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Unqualified Opinion
Qualified opinion
Adverse opinion
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General ledger
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Financial Statement
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Revenue recognition
(Revenue is recognized when earned and expenses are recognized when incurred)
Installment sales
Barter transactions
Installment Sales
Used if collectability cannot be reasonably estimated
Expense recognition
is based on the matching principle expenses to generate revenue are recognized in the same period as the revenue
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Discontinued operation
Barter transactions is one that management has decided to dispose off but has not yet done so
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IMP
Unusual or infrequent items
either unusual in nature or infrequent in occurrence, but not both These are included in income from continuing operations and are reported before tax.
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extraordinary item
unusual and infrequent in occurrence reported separately in the income statement, net of tax, after income from continuing operations IFRS does not allow extraordinary items to be separated from operating results in the income statement
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Dilutive securities
are stock options, warrants, convertible debt convertible preferred stock that would decrease EPS if exercised or converted to common stock
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Held to maturity
1.On BS: @ Amortized Cost 2.Realised gain: taken to income Statement 3.Unrealized gain is not recognized
Trading securities
1.On BS: @ Fair Value 2.Realised gain: Taken to income statement 3.Unrealised gain: Taken to income statement
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Cash Flows
CFO CFO
Inflows and outflows of cash resulting from transactions that affect a firms net income.
CFI CFI
inflows and outflows of cash resulting from the acquisition or disposal of long-term assets and certain investments.
CFF CFF
Inflows and outflows of cash resulting from transactions affecting a firms capital structure, such as issuing or repaying debt and issuing or repurchasing stock .
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Item
1. Dividends paid 2. Interest paid 3. Dividends received 4. Interest received
US GAAP Treatment
Financing activities (CFF)
IFRS Treatment
CFO or CFF (Gives flexibility to management ) CFO or CFF (Gives flexibility to management )
IMP
Operating activities (CFO)
CFO or CFI (Gives flexibility to management ) CFO or CFI (Gives flexibility to management )
5.Taxes paid related to operating activities 6. Taxes paid related to investing and financing transactions
IMP
FCFF Formula
1.Starting From Net Income NI + NCC WCinv +(INT X (1-t)) FCinv CFO + (INT X (1-t)) FCinv
- FCinv
-FCinv
5.Inventories
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FIFO
LIFO
Weightd avg.
Specific
identificn
1.COGS consist of older purchases 2.Ending Inventory bal consist of more recent cost 3.. In either Inflationary or deflationary Environment FIFO Ending inventory Balance reflects economic reality 4.In Inflationary environment, FIFO COGS is lower than LIFO COGS
FIFO
1.COGS consist of recent purchases 2.Ending Inventory bal consist of older cost 3.. In either Inflationary or deflationary Environment LIFO COGS reflects economic reality 4.In inflationary environment, LIFO closing inventory is lower than FIFO closing inventory
LIFO
6.Long-lived Assets
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IFRS
Research cost Development cost
Expensed as incurred
Capitalized
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US GAAP
Research cost Development cost
Expensed as incurred
Expensed
(Except, software development cost)
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7.Income Taxes
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Create
DTA if,
Create
DTL if,
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ADD LESS
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When income tax rate increases deferred tax assets and deferred tax liabilities are both increased to reflect the new rate If DTA is not likely to be realised create valuation allowance to reduce DTA If DTL is not likely to be reversed consider it a a part of equity for analysis purpose
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The book value of the bond liability is equal to the PV of the remaining future cash flows (coupon payments and maturity value) discounted at the market rate of interest at issuance
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Premium bond
2. reported on the balance
1. coupon rate < market yield at issuance 2. reported on the balance sheet at less than its face value . 3. book value of the bond liability will increase until it reaches its face value at maturity. 4. interest expense is greater than the coupon payment
Discount bond
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Finance lease
Treat a lease as a capital (finance) lease if any one of the following criteria is met: 1.Title transfer clause 2. Bargain purchase option 3.Lease period > 75% life 4.PV of lease pmts > 90% of Fair value of asset
US GAAP
IFRS
If substantially all the rights and risks of ownership are transferred to the lessee, the lease is treated as a finance lease by both the lessee and lessor
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Net income
(early yrs)
Net income
(later yrs)
EBIT CFO
CFF
Lower
Higher
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Fraud Triangle
Incentives and pressuresthe motive to commit
fraud.
control system.
fraud is justified
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Upward Revaluation
Cost of Goods Sold Operating Expenses Interest capitalization Extraordinary items Both unusual and infrequent
Not allowed
LIFO permitted Differentiates betn expenses and losses Must reported in the income statement, net of tax, below income from continuing operations
Allowed
LIFO not permitted IFRS does not Optional It does not permit firms to treat items as extraordinary in the income statement.