)

•  Industrycomparison


BOOKKEEPING


Bookkeeping•  1.Incometaxchargefortheyearof€250,000•  2.Creditsaleofgoodsfor€500,000•  3.Goodsreturnedbycustomerfor€50,000andingood

condi,on.•  4.Legalexpensesincurredbyacompanybutnotyetbilled

byitslawyerfor€7,500•  5.Adver,singexpensesincurredforanadver,sing

campaignthatstartsthefollowingyear•  6.Paymentbychequeofasuppliersinvoicefor€25,000•  7.Banktransferreceivedfromcustomerinpaymentofits

outstandingbalanceof€50,000•  8.Purchaseofplant&equipmentoncreditfor€100,000


FINANCIALSTATEMENTS


FinancialStatements

•  Statementofprofitorlossandothercomprehensiveincome(Bynatureorbydes,na,on)

•  Statementoffinancialposi,on(Current/Non-currentdis,nc,onorLiquidity)

•  Statementofchangesinshareholders’equity•  Statementofcashflows(Directorindirectmethod)

•  NotestothefinancialstatementsA86045Accoun,ngandFinancial

Repor,ng 14

GoodGroup(Interna,onal)Limited•  Consolidatedstatementofprofitorloss

(expensesbyfunc,on)•  Consolidatedstatementofprofitorloss

(expensesbynature)•  Consolidatedstatementofother

comprehensiveincome•  Consolidatedstatementoffinancial

posi,on•  Consolidatedstatementofchangesin

equity•  Consolidatedstatementofcashflows

(indirectmethod)•  Consolidatedstatementofcashflows

(directmethod)•  Indextonotestotheconsolidated

financialstatements


IFRS Core Tools

Good Group (International) LimitedIllustrative consolidated financial statements for the year ended 31 December 2015

International GAAP®

Source:www.ey.comIFRSCoreToolsLibrary

FINANCIALANALYSIS


Ra,oanalysisCS3–GoodGroup


ResearchassignmenttemplateCompanyGoodGroup %Change %Change %Change

OnPY 2015 OnPY 2014 OnPY 2015 2014IncomeStatement StatementoffinancialposiNon €millions €millions

€millions €millions Non-currentassetsNetsales 14% 161,927 #DIV/0! 142,551 Goodwil #DIV/0!Otherrevenues 3% 18,535 #DIV/0! 17,914 Intangibleassets 145% 6,019 2,461

Totalrevenues 12% 180,462 #DIV/0! 160,465 Property,plant&equipment 36% 32,979 24,329Costofsales 6% (136,549) #DIV/0! (128,386) Investments 27% 3,187 2,516

Grossprofit 37% 43,913 #DIV/0! 32,079 Investmentproper,es 11% 8,893 7,983Opera,ngexpenses #DIV/0! #DIV/0! Deferredtaxes 5% 383 365Research&development #DIV/0! #DIV/0! Other 84% 6,425 3,491Selling,generalandadministra,veexpenses 29% (32,429) #DIV/0! (25,120) 41% 57,886 41,145Deprecia,on,ammor,za,onandprovisions #DIV/0! #DIV/0! CurrentassetsOtherincome(expense) -105% (118) #DIV/0! 2,195 Inventories/Long-termcontracts -3% 23,762 24,585

Opera9ngprofit 24% 11,366 #DIV/0! 9,154 Tradereceivables 15% 25,672 22,290Financeincome(expense) 2% (928) #DIV/0! (912) Loansandadvancestocustomers #DIV/0!Shareofresultofassociatedcompanies 5% 671 #DIV/0! 638 Othercurrentassets 48% 244 165

Pre-taxprofit 25% 11,109 #DIV/0! 8,880 Short-terminvestments 260% 551 153Incometax 39% (3,098) #DIV/0! (2,233) Cash 15% 17,112 14,916

Netprofitcon9nuingopera9ons 21% 8,011 #DIV/0! 6,647 Assetsheldfordisposal #DIV/0! 13,554 Discon,nuedopera,ons -217% 220 #DIV/0! (188) 30% 80,895 62,109

Netprofit 27% 8,231 #DIV/0! 6,459Totalassets 34% 138,781 103,254

ProfitabilityGrossmargin(Grossprofit/Revenues) % CurrentliabiliNesOpera,ngmargin(Opera,ngprofit/Revenues) % Short-termBorrowings 79% 5,500 3,078Netprofitmargin(Netprofit/Revenues) % Tradepayables -6% 19,444 20,730Returnonequity(Netprofit/Shareholders'equity) % Consumercreditfinance #DIV/0!ReturnonCapitalemployed(PBIT/Shareholders'equity+Long-termdebt) % Incometaxes -1% 3,511 3,563

Provisions 767% 850 98Liquidity Othercurrentliabili,es 122% 779 351Currentra,o(Currentassets/Currentliabili,es) Ra,o:1 Liabili,esheldfordisposal #DIV/0! 13,125 Quickra,o(Currentassets-inventory/Currentliabili,es) Ra,o:1 55% 43,209 27,820

Non-currentliabiliNesEfficiencyraNos Long-termBorrowings -3% 21,152 21,703AssetTurnover(Sales/Non-currentassets) Times Provisions 2432% 1,950 77Inventoryholdingperiod(DOI)(Costofsales/inventoryx365) Days Consumercreditfinance #DIV/0!Inventoryturnover(Costofsales/inventory) Times Pensionsandemployeebenefits 2% 3,050 2,977Tradereceivablescollec,onperiod(DSO) Days Other 132% 6,690 2,886Tradepayablepaymentperiod(DPO) Days 32,842 27,643

Shareholders'equity 31% 62,730 47,791InvestmentraNos Totalequityandliabili,es 34% 138,781 103,254Earningspershare(EPS)(Netincome/Weightedaveragenumberofsharesoutstanding) CurrencyPriceEarningsra,o(P/E)(Shareprice/EPS) TimesDividendcover(Earningspershare/Dividendpershare Times Numberofsharesoutstanding 9% 20,797,000 19,064,000Dividendyield(Dividendpershare/Shareprice) % Shareprice 45% 32.00 22.00Debt/Equityra,o(Gearing)/Long-termdebt/Shareholders'equity) Ra,o Marketcapitaliza,on 59% 665,504,000 419,408,000Interestcover(Profitbeforeinterestandtaxa,on/interestexpense) Times Dividendpershare -5% 0.97 1.01

OtherEffec,vetaxrate(Incometaxexpense/Profitbeforetaxa,on)*-1 %R&Dasa%ofrevenues(R&Dexpenses/Sales) %Intangiblesasa%oftotalassets(Goodwillandintangibleassets/Totalassets) %Intangiblesasa%ofequity(GoodwillandIntangibleAssets/Shareholders'equity) %Marketcapitaliza,onasa%shareholders'equity %

TrendanalysisCS1


€000's %Change 2013 %Change 2012 2011 %Change 2013 2012Incomestatement onPY onPY StatementoffinancialposiNon onPY

Non-currentassetsRevenuesfromsalesandservices 1% 6,146,160 7% 6,071,535 5,654,793 Goodwill -1% 913,018 918,689Otherincome 4% 252,309 72% 241,630 140,354 Intangibleassets -3% 100,961 103,795

ChangeininventoriesofWIPandFinishedgoods -89% 7,804 -54% 73,119 160,011 Property,plant&equipment -1% 2,608,448 2,623,444

Rawmaterials(netofchangeininventories) -2% -(2,282,963) -5% -(2,330,139) -(2,448,937) Deferredtaxes 1% 210,181 207,110Personnelexpenses 1% -(1,211,761) 7% -(1,205,608) -(1,123,507) Other -2% 597,915 610,803

Amor,za,on,deprecia,onandimpairment 5% -(296,492) 22% -(282,246) -(230,917) -1% 4,430,523 4,463,841Othercosts 2% -(1,827,550) 14% -(1,791,671) -(1,574,011) Currentassets

Addi,onstoProperty,plantandequipment -16% 3,507 2% 4,171 4,080 Inventories -10% 987,318 1,102,560 Tradereceivables -5% 666,427 704,558

Opera,ngincome 1% 791,014 34% 780,791 581,866 Othercurrentassets -38% 396,047 642,070Cash 29% 879,897 679,794

Netincome(loss)fromequityinvestments 50% -(78,298) 202% -(52,247) -(17,318) -6% 2,929,689 3,128,982Financialincome 51% 64,787 -24% 43,012 56,673Financialexpense 51% -(260,619) 18% -(172,483) -(146,113) Totalassets 7,360,212 7,592,823

Netincomebeforetax -14% 516,884 26% 599,073 475,108 CurrentliabiliNes

Borrowings -28% 316,653 440,526Incometax 5% -(210,392) 483% -(200,837) -(34,457) Tradepayables -2% 1,244,466 1,268,683

Provisions -19% 90,089 110,839Netincome -23% 306,492 -10% 398,236 440,651 Othercurrentliabili,es -3% 571,468 591,513

-8% 2,222,676 2,411,561Non-currentliabiliNes

Profitability Provisions -18% 116,745 142,230Grossmargin Pensionsandemployeebenefits -16% 439,450 522,957Opera,ngmargin Borrowings 1% 2,014,406 1,995,775Netprofitmargin Other 0% 130,346 130,871Returnonequity -3% 2,700,947 2,791,833ReturnonCapitalEmployed Shareholders'equity 2% 2,436,589 2,389,429

Totalequityandliabili,es 7,360,212 7,592,823LiquidityCurrentra,o Numberofsharesoutstanding 442,790 492,197Quickra,o Weightedaveragenumbero/s 475,389 475,389

SharepriceDec31 12.6 8.7Efficiency Dividendpershare 0.32 0.27AssetTurnover Marketcapitaliza,on 5,570,300 4,257,500InventoryholdingperiodInventoryturnover Costofsales 0 0Tradereceivablecollec,onperiod(DSO) R&DExpenses 3% 205,500 199,200Tradepayablepaymentperiod(DPO)

InvestmentraNosEarningpershare(EPS)Price/earningsra,o(P/E)DividendcoverDividendYieldDebt/equityra,on(Gearing)Interestcover

OtherEffec,vetaxrateIntangiblesasa%oftotalassetsIntangiblesasa%ofequityR&Dasa%ofrevenue

CommonsizeanalysisCS2


CompanyA CompanyB CompanyA CompanyB2013 2012 2013 2012 2013 2012 2013 2012

Consolidatedincomestatements $millions $millions £millions £millions Assets $millions $millions £millions £millionsRevenues 58,831 57,561 26,505 26,431 Cashandcashequivalents 6,687 5,552 5,534 4,184Costofsales (19,608) (18,756) (8,585) (7,925) Marketablesecuri,es 2,535 2,567 66 81Grossprofit 39,223 38,805 17,920 18,506 Receivables 9,902 10,051 5,442 5,242R&Dexpenditure (9,852) (9,332) (3,923) (3,979) Inventories 7,267 6,744 3,900 3,969SG&Aexpenses (17,609) (17,290) (8,480) (8,789) Othercurrentassets 3,392 3,090 284 152Otherincome(expense) (852) (990) 1,511 1,562 Assetsheldfordisposal 759 1 64IncomefromoperaNons 10,910 11,193 7,028 7,300 Totalcurrentassets 30,542 28,004 15,227 13,692interestincome (92) (96) 61 79Interestexpense (683) (724) (767) (808) Property,plant&equipment 18,197 16,939 8,872 8,776Income(loss)frominvestmentsaccountedforusingtheequitymethod 600 552 325 29 Goodwill 31,026 31,090 4,205 4,359

Incomebeforetaxes 10,735 10,925 6,647 6,600 Otherintangibleassets 27,841 30,331 9,283 10,161Incometaxes (1,443) (1,542) (1,019) (1,922) Investmentsinequityaccountedcompanies 9,225 8,840 323 579NetincomefromconNnuingoperaNons 9,292 9,383 5,628 4,678 Deferredtaxes 7,375 7,365 2,084 2,391Discon,nuedopera,ons Othernon-currentassets 2,048 1,622 2,092 1,523

Netincome 9,292 9,383 5,628 4,678 Totalassets 126,254 124,191 42,086 41,481ConsolidatedstatementsofcomprehensiveincomeForeigncurrencytransla,onadjustments 681 701 (290) (226)Unrealizedgains(losses)onavailable-for-salesecuri,es 132 75 322 58Pensionandothepost-re,rementbenefits 1,504 (1,581) 561 (492)Unrealizedgains(losses)ofcashflowhedgederiva,ves 41 41 (6) (4) Accountspayable 6,148 5,593 2,739 2,666

Totalothercomprehensiveincome Short-termdebt/currentpor,onofL/Tdebt 6,776 5,945 2,789 3,6312,358 (764) 587 (664) Otherprovisions 10,935 10,443 992 693

Totalcomprehensiveincome 11,650 8,619 6,215 4,014 Othercurrentliabili,es 2,459 2,070 7,157 6,825Liabili,esheldfordisposal 50

TotalcurrentliabiliNes 26,368 24,051 13,677 13,815ProfitabilityGrossMarginOpera,ngmargin Long-termdebt 11,242 13,781 15,456 14,671Netprofitmargin Pensionandotheremployeebenefits 2,189 3,121Returnoncapitalemployed Deferredtaxes 6,904 7,286 693 1,004Returnonequity Provisions 7,268 9,810 552 699

Othernon-currentliabili,es 1,707 1,434Liquidity TotalliabiliNes 51,782 54,928 34,274 34,744Currentra,oQuickra,o Stockholders'equity 74,343 69,137 6,997 5,800

Noncontrollinginterests 129 126 815 937Efficiency Totalstockholders'equity 74,472 69,263 7,812 6,737AssetturnoverInventoryholdingperiod Totalliabili,esandstockholders'equity 126,254 124,191 42,086 41,481InventoryturnoverTradereceivablescollec,onperiod(DSO)Tradepayablespayableperiod(DPO) Marketcapitaliza,onCHF/£ 194,157 151,998 78,240 65,470

DividendCHF/£ 2.45 2.30 0.78 0.74Investmernt Shareprice 80.38 63.30 16.12 13.35Earningspershare(EPS)Price/earningsra,oDividendcover USD 1.124 1.093DividendyieldDebt/Equity(Gearing)Interestcover

OtherEffec,vetaxrateIntangiblesasa%oftotalassetsIntangiblesasa%ofequityR&Dasa%ofrevenues

REVENUES


COSTSANDEXPENSES


SUMMARY,VALIDATIONANDPRE-WORKSESSION7


Valida,onSessions1-6•  RegulatoryFramework(Chapter1)•  IASBConceptualFramework(Chapter2)•  Presenta,onofFinancialStatements(Chapter3)•  Accoun,ngPolicies,Accoun,ngEs,matesandErrors(Chapter4)

•  RelatedPar,es,ChangesinForeignCurrencies(Chapter21)

•  Ra,oAnalysis(Chapter22)•  EarningsPerShare(Chapter23)•  SegmentalAnalysis(Chapter24)


Valida,onSessions1-6–cont’d

•  Revenuesfromcontractswithcustomers(Chapter13)

•  Employeebenefits(Chapter14)•  Intangibleassets(Chapter6)


SessionValida,on


Home Multiple choice questions Chapter 1: The regulatory framework

Chapter 1: The regulatory framework

Try the following multiple choice questions to test your knowledge of this chapter. Once you

have answered the questions, click on 'Submit Answers for Grading' to get your results.

This activity contains 12 questions.

The sources of regulation which comprise the regulatory framework forfinancial reporting include:

Stock exchange regulations

Legislation

Accounting standards

All of the above

"Accounting standards set out the broad rules which govern financialreporting but do not lay down the detailed accounting treatments oftransactions and other items". True or False?

True False

The abbreviation "GAAP" stands for:

Generally accepted accounting practice

Globally accepted accounting principles

Globally accepted accounting practice

Generally accepted accounting principles

Standards issued by the International Accounting Standards Board(IASB) are known as:

International Financial Standards (IFSs)

International Accounting Standards (IASs)

International Financial Reporting Standards (IFRSs)

Financial Reporting Standards (FRSs)

The body to which the International Accounting Standards Board is

Source:www.pearsoned.co.uk/melville)

OverviewofSession8

•  TangibleFixedAssets– Acquiredvsconstructed– Capitalvs.revenueexpenditures–  Interest– GovernmentGrants– Deprecia,on– Revalua,ons– Leasing-briefly


Session8Pre-work

•  Reading– MelvilleInterna,onalFinancialRepor,ngAPrac,calGuide:•  Chapter5–Property,plant&equipment

–  IAS16Property,plant&equipment

•  Exercises– Melville5.1–5.6Pluson-linemul,plechoiceques,onsforchapter


Documents

A86045 Accoun,ng and Financial Repor,ng (2016/2017)