COMPARATIVE ANALYSIS CASE (Continued)
20 Other provisions
Other provisions consist of the following:
Other provisions (€ in millions)
Jan.1,
2015
Currency
translation
differences
Usage
Reversals
Additions
Transfers
Dec.31,
2015
Marketing
79
0
(77)
(0)
20
—
21
Personnel
48
2
(31)
(2)
44
(2)
59
and warranty
(2)
income taxes
27
0
(7)
(0)
9
—
29
Sundry
(46)
Other provisions
Marketing provisions mainly consist of provisions for promotion
contracts.
Provisions for personnel mainly consist of provisions for short-and
Provisions for returns, allowances and warranty primarily arise due
to bonus agreements with customers and the obligation of fulfilling
customer claims with regard to the return of products sold by the
The reversal of sundry provisions in 2015 is mainly related to the
completion of customs audits and a risk reassessment.
COMPARATIVE ANALYSIS CASE (Continued)
Management follows past experience from similar transactions
when assessing the recognition and measurement of other provisions;
27. Contingencies and Contingent Liabilities
Contingencies
28. Other Financial Obligations
Obligations From Operating Lease
The Group rents and leases offices, warehouses, facilities and fleets of
vehicles, as well as selling space for the Company’s own retail stores.
COMPARATIVE ANALYSIS CASE (Continued)
2015
2014
€ million
€ million
Under rental and lease agreements:
2016 (2015)
119.6
103.4
2017–2020 (2016–2019)
253.4
215.5
from 2021 (from 2020)
124.9
63.3
2015
2014
€ million
€ million
Under license, promotional and
advertising agreements:
2016 (2015)
157.4
135.6
2017–2020 (2016–2019)
366.3
388.1
from 2021 (from 2020)
68.4
93.9
In addition, there are industry-standard obligations concerning the
provision of sports equipment under sponsoring agreements.
As customary in the industry, the promotional and advertising
FINANCIAL STATEMENT ANALYSIS CASE 1
NORTHLAND CRANBERRIES
(a) Working capital is calculated as current assets—current liabilities, while
the current ratio is calculated as current assets/current liabilities. For
Northland Cranberries these ratios are calculated as follows:
Current year
Prior year
year, and current ratios in both years are extremely low. This would
be cause for concern and additional investigation. As you will see in
the next discussion point, there may well be a reasonable explanation.
(b) This illustrates a potential problem with ratios like the current ratio,
that rely on statement of financial condition numbers that present a
company’s financial position at a particular point in time. That point in
time may not be representative of the average position of the company
FINANCIAL STATEMENT ANALYSIS CASE 2
SUZUKI GROUP
(a) It appears that the Suzuki warranty is an assurance-type. If it is
probable that customers will make claims under warranties relating to
(b) When the warranty is sold separately from the product (a service-type
warranty), a deferred revenue approach is employed. Revenue on the
(c) The general approach is to use the straight-line method to recognize
deferred revenue on warranty contracts. If historical evidence indicates
that costs incurred do not follow a straight-line approach, then revenue
FINANCIAL STATEMENT ANALYSIS CASE 3
(a) BOP’s working capital and current ratio have declined in 2019 com-
pared to 2018. While this would appear to be bad news, the acid test
ratio has improved. This is due to BOP carrying relatively more liquid
(b) Answers will vary depending on the companies selected. This activity
is a great spreadsheet exercise.
ACCOUNTING, ANALYSIS, AND PRINCIPLES
ACCOUNTING
During 2019
1.
Warranty Expense ……………………………………….
6,000
Cash ……………………………………………………….
6,000
December 31, 2019
Warranty Expense ………………………………………..
February 28, 2019
2.
Interest Expense ………………………………………….
3,333
Interest Payable …………………………………………..
1,667
Cash ……………………………………………………….
5,000
Interest Expense ………………………………………….
Cash [(€200,000 X .10) X 3/12] …………………..
5,000
August 31, 2019
Interest Expense ………………………………………….
5,000
Cash ……………………………………………………….
5,000
Interest Expense ………………………………………….
Cash ……………………………………………………….
5,000
Interest Expense ………………………………………….
Interest Payable [(€200,000 X .10) X 1/12]…..
ACCOUNTING, ANALYSIS, AND PRINCIPLES (Continued)
01/01/19
Manufacturing Facility (PPE) ………………………..
5,192,770
Cash ……………………………………………………….
5,000,000
Environmental Liability
(€500,000 X 0.38554) …………………………..
Depreciation Expense ………………………………….
Accumulated Depreciation ……………………….
Environmental Liability…………………………..
ANALYSIS
The warranty liability and the interest payable are current liabilities,
so all else being equal, these will decrease both the current and acid–
test ratios. Because of the commitment letter from UBS, the €200,000
PRINCIPLES
According to the IASB Framework, liabilities are probable future
sacrifices of economic benefits arising from present obligations of a
particular entity to transfer assets or provide services to other entities in
the future as a result of past transactions or events. With respect to the
RESEARCH CASE
(a) IAS 37, Provisions, Contingent Liabilities and Contingent Assets.
(b) Recognizing a liability from restructuring (IAS 37, 72 – 79)
A constructive obligation to restructure arises only when an entity:
(a) has a detailed formal plan for the restructuring identifying at least:
(i) the business or part of a business concerned; (ii) the principal
its main features to those affected by it.
Evidence that an entity has started to implement a restructuring plan
would be provided, for example, by dismantling plant or selling assets
or by the public announcement of the main features of the plan.
A public announcement of a detailed plan to restructure constitutes a
constructive obligation to restructure only if it is made in such a way
RESEARCH CASE (Continued)
A management or board decision to restructure taken before the end of
the reporting period does not give rise to a constructive obligation
at the end of the reporting period unless the entity has, before the end
Although a constructive obligation is not created solely by a management
decision, an obligation may result from other earlier events together with
such a decision. For example, negotiations with employee representatives
for termination payments, or with purchasers for the sale of an operation,
may have been concluded subject only to board approval. Once that
approval has been obtained and communicated to the other parties, the
No obligation arises for the sale of an operation until the entity is
committed to the sale, i.e., there is a binding sale agreement.
Even when an entity has taken a decision to sell an operation and
announced that decision publicly, it cannot be committed to the sale
RESEARCH CASE (Continued)
Costs to include (IAS 37, 80)
A restructuring provision shall include only the direct expenditures
arising from the restructuring, which are those that are both:
(a) necessarily entailed by the restructuring; and (b) not associated with
the ongoing activities of the entity.
Costs to exclude (IAS 37, 81 – 82)
A restructuring provision does not include such costs as: (a) retraining
(c) The current warranty contract is considered an onerous contract. The
required accounting related to an onerous contract is in IAS 37, 81 – 82.
If an entity has a contract that is onerous, the present obligation under
RESEARCH CASE (Continued)
This Standard defines an onerous contract as a contract in which the
unavoidable costs of meeting the obligations under the contract exceed
the economic benefits expected to be received under it. The unavoidable
costs under a contract reflect the least net cost of exiting from the