3-73
COMPARATIVE ANALYSIS CASE (Continued)
PepsiCo has substantially more property, plant, and equipment than
does Coca-Cola. PepsiCo is engaged in three different types of
businesses: soft drinks, snack-food, and juices. As a result, it has more
3-74
FINANCIAL STATEMENT ANALYSIS
(a)
2009
2007
%
Change
2009
%
Change
2008
Sales
$12,575
$11,776
–1.93%
8.88%
Gross Profit %
42.87%
43.98%
2.41%
-4.82%
(b) Kellogg experienced a slight slowing in sales (slight decline) in the
current year which followed strong growth in the previous year. The
Operating Profit
1,953
1,868
2.46%
4.55%
Capital Expenditures
1,031
Net Earnings
1,146
1,102
5.41%
3.99%
3-75
ACCOUNTING, ANALYSIS, AND PRINCIPLES
Accounting
Depreciation Expense ……………………………………………………….
9,500
Accumulated depreciation—Equipment …………………………..
9,500
($9,500 = ($192,000 – $40,000) ÷ 16)
Unearned Ticket Revenue ……………………………………………………….
10,000
Ticket Revenue ……………………………………………………….
10,000
($10,000 = ($50 X 200))
Advertsing Expense ……………………………………………………….
2,500
Salaries and Wages Expense …………………………..
3,500
Salaries and Wages Payable …………………………..
3,500
Interest Expense ……………………………………………………….
8,250
$8,250 = ($90,000 X 0.10) X 11/12)
3-76
ACCOUNTING, ANALYSIS, AND PRINCIPLES (Continued)
Analysis
Income before
Adjustments
Adjustments
Income after
Adjustments
Ticket revenue
$360,000
$10,000
$370,000
Less:
Depreciation expense
(9,500)
(9,500)
Net income
$272,320
$258,570
Without recording the adjusting entries, Amato’s income is overstated.
In addition, without the adjustments, Amato’s current liabilities and
current assets are misstated, which could affect evaluation of Amato’s
liquidity.
Principles
Advertising expense
(2,500)
Interest expense
(8,250)
3-77
PROFESSIONAL RESEARCH
(a) The three essential characteristics of assets.
Search String: asset and characteristics.
CON6, Par26. An asset has three essential characteristics: (a) it
(b) Three essential characteristics of liabilities.
Search String: liability and characteristic.
CON6, Par36. A liability has three essential characteristics: (a) it
(c) Uncertainty, and its effects on financial statements.
Search Strings: “uncertainty”, effect of uncertainty.
CON6, Par44. Uncertainty about economic and business activities and
results is pervasive, and it often clouds whether a particular item
3-78
PROFESSIONAL RESEARCH (Continued)
remained unrecognized in its financial statements because of uncertainty
about whether they qualified as assets or liabilities of the entity or
CON6, Par45. An effect of uncertainty is to increase the costs of finan–
cial reporting in general and the costs of recognition and measurement
in particular. Some items that qualify as assets or liabilities under the
definitions may therefore be recognized as expenses, losses, revenues,
or gains or remain unrecognized as a result of cost and benefit analyses
indicating that their formal incorporation in financial statements is not
useful enough to justify the time and effort needed to do it. It may be
possible, for example, to make the information more reliable in the face
of uncertainty by exerting greater effort or by spending more money,
but it also may not be worth the added cost.
3-79
PROFESSIONAL SIMULATION
Journal Entries
Depreciation Expense ……………………………………………………….
7,000
Accumulated Depreciation—Equipment …………………………..
7,000
Unearned Advertising Revenue …………………………..
1,400
Advertising Revenue ……………………………………………………….
1,400
Advertising Revenue ……………………………………………………….
1,500
Supplies Expense (Art) ……………………………………………………….
3,400
Supplies ……………………………………………………….
3,400
Salaries and Wages Expense ……………………………………………………
1,300
Salaries Payable ……………………………………………………….
1,300
Financial Statements
NALEZNY ADVERTISING AGENCY
Income Statement
For the Year Ended December 31, 2012
Revenues
Advertising revenue ……………………………………………..
$61,500
Expenses
Salaries and wages expense …………………………..
$11,300
Depreciation expense …………………………………………..
Rent expense …………………………..…………………………..
Supplies expense …………………………………………………
3,400
Total expenses ………………………………………………..
3-80
PROFESSIONAL SIMULATION (Continued)
NALEZNY ADVERTISING AGENCY
Balance Sheet
December 31, 2012
Assets
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable ……………………………………………..
$5,000
Unearned advertising revenue …………………………..
5,600
Salaries and wages payable …………………………..
1,300
$11,900
Common stock………………………………………………….
Retained earnings …………………………………………….
40,600
Total stockholders’ equity
Explanation
After the financial statements are prepared, Nalezny must prepare the closing
entries and post the journal entries to the general ledger. Then, a post-
Cash ……………………………………………………….
21,500
Equipment ……………………………………………………….
60,000
3-81
IFRS CONCEPTS AND APPLICATION
IFRS3-1
The date of transition is the beginning of the earliest period for which full
comparative IFRS information is provided. The date of reporting is the closing
balance sheet date for the first IFRS financial statements.
IFRS3-2
IFRS3-3
A company follows these steps:
1. Identify the timing of its first IFRS statements.
IFRS3-4
The date of the opening balance sheet is January 1, 2012. The IFRS financial
statements will include years ended December 31, 2013 and 2012.
IFRS3-5
(a) Assets
3-82
IFRS3-5 (Continued)
54 An entity usually employs its assets to produce goods or services
capable of satisfying the wants or needs of customers; because
these goods or services can satisfy these wants or needs,
customers are prepared to pay for them and hence contribute to
the cash flow of the entity. Cash itself renders a service to the
entity because of its command over other resources.
(b) Liabilities
60 An essential characteristic of a liability is that the entity has a
present obligation. An obligation is a duty or responsibility to act
or perform in a certain way. Obligations may be legally enforce–
able as a consequence of a binding contract or statutory require–
61 A distinction needs to be drawn between a present obligation
and a future commitment. A decision by the management of an
entity to acquire assets in the future does not, of itself, give rise
to a present obligation. An obligation normally arises only when
the asset is delivered or the entity enters into an irrevocable
agreement to acquire the asset. In the latter case, the irrevocable
nature of the agreement means that the economic consequences
3-83
IFRS3-5 (continued)
62 The settlement of a present obligation usually involves the entity
giving up resources embodying economic benefits in order to
satisfy the claim of the other party. Settlement of a present
obligation may occur in a number of ways, for example, by:
(c) Accrual basis
22 In order to meet their objectives, financial statements are prepared
on the accrual basis of accounting. Under this basis, the effects of
transactions and other events are recognised when they occur
IFRS3-6
(a) April 3, 2010 total assets: £7,153.2 million.
March 28, 2009 total assets: £7,258.1 million.
3-84
IFRS3-6 (Continued)
(e) An adjusting entry for deferrals is necessary when the receipt/disburse-
ment precedes the recognition in the financial statements. Accounts
(f) 2010 Depreciation and amortization expense: £427.9 million
2009 Depreciation and amortization expense: £409.0 million
(From the footnote 28)