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1、Intermediate Accounting,By Vivian 周卉 13286006815 ,Tutorial Class 5 Review for Final Exam,Final Exam Key points,1.Condolidated accounts -Consolidated income statement and balance sheet 2.Accounting for fixed assets: - Purpose and methods of depreciation, advantage and disadvantage of different method
2、s. -Caculation of new depn expense after the change in useful life or revaluation of fixed asset,Final Exam Key points,3.EPS calculation, -Advantage and disadvantage of EPS. -Weighted average no. of shares calculation 4.Impairment of fixed assets or goodwill: -Definition of impairment loss; -In what
3、 situation will a company carry out an impairment review and how -Allocation of impairment loss,1. Consolidated Accounts,Example 1,Beijing plc owns 80% of the shares of Zhuhai plc. The purchase consideration was 450,000. The retained earnings of Zhuhai plc at the date of acquisition were 350,000. Th
4、e summarised financial statements of the two companies for the year ended 31 December 2008 were as follows:,BALANCE SHEET as at 31 Dec. 2008,Additional information: During the year, Zhuhai had sold goods which it had bought for 200,000, to Beijing with a markup of 30%. At the end of the year 20% of
5、these were unsold by Beijing by the year end. A review of group current accounts showed a receivables balance of 30,000 in Zhuhais accounts and a payables balance of 27,000 in Beijings accounts. This is due to cash in transit: Beijing had dispatched a cheque of 3,000 on 31 December 2008. The group p
6、olicy is to capitalise goodwill without amortisation. There has been no impairment of goodwill, since the acquisition.,Example 1,Consolidated B/S,1. Goodwill calculation investment 450 Less Parents share of share capital and reserve at the date of acquisition 80%*(350+100) (360) Goodwill 90 2. Cash
7、in transit: Beijing sent cheque to Zhuhai: 3K Zhuhais cash: + 3 Zhuhais Receivable: -3 Cancel 27K payable-receivable from both companies on consolidation.,information,B/S,P/L,2.Unrealized profit Cost 200,mark-up 30%,Inter-company sales 200*(1+30%) = 260 20% in stock: unrealized profit=20%*(260-200)=
8、12 Treatment: -reduce inventories of Arthur in B/S(12) -reduce parents share of groups reserve in B/S(12*80% = 9.6) -reduce minority interest in B/S(12*20% = 2.4) -reduce profit by adding cost of sales in income statement(12) -reduce minority interest in income statment(12*20% = 2.4),Consolidated ba
9、lance sheet treatment,B/S,P/L,information,information,B/S,P/L,3.Minority Interest in B/S Minority share of net assets at the balance sheet date (100+750)*20%= 170 Reduce share of URP 12*20% = (2.4) Minority interest in B/S 167.6 4.Groups reserve Parents reserve 1110 Parents share of post-acquisition
10、 profit 80%*(750-350)= 320 Less parents share of unrealized profit 80%*12= (9.6) Groups reserve 1420.4,Consolidated balance sheet treatment,information,B/S,P/L,550 (parent only),100,550,Share Capital (1 ordinary),90,-,-,Goodwill,1450,100,-,200,300,850,-,750,1450,20,30,100,100,-,1200,Zhuhai,3411,2360
11、,300 (200+100),200,Payables,0 (cancel out after adjusting),27,Amounts payable to Zhuhai,373 (173+200),173,Payables,600 (300+300),300,Debenture Loans,2138,1610,Equity,167.6,-,Minority interest,1420.4,1110,Reserves,3411,2360,Total Assets,123 (100+20+3),100,Cash at Bank,0 (cancel out after adjusting),-
12、,Amounts receivable from Beijing,350 (250+100),250,Receivables,288 (200+100 -12),200,Inventory,-,450,Investment in Zhuhai,2560 (1360+1200),1360,Non-current Assets,Group,Beijing,Consolidated income statement treatment,1. Eliminate inter-company sales -reduce sales of Zhuhai by 260 -reduce cost of sal
13、es of Beijing by 260 2.Minority Interest in P/L Minoritys share of Subsidiarys profit after tax minus unrealized profit 300*20%- 12*20% =57.6,information,B/S,P/L,Consolidated income statement,3.retained earning b/wd for the group retained earning b/wd for parent 710 Parents share of post acquisition
14、 profit b/wd (450-350)*80%= 80 retained earning b/wd for the group 790 4.Adding sales and cost of sales sales: 3300+(2100 -260) =5140 cost of sales: (1600 -260)+1200+ 12URP=2552,information,B/S,P/L,688,300,400,Profit after tax,57.6 (300*20%- 12*20% ),-,-,Minority interest,750,450,300,300,600,250,50,
15、900,1200,2100,Zhuha,1420.4,1110,Retained Earnings c/fwd,790,710,Retained Earnings b/fwd,630.4,400,Profit for the year,700 (400+300),400,Income tax,1388,800,Profit before tax,1070 (820+250),820,Selling expense,130 (80+50),80,Admin expense,2588,1700,Gross profit,2552 (1600 -260 +1200+ 12),1600,Cost of
16、 sales,5140 (3300+2100 -260),3300,Revenue,Group,Beijing,INCOME STATEMENTS,Fixed Assets,Practical example 2,Simple plc has purchased a car. The details are as follows: Cost of machine $800,000 Residual value $104000 Estimated life 4 years 1.) Calculate:the annual depreciation charge using the a) stra
17、ight-line method, b) diminishing balance and b) sum of digits method 2.) Comment on which depreciation method is the most appropriate in this case and why. 3.) Explain the purpose of recording depreciation on fixed assets,Practical example 2 straight line,$,000 Cost 800 Depreciation for year 1 174 N
18、et book value 626 Depreciation for year 2 174 Net book value 452 Depreciation for year 3 174 Net book value 278 Depreciation for year 4 174 Residual value 104,Cost - estimated residual value = depn. charge per year Estimated economic life (800-104) /4 = 174,Practical example 2 diminishing balance,De
19、pn rate = 1 - n (residual value)/cost = 1 4 (104)/800=40% Cost 800 Depreciation for year 1 320 (800 * 40%) Net book value 480 (800 320) Depreciation for year 2 192 (480 * 40%) Net book value 288 (480 192) Depreciation for year 3 115 Net book value 173 Depreciation for year 4 69 Residual value 104,Pr
20、actical example 2 sum of digits 年数总和法,Cost 800 Depreciation for year 1 278 696*4/10 (depn rate) Net book value 522 Depreciation for year 2 209 696*3/10 Net book value 313 Depreciation for year 3 139 696*2/10 Net book value 174 Depreciation for year 4 70 696*1/10 Residual value 104,Step1: Total depre
21、ciable cost= Cost - estimated residual value = 800-104 =696 Step2: Total digits: 1+2+3+4=10 Step3: Calculate the depn. Rate (4/10, 3/10, 2/10, 1/10) Step 4: total depreciable cost * depn. rate for each year,Practical example 3,A fixed asset costs 15,000 six year ago. It was depreciated using straigh
22、t line method with no residual value. The company has now adopted the current value approach for its building and this building has been valued to 16,000. The fixed asset has an estimated useful life of 30 years which still holds true. Calculate : The NBV The old annual depreciation charge The new a
23、nnual depreciation charge,Practical example 3,NBV at the date of revaluation : 15,000 (15,000/30 x 6)= 12000 Revaluation surplus: = 16,000 - 12000 = 4000 This will be credited to revaluation reserve (surplus). Old dep. 15,000/30 = 500 New dep. 16000/(30-6) = 667,EPS calculation,Example 4,1 January:
24、10000 ordinary shares in issue 1 March: 2000 ordinary shares issued for cash 31 April: Bonus issue (发行红利股), 1 for 4. 31 July: Rights issue(配股) at 1 per share on the basis of 2 for 5 held (Market price of the share before rights issue was 1.5). Profit after tax is 20000 Required: Calculate the EPS fo
25、r this year,Example 4,1.Bonus fraction as at 31 April: 12000+(12000*1/4) = 5 12000 4 2.Calculation of theoretical Ex-rights price 理论除权价格 1*2 shares= 2 1.5 *5shares = 7.5 2+ 7.5= 9.5 9.5/7shares= 1.36 (This is the theoretical Ex-rights price) Bonus fraction as at 31 July for rights issue: 1.5/1.36 =
26、1.1=11/10,Date Actual Time Bonus Bonus Shares factor Fraction Rights 1 January: 10000 2/12 * 5/4 * 11/10 = 2292 Cash issue 2000 1 March: 12000 2/12 * 5/4 * 11/10 = 2750 Bonus 3000 31 April: 15000 3/12 * 11/10 = 4125 Rights issue 6000 31 July: 21000 5/12 = 8750 Weighted average no. of shares for the
27、year =17917 EPS=profit/weighted no. of shares = 20000/17917 =110 p,Practical example 5,Jay plcs profit after tax and minority interest was 1,095,000 for the year ended 31 December 2007. Notes: 1)On 1 January 2007, there were 4,000,000 ordinary shares of 25p each, in issue. 2)On 31 March 2007, there
28、was a bonus issue (红利股发行)of 1 new ordinary share for every 4 held. 3)On 1st September 2007, there was an issue of one million 25p ordinary shares for cash at full market price. 4)A rights issue(供股 ,配股） was made to the ordinary shareholders on the 31st October 2007, at 50 pence per share, on the basi
29、s of one share for every four held. The market price immediately before the rights issue was listed as 1. 5)The EPS figure for last year was 20 pence. REQUIRED a)Calculate the earnings per share figure for 2007. b)Recalculate the earnings per share figure for the year 2006.,Impairment Review,Impairm
30、ent of intangible assets,Impairment is a “reduction in the recoverable amount of a fixed asset or goodwill below its carrying amount Impairment loss减值损失 is to be recorded when Carrying amount账面价值is more than recoverable amount可回收金额, which is higher of net realizable value and value in use Net realiz
31、able value可收现价值 -estimated selling price in the ordinary course of business minus any cost to complete and to sell the goods. Value in use现值 -PV of future cash flows -discounted at required rate of return If impaired-(i.e. carrying amountrecoverable amount) written down asset value to the revised ca
32、rrying amount,Impairment of intangible assets,Revised carrying amount= the lower of Carrying amount OR recoverable amount (higher of) Net realizable value value in use,Impairment of intangible assets,Allocating impairment losses: 1.specific fixed assets. 2.goodwill 3.other capitalised intangibles 4.
33、other tangible fixed assets on a pro rata basis (or other more appropriate basis),Indicators of Impairment,Current period trading losses or net cash outflow from operating activities, combined with either: past operating losses/net cash outflows or expectation of continuing operating losses/net cash
34、 outflows Significant decline in a fixed assets market value. Evidence of obsolescence or physical damage to a fixed asset significant adverse changes in: business or markets statutory or regulatory environment Commitment by management to undertake significant reorganisation Major loss of key employ
35、ees Significant increase in market rates of interest,Tina plc acquired a Taxi business on 1 January 2008, for 380,000. The values of the assets of the business at that date based on Net Realisable Values (NRV) were as follows: Vehicles 240,000 Intangible assets (Taxi Licence 40,000 Receivables 20,00
36、0 Cash 10,000 Payables (10,000) 300,000,Example 6,Example 6,On 1 February 2008, the taxi company had five of its vehicles stolen. The NRV of these vehicles was 50,000. These vehicles were not insured adequately.Because of this event, Coco plc wants to recognise an impairment loss of 80,000 (inclusiv
37、e of the loss of stolen vehicles) due to the decline in the value of the income generating unit (i.e. the Taxi business). On 1 March 2008, a competitor firm commenced business in the same area. As a result, business revenue is anticipated to fall by 25%, and that a further impairment loss has occurred due to a decline in the present Value in Use of the business which is calculated at 260,000. The NRV of the taxi licence has fallen to 20,000 as a result of the rival taxi operator. The NRV of the other assets have remained the same as at 1 February 2010.,