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MGAB01H3 Chapter Notes - Chapter 1-4: International Financial Reporting Standards, Deferred Income, Gross Profit

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azuremacaw664
7 Nov 2017
School
UTSC
Department
Financial Accounting
Course
MGAB01H3
Professor
quanfun

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MGAB01H3 Full Course Notes
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MGAB01H3 Full Course Notes
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Document Summary

1. statement of financial position (balance sheet)- concise picture of financial position of the company at a point in time. 2. statement of comprehensive statement (income statement)-concise picture of profitability (income or loss) for a period of time. 3. statement of changes in equity (statement of retained earnings) - describe the changes in shareholders" equity. 4. statement of cash flow- what happened to cash. Matching principle: all expenses must be recorded in the same accounting period as the revenues they helped to earn. Business entity principle: personal transactions of owners are treated separately from those of the business. Going concern principle: the assumption that an entity will remain in a business for the foreseeable future. Revenue recognition principle: you record revenue when it has been earned. Cost principle: requires that assets be recorded at the cash amount (or its equivalent) at the time that an asset is acquired.

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Related Questions

Calculate the external financing needed given the following financial statements. Assume that all costs, all assets, and accounts payable change proportionally with sales. Sales are projected to grow by 25%. Also assume that the company is operating at full capacity.

Current Statement of Comprehensive Income Sales $50,000 CoGS 30,000 EBDIT 20,000 Depreciation 10,000 EBIT 10,000 Interest expense 5,000 Taxable income 5,000 Taxes (35%) 1,750 Net Income 3,250 Dividends 975 Addition to RE 2,275

Current Statement of Financial Position Cash $8,000 Accounts receivable 22,000 Inventory 30,000 Total current assets 60,000 Fixed assets 90,000 Total assets $150,000 Accounts payable $15,000 Notes payable 5,000 Total current liabilities 20,000 Long-term debt 40,000 Common stock 40,000 Retained earnings 50,000 Total owners’ equity 90,000 Total Liabilities and OE $150,000

Select one answer

A- $33,750

B- $34,656.25

C- $30,906.25

D- $37,500

E- $22,500

QUESTION 2 (25 Marks: 45 minutes)

2.1 Answer the following questions:

a) Define current liabilities (2 marks)

b) Define current assets (2 marks)

c) In which sequence should notes to the financial statements be presented? (2 marks)

d) Discuss the identification of financial statements as noted in IAS 1. (2 marks)

e) Discuss consistency of presentation as a general feature of financial statements. (2 marks)

f) Discuss materiality and aggregation as a general feature of financial statements.(2 marks)

2.2 You are provided with the following statement of financial position of Brabham Limited:

Statement of financial position ON 31 December 20.12

ASSETS Land and buildings 165

Vehicle 85

Furniture’s 45

Share Capital (2 000 000 authorised NPV shares) 125

Cash on hand (cash float) 5

Bank overdraft (2)

Inventory 26

Trade and other debtors 15

Shareholders for dividends 11

Total assets 475

Equity and liabilities

Retained earnings 305

Trade and other creditors 110

Long term loans 79

Accumulated depreciation 21

Income tax expense 30

Total equity and liabilities 515

Required 1. Critically evaluate the presentation of the above statement according to the requirement of IAS 1. (13 marks)

The following is the financial statement of Executive Fruit Company for the year ended December 2014.
INCOME STATEMENT, 2014
(Figures in $ Thousands)
Revenue $ 5,500
Cost of goods sold 4,950
EBIT $ 550
Interest 110
Earnings before taxes $ 440
State and federal tax 176
Net income $ 264
Dividends 176
Additions to retained earnings $ 88
BALANCE SHEET (Year-End, 2014)
(Figures in $ Thousands)
Assets
Net working capital $ 550
Fixed assets 2,200
Total assets $ 2,750
Liabilities and shareholders' equity
Long-term debt $ 1,100
Shareholders' equity 1,650
Total liabilities and shareholders' equity $ 2,750

The following are the first stage and second stage pro forma financial statements of Executive Fruit Company for the year ended December 2015.
First stage pro forma statements:
PRO FORMA INCOME STATEMENT, 2015
(Figures in $ Thousands)
Revenue $ 6,050
Cost of goods sold 5,445
EBIT $ 605
Interest 110
Earnings before taxes $ 495
State and federal tax 198
Net income $ 297
Dividends 198
Additions to retained earnings $ 99
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital $ 605
Fixed assets 2,420
Total assets $ 3,025
Liabilities and shareholders' equity
Long-term debt $ 1,100
Shareholders' equity 1,749
Total liabilities and shareholders' equity $ 2,849
Required external financing $ 176
Second stage pro forma balance sheet:
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital $ 605
Fixed assets 2,420
Total assets $ 3,025
Liabilities and shareholders' equity
Long-term debt $ 1,276
Shareholders' equity 1,749
Total liabilities and shareholders' equity $ 3,025

How would Executive Fruit’s financial model change if the dividend payout ratio were cut to 1/3? Use the revised model to generate a new financial plan for 2015 assuming that debt is the balancing item. What would be the required external financing? (Do not round intermediate calculations.)

Dividends fall by $ . Therefore, the requirement for external financing falls from $ to $ . On the other hand, shareholders' equity will be increased by $ .

The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.):
Long-term debt $
Shareholders' equity
Total $