ACC E113 Lecture Notes - Lecture 15: Cash Flow, Deferred Income, Accrual

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rubyporpoise450

30 Jul 2020

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The statement of earnings includes the results of operations for a specific accounting period as well as the effects of discontinued operations. The additional components of income reflect the financial effect of events that cause changes in shareholder"s equity, other than investments by shareholders or distributions to shareholders. The additional components of income, or other comprehensive income, include unrealized gains and losses on certain financial instruments. The net earnings and other comprehensive income totals are then combined to create a final total called comprehensive income (the bottom line) Difference between net earnings and cash flow from operations: Net earnings is the difference between revenues/gains and expenses/losses, whereas cash flow from operations equals the difference between cash receipts and cash payments related to operations. Net earnings differs from cash flow from operations because the revenue recognition principle and matching process result in the recognition of revenues and related expenses that are independent of the timing of cash receipts and payments.

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Financial statements for E-Perform Inc follow:

E-Perform, Inc

Balance Sheet

December 31

	2009	2008
Assets
Cash	$97,800	$48,400
Accounts Receivable	75,800	43,000
Inventories	122,500	92,850
Prepaid Expenses	38,400	26,000
Available-for-Sale Securities	128,000	114,000
Property, plant and equipment	270,000	242,500
Accumulated Depreciation	(50,000)	(52,000)
Total Assets	$682,500	$514,750
Liabilities and Shareholders' Equity
Accounts Payable	$93,000	$77,300
Accrued Expenses Payable	11,500	7,000
Notes Payable	110,000	150,000
Common Shares	220,000	175,000
Retained Earnings	234,000	105,450
Accumulated other comprehensive income	14,000	0
Total liabilities and shareholders' equity	$682,500	$514,750

Statement of Earnings:

Sales		$492,780
Cost of Goods Sold		185,460
Gross Profit		307,320
Operating Expenses
Other operating expenses	$62,410
Depreciation expense	46,500	108,910
Earnings from operations		198,410
Other expenses
Interest expense	$4,730
Loss on sale of equipment	7,500	12,230
Earnings before income tax		186,180
Income tax expense		45,000
Net Earnings		$141,180

Additional Information:

1. The available-for-sale securities were revalued to their fair value of $128,000 at the end of 2009.

2. New equipment costing $85,000 was purchased for $25,000 cash and a $60,000 note payable

3. Old equipment having an original cost of $57,500 was sold for $1,500

4. Accounts payable relate only to merchandise creditors

5. Notes payable were repaid during the year

**Instructions: Prepare the cash flow statement using the direct method.

tanwalrus385

Common Size Income statement
	2017		2016
	$M	Percentage	$M	Percentage
Operating revenue	2319	100%	2375	100%
Operating expenses	-1666	-71.84%	-1725	-72.63%
Earnings before interest, tax, depreciation, amortisation,changes in fair value of hedges and other signifcant items(EBITDAF)	653	28.16%	650	27.37%
Depreciation and amortisation	-264	-11.38%	-236	-9.94%
Impairment of assets	-10	-0.43%	-4	-0.17%
Loss on sale of assets	-4	-0.17%	-1	-0.04%
Net change in fair value of electricity and other hedges	-76	-3.28%	-15	-0.63%
Operating profit	299	12.89%	402	16.93%
Finance Cost	79	3.41%	80	3.37%
Interest Income	2	0.09%	2	0.08%
Net change in fair value of treasury instruments	55	2.37%	-68	-2.86%
Net profit before tax	277	11.94%	256	10.78%
Income tax expense	-80	-3.45%	-71	-2.99%
Net proft after tax attributed to the shareholders of the parentcompany	197	8.50%	185	7.79%
Earnings per share (EPS) attributed to ordinary equityholders of the parent	cents		cents
Basic and diluted earnings per share	7.7	0.33%	7.2	0.30%

COMPREHENSIVE INCOME STATEMENT

2017

2016

Percentage

Net profit after tax

197

8.50%

185

7.79%

Other comprehensive income

Intems that will not be reclassifed to profit or loss

Asset revaluation

428

18.46%

889

37.43%

Defferred tax on the above item

-120

-5.17%

-248

-10.44%

Items that may be reclassified to profit or loss

308

641

Net gain on cash flow hedges

0.09%

Exchange differences arising from translation of foreignoperation

0.04%

-23

-0.97%

Income tax on the above items

0.13%

-23

-0.97%

Other comprehensive income for the year, net of tax

311

13.41%

618

26.02%

Total comprehensice income for the year, net of tax attributedto shareholders of parent company

508

21.91%

803

33.81%

BALANCE SHEET

	2017		2016
	$M	Percentage	$M	Percentage
Current Assets
Cash and cash equivalents	80	0.92%	118	1.38%
Trade receivables	260	3.00%	194	2.27%
Financial Instruments	59	0.68%	71	0.83%
Other assets	32	0.37%	23	0.27%
Total Current Assets	432	5.00%	406	5.00%
Non-current assets
Property, plant and equipment	7961	91.88%	7771	91.02%
Intangible assets	58	0.67%	47	0.55%
Deferred tax	43	0.50%	40	0.47%
Financial Instruments	172	1.98%	274	3.21%
Total non-current assets	8234	95.00%	8132	95.00%
Total assets	8665	100.00%	8538	100.00%
Current Liabilities
Payables and accuals	296	3.42%	205	2.40%
Employee entitlements	15	0.17%	15	0.18%
Current portion of termborrowings	170	1.96%	214	2.51%
Finance lease payable	1	0.01%	1	0.01%
Financial Instruments	67	0.77%	48	0.56%
Current tax payable	30	0.35%	30	0.35%
Total current Liabilities	579	6.68%	513	6.01%
Non-current liabilities
Term borrowings	1022	11.79%	1000	11.71%
Deferred tax	1710	19.73%	1617	18.94%
Provisions	9	0.10%	8	0.09%
Finance lease payable	46	0.53%	47	0.55%
Financial Instruments	124	1.43%	203	2.38%
Term payables	93	1.07%	100	1.17%
Total non-current liabilities	3004	34.67%	2975	34.84%
Total liabilities	3583	41.35%	3488	40.85%
Net assets	5082	58.65%	5050	59.15%
Shareholders' equity
Share capital	1598	18.44%	1597	18.70%
Reserves	3484	40.21%	3453	40.44%
Total shareholders' equity	5082	58.65%	5050	59.15%

Using the following financial ratiosfor 2016 and 2017 periods, and other associated

information available in the publicdomain, assess the financial health of MEL from the

view of an investor.

Liquidity ratios

b) Asset management efficiencyratios

c) Profitability ratios

d) Market ratios

Assume you are a banker evaluating aloan request from Meridian Energy Limited

(MEL) for $220 million. ConsideringMELâs recent earnings announcements and

earnings forecast updates, what wouldbe your concerns in deciding on approval or

denial of the loan request? Use thecompanyâs capital structure ratios for 2016 and 2017

in your explanation.

apricotwallaby871

Capaz company completed its statememt of earning and statementof financial position for 2018 and provodedthe followinginformation:

Statement of Earnings for 2018

Servicerevenue $53,ooo

Expenses

Salaries $41,000

Depreciation 7,000

Amortization ofcopyrights 200

Otherexpenses 9,700 57,900

Net earnings(Loss) $4,900

Partial Statement of FinancialPosition 2018 2017

Accountreceivable $8,000 $15,000

Salariespayable 15,000 1,000

Other accuredliabilities 1,000 5,100

In addition, Capaz bought a small service machine for$5,000.

Required:

1. Present the operating activities section of the statement ofcash flows for Capaz Company using the indirect method.

2. What were the major reasons that Capaz was able to report anet loss but positive cash flow from operations? Why are thereasons for the difference between cash flow from operations andnet earnings important to financial analysts?

If you can provide the answers in Excel Sheet that would begreat.

indigoporcupine929

ACC E113 Lecture Notes - Lecture 15: Cash Flow, Deferred Income, Accrual

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