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A FURTHER LOOK AT
FINANCIAL STATEMENTS
Accounting, Fourth Edition
2
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1. Identify the sections of a classified balance sheet.2. Identify and compute ratios for analyzing a company’s
profitability.
3. Explain the relationship between a retained earnings statement
and a statement of stockholders’ euity.
!. Identify and compute ratios for analyzing a company’s liuidity
and sol"ency using a balance sheet.
#. $se the statement of cash flows to e"aluate sol"ency.
%. Explain the meaning of generally accepted accounting
principles.
&. 'iscuss financial reporting concepts.
Stud O!"#cti$#%Stud O!"#cti$#%
Stud O!"#cti$#%Stud O!"#cti$#%
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(atio analysis(atio analysis
$sing the income$sing the income
statementstatement
$sing the statement of$sing the statement of
stockholders’ euitystockholders’ euity
$sing a classified$sing a classifiedbalance sheetbalance sheet
$sing the statement of$sing the statement of
cash flowscash flows
Th# C'(%%i)i#dTh# C'(%%i)i#d
*('(nc# Sh##t*('(nc# Sh##t
Th# C'(%%i)i#dTh# C'(%%i)i#d
*('(nc# Sh##t*('(nc# Sh##t
)urrent assets)urrent assets
*ong+term*ong+term
in"estmentsin"estments
,roperty- plant- and,roperty- plant- and
euipmenteuipment
Intangible assetsIntangible assets)urrent liabilities)urrent liabilities
*ong+term liabilities*ong+term liabilities
tockholders’ euitytockholders’ euity
/he standard+setting/he standard+settingen"ironmenten"ironment
0ualities of useful0ualities of useful
informationinformation
ssumptions ssumptions
,rinciples,rinciples)onstraints)onstraints
U%ing th# Fin(nci('U%ing th# Fin(nci('
St(t#+#nt%St(t#+#nt%
U%ing th# Fin(nci('U%ing th# Fin(nci('
St(t#+#nt%St(t#+#nt%Fin(nci(' R#ortingFin(nci(' R#orting
Conc#t%Conc#t%
Fin(nci(' R#ortingFin(nci(' R#orting
Conc#t%Conc#t%
A Furth#r Loo At Fin(nci(' St(t#+#nt%A Furth#r Loo At Fin(nci(' St(t#+#nt%
A Furth#r Loo At Fin(nci(' St(t#+#nt%A Furth#r Loo At Fin(nci(' St(t#+#nt%
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I''u%tr(tion 2-2
Th# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##t
Th# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##t
SO 1
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I''u%tr(tion 2-2
Th# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##t
SO 1
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Th# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##t
SO 1 Identify the sections of a classified balance sheet.
ssets that a company expects to con"ert to cash or
use up ithin on# #(r or the o#r(ting cc'#-
whiche"er is 'ong#r .
O#r(ting cc'# is the a"erage time it takes from the
purchase of in"entory to the collection of cash from
customers.
Curr#nt A%%#t%
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Th# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##t
SO 1 Identify the sections of a classified balance sheet.
)ompanies list current asset accounts in the order they expect to
con"ert them into cash.
Curr#nt A%%#t%I''u%tr(tion 2-3
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Th# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##t
SO 1 Identify the sections of a classified balance sheet.
In"estments in %toc% and !ond% of other companies that
are held for more than one year.
In"estments in 'ong-t#r+ (%%#t% such as land or buildingsnot curr#nt' !#ing u%#d in operating acti"ities.
Long-T#r+ In$#%t+#nt%
I''u%tr(tion 2-&
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6ro#rt, 6'(nt, (nd E7ui+#nt
Th# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##t
SO 1 Identify the sections of a classified balance sheet.
Long u%#)u' 'i$#%.
Curr#nt' u%#d in operations.
8#r#ci(tion + allocating the cost of assets to a number
of years.
Accu+u'(t#d d#r#ci(tion + total amount of
depreciation expensed thus far in the asset’s life.
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Th# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##t
SO 1 Identify the sections of a classified balance sheet.
I''u%tr(tion 2-.
6ro#rt, 6'(nt, (nd E7ui+#nt
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Int(ngi!'# A%%#t%
Th# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##t
SO 1 Identify the sections of a classified balance sheet.
ssets that do not ha"e physical substance.
I''u%tr(tion 2-/
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,atents and copyrights are
a. )urrent assets.
b. Intangible assets.
c. *ong+term in"estments.
d. ,roperty- plant- and euipment.
R#$i# 5u#%tion
Th# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##t
SO 1 Identify the sections of a classified balance sheet.
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Th# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##t
SO 1 Identify the sections of a classified balance sheet.
bligations the company is to pay within the coming year.
$sually list notes payable first- followed by accounts
payable.
ther items follow in order of magnitude.
Curr#nt Li(!i'iti#%
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Th# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##t
SO 1 Identify the sections of a classified balance sheet.
I''u%tr(tion 2-0
Curr#nt Li(!i'iti#%
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Th# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##t
SO 1 Identify the sections of a classified balance sheet.
bligations a company expects to pay after one year.
I''u%tr(tion 2-
Long-T#r+ Li(!i'iti#%
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4hich of the following is not a long+term liability5
a. 6onds payable
b. )urrent maturities of long+term obligations
c. *ong+term notes payable
d. 7ortgages payable
R#$i# 5u#%tion
Th# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##t
SO 1 Identify the sections of a classified balance sheet.
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Th# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##t
SO 1 Identify the sections of a classified balance sheet.
I''u%tr(tion 2-2
Co++on %toc + in"estments of assets into the business by
the stockholders.
R#t(in#d #(rning% + income retained for use in the business.
Stocho'd#r%9 E7uit
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Th# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##tTh# C'(%%i)i#d *('(nc# Sh##t
SO 1 Identify the sections of a classified balance sheet.
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U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%
R(tio An('%i% R(tio (n('%i% expresses the relationship among
selected items of financial statement data.
r(tio expresses the mathematical relationship between
one uantity and another.
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U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%
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U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%
6ro)it(!i'it r(tio% measure the operating success of a company for a gi"en period of time.
U%ing th# Inco+# St(t#+#nt
SO 2 Identify and compute ratios for analyzing a company’s profitability.
I''u%tr(tion 2-14
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U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%
I''u%tr(tion: E(rning% #r %h(r# ;E6S
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8or 2919 toneland )orporation reported net
income :2%-999; net sales :!99-999; and a"erage shares
outstanding %-999. /here were preferred stock di"idends of:2-999. 4hat was the 2919 earnings per share5
a. :!.99
b. :9.9%
c. :1%.%&
d. :%%.%&
R#$i# 5u#%tion
U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%
SO 2 Identify and compute ratios for analyzing a company’s profitability.
:2%-999 + :2-999
%-999< :!.99
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U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%
U%ing th# St(t#+#nt o) Stocho'd#r%9 E7uit
SO 3 Explain the relationship beteen a retained earningsstatement and a statement of stoc!holders’ e"uity.
7ost companies use
a %t(t#+#nt o)
%tocho'd#r%9
#7uit- rather than ar#t(in#d #(rning%
%t(t#+#nt- so that
they can report all
changes instockholders’ euity
accounts.
I''u%tr(tion 2-12
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U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%
SO 3 Explain the relationship beteen a retained earningsstatement and a statement of stoc!holders’ e"uity.
bser"ations from this financial statement of *#%t *u
= Co++on %toc d#cr#(%#d during the first year because the
stock issuance was much smaller than the stock repurchase.
= Co++on %toc incr#(%#d in the second year as the result of
an issuance of shares..
= *#%t *u (id di$id#nd% each year.
= 6rior to 2443- 6est 6uy did not pay di"idends- e"en though itwas profitable and could do so.
4hy didn’t 6est 6uy pay di"idends prior to 29935
U%ing th# St(t#+#nt o) Stocho'd#r%9 E7uit
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/he balance in retained earnings is not affected by
a. net income
b. net loss
c. issuance of common stock
d. di"idends
R#$i# 5u#%tion
SO 3 Explain the relationship beteen a retained earningsstatement and a statement of stoc!holders’ e"uity.
U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%
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U%ing th#U%ing th#
Fin(nci('Fin(nci('
St(t#+#nt%St(t#+#nt%
U%ing th#U%ing th#
Fin(nci('Fin(nci('
St(t#+#nt%St(t#+#nt%
U%ing (
C'(%%i)i#d*('(nc# Sh##t
I''u%tr(tion 2-13
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U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%
U%ing ( C'(%%i)i#d *('(nc# Sh##t
SO # Identify and compute ratios for analyzing a company’sli"uidity and sol$ency using a balance sheet.
Li7uidit>the ability to pay obligations expected tobecome due within the next year or operating cycle.
I''u%tr(tion 2-1&
4hen oring c(it(' is positi"e- there is greater likelihood
that the company will pay its liabilities.
6est 6uy had a ?E@/IAE working capital in 299B of :2!3 million.
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U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%
Li7uidit r(tio% measure the short+term ability to pay maturingobligations and to meet unexpected needs for cash.
I''u%tr(tion 2-1.
Li7uidit
R(tio
8or e"ery dollar of current liabilities- 6est 6uy has :.B& of current assets
SO # Identify and compute ratios for analyzing a company’sli"uidity and sol$ency using a balance sheet.
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U%ing ( C'(%%i)i#d *('(nc# Sh##t
SO # Identify and compute ratios for analyzing a company’sli"uidity and sol$ency using a balance sheet.
So'$#nc>the ability to pay interest as it comes due and to
repay the balance of a debt due at its maturity.
So'$#nc r(tio% measure the ability of the company to
sur"i"e o"er a long period of time.
U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%
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U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%
8#!t to tot(' (%%#t% r(tio measures the percentage of totalfinancing pro"ided by creditors rather than stockholders.
I''u%tr(tion 2-1/
So'$#nc
R(tio
/he 299B ratio means that e"ery dollar of assets was financed by &1 cents of debt.
SO # Identify and compute ratios for analyzing a company’sli"uidity and sol$ency using a balance sheet.
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U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%
SO #
R#$i# 5u#%tion/he following ratios are a"ailable for *eer Inc. and table Inc.
)ompared to table Inc.- *eer Inc. has
a. higher liuidity- higher sol"ency- and higher profitability.
b. lower liuidity- higher sol"ency- and higher profitability.c. higher liuidity- lower sol"ency- and higher profitability.
d. higher liuidity and lower sol"ency- but profitability cannot be
compared based on information pro"ided.
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U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%
SO % &se the statement of cash flos to e$aluate sol$ency.
In the tatement of )ash 8lows- c(%h
ro$id#d ! o#r(ting (cti$iti#% fails to
take into account that a company must
in"est in new ,,CE and must maintain di"idends at current le"els to
satisfy in"estors.
Fr## c(%h )'o is a measurement to pro"ide additional insight
regarding a company’s cash+generating ability.
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U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%U%ing th# Fin(nci(' St(t#+#nt%
SO % &se the statement of cash flos to e$aluate sol$ency.
I''u%tr(tion: 7,) produced and sold
19-999 personal computers this year. It
reported :199-999 cash pro"ided by
operating acti"ities. In order to maintain production at 19-999
computers- 7,) in"ested :1#-999 in euipment. It chose to pay
:#-999 in di"idends. )alculate free cash flow.
)ash pro"ided by operating acti"ities :199-999
*ess Expenditures on property- plant- and euipment +1#-999
'i"idends paid #-999
8ree cash flow : D9-999
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Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%
Th# St(nd(rd-S#tting En$iron+#nt
SO ' Explain the meaning of generally accepted accounting principles.
#n#r('' Acc#t#d Accounting 6rinci'#% ;AA6< - set of
rules and practices- ha"ing substantial authoritati"e support- that
the accounting profession recognizes as a general guide for
financial reporting purposes.
St(nd(rd-%#tting !odi#% determine these guidelines
= ecurities and Exchange )ommission ;SEC<
= 8inancial ccounting tandards 6oard ;FAS*<= International ccounting tandards 6oard ;IAS*<
= ,ublic )ompany ccounting "ersight 6oard ;6CAO*<
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@enerally accepted accounting principles are
a. a set of standards and rules that are recognized
as a general guide for financial reporting.
b. usually established by the Internal (e"enue
er"ice.
c. the guidelines used to resol"e ethical dilemmas.d. fundamental truths that can be deri"ed from the
laws of nature.
R#$i# 5u#%tion
SO ' Explain the meaning of generally accepted accounting principles.
Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%
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Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%
5u('iti#% o) U%#)u' In)or+(tion
SO (
According to th# FAS*- useful information should possess two
fundamental ualities- r#'#$(nc# and )(ith)u' r#r#%#nt(tion.
I''u%tr(tion 2-10
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2-&&
Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%
Enh(ncing 5u('iti#%
Co+(r(!i'it
results when differentcompanies use thesame accounting
principles.
Con%i%t#nc meansthat a company usesthe same accounting
principles and methodsfrom year to year.
Information is$#ri)i(!'# if we areable to pro"e that itis free from error.
8or accounting information to berele"ant- it must be ti+#'.
Information has theuality of
und#r%t(nd(!i'itif it is presented in aclear and concise
fashion.
SO ( )iscuss financial reporting concepts.
5u('iti#% o) U%#)u' In)or+(tion
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2-&.
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Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%
A%%u+tion% in Fin(nci(' R#orting
SO ( )iscuss financial reporting concepts.
Mon#t(r Unit 6#riodicit
Econo+ic Entit
I''u%tr(tion 2-1
(euires that only
those things that canbe expressed in
money are included inthe accounting
records.
tates that e"eryeconomic entity can be
separately identifiedand accounted for.
tates that the life of a
business can bedi"ided into artificial
time periods.
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2-&0
Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%
A%%u+tion% in Fin(nci(' R#orting
SO ( )iscuss financial reporting concepts.
oing Conc#rn
I''u%tr(tion 2-1
Accru('-*(%i%
/ransactions arerecorded in the
periods in which the
e"ents occur.
/he business willremain in operation
for the foreseeable
future.
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2-&
Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%
6rinci'#% in Fin(nci(' R#orting
SO ( )iscuss financial reporting concepts.
M#(%ur#+#nt 6rinci'#%
Co%t F(ir B('u# Fu'' di%c'o%ur#
r historical costprinciple- dictates
that companies
record assets at
their cost.
Indicates thatassets and
liabilities should be
reported at fair
"alue the price
recei"ed to sell an
asset or settle
a liabilityF.
(euires thatcompanies disclose
all circumstances
and e"ents that
would make a
difference to
financial statement
users.
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2-&
Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%
Con%tr(int% in Fin(nci(' R#orting I''u%tr(tion 2-1
SO (
M(t#ri('it Con%tr(int
n item is material when its size makes it
likely to influence the decision of anin"estor or creditor.
Co%t Con%tr(int
ccounting standard+setters weigh the costthat companies will incur to pro"ide the
information against the benefit that
financial statement users will gain.
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2-.4
Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%
Co+(r(!i'it
oing conc#rn
M(tch #(ch it#+ (!o$# ith ( d#%crition !#'o@
1@ A!i'it to #(%i' #$('u(t# on# co+(n9% r#%u't%r#'(ti$# to (noth#r9%@
2@ *#'i#) th(t ( co+(n i'' continu# to o#r(t#)or th# )or#%##(!'# )utur#@
3@ Th# "udg+#nt conc#rning h#th#r (n it#+ i%'(rg# #nough to +(tt#r to d#ci%ion +(#r%@
M(t#ri('it
SO ( )iscuss financial reporting concepts.
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2-.1
Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%
Fu'' di%c'o%ur#
6#riodicit
&@ Th# r#orting o) ('' in)or+(tion th(t ou'd+(# ( di))#r#nc# to )in(nci(' %t(t#+#nt u%#r%@
.@ Th# r(ctic# o) r#(ring )in(nci(' %t(t#+#nt%(t r#gu'(r int#r$('%@
/@ Th# 7u('it o) in)or+(tion th(t indic(t#% th#in)or+(tion +(#% ( di))#r#nc# in ( d#ci%ion@
R#'#$(nc#
SO ( )iscuss financial reporting concepts.
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2-.2
Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%
Co%t
Con%i%t#nc
0@ *#'i#) th(t it#+% %hou'd !# r#ort#d on th#!('(nc# %h##t (t th# ric# th(t (% (id to(c7uir# th# it#+@
@ A co+(n9% u%# o) th# %(+# (ccountingrinci'#% (nd +#thod% )ro+ #(r to #(r@
@ Tr(cing (ccounting #$#nt% to (rticu'(rco+(ni#%@
Econo+ic #ntit
SO ( )iscuss financial reporting concepts.
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2-.3
Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%
F(ith)u' r#r#%#nt(tion14@ Th# d#%ir# to +ini+i# #rror% (nd !i(% in)in(nci(' %t(t#+#nt%@
11@ R#orting on' tho%# thing% th(t c(n !#+#(%ur#d in do''(r%@ Mon#t(r unit
SO ( )iscuss financial reporting concepts.
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2-.&
4hat is the primary criterion by which accounting
information can be Gudged5
a. )onsistency.
b. ,redicti"e "alue.
c. $sefulness for decision making.
d. )omparability.
R#$i# 5u#%tion
Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%Fin(nci(' R#ort% Conc#t%
SO ( )iscuss financial reporting concepts.
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2-..
K# 6oint%
IFRS r#co++#nd% !ut do#% not r#7uir# th# u%# o) th# tit'#
D%t(t#+#nt o) )in(nci(' o%ition r(th#r th(n !('(nc# %h##t@
Th# )or+(t o) %t(t#+#nt o) )in(nci(' o%ition in)or+(tion i%
o)t#n r#%#nt#d di))#r#nt' und#r IFRS@ Mo%t co+(ni#%
th(t )o''o IFRS r#%#nt %t(t#+#nt o) )in(nci(' o%ition
in)or+(tion in thi% ord#r:
1@ Noncurr#nt (%%#t%
2@ Curr#nt (%%#t%
3@ E7uit
&@ Noncurr#nt 'i(!i'iti#%
.@ Curr#nt 'i(!i'iti#%
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2-./
K# 6oint%
IFRS r#7uir#% ( c'(%%i)i#d %t(t#+#nt o) )in(nci(' o%ition
#c#t in $#r 'i+it#d %itu(tion%@ IFRS )o''o% th# %(+#
guid#'in#% (% thi% t#t!oo )or di%tingui%hing !#t##ncurr#nt (nd noncurr#nt (%%#t% (nd 'i(!i'iti#%@
Und#r IFRS, curr#nt (%%#t% (r# u%u('' 'i%t#d in th# r#$#r%#
ord#r o) 'i7uidit@
So+# co+(ni#% r#ort th# %u!tot(' n#t (%%#t%, hich
#7u('% tot(' (%%#t% +inu% tot(' 'i(!i'iti#%@
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2-.0
K# 6oint%
IFRS h(% +(n di))#r#nc#% in t#r+ino'og@ In th# in$#%t+#nt
c(t#gor %toc i% c(''#d %h(r#%, (nd co++on %toc i%
c(''#d %h(r# c(it('Gordin(r@
*oth IFRS (nd AA6 r#7uir# di%c'o%ur#% (!out ;1<
(ccounting o'ici#% )o''o#d, ;2< "udg+#nt% th(t
+(n(g#+#nt h(% +(d# in th# roc#%% o) ('ing th#
#ntit9% (ccounting o'ici#%, (nd ;3< th# # (%%u+tion%(nd #%ti+(tion unc#rt(int th(t cou'd r#%u't in ( +(t#ri('
(d"u%t+#nt to th# c(rring (+ount% o) (%%#t% (nd 'i(!i'iti#%
ithin th# n#t )in(nci(' #(r@
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2-.
K# 6oint%
Co+(r(ti$# rior-#riod in)or+(tion +u%t !# r#%#nt#d
(nd )in(nci(' %t(t#+#nt% +u%t !# r#(r#d (nnu(''@
*oth AA6 (nd IFRS (r# incr#(%ing th# u%# o) )(ir $('u# to
r#ort (%%#t%@ A% #(+'#%, und#r IFRS co+(ni#% c(n
(' )(ir $('u# to ro#rt, '(nt, (nd #7ui+#nt n(tur('
r#%ourc#% (nd in %o+# c(%#% int(ngi!'# (%%#t%@
R#c#nt', th# IAS* (nd FAS* co+'#t#d th# )ir%t h(%# o) (
"oint' cr#(t#d conc#tu(' )r(+#or@
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2-.
K# 6oint%
Th# +on#t(r unit (%%u+tion i% (rt o) #(ch )r(+#or@
Ho#$#r, th# unit o) +#(%ur# i'' $(r d##nding on th#
curr#nc u%#d ;#@g@, Chin#%# u(n, ((n#%# #n, (nd*riti%h ound
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2-/4
Looing into th# Futur#
Th# IAS* (nd th# FAS* (r# oring on ( ro"#ct to con$#rg#
th#ir %t(nd(rd% r#'(t#d to )in(nci(' %t(t#+#nt r#%#nt(tion@ A
# )#(tur# o) th# roo%#d )r(+#or i% th(t #(ch o) th#%t(t#+#nt% i'' !# org(ni#d in th# %(+# )or+(t, to %#(r(t# (n
#ntit9% )in(ncing (cti$iti#% )ro+ it% o#r(ting (nd in$#%ting
(cti$iti#% (nd, )urth#r, to %#(r(t# )in(ncing (cti$iti#% into
tr(n%(ction% ith on#r% (nd cr#ditor%@
Th# %(+# c'(%%i)ic(tion% u%#d in th# %t(t#+#nt o) )in(nci('
o%ition ou'd ('%o !# u%#d in th# inco+# %t(t#+#nt (nd th#
%t(t#+#nt o) c(%h )'o%@
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2-/1
Jhich o) th# )o''oing %t(t#+#nt% i% )('%#
(< Th# +on#t(r unit (%%u+tion i% u%#d und#r IFRS@
!< Und#r IFRS, co+(ni#% %o+#ti+#% n#t 'i(!i'iti#%(g(in%t (%%#t% to r#ort Dn#t (%%#t%@
c< Th# FAS* (nd IAS* (r# oring on ( "oint conc#tu('
)r(+#or ro"#ct@
d< Und#r IFRS, th# %t(t#+#nt o) )in(nci(' o%ition i%
u%u('' r#)#rr#d to (% th# %t(t#+#nt o) (%%#t% (nd
#7uit@
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2-/2
A co+(n h(% urch(%#d ( tr(ct o) '(nd (nd ##ct% to
!ui'd ( roduction '(nt on th# '(nd in (roi+(t#' .
#(r%@ 8uring th# . #(r% !#)or# con%truction, th# '(nd i''
!# id'#@ Und#r IFRS, th# '(nd %hou'd !# r#ort#d (%:
(< '(nd ##n%#@
!< ro#rt, '(nt, (nd #7ui+#nt@
c< (n int(ngi!'# (%%#t@
d< ( 'ong-t#r+ in$#%t+#nt@
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2-/3
Curr#nt (%%#t% und#r IFRS (r# 'i%t#d g#n#r('':
(< ! i+ort(nc#@
!< in th# r#$#r%# ord#r o) th#ir ##ct#d con$#r%ion to
c(%h@
c< ! 'ong#$it@
d< ('h(!#tic(''@
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