ACCT 2220 Chapter 2: Accounting Chapter 2

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whitepanda307

30 Mar 2016

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Chapter 2: a further look at financial statements. Assets: the resources that a company owns or controls that will provide future economic bene ts. Current assets: assets that are expected to be converted into cash or will be sold or used up within one year of the company"s nancial statement date or its operating cycle (whichever is longer) Operating cycle: the average period of time it takes a business to pay cash to obtain products or services and then receive cash from customers for these products or services. !1: prepaid expenses: represent the cost of expenses like rent and insurance paid in. Non-current assets: are not expected to be converted into cash, sold, or used up by the business within one year of the nancial statement date or its operating cycles. (any asset that is not a current asset) Liabilities: are obligations that result form past transactions.

Related Questions

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

Complete the following statement of cash flows:

Estimate an indirect method statement of cash flows for 2011 onthe form provided below. Assume net income (profit) for 2011 willbe $4,230 and property, plant and equipment with a historical cost$1,296 and accumulated depreciation of $1,138 will be sold for cashof $303. Use only the information on this page and the forecastedbalance sheet on the following page. You donât have to worry aboutaccounts that donât change on the balance sheet.

FORECASTED STATEMENT OF CASH FLOWS

Cash flow from operating activities 12/31/2011

Profit

Depreciation and amortization

Gain on sale of property, plant and equipment

Change in assets and liabilities

Receivableââtrade

Prepaid expenses

Inventories

Accounts payable

Accrued wages and salaries

Customer advances

Net cash provided by operating activities

Cash flow from investing activities

Capital expenditures

Proceeds from disposal of property, plant and equipment

Net cash provided by (used for) investing activities

Cash flow from financing activities

Dividends paid

Share repurchases for treasury

Payments on debt

Net cash provided by (used for) financing activities

Change in cash

---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

FORECASTED BALANCE SHEET FOR PROBLEM I ONLY

Assets 12-31-2011/12-31-2010/Change

Current assets:

Cash and equivalents $3,821/ $3,592/ $229

Receivablesââtrade, net 8,808 /8,494/314

Receivablesââfinance, net 8,298 /8,298 /0

Prepaid expenses 1,745 1,839 â94

Inventories 8,823 /9,587/ â764

Total current assets $31,495/ $31,810/ â$315

Property, plant and equip., net of accumulated 13,104/ 12,539/565

deprc of $13,946 in 2011 & $12,673 in 2010

Receivablesââtrade 744/ 793/ â49

Receivablesââfinance 11,264/ 11,264/ 0

Goodwill 2,614 /2,614/ 0

Other noncurrent assets 5,000 /5,000/ 0

Total assets $64,221 /$64,020/ $201

Liabilities

Current liabilities:

Current portion of longâterm debt:

Machinery and Engines 685/ 699/ â14

Financial Products 7,282 /7,282/ 0

Accounts payable 4,431/ 5,856/ â1,425

Accrued wages and salaries 1,213 /1,670/ â457

Customer advances 1,911/ 1,831/ 80

Other current liabilities 4,682/ 4,682/ 0

Total current liabilities $20,204/ $22,020/ â$1,816

Longâterm debt

Machinery and Engines 4,103/ 4,505/ â402

Financial Products 15,932/ 15,932/ 0

Liability for postemployment benefits 7,584/ 7,584/ 0

Other liabilities 2,654/ 2,654/ 0

Total liabilities $50,477/ $52,695/ â$2,218

Stockholders' equity

Contributed capital 4,389/ 4,389/ 0

Treasury stock -11,108/ â10,397/ â711

Profit employed in the business 24,514/ 21,384/ 3,130

Accumulated &compre income â4,051/ â4,051/ 0

Total stockholders' equity $13,744/ $11,325/ $2,419

Total liabilities &stockholders' equity $64,221/ $64,020/$201

coralcrow876

Excess capacity

Krogh Lumber's 2016 financial statements are shown here.

Krogh Lumber: Balance Sheet as of December 31, 2016 (Thousands of Dollars)
Cash	$1,800	Accounts payable	$7,200
Receivables	10,800	Notes payable	3,472
Inventories	12,600	Accrued liabilities	2,520
Total current assets	$25,200	Total current liabilities	$13,192
		Mortgage bonds	5,000
Net fixed assets	21,600	Common stock	2,000
		Retained earnings	26,608
Total assets	$46,800	Total liabilities and equity	$46,800

Krogh Lumber: Income Statement for December 31, 2016 (Thousands of Dollars)
	Sales	$36,000
	Operating costs including depreciation	30,783
	Earnings before interest and taxes	$5,217
	Interest	1,017
	Earnings before taxes	$4,200
	Taxes (40%)	1,680
	Net income	$2,520
	Dividends (60%)	$1,512
	Addition to retained earnings	$1,008

Assume that the company was operating at full capacity in 2016 with regard to all items except fixed assets; fixed assets in 2016 were being utilized to only 61% of capacity. By what percentage could 2017 sales increase over 2016 sales without the need for an increase in fixed assets? Round your answer to two decimal places.
%

Now suppose 2017 sales increase by 20% over 2016 sales. Assume that Krogh cannot sell any fixed assets. All assets other than fixed assets will grow at the same rate as sales; however, after reviewing industry averages, the firm would like to reduce its operating costs/sales ratio to 84% and increase its total liabilities-to-assets ratio to 42%. The firm will maintain its 60% dividend payout ratio, and it currently has 1 million shares outstanding. The firm plans to raise 35% of its 2017 forecasted interest-bearing debt as notes payable, and it will issue bonds for the remainder. The firm forecasts that its before-tax cost of debt (which includes both short- and long-term debt) is 10%. Any stock issuances or repurchases will be made at the firm's current stock price of $40. Develop Krogh's projected financial statements. What are the balances of notes payable, bonds, common stock, and retained earnings? Round your answers to the nearest hundredth of thousand of dollars.

Krogh Lumber Pro Forma Income Statement December 31, 2017 (Thousands of Dollars)
	2016	2017
Sales	$36,000	$
Operating costs (includes depreciation)	30,783	$
EBIT	$5,217	$
Interest expense	1,017	$
EBT	$4,200	$
Taxes (40%)	1,680	$
Net Income	$2,520	$
Dividends	$1,512	$
Addition to RE	$1,008	$

Krogh Lumber Pro Forma Balance Statement December 31, 2017 (Thousands of Dollars)
	2016	2017
Cash	$1,800	$
Accounts receivable	10,800	$
Inventories	12,600	$
Fixed assets	21,600	$
Total assets	$46,800	$
Payables + accruals	$9,720	$
Short-term bank loans	3,472	$
Total current liabilities	$13,192	$
Long-term bonds	5,000	$
Total debt	$18,192	$
Common stock	2,000	$
Retained earnings	26,608	$
Total common equity	$28,608	$
Total liab. and equity	$46,800	$

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ACCT 2220 Chapter 2: Accounting Chapter 2

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