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%