ACCT1501 Lecture Notes - Lecture 6: Financial Accounting, General Ledger, Financial Statement

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11 Nov 2018

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Accounting standards and auditing: prepare a worksheet and financial statements (comprehensive example). List all the accounts vertically down the page: current assets/non-current assets, current liabilities/non-current liabilities, shareholder(cid:495)s equity, revenue, expense. Referring to table below: the trial balance balances from the general ledger accounts, adjustments from adjusting journal entries, current and non-current, expenses classification: selling expenses, administration expenses, financing expenses, other. From the worksheet columns, transfer the info to financial statements in the correct format. Classify accounts correctly: assets, liabilities, owner(cid:495)s equity, revenues and expenses, revenue and (cid:494)gross profit(cid:495) Generally accepted accounting principles (gaap) rules, standards and usual practices that companies are expected to follow when preparing financial statements. Nationalised: explain gaap and its components. expenses. Components of gaap: set by the australian accounting standards board (aasb, the framework (a rule book for all companies) framework for the preparation and. Presentation of financial statements: some additional rules (generally for bigger companies), asx listing requirements, corporations law, aag: accounting guidance releases, uig:

Related Questions

Produce a balance sheet for a company that distinguishes betweencurrent and non- current assets and liabilities.

Create a balance sheet from a trial balance.

Create a comparison of net income based on different methods ofinventory accounting.

Analyze a statement of cash flows and show where each line itemcan be found or

calculated from the other financial statements.

Prepare a full analysis of key financial ratios for a companyand state conclusions about

the financial strength of the company compared to industryratios.

PROJECT SUBMISSION PLAN

Project Part

Description/Requirements of Project Part

Evaluation Criteria

Title: Creating a Balance Sheet and Evaluating Inventory
You will be provided with financial information about a fictionalcompany. You will have to determine what information is relevantfor Project Parts 1 and 2.

Task 1: Create a balance sheet from a trial balance for a givenscenario. Make sure you classify the accounts appropriately ascurrent or non-current. Click here to download the trialbalance.

Page 1

AC1420: Project

Project Part

Description/Requirements of Project Part

Evaluation Criteria

Task 2: Perform inventory valuations using LIFO, FIFO, andweighted average methods based on the following information.Explain the impact of each method on the cost of goods sold andending inventory.

The company imports microwaves from a supplier in China for theUS market. At the end of the first quarter, 100 microwaves are instock. The company purchased a total of 400 microwaves during thequarter at various prices: January: 100 units @ $75

February: 250 units @ $83
March: 50 units @ $87
The company had no inventory at the beginning of the quarter.
Task 3: If the companyâs goal is to maximize net income, whichevaluation method will you use and why?

Project Part 1 -Task 2:

Value of Ending Inventory of100 Units

Weighted AVG

LIFO

FIFO

Cost of Goods Sold (300 UnitsSold)

Weighted AVG

LIFO

FIFO

Create a BalanceSheet from the trial balance:
		Debits	Credits	Classification

	Cash	300,000.00		Current asset

	Sales		(10,000,000.00)	Income statement

	Cost of Goods Sold	7,000,000.00		Income statement

	Selling Expenses	500,000.00		Income statement

	Other income		(50,000.00)	Income statement

	Administrative expenses	350,000.00		Income statement

	Interest Expenses	12,500.00		Income statement

	Land	300,000.00		non-current asset

	Building	2,000,000.00		non-current asset

	Long Term bond payable		(550,000.00)	non-current liability

	Accrued Liabilities		(50,000.00)	current- liability

	Accumulated Depreciation Buildings		(250,000.00)	non-current asset

	Equipment	750,000.00		non-current asset

	Receivables	100,000.00		current asset

	Allowance for doubtful accounts		(7,500.00)	current asset

	Accumulated depreciation equipment		(125,000.00)	non-current asset

	Common Stock		(200,000.00)	equity

	Payables		(115,000.00)	current Liability

	Inventories	200,000.00		current asset

	Prepaid Expenses	50,000.00		current asset

	Retained Earnings		(215,000.00)	equity



		11,562,500.00	(11,562,500.00)

Assets		Equity and Liabilities

Current Assets		Current Liabilities





Total Current Assets	-	Total Current Liabilities	-




		Total long term Liabilities	-

Total property plant andequipment	-






		Total Equity	-


Total Assets	-	Total Equity and liabilities	-

pearlouse123

Case 10-1

Swisscom AG, the principal provider of telecommunications inSwitzerland, prepares consolidated financial statements inaccordance with IFRS. Until 2007, Swisscom also reconciled its netincome and stockholdersâ equity to US GAAP. Swisscom consolidatedfinancial statements from a recent annual report are presented intheir original format in Column 1 of the following worksheet. Note27, Differences between IFRS and GAAP, which includes Swisscomâs USGAAP reconciliation, also is provided.

Required

Use the information in Note 27 to restate Swisscomâsconsolidated financial statements in accordance with US GAAP. Beginby constructing debit/credit entries for each reconciliation item,and then post these entries to columns 2 and 3 in the worksheetsprovided.

Calculate each of the following ratios under both IFRS and GAAPand determine the percentage differences between them, using IFRSratios as the base:

Net income/net revenue

Operating income/net revenues

Operating income/total assets

Net income/shareholdersâ equity

Operating income/total shareholdersâ equity

Current assets/current liabilities

Total liabilities/total shareholdersâ equity

Which of these ratios is most (least) affected by the accountingstandards used?

Worksheet for theRestatement of Swisscom's Financial Statements from IFRS to USGAAP
		Reconciling	Adjustment
	IFRS	DR	CR	US GAAP
Consolidated Statement of Operations

Net revenue	9,842
Capitalized cost and changes ininventory	277
Total	10,119
Goods and services purchased	1,666
Personnel expenses	2,584
Other operating expenses	2,090
Depreciation and amortization	1,739
Restructuring charges	1,726
Total operating expenses	9,805
Operating income	314
Interest expense	(428)
Financial income	25
Income(loss) before incometaxes and equity in net loss of affiliated companies	(89)
Income tax expense	1
Income(loss) before equity innet loss of affiliated companies	(90)
Equity in net loss of affiliatedcompanies	(325)
Net income(loss)	(415)

Consolidated Retained EarningsStatement
Retained earnings, 1/1	(151)
Net loss	(415)
Profit distribution declared	(1,282)
Conversion of loan payable to equity	3,200
Retained earnings, 12/31	1,352


Assets
Current assets
Cash and equivalents	256
Securities available for sale	51
Trade accounts receivable	2,052
Inventories	169
Other current assets	34
Total current assets	2,562

Noncurrent assets
Property, plant and equipment	11,453
Investments	1,238
Other noncurrent assets	220
Total noncurrent assets	12,911
Total assets	15,473

Current liabilities
Short-term debt	1,178
Trade accounts payable	889
Accrued pension cost	789
Other current liabilities	2,213
Total current liabilities	5,069
Long-term liabilities
Long-term debt	6,200
Finance lease obligation	439
Accrued pension cost	1,488
Accrued liabilities	709
Other long-term liabilities	338
Total long-term liabilities	9,174
Total liabilities	14,243

Shareholders' equity
Retained earnings	1,352
Unrealized market valueadjustment on securities available for sale	39
Cumulative translation adjustment	(161)
Total shareholders' equity	1,230
Total liabilities and shareholders'equity	15,473

27. Differences between IFRS and GAAP

The consolidated financial statements of Swisscom have beenprepared in accordance with IFRS, which differ in certain respectsfrom GAAP in the US. Application of US GAAP would have affected thebalance sheet and net income (loss) to the extent described below.A description of the material differences between IFRS and GAAP asthey relate to Swisscom are discussed in further detail below.

Reconciliation of net income (loss) from IFRS toGAAP

The following schedule illustrates the significant adjustmentsto reconcile net income (loss) in accordance with US GAAP to theamounts determined under IFRS, for the current year ended December31.

(CHF in millions)
Net income (loss) according toIFRS		(415)
US GAAP adjustments:
Capitalization of interest cost		8
Restructuring charges		205
Depreciation expense		-5
Capitalization of software		182
Restructuring charges byaffiliates		50
Net income according to GAAP		25

Reconciliation of shareholdersâ equity from IFRS toGAAP

The following is a reconciliation of the significant adjustmentsnecessary to reconcile shareholdersâ equity in accordance with USGAAP to the amounts determined under IFRS as at December 31 of thecurrent year.

(CHF in millions)
Shareholders' equity accordingto IFRS		1230
US GAAP adjustments:
Capitalization of interest cost		54
Restructuring charges		205
Depreciation expense		-5
Capitalization of software		475
Restructuring charges byaffiliates		50
Shareholders' equity accordingto GAAP		2009

Capitalization of interest cost

Swisscom expenses all interest costs as incurred. US GAAPrequires interest costs incurred during the construction ofproperty, plant and equipment to be capitalized. Under US GAAP,Swisscom would have capitalized CHF 13 million and amortized CHF 5million for the current year.

Restructuring charges

During the current year, Swisscom recognized under IFRSrestructuring charges totaling CHF 1726 million. The followingschedule illustrates adjustments necessary to reconcile thesecharges to amounts determined under US GAAP.

Restructuringcharges in accordance with IFRS
Personnel restructuringcharges		1326
Write-down of long-livedassets		316
Misc. restructuring charges		84
Total in accordance with IFRS		1726
Adjustments to restructuringcharges to accord with GAAP		(205)
Restructuring charges inaccordance with GAAP		1521

Reconciliation of restructuring charges
Restructuring chargesaccording to US GAAP consist of the following:
Personnel restructuringcharges		1228
Write-down of long-livedassets		209
Misc. restructuring charges		84
Restructuring charges inaccordance with GAAP		1521

Depreciation expense

Due to the difference in carrying value of long-lived assetsafter write-downs describe in (b), there is a difference in theamount of depreciation expense taken under IFRS and GAAP. Anadjustment is made for the current year to record an additional CHF5 million of depreciation under US GAAP.

Capitalization of software

Swisscom has expensed software costs as incurred. For US GAAPpurposes, external consultant costs incurred I the development ofsoftware for internal use has been capitalized. These costs arebeing amortized over a 3 year period. The capitalization ofsoftware costs accords with common practice in the UStelecommunications industry.

Swisscom has capitalized, as disclosed in the reconciliation ofnet income (loss) and shareholdersâ equity to US GAAP, CHF 220million and amortized CHF 37 million in the previous year andcapitalized CHF 370 million and amortized CHF 188 million in thecurrent year.

Restructuring charges of affiliates

During the current year, Swisscomâs share of personnel and otherrestructuring charges recorded by affiliates amounted to CHF 50million. These restructuring charges do not meet all therecognition criteria contained in EITF 94-3 and therefore cannot beexpensed in the current year, under US GAAP.

limeelk579

Challenger Limited
Balance Sheets for the year
ended at 31 December
( U.S dollars)
	2007	2008
Assets
Non-Current Assets
Property , plan and equipment	$152,425,129.00	$49,410,844.00
Total non-currentassets	$152,425,129.00	$49,410,844.00
Current assets
Spare parts inventory	$6,956,849.00	$12,874,676.00
Receivables and prepayments	$40,518,272.00	$18,887,780.00
Due from related parties	$519,044.00	$140,136.00
Cash and Cash equivalents	$2,842,879.00	$2,753,003.00
TotalCurent assets	$50,837,044.00	$34,655,595.00
Total Assets	$202,262,173.00	$84,066,439.00

Equity and liabilities
Equity
Capital	$64,957,265.00	$50,000,000.00
Additional Paid-in Capital	$70,795,653.00	$15,000,000.00
Revaluation reserve	$16,782,544.00	$1,403,983.00
Other	-$1,368,122.00
R/E	$9,240,432.00	$2,314,787.00
Total Equity	$160,407,772.00	$68,721,770.00
Liabilities
Non-Current Liabilities
Borrowings	$4,545,190.00	$738,499.00
Total Non-CurrentLiabilities	$4,545,190.00	$738,499.00
Current Liabilities
Borrowings	$13,554,645.00	$2,676,000.00
Trade and other payables	$14,060,820.00	$7,016,164.00
Current Tax liabilities	$4,062,411.00	$2,869,643.00
Provisions	$491,280.00
Divididends and redemption payable	$3,078,302.00	$2,044,363.00
Due to related parties	$3,061,753.00
Total CurrentLiabilities	$38,309,211.00	$14,606,170.00
Total liabilities	$42,854,401.00	$15,344,669.00
Total equity and liabilities	$203,262,173.00	$84,066,439.00

Challenger Limited
Statements of Income
for the year ended
31 of december
( US dollars)
	2007	2008

Drilling revenue	$73,071,917.00	$46,043,831.00
Drilling costs	-$52,933,369.00	-$34,309,267.00
Gross Profit	$20,138,548.00	$11,734,564.00
General and administrative Expenses	-$9,775,827.00	-$8,021,383.00
Other income	$2,446,433.00	$19,005.00
Other expense	-$1,870,000.00
Operating (loss) / Profit fromoperations	$10,939,154.00	$3,732,186.00

Finance income	$46,015.00	$751,224.00
Finance cost	-$673,397.00	-$559,662.00
(Loss) / profit before income tax	$10,311,772.00	$3,923,748.00
Income tax	-$3,389,127.00	-$2,307,594.00
(Loss)/ profit for the year	$6,922,645.00	$1,616,154.00

Basis of Preparation The financial statements have been preparedin accordance with International Financial Reporting Standards(IFRS). The financial statements have been prepared under thehistorical cost convention as modified by the revaluation of therigs. Rigs include drilling equipment, well control equipment,electrical equipment, power plant, and so on.

Required:

A. Since the financial statements are prepared in U.S. dollars,does this imply that the financial statements are prepared inaccordance with U.S. GAAP? Why or why not?

B. List three major differences between this balance sheet incomparison to balance sheets prepared under U.S. GAAP.

C. Evaluate the performance of the company using the incomestatement. What appears to be the cause of the major change inperformance?

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ACCT1501 Lecture Notes - Lecture 6: Financial Accounting, General Ledger, Financial Statement

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