To prepare forecasts of income statements and balance sheet one must uses growth rates and key assumptions to determine future values. Since 2007, we have measured a compound growth rate of 7.6 percent for sales each year. This percent increase will be reflected in 2010, 2011, and 2012. For the rest of the items of the income statement, we forecast the numbers based on our key assumptions. We also have key assumptions for our balance sheet that will be used to compute forecasted assets and liabilities
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necessary to complete the provision. 3. Tax Contingency Reserve Analysis—ensures compliance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes. Will cover a case on this topic later on 4. Current Income Tax Procedures—provides accurate determination of current income tax expense and related balance sheet accounting in compliance with
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accrual item, not a cash item. It is calculated as the total lease payments (cash, incorporating any discounts or deposits) under the contract, spread evenly over the lease term. * Lease payment typically covers both interest and principal payments (just like a mortgage) * Balance sheet * Recognise an asset item (for pre-payments) or liability item (accrual for lease) due to the timing differences between cash payments and lease expense. Accounting in Operating Leases as Lessor
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provide a slow yet steady means of revenue as these assets gain value. This section would provide information about the company’s ability to pay long-term debts. The Property, plant, & equipment section of the balance sheet is also referred to as fixed assets. This section covers the assets that the company is going to being using for a long time in their operating activities. This includes any equipment necessary for producing products, land and building currently being
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Task 7: The GP ratio is 23.58%. It means the company may reduce the selling price of its products by 23.58% without incurring any loss. Significance and interpretation: Gross profit is very important for any business. It should be sufficient to cover all expenses and provide for profit. There is no norm or standard to interpret gross profit ratio (GP ratio). Generally, a higher ratio is considered better. The ratio can be used to test the business condition by comparing it with past years’ ratio
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between an entity and its owners; between an entity and other organizations in which it has part ownership, such as joint ventures; and between an entity and an assortment of special purpose entities, such as those designed to keep debt off the balance sheet. The accounting for related-entity transactions is straightforward: Since related-entity transactions are not “arms-length” transactions with outside parties, they need to be either (a) eliminated upon the development of consolidated financial
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Interpretation of Financial Statements (Using UK GAAP) 1 Profitability ratios Return on capital employed (ROCE) Capital employed is normally measured as fixed assets plus current assets less current liabilities and represents the long–term investment in the business, or owners’ capital plus long–term liabilities. Return on capital employed is frequently regarded as the best measure of profitability. ROCE = Profit before interest and taxation (PBIT) Capital employed × 100% Note that
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net income that has not been paid out through dividends yet. The balance sheet is what reports the company’s assets, liabilities, and owner/stockholder equity at any given time. Entries are made on the balance sheet that correlates with each category of the assets, liabilities, equity. Debits and credits are made based on whether money is coming in or going out; debits on the left and credits on the right. The balance sheet should show that the total amount of assets equals the total amount of liabilities
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strategy and structure. Although analyzing financial statements can be quite complex, a general idea of a company's financial position can be determined through the use of ratio analysis. Financial performance ratios can be calculated from the balance sheet and income statement. These ratios can be classified into five different subgroups: profit ratios, liquidity ratios, activity ratios, leverage ratios, and shareholder-return ratios. These ratios should be compared with the industry average or the company's
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Case Study 11-1 Medieval Adventures Questions 1. Prepare monthly income statements, balance sheets, and cash budgets based on sales increases of 500 units per month and 30-day advanced production for January through September. See attached income statements, balance sheets and cash budgets. When will the company need extra funds? How much will be needed? When can a short-term loan to cover the need be repaid? The company needs extra funds in April to keep from going into a negative bank balance
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