...EXAMPLE 3.1 A COMPANY LTD. Statement of Financial Position December 31, Year 1 Assets € 300,000 Liabilities Shareholders’ equity Ordinary stock (5,000 shares) Retained earnings € 120,000 100,000 80,000 € 300,000 B CORPORATION Statement of Financial Position December 31, Year 1 Assets € 88,000 Liabilities Shareholders’ equity Ordinary stock Retained earnings € 30,000 25,000 33,000 € 88,000 The fair values of B Corporation’s identifiable assets and liabilities at December 31, Year 1, are as follows: Assets Liabilities Net assets € 109,000 29,000 € 80,000 Illustration 1 Illustration 1 is an example of the acquisition of an enterprise’s assets for cash. Assume that on January 1, Year 2, A Company pays €95,000 in cash to B Corporation for all of its net assets. The acquisition cost is allocated as follows: Purchase price Fair value of net identifiable assets acquired Goodwill € 95,000 80,000 € 15,000 A company’s statement of financial position after the business combination is not a consolidated statement of financial position and would be as shown below. A COMPANY LTD. Statement of Financial Position January 1, Year 2 Assets (300,000 + 109,000 – 95,000) Goodwill € 314,000 15,000 € 329,000 Liabilities (120,000 + 29,000) Shareholders’ equity Ordinary stock (5,000 shares) Retained earnings € 149,000 Financial Accounting: Consolidations & Advanced Issues 100,000 80,000 Lesson 3 11 € 329...
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...Selected Ceramic Companies of Bangladesh Abdullah Al Masum1, Fatema-Tuz-Johora2 1. Faculty of Business, ASA University Bangladesh 2. Faculty of Business, East West University Bangladesh ABSTRACT This paper applies performance evaluation of ceramic industry of Bangladesh and to test its financial soundness. The main aim is achieved through ratio analysis of four selected ceramic (Fu Wang, Monno, Shinepukur and Standard) companies in Bangladesh. Measurement of financial performance by ratio analysis helps identify organizational strengths and weaknesses by detecting fi- nancial anomalies and focusing attention on issues of organizational importance. The financial performance of this industry is measured in terms of profitability, solvency, efficiency and liquidity analysis and to test the financial soundness, Multivariate Discriminate Analysis (MDA) is used, which was developed by Prof. Altman. The study covers four public sector ceramic com- panies listed on Dhaka Stock Exchange. The study has been undertaken for the period of five years from 2006-7 to 2010-2011 and the necessary data has been obtained from the audited annual report of the selected companies. The liquidity position was very weak in all the cases of the selected companies and thereby reflecting the difficulties in paying short-term obligation on due date. Financial stability of the selected companies has shown an upward trend. This study will help investors to identify the nature of financial performance...
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...COMPANY LAW AUSTRALIA Question 1: Insolvency The area of law involved in this question: Insolvency trading and director’s duties, under Corporation Acts 2001. A director will engage in insolvent trading in breach of section 588G of the Corporation Acts 2001(Cth) if the company incurs a debt and: a) The company is insolvent at the time of incurring the debt or becomes insolvent by incurring the debt; b) At the time the debt is incurred, there are reasonable grounds for suspecting that the company is insolvent or will become insolvent; c) The director is aware of such grounds or a reasonable person in a like position in a company in the circumstances of the company would be so aware; and d) The director fails to prevent the company from incurring the debt. Under the Corporations Act of 2001 section 95A, a company is declared to be insolvent if it cannot pay its debt. In the financial year of 2013, the director of the company Paul knew that the company was experiencing difficulties in terms of financial performance, and would not be able to meet all its debt issues. It was his duty as a director of the company to prevent it from further trading, because he knew the company’s financial position. He should have sought both legal and financial advice from the relevant authorities, so as to assist him to determine whether the company will be liquidated, or measures will be undertaken so as to revamp it. He ignored his duties as a director i.e. prevents the...
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...creditors to make appropriate risk evaluations of a firms statement of financial position”’. Leases are a common financial tool used by many businesses and individuals on a daily basis to transfer the ownership of many different types of assets. Creditors are largely involved with many leases and company balance sheets as they are always interested in making valued judgements of their financial position with the current leasing disclosure requirements providing some discrepancies for creditors in making these risk evaluations. These issues surrounding the treatment and disclosure of leases provide the need for rigorous speculation into the accounting treatment and classification of the different types of leases so that the users of financial statements are provided with a clear view of a firm’s financial position and performance. With the relative ease in which a company can manipulate the classification of their leases, it makes it hard for creditors to make valued judgements of a company’s balance sheet. The current guidelines of AASB 117 require a company to classify its leases as either a finance lease or an operating lease. Only finance leases are required to be disclosed on a company’s statement of financial position with operating leases being excluded. This is one potential issue arising for creditors as the balance sheet might therefore be an unreliable measure of a company’s financial position. Operating leases are a form of off-balance sheet reporting that “potentially...
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...Corporate Finance The role of the corporate finance team is to manage a companies money, and maximizing the companies value while minimizing the risk states Wetfeet website (n.a., 2012). A corporate finance department may have a treasurer, a controller or comptroller, risk manager, and internal auditors with assistants and analysts all working under the chief financial manager (Ring, 2004). Corporate finance positions can be found in all companies from small to large (Kochanek, 2008). Entry-level positions are usually in investing, cash management, payroll, accounts receivables, accounts payables, bookkeeping clerks and other paper processing (Ring, 2004; Wiley, 2015). One job commonly found in corporate finance is that of a financial analyst. According to monster.com, common duties of an entry level financial analyst may include; analyzing financial data, recommending specific investments, evaluating and assessing both current data and historical information, studying financial trends on a consistent basis, ducting regular evaluations of financial statements, preparing complex financial reports, meeting privately with investors, and explaining recommendations in details to companies and individuals. The website Wetfeet (n.a.,2012) says, financial analysts pore over spreadsheets that detail cash flow, profitability, and expenses. They look for ways to free up capital, increase profitability, and decrease expenses. If any department...
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...Financial Accounting for Decision Makers Visit the Financial Accounting for Decision Makers, sixth edition Companion Website at www.pearsoned.co.uk/atrillmclaney to find valuable student learning material including: G G G G G Self assessment questions to test your learning A study guide to aid self-learning Revision questions and exercises to help you check your understanding Extensive links to valuable resources on the web Comments on case studies to aid interpretative and analytical skills We work with leading authors to develop the strongest educational materials in accounting, bringing cutting-edge thinking and best learning practice to a global market. Under a range of well-known imprints, including Financial Times Prentice Hall, we craft high-quality print and electronic publications which help readers to understand and apply their content, whether studying or at work. To find out more about the complete range of our publishing, please visit us on the World Wide Web at: www.pearsoned.co.uk 6th Edition Financial Accounting for Decision Makers Peter Atrill and Eddie McLaney Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsoned.co.uk Second edition published 1999 by Prentice Hall Europe Third edition published 2002 by Pearson Education Limited Fourth edition 2005 Fifth edition 2008 Sixth edition 2011 © Prentice Hall Europe...
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...FINAL ACCOUNTS FOR COMPANIES 4.1 IAS 1 Presentation of financial statements IAS 1 identifies three fundamental assumptions that must be taken into account when preparing accounts: Going concern Accruals Consistency 'IAS 1 Presentation of financial statements was published in 1997 and revised in 2004. IAS 1 gives details about the general requirements and what it says about accounting policies and fundamental assumptions and on the format and content of financial statements 4.1.1 Objectives and scope The main objective of IAS 1 is: to prescribe the basis for presentation of general purpose financial statements, to ensure comparability both with the entity's financial statements of previous periods and with the financial statements of other entities.' IAS 1 applies to all general purpose financial statements prepared and presented in accordance with International Financial Reporting Standards (IFRSs). 4.1.2 Purpose of Financial Statements The objective of financial statements is to provide information about the financial position, performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. They also show the result of management's stewardship of the resources entrusted to it. In order to fulfill this objective, financial statements must provide information about the following aspects an entity's results. • Assets • Liabilities ...
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...education. In today’s society, most companies require either an abundant experience in a professional work environment or a bachelor’s degree in a relatable field of study. This request however is not just towards an accounting career position but many others as well; such as managerial, business, information technology, engineering, etc. Examples of a career position in accounting a person can obtain are financial managers and management analysts. Both positions were pulled from the Bureau of Labor Statistics- Occupational Outlook Handbook site page as referenced below. The researched accounting position, as above, is selected to be a financial manager. In addition to the required bachelor’s degree and work experience, a person must also have certain skills, certifications and licenses to perform their duties to a full extent. Being a manager also means to proficient in managing others (i.e. supervisor) while simultaneously completing their tasks as well. A financial manager is also responsible for financial statements and reports, managing the finance department, review details in regards to the financial documents and verify they meet legal requirements. Others might also include evaluating the financial growth opportunities for the company and provide support to upper management in decision making. By hiring the correct financial manager, a company can strive based on the tasks and documents being accurately completed. All career positions require some type of previous knowledge...
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...A set of financial statements for a company includes three related accounting reports. These reports are called; Statement of Financial Position, Income Statement, and Statement of Cash Flows. A statement of financial position, also known as a balance sheet, displays the financial position of a company at any given date/time. It consists of three key categories: assets, equity, and liabilities. Statement of financial position aids the users of these statements in evaluating the financial reliability of a company in terms of its risk; financial, credit, and business risk. These statements can help identify underlying trends in the financial position of the company which would assist the manager. The investor would be interested in determining the company’s financial risk. An income statement is a summary of performance as reflected in its profitability (or lack thereof) of a company over a certain time. The income statement accounts all profits for a business during this given period (monthly, quarterly or annually), as well as the operating overhead cost for the business. This would assist a manager because he/she would be able to determine the operating performance of the business over a period of time. The investor would likely be looking at the same information as a manager, but using it to determine if the company is making money or losing money. Statement of cash flows describes the cash flow into and out of the business. Its specific emphasis is on the types of activities...
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... To: CEO From: Learning Team A Date: 3/16/2014 Subject: Financial Position of Huffman Trucking Finance and Accounting Liquidity, profitability, and solvency ratios reveal the following about the financial position of the company? Ratio analysis is the process that identifies financial strengths and weaknesses of a company. This is accomplished by reviewing the balance sheet and income statement and analyzing the results of each one. Ratio analysis establishes the cause and effect relationship. The probability ratio will define profit and liquidity and solvency ratios explain the financial position. Horizontal analysis is the comparative study of many years financial statements of any business concern are analyzed then it is known as horizontal analysis. Sales have increased from the previous year. The operating expenses have been increased also. The increase in sales has causes and increase expenses. Therefore to increase the operating income the company must try to control the operating expenses. The interest expense has been decreased which is a very good sign which shows that the company is lowering the debt to finance its assets. The net income has increased from the previous year but the increase is very much low. Therefore to increase the net income the company must try to control the expenses. Horizontal analysis of Balance sheet; Cash has been increased and this shows that the company is doing very well in collecting its credit sales. Accounts receivables...
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...primarily reliant on the demand for health care services that are available to patients and the health care organization financial position. Health care administrators are enabling to analyze financial data obtained from financial report. These principles of finance report helps manager make well informed decisions. Principles of Finance The Omega Health Foundation is an example of principle of finance, which is “a complex business with two hospitals, Omega and Able Memorial, plus a number of related medical-service providers” (Cleverly & Cameron, 2007, p. 164).These principles of finances are risk-return trade off, time value of money (TVM), leverage, bond prices versus interest rates, portfolio effect, the matching principle, and liquidity versus profitability. By using the principles of finance it helps Omega Health Foundation because these are prepared to help the organizations financial statements and reports. Furthermore, the use of these financial statements like the balance sheet, income statement, statement of cash flows, and the statement of earning that offer management with a strong consideration of the health care organization’s finances and its financial position. Net Income and Cash Flows Net income is when a company’s amount of revenue is greater than the total expenses (Swanson, Ross, Hanson, Boynton 3rd, 1982). The total earnings of the company have been deducted from cost such as...
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...BFM234: ACCOUNTING FOR NON-FINANCIAL MANAGERS Group 77 Table of Contents Introduction .................................................................................................. Financial performance and position of Kier Group plc ................................. Financial performance and position of Carillion plc ..................................... Comparison of the financial performance and position between Kier Group plc and Carillion plc .............................................................................................. Issues impacting the comparability of Kier and Carillion ................................ Appendix ......................................................................................................... References ..................................................................................................... Introduction This report analyses the financial position and performance of Kier Group plc in comparison to one of its competitors, Carillion plc. A ratio analysis has been conducted on both companies using data from the financial statements produced in each of the company’s annual reports. Therefore this report is backward looking in nature and focuses solely on the past performance of both companies in relation to their year end. The report will begin with an analysis of the financial position and performance of each company in turn. It will then go on to compare the two companies and conclude by highlighting...
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...Financial Statements Analysis - An Introduction MODULE - 6A Analysis of Financial Statements 27 FINANCIAL STATEMENTS ANALYSIS - AN INTRODUCTION You have already learnt about the preparation of financial statements i.e. Balance Sheet and Trading and Profit and Loss Account in the module titled ‘Financial Statements of Profit and Not for Profit Organisations’. After preparation of the financial statements, one may be interested in analysing the financial statements with the help of different tools such as comparative statement, common size statement, ratio analysis, trend analysis, fund flow analysis, cash flow analysis, etc. In this process a meaningful relationship is established between two or more accounting figures for comparision. In this lesson you will learn about analysing the financial statements by using comparative statement, common size statement and trend analysis. Notes OBJECTIVES After studying this lesson, you will be able to : explain the meaning, need and purpose of financial statement analysis; identify the parties interested in analysis of financial statements; explain the various techniques and tools of analysis of financial statements. 27.1 FINANCIAL STATEMENTS ANALYSIS (MEANING, PURPOSE AND PARTIES INTERESTED) We know business is mainly concerned with the financial activities. In order to ascertain the financial status of the business every enterprise prepares certain statements, known as financial statements. Financial statements are mainly prepared...
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...Definition & Meaning: The combined financial statements of a parent company and its subsidiaries. Definition of 'Consolidated Financial Statements’: Consolidated financial statements are the combined financial statements of a company and all of its subsidiaries, divisions, or suborganizations. Explanation: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge the overall health of an entire group of companies as opposed to one company's stand alone position. A consolidated financial statement gives investors a clear view of a corporation's global activities. A consolidated financial statement typically combines a company's operating activities with data from its subsidiaries. A consolidated financial statement helps an investor, a regulator or a corporation's top management evaluates the true financial standing of the corporation. A consolidated financial statement also may indicate an entity's financial position or cash flows during a period. Meaning of 'Consolidated Financial Statements’: Let's assume Company XYZ is a holding company that owns four other companies: Company A, Company B, Company C, and Company D. Each of the four companies pays royalties and other fees to Company XYZ. At the end of the year, Company XYZ's income statement reflects a large amount of royalties and fees with very few expenses -- because they are recorded on the subsidiary income statements...
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...CREDIT RATING * A credit rating evaluates the credit worthiness of a debtor, especially a business (company) or a government. It is an evaluation made by a credit rating agency of the debtor's ability to pay back the debt and the likelihood of default.[3] * Credit ratings are determined by credit ratings agencies. The credit rating represents the credit rating agency's evaluation of qualitative and quantitative information for a company or government; including non-public information obtained by the credit rating agencies analysts. * Credit ratings are not based on mathematical formulas. Instead, credit rating agencies use their judgment and experience in determining what public and private information should be considered in giving a rating to a particular company or government. The credit rating is used by individuals and entities that purchase the bonds issued by companies and governments to determine the likelihood that the government will pay its bond obligations. * A poor credit rating indicates a credit rating agency's opinion that the company or government has a high risk of defaulting, based on the agency's analysis of the entity's history and analysis of long term economic prospects. In India there are 5 credit rating agencies. First, Credit Rating InformationServices Of India Limited (CRISIL) set up by ICICI AND UTI in 1988. Secondly InvestmentInformation and Credit Rating Agency of India limited (ICRA) set up by IFCI in 1991. Thirdly,Credit Analysis...
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