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COMPARATIVE ANALYSIS CASE (Continued)
(2) Profit margin on sales:
(3) Return on assets:
Puma
adidas
(d) Puma’s capital expenditures were €79.0 million in 2015 while adidas’s
capital expenditures were €464 million in 2015.
FINANCIAL STATEMENT ANALYSIS CASE
(a) Carrefour used the straight-line method for depreciating its tangible fixed
assets.
(b) Depreciation and amortization charges do not increase cash flow from
operations. In a cash flow statement, these two items are often added
(c) The schedule of cash flow measures indicates that cash provided by
operations is expected to cover capital expenditures over the next few
ACCOUNTING, ANALYSIS, AND PRINCIPLES
ACCOUNTING
(amounts in €000,000)
(a) Book value = €36 – €10 = €26
(b) (€2.72 X PVF – OA10.6%) = (€2.72 x 7.36009) = €20.021648
ANALYSIS
If the stores are in the process of being sold, they would likely be considered
‘held for sale’ for financial reporting purposes. If they are held for sale, the
impairment test is based on a lower-of-cost-or net realizable value approach.
ACCOUNTING, ANALYSIS, AND PRINCIPLES (Continued)
PRINCIPLES
Under IFRS, there can be a recovery of impairment loss, as long as the
RESEARCH CASE
(a) The authoritative guidance for asset impairments is IAS 36: Impairment of
Assets. This Standard shall be applied in accounting for the impairment
of all assets, other than:
a. inventories;
b. assets arising from construction contracts;
c. deferred tax assets;
d. assets arising from employee benefits;
This Standard applies to financial assets classified as:
a. subsidiaries, as defined in IAS 27 Consolidated and Separate
Financial Statements;
RESEARCH CASE (Continued)
(b) In assessing whether there is any indication that an asset may be
impaired, an entry shall consider, as a minimum, the following indications.
(para. 12):
External sources of information
a. during the period, an asset’s market value has declined significantly
more than would be expected as a result of the passage of time or
normal use.
b. significant changes with an adverse effect on the entity have taken
place during the period, or will take place in the near future, in the
Internal sources of information
e. evidence is available of obsolescence or physical damage of an
asset.
f. significant changes with an adverse effect on the entity have taken
place during the period, or are expected to take place in the near
RESEARCH CASE (Continued)
Dividend from a subsidiary, jointly controlled entity or associate
h. for an investment in a subsidiary, jointly controlled entity or
associate, the investor recognizes a dividend from the investment
and evidence is available that:
(i) the carrying amount of the investment in the separate financial
The list in paragraph 12 is not exhaustive. An entity may identify other
indications that an asset may be impaired and these would also require
Evidence from internal reporting that indicates that an asset may be
impaired includes the existence of:
a. cash flows for acquiring the asset, or subsequent cash needs for
RESEARCH CASE (Continued)
(c) Different situations may lead to best evidence of fair value (i.e. could be
market value, revalued asset, etc.).
a. if the asset’s fair value is its market value, the only difference between
the asset’s fair value and its fair value less costs to sell is the direct
incremental costs to dispose of the asset:
(i) if the disposal costs are negligible, the recoverable amount of
the revalued asset is necessarily close to, or greater than, its
b. if the asset’s fair value is determined on a basis other than its
market value, its revalued amount (i.e., fair value) may be greater or
lower than its recoverable amount. Hence, after the revaluation
GAAP CONCEPTS AND APPLICATION
GAAP11.1. Similarities include:
1. The definition of property, plant, and equipment is
essentially the same under U.S. GAAP and IFRS.
2. Under both U.S. GAAP and IFRS, changes in depreciation
method and changes in useful life are treated in the current
5. Under both U.S. GAAP and IFRS, interest costs incurred
during construction must be capitalized. Recently, IFRS
converged to U.S. GAAP.
6. The accounting for exchanges of non-monetary assets is
Differences include:
1. Under U.S. GAAP, component depreciation is permitted but
is rarely used. IFRS requires component depreciation.
2. U.S. GAAP does not permit revaluations of property, plant,
equipment, and mineral resources. Under IFRS, companies
GAAP11.2 While there is a single key difference, it is an important one–the
issue of revaluations. With respect to revaluations, the IASB and
the FASB are working on a joint project to converge their
GAAP11.3 Using revaluation accounting, Moncrief would record an
increase of $60,000 ($460,000 - $400,000) in assets and equity.
GAAP11.4
Liberty
Kimco
(a)
(1) ROA
£125
$297
Liberty
Kimco
(3) Asset
£741
= .13
$517
= .11
Turnover
£5,577
$4,696
Based on return on assets (ROA), Kimco is performing better than
Liberty. The main driver for this difference is strong profit margin, which
GAAP CONCEPTS AND APPLICATION (Continued)
(b) Summary Entry
(c) Relative to U.S. GAAP, an argument can be made that assets and equity
under IFRS are overstated. Note that in the entry in (b) above, the
revaluation adjustment increases Liberty’s asset values and equity. To
This is still lower than Kimco’s ROA but the gap is narrower after
adjusting for differences in revaluation.
Note to instructors: An alternative way to make Liberty and Kimco compar-
