Transcript Balance Sheet - Bilkent University

Balance Sheet
“Old accountants never die;
they just lose their balance”
--Anonymous
Assets, Liabilities & Shareholders’
Equity
The Balance Sheet
Also called the statement of condition or
statement of financial position
Financial Condition
Assets = Liabilities + Stockholders’ equity
Assets = What the firm owns
Liabilities = What the firm owes to outsiders
Stockholders’ equity = What the firm owes to
Internal owners
Assets
Should provide probable future economic
benefits
Owned or controlled by the entity
As a result of past transactions/events
Cost/value should be determinable
Generally presented in order of liquidity
A Few Definitions
Current Assets-Cash or other assets
expected to be converted into cash
within one year or one operating cycle,
whichever is longer
Operating Cycle-Time required to
purchase or manufacture inventory, sell
the product, and collect the cash
Current Assets-1
Cash and Cash Equivalents

Valued at fair value- nominal amounts
Short-term Investments
a.k.a-TRADING SECURITIES
 a.k.a-FINANCIAL ASSETS
 a.k.a-MARKETABLE SECURITIES
 Valued at fair value or amortized cost

Current Assets-2
RECEIVABLES

Trade Receivables






Accounts Receivable
Notes Receivable
Post dated cheques receivable
Due From Related Parties
Receivable from Employees
Others
Valued at amortized cost (net of interest) and
reported at NET REALIZABLE VALUE
Net Realizable Value = Accounts Receivable
- Allowance for Doubtful Accounts
A Word on the “Allowance…”
Management must estimate the dollar
amount of accounts receivable they expect
to be uncollectible
Affects balance sheet valuation AND bad
debt expense on income statement
Can be important in assessing earnings
quality--changes should be analyzed
Analysis of Receivables
Net Sales
Accounts Receivable, total
Allowance for doubtful accounts
Allowance as a % of receivables
2004
484.217.501
40.766.849
294.505
0,7%
2005
Growth
533.179.059
10%
53.580.885
31%
550.191
87%
1,0%
Current Assets-3
Inventories


Measured by FIFO or Weighted Average
Valued at Lower of Cost or Net Recoverable
Amount
Biological Assets (at fair value until the point
of harvest)
Assets Held for Sale
Other Current Assets
Deferred Tax Assets
Long-term Assets-1
Trade Receivables
Other Receivables
Biological Assets
Long-term Financial Investments

Valued at fair value or amortized cost or
equity method of accounting
Deferred Tax Assets
Long-term Assets-2
Property, plant and equipment
1.
2.
Option: Property, plant & equipment are valued
at cost less accumulated depreciation and
allowance for impairment
Option: Property, plant & equipment are valued
at revalued amount less accumulated
depreciation and allowance for impairment
Book value = original cost/revalued amount
- accumulated depreciation to date – impairment
losses
Long-term Assets-2
Intangible Assets




IdentifiabilityControlFuture economic benefitsReliable measurement of cost
recorded at cost initially and then carried
at cost less any accumulated amortization
and any accumulated impairment losses.
The life can be limited or indefinite
 Limited  amortize over the useful life
 Indefinite  NO AMORTIZATION
Long-term Assets-3
GOODWILL

Arise from business combinations
Investment Property
Liabilities
 obligations of an entity to make a future

payment or to deliver goods or services to the
third parties in the future in return for cash
borrowed or service used or goods acquired
Classified according to their due dates
 due within one year or the operating cycle are
classified as current liabilities
 loans or credits that mature in more than one year
are classified as long-term liabilities
Liabilities-1
Current Portion of Long-term Debt
Financial Liabilities
Bank Loans
 Bonds issued
 Finance Lease Liabilities

Liabilities-2
Trade Payables
Accounts Payable
 Notes Payable

Other Payables
Due to Related Parties
 Payable to employees
 Taxes payable, etc…

Liabilities-3
Accrued Liabilities
Unearned Revenues, a.k.a. Deferred
Income, Advances Received
Deferred Taxation

Result of temporary differences in the
recognition of revenue and expense for
taxable income relative to reported
financial income
Deferred Taxation
Machinery
Cost
Life
Rate
EBD
IFRS
50.000
Tax Legis
50.000
10
5
10%
20%
50.000
50.000
IFRS
year 1
year 2
year 3
year 4
year 5
year 6
year 7
year 8
year 9
year 10
Total
EBD
50.000
50.000
50.000
50.000
50.000
50.000
50.000
50.000
50.000
50.000
Depr
5.000
5.000
5.000
5.000
5.000
5.000
5.000
5.000
5.000
5.000
50.000
Tax Leg.
year 1
year 2
year 3
year 4
year 5
year 6
year 7
year 8
year 9
year 10
Total
EBT
45.000
45.000
45.000
45.000
45.000
45.000
45.000
45.000
45.000
45.000
EBD
50.000
50.000
50.000
50.000
50.000
50.000
50.000
50.000
50.000
50.000
tax
9.000
9.000
9.000
9.000
9.000
9.000
9.000
9.000
9.000
9.000
90.000
Depr
10.000
10.000
10.000
10.000
10.000
50.000
EBT
40.000
40.000
40.000
40.000
40.000
50.000
50.000
50.000
50.000
50.000
tax
8.000
8.000
8.000
8.000
8.000
10.000
10.000
10.000
10.000
10.000
90.000
Provisions and Contingent
Liabilities
a potential liability arising from a past
transaction and that depends on a future
event


could be disclosed in the body of the balance
sheet with the liabilities
could be disclosed within notes to financial
statements
certainty of the amount and the payment date
determines where they will be disclosed
Is the amount of
the
liability known?
Recognize liability
on the balance
sheet
YES
NO
Can the amount of
Liability be reasonably
Estimated?
YES
YES
Is the liability likely to
occur? (Probable)
NO
NO
Disclose in the notes
To the financial
Statements
(CONTINGENT LIABILITY)
Provisions
Post Retirement Benefits
Restructuring Provisions
Environmental Liabilities
Product Warranties,
Others such as litigations,
On November 24, 2003 , 26 passengers on Paris Airlines Flight No. 901 were injured
upon landing when the plane skidded off the runway. Personal injury suits for
damages totaling $5.000.000 were filed on January 11, 2004 against the airline by the
18 injured passengers. The airline carries no insurance. Legal counsel has studied
each case and advised Paris that it can reasonably expect to pay 60% of the damages
claimed. The financial statements for the year ended 31 December 2003 were issued
February 27, 2004 .
Agazzi Corporation, a dishwasher machine manufacturer, is the defendant in a patent
infringement lawsuit. The attorney of the company claims that, if the suit goes against
Agazzi, the loss may be as much as $4.000.000; however, the attorney believes the
loss of this suit to be only possible.
Animaniacs company entered into a contract on 21 January 2008 which will probably
result in a significant loss to the company. The financial statements as of 31
December 2007, that were issued to public on 1 February 2008 do not reflect any
provision for the probable loss.
Shareholders’ Equity
Share Capital
Additional paid-in Capital
Treasury Stocks (contra equity)
Revaluation Fund
Retained Earnings
Comprehensive Income
Non-owner changes to equity and
includes
 Net
Income for the year
 Other comprehensive income
Adjustments to fair value for available-for-sale
securities
 Foreign currency translation adjustment
 Gains/losses on cash flow hedge derivatives
 Gains/losses on investment hedge instruments
 Adjustments related to under funding a defined
benefit pension plan

Statement of Shareholders’ Equity
Provides details of changes in Equity
Stock
Other comprehensive income
Retained earnings
Includes beginning and ending balances
in accounts
Current Assets
Property Plant and Equipment
Other Long-term Assets
Total Assets
Company A
343.485.717
826.801.982
124.702.064
1.294.989.763
Company B
439.980.188
1.026.117.794
189.943.503
1.656.041.485
Current Liabilities
Long-term Liabilities
Shareholders' Equity
Total Liabilities and Shareholders' Equity
302.800.391
257.035.615
735.153.757
1.294.989.763
189.489.327
328.989.213
1.137.562.945
1.656.041.485
Current Assets
Property Plant and Equipment
Other Long-term Assets
Total Assets
Current Liabilities
Long-term Liabilities
Shareholders' Equity
Total Liabilities and Shareholders' Equity
Company A Company B
27%
27%
64%
62%
10%
11%
100%
100%
23%
20%
57%
100%
11%
20%
69%
100%