Financial Accounting Department of Accounting - Peder Fredslund Møller ”Agenda” Presentation/repetition of the exam. Presentation of the course, syllabus,

Financial AccountingFinancial Accounting

Department of Accounting - Peder Fredslund Møller

”Agenda”

• Presentation/repetition of the exam.• Presentation of the course, syllabus, books, and home

page.• Overview of the Danish accounting structure.• Understanding of financial accounts, who are the users?,

and what are accounts used for?• Understanding of financial accounting concepts• General understanding of company activities• Understanding of Danish requirements to annual accounts• Tutorials



The exam:

• 2-hour written exam in May/June (No supplementary aids!)• Co-weighted 50-50 with grade from Management

Accounting exam

• Possible re-exam in August if:• you have taken the ordinary exam in Management

Accounting and Financial Accounting, respectively• and• the co-weighted grade is < 6• or if you have the grade 00 in one of the exams (obligated

to take the exam again)



30 lectures during the course

• 11 chapters of Stickney & Weil

• The compendium on consolidated accounts

• Notes etc.

Please note: We start out fairly slowly, BUTthe pace will pick up



14 tutorials during the course

• The first exercises will be from the text book.

• The exercises concerning group accounts, equity-accounts and flow accounts are big (they are not representatives of current exams as they were made during another exam system of longer exams (3-hour or 6-hour exams). In other words other types of assignments will be used in exams, like for instance ”explain....” questions.

• The assignments are dealt with by the tutors.

• The assignments make up a significant part of the combined course package – and they are relevant for the exam.



Central issues of the course:

• Problems concerning calculation of income and size and periodical adjustment of Expenses.

• Valuation of inventory and liabilities.

• Other essential items in an informative income and balance sheet statements.

including: revenue recognition criteria, conventions, depreciation, leasing, debt, taxes, cash flow accounts, and group accounts.



Possible exam issues:• Cash flow statements• Group accounts• Equity method for subsidiaries• Deferred taxes• Treatment of construction contracts• Inventories• Leasing• Warranty costs• Loss on debtors• + Questions of understanding• Multiple choice has been used earlier, but will not be used in

future



Purpose of the lectures:

• The purpose of the lectures is twofold: 1. To enable the students to understand and apply fundamental

accounting concepts, accounting methods, and accounting conventions.

• I.e. focus is on methods for recognising and measuring accounting items in the balance sheet and income statement

2. To enable the students to understand the required ways of recognising and measuring items in the balance sheet and income statement according to the Danish Company Accounts Act and the Danish Financial Accounting Standards.



SOURCES to determine how to deal with items

ADDITIONAL LITERATUREADDITIONAL LITERATURE



IASIAS

DANISH ACC. STANDARDSDANISH ACC. STANDARDS

DCAA DCAA



Annual Accounts:= Published information from the company to

external users

which contain input relevant for decision-making



• the company is an entity, i.e. its financial activities are separate from other entities and its owners.

• In this course we deal with companies that are subject to the Danish Company Accounts Act.

The company



The companyWhere does the Danish Company Accounts Act

apply?

• In general to all companies, cf. DCAA §1• In reality to all companies with limited

responsibility (public companies, private companies, corporate funds, limited liability cooperatives etc.) - especially to those that are not quite small companies (exceed 2 of 3 criteria: balance sum > 4 millions, net turnover> 10 millions, full time employees > 10)



External users = persons/institutions• typically without internal knowledge of the

company and • generally without lack of authority to demand

special information from the company and• that will have to use published accounts to acquire

financial information about the company to make decisions about their relation to the company.

External users



External users

• Examples of external users?

• Whose information needs are most comprehensive?



WARNING!!!!!REMEMBER THAT ANNUAL ACCOUNTS ARE

NOT TAX ACCOUNTS.• TAXES ARE DETERMINED BY THE TAX

ACCOUNTS, AND THE ANNUAL ACCOUNTS ONLY REFLECT THE CONSEQUENSES OF TAXATION - THE ANNUAL ACCOUNTS DO NOT AFFECT TAXATION



The purpose of accountsTo give

• a true and fair view of performed financial activities of a company to the external users =>

• relevant information to the financial decisions of the users.



The basic idea behind accountsTo comprise consequences of all earlier transactions of a company with the outside world and production actions etc. with regard to 1) The value of company resources and commitments at the end of the reporting year – in the BALANCE SHEET2) The company net resources created/lost during the reporting year – in the INCOME STATEMENT( 3) Company payments made/received during the reporting year – in the CASH FLOW STATEMENT)



The basic idea behind accountsValue recognition involves assessment = subjective estimates

• But estimates are based on objective relations - the individual transactions/production actions• The over-all assessment becomes a bottom-up assessment• The assessment must be accepted by an independent auditor, who declare that the accounts are legal and give a true and fair view.



Goals and

Strategies

Goals and

Strategies

Investing Financing

Operating

Current

Cash

Accounts Receivable

Inventories

Marketable Securities

Noncurrent

Land, Buildings, and Equipment

Patents

Investments in Securities

Noncurrent

Bonds Payable

Common Stock

Retained Earnings

Current

Notes Payable

Accounts Payable

Salaries Payable

Income Taxes Payable

Sales Revenue

Cost of Goods Sold

Selling Expense

Administrative Expense

Interest Expense

Income Tax ExpenseAssets

(Balance Sheet)

Net Income (Income Statement)

Liabilities and Shareholders’

Equity(Balance Sheet)

Copyright 2000 by Harcourt, Inc. All rights reserved.

Fig 1.2 -- Relationship between Business Activities and Balance Sheet and Income Statement



What are the elements of annual accounts?

The Danish Company Accounts Act § 2:

• The income statement• The balance sheet• Notes - including information about applied accounting policies• Annual report• Cash flow statement? : Answer: Yes, for medium-seized and large companies•Auditors’ report



The Balance sheet• A “snapshot” of investing and financing activities

• Balance sheet equation:

Assets = Liabilities + Shareholders’ equity

which corresponds to Investing = Financing Resources = Sources of resources Resources = Claims of resources



The income statement • The result of a company’s operating activities for a specific period of time

• Net income = Revenue - Expenses

• Shareholders’ equity is increased/reduced by the net income minus dividend (cf. the balance sheet)



The cash flow statement•Reports the company’s net cash flows and their sources

• Cash flows are divided into three ”categories of sources":* Operating activities,* Investing activities and* Financing activities



recommended assignments:

1.14a for years 8 and 11

1.19a for year 6

1.16a for year 9 (it it necessary to calculate transferred profitin year 8 too)

Documents

Financial Accounting Department of Accounting - Peder Fredslund Møller ”Agenda” Presentation/repetition of the exam. Presentation of the course, syllabus,