Financial Accounting Course Notes

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CONSOLIDATION0-20% a)HELD TO MATURITY: only used for debt securities LOCOM (if impaired, write down) Financial Investment (A+)22Cash (A-)22b)TRADING: gains & losses are recognized in I/S; intention of investor is to profit from ST price fluctuations FAIR VALUEFinancial Investment (A+)22Cash (A-)22Financial Investment (A+)4Gain on investment on securities (OE+)4c)AVAIL FOR SALE: recorded on B/S at FAIR VALUE; gains & losses are NOT recognized in I/S but in a separate EQUITY account called Accumulated Other Comprehensive Income (AOCI); AxS Investment (A+)22Cash (A-)22AxS Investment (A+)10Reserve - AOCI (OE+)6Deferred taxed payable (L+)4If sold:Cash35AOCI6Deferred taxes payable4AxS Investment (A-)32Gain on Investment1320-50%- Usually EQUITY METHOD (exercise significant influence)Exceptions: *when you are holding the shares for a short period of time => COST METHOD * when investee faces restrictions on its ability to pay dividends to its shareholdersTO FIND DIVIDEND PAYOUT TO PARENT/MI/ASSOC.INVESTMENT IN ASSOC = BB+NET P+NEW INVEST-DIV = EBPARENT COMPANY =BB + NET PROFIT – DIVIDENDS = EB Held-to-Maturity: B/S @ FVHeld-for-Trading: B/S @ FV, I/S gains/lossesAvailable-for-Sale: B/S @ FV; gains/losses in OE on B/SGain/Loss = Mkt Value (or Face Value) – Purchase Price∆ OE = diff btw mkt value & purchase priceP&L Impact = realized Gain/Loss + Investment Income from DividendEI PROFIT (S)

PROFIT (S)
P
S
DIVIDEND P
DIVIDEND S
EQUITY INCOME=SHR IN PROFIT OF ASSOC COMP OR % OF PROFIT OF P IN (S) PROFIT ATTR. TO GROUP = EI – % SHR DEP (P) +SHR OF P IN MI PROFIT ATTR. TO MI = % PROFIT SHR OF (S) - % SHR OF DEP (S)
DIV PAID TO GROUP OWNER = DIV (P) + % SHR OF P IN DIV (S)
DIV PAID TO MI = % SHARE OF MI IN DIV OF S / IF 100% ALL GOES TO P

Goodwill = purchase price - % [Assets - Liabilities] A| L| |
OE|
BRAND| MI|
ADDT'L PP| |
PATENT| |
| RATIOSCurrent Ratio = CA / CL [measure of a firm’s liquidity]Debt-Equity Ratio = Debt (ST<)/(Debt+Equity) measure of financial leverage where equity = [SH Equity + MI] or [debt + group equity] debt = net of cash & ST investmentsProfit to sales/Return on Sales/Profit Margin Ratio = Gross Profit/ Net sales *100% Net Income/ Net Sales. Profit earned per € of sales. Provides insight to cost structure.ROE (Return on Equity) = Net Profit (to P co)/Avg SH Equity shows return on each euro of capital invested by ownersROA (Return on Assets) = Profit/Avg Total Assets; Profit Margin Ratio * Asset Turnover (shows the return on each euro of assets employed by the firm)Asset Turnover= Net Assets (or sales)/ Avg Total Assets (measures the efficiency with which a firm uses its assets)Receivables turnover (in year) = Annual credit sales net/ Avg net ARDividends= Net Profit - in Retained EarningsPayout Ratio= Div/EPS Book Value/Share= Share K + Reserves/ Ordinary SharesMarket Rate of Return= Reflects sum of Per Share Div Paid+ share mkt price+ deflated by shares start of period mkt price-------------------------------------------------

Earnings per Share= After tax profit / W. Av. Ordinary shares outstanding-------------------------------------------------
Days sales in receivables (or days sales outstanding): 365/receivables turnover-------------------------------------------------
Receivables turnover = Credit sales / Avg trade receivables (use net sales if not given the specific cash or A/R sales)-------------------------------------------------
Training Costs: Expensed because cannot appropriate future benefits and future benefits cannot be directly linked-------------------------------------------------
Gross Profit Ratio (or profit margin ratio) = Gross profit/Net sales (shows the return on...
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