Financial Accounting
B6013 Spring 2010
B6013 - Financial Accounting Financial Assets and Liabilities Shareholder’s Equity
Professor Urooj Khan o esso U ooj a
Outline – Session 19
1. Financial Assets and Liabilities
– Accounting for Financial Assets
2. Shareholder’s Equity
– – – – Capital Stock Cisco Case Dividends and Share Repurchases Comprehensive I C h i Income
B6013 Spring 2010 © Columbia Business School
2
Prof. Urooj Khan
1
B6013 Spring 2010
Background Readings and Practice Problems
•Shareholder’s Equity
– EWHM: M9 (pp. 1-23) and M5 (pp. 27-29) – Cisco Case
•Practice Problems
– E9-34, E9-43, E9-47, P9-49
B6013 Spring 2010 © Columbia Business School
3
Principles for Treatment of Operating Leases
• Treat the assets under operating leases as if they were purchased on a given date and then depreciated using the same policy as purchased operating assets of the same type. • The funding of these operating leases is the PV of the lease payments AT THE INCEPTION OF THE LEASE…….hence LEASE h • The Operating Asset = Financing liability only at the start of the lease (and at the end when both will be zero) • The rental payment is a cash payment for funding which is split between interest (first) then repayment of principal…..JUST LIKE ANY BOND • The economic expense is then both “depreciation” of the operating asset AND the interest expense on the outstanding balance of the “lease-based” borrowing. borrowing • Going forward you acquire operating assets and then decide how to fund them (cash, borrow outright or borrow from leasing) These are the key things to understand for the whole process (which can get vey complicated)
B6013 Spring 2010 © Columbia Business School
4
Prof. Urooj Khan
2
B6013 Spring 2010
Measuring Financial Assets after Issuance
Classification Trading Available for Sale Hold to Maturity Measured at: At Fair Value At Fair Value At Original Cost Gain/Loss in: Net Income Equity via OCI q y N/A
All
B6013 - Financial Accounting Financial Assets and Liabilities Shareholder’s Equity
Professor Urooj Khan o esso U ooj a
Outline – Session 19
1. Financial Assets and Liabilities
– Accounting for Financial Assets
2. Shareholder’s Equity
– – – – Capital Stock Cisco Case Dividends and Share Repurchases Comprehensive I C h i Income
B6013 Spring 2010 © Columbia Business School
2
Prof. Urooj Khan
1
B6013 Spring 2010
Background Readings and Practice Problems
•Shareholder’s Equity
– EWHM: M9 (pp. 1-23) and M5 (pp. 27-29) – Cisco Case
•Practice Problems
– E9-34, E9-43, E9-47, P9-49
B6013 Spring 2010 © Columbia Business School
3
Principles for Treatment of Operating Leases
• Treat the assets under operating leases as if they were purchased on a given date and then depreciated using the same policy as purchased operating assets of the same type. • The funding of these operating leases is the PV of the lease payments AT THE INCEPTION OF THE LEASE…….hence LEASE h • The Operating Asset = Financing liability only at the start of the lease (and at the end when both will be zero) • The rental payment is a cash payment for funding which is split between interest (first) then repayment of principal…..JUST LIKE ANY BOND • The economic expense is then both “depreciation” of the operating asset AND the interest expense on the outstanding balance of the “lease-based” borrowing. borrowing • Going forward you acquire operating assets and then decide how to fund them (cash, borrow outright or borrow from leasing) These are the key things to understand for the whole process (which can get vey complicated)
B6013 Spring 2010 © Columbia Business School
4
Prof. Urooj Khan
2
B6013 Spring 2010
Measuring Financial Assets after Issuance
Classification Trading Available for Sale Hold to Maturity Measured at: At Fair Value At Fair Value At Original Cost Gain/Loss in: Net Income Equity via OCI q y N/A
All