5-73
ACCOUNTING, ANALYSIS, AND PRINCIPLES (Continued)
Analysis
The classified balance sheet provides subtotals for current assets and
Principles
The primary objection that the bank is likely to raise about this supple–
5-74
PROFESSIONAL RESEARCH
(a) Codification String: FASB ASC 235-10–05—Presentation > 235 Notes
to Financial Statements > 10 Overall > 05 Background (Predecessor
Standard – [APB 22])
(c) Codification String: Presentation > 235 Notes to Financial Statements
> 10 Overall > 50 Disclosure
50-3 Disclosure of accounting policies shall identify and describe the
accounting principles followed by the entity and the methods of
applying those principles that materially affect the determination
5-75
PROFESSIONAL RESEARCH (Continued)
(d) 50-4 Codification String: Presentation > 235 Notes to Financial
Statements > 10 Overall > 05 Background
5-76
PROFESSIONAL SIMULATION
FINANCIAL STATEMENT
LANCE LIVESTRONG COMPANY
Balance Sheet
December 31, 2012
Assets
Current assets
Cash ($50,000 – $20,000) ………………………………….
$ 30,000
Accounts receivable ($38,500 + $13,500) …………..
$ 52,000
Less: Allowance for doubtful accounts ………..
13,500
38,500
Inventory ……………………………………………………….
65,300
Total current assets …………………………………….
133,800
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable ……………………………………………
$ 32,000
Income tax payable ………………………………………….
Notes payable …………………………………………………
Total current liabilities …………………………………
Long-term investments
Plant expansion fund……………………………………….
Property, plant, and equipment
Equipment ………………………………………………………
Intangible assets
Patents……………………………………………………………
Total assets ………………………………………………..
5-77
PROFESSIONAL SIMULATION (Continued)
100,000
157,000
ANALYSIS
Z =
Working capital
X 1.2
+
Retained earnings
X 1.4
+
EBIT
X 3.3
Total assets
Total assets
Total assets
+
+
Total assets
+
X 1.4
+
X 3.3
$282,800
$282,800
+
X 0.99
+
X 0.6
$282,800
$157,000
Common stock ($1 par) ……………………………………
Additional paid-in capital …………………………………
Retained earnings …………………………………………..
125,800
5-78
PROFESSIONAL SIMULATION (Continued)
Armstrong’s Z–Score is above the “likely–to–fail” level of 1.81 but also
below the unlikely-to-fail value of 3.0. Armstrong should be concerned
about his company’s situation.
RESEARCH
12. Disclosure of accounting policies should identify and describe the
accounting principles followed by the reporting entity and the methods of
applying those principles that materially affect the determination of financial
position, changes in financial position, or results of operations. In general,
the disclosure should encompass important judgments as to appropriateness
of principles relating to recognition of revenue and allocation of asset costs
to current and future periods; in particular, it should encompass those
accounting principles and methods that involve any of the following:
Examples of disclosures by a business entity commonly required with respect
to accounting policies would include, among others, those relating to basis
5-79
IFRS CONCEPTS AND APPLICATION
IFRS5-1
In general, the disclosure requirements related to the balance sheet and the
IFRS5-2
Among the similarities between IFRS and U.S. GAAP related to statement of
financial position presentation are as follows:
5-80
IFRS5-3
The IASB and the FASB are working on a project to converge their
standards related to financial statement presentation. This joint project will
establish a common, high-quality standard for presentation of information in
IFRS5-4
Rainmaker Company will report a net revaluation gain of $165,000 ($200,000 –
$35,000), which will be recoded as an adjustment to these assets with the
net gain recorded in equity. Each reporting period the property and
equipment are revalued to approximate fair value. The use of revaluations is
prohibited in GAAP.
IFRS5-5
(a) Some of the differences are:
1. Report form and subtotals—Tomkins uses a modified report form
with current liabilities deducted from current assets to determine
5-81
IFRS5-5 (Continued)
(b) Although there are differences in terminology and some groupings and
subtotals are different, the British balance sheet does group assets and
Note to instructors: A final difference not mentioned above is the “Capital
redemption reserve” account in the Capital and reserves section of
Tomkins’ Balance sheet. This account in the U.K. corresponds to “Additional
Paid-in Capital—Treasury Stock in the U.S. setting.
IFRS5-6
(a) International Accounting Standard 8 covers the disclosure of
accounting policies.
An entity shall change an accounting policy only if the change:
a. is required by an IFRS; or
b. results in the financial statements providing reliable and more
5-82
IFRS5-6 (Continued)
(d) Disclosure
When initial application of an IFRS has an effect on the current period
or any prior period, would have such an effect except that it is
impracticable to determine the amount of the adjustment, or might
have an effect on future periods, an entity shall disclose:
f. for the current period and each prior period presented, to the
extent practicable, the amount of the adjustment:
(i) for each financial statement line item affected; and
(ii) if IAS 33 Earnings per Share applies to the entity, for basic and
diluted earnings per share;
5-83
IFRS5-6 (Continued)
When a voluntary change in accounting policy has an effect on the
current period or any prior period, would have an effect on that period
except that it is impracticable to determine the amount of the
adjustment, or might have an effect on future periods, an entity shall
disclose:
d. the amount of the adjustment relating to periods before those
presented, to the extent practicable; and
e. if retrospective application is impracticable for a particular prior
period, or for periods before those presented, the circumstances
that led to the existence of that condition and a description of how
and from when the change in accounting policy has been applied.
disclosures (para. 29).
IFRS5-7
(a) M&S could have adopted the account form or report form. M&S uses
the report form.
IFRS5-7 (Continued)
(d) The following table summarizes M&S’s cash flows from operating,
investing, and financing activities in 2010 and 2009 (in millions).
2010
2009
Net cash provided by operating activities
£1,229.0
£1,290.6
Net cash used in investing activities
529.6
596.9
Net cash used in financing activities
792.9
521.1
(e) Current Cash Debt Ratio
£1,229 ÷
£1,890.5 + £2,306.9
= 0.59:1
2
2
Net cash provided by operating activities …………….
Less: Capital expenditures …………………………………