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1、Intermediate Accounting,By Vivian 周卉,Tutorial Class 5Review for Final Exam,Final ExamKey points,1.Condolidated accounts-Consolidated income statement and balance sheet 2.Accounting for fixed assets:-Purpose and methods of depreciation,advantage and disadvantage of different methods.-Caculation of ne
2、w depn expense after the change in useful life or revaluation of fixed asset,Final ExamKey points,3.EPS calculation,-Advantage and disadvantage of EPS.-Weighted average no.of shares calculation 4.Impairment of fixed assets or goodwill:-Definition of impairment loss;-In what situation will a company
3、carry out an impairment review and how-Allocation of impairment loss,1.Consolidated Accounts,Example 1,Beijing plc owns 80%of the shares of Zhuhai plc.The purchase consideration was 450,000.The retained earnings of Zhuhai plc at the date of acquisition were 350,000.The summarised financial statement
4、s of the two companies for the year ended 31 December 2008 were as follows:,BALANCE SHEET as at 31 Dec.2008,Additional information:During the year,Zhuhai had sold goods which it had bought for 200,000,to Beijing with a markup of 30%.At the end of the year 20%of these were unsold by Beijing by the ye
5、ar end.A review of group current accounts showed a receivables balance of 30,000 in Zhuhais accounts and a payables balance of 27,000 in Beijings accounts.This is due to cash in transit:Beijing had dispatched a cheque of 3,000 on 31 December 2008.The group policy is to capitalise goodwill without am
6、ortisation.There has been no impairment of goodwill,since the acquisition.,Example 1,Consolidated B/S,1.Goodwill calculationinvestment 450Less Parents share of share capital and reserve at the date of acquisition 80%*(350+100)(360)Goodwill 902.Cash in transit:Beijing sent cheque to Zhuhai:3KZhuhais
7、cash:+3 Zhuhais Receivable:-3Cancel 27K payable-receivable from both companies on consolidation.,information,B/S,P/L,2.Unrealized profitCost 200,mark-up 30%,Inter-company sales 200*(1+30%)=26020%in stock:unrealized profit=20%*(260-200)=12Treatment:-reduce inventories of Arthur in B/S(12)-reduce pare
8、nts share of groups reserve in B/S(12*80%=9.6)-reduce minority interest in B/S(12*20%=2.4)-reduce profit by adding cost of sales in income statement(12)-reduce minority interest in income statment(12*20%=2.4),Consolidated balance sheet treatment,B/S,P/L,information,information,B/S,P/L,3.Minority Int
9、erest in B/SMinority share of net assets at the balance sheet date(100+750)*20%=170Reduce share of URP 12*20%=(2.4)Minority interest in B/S 167.6 4.Groups reserveParents reserve 1110Parents share of post-acquisition profit 80%*(750-350)=320Less parents share of unrealized profit80%*12=(9.6)Groups re
10、serve 1420.4,Consolidated balance sheet treatment,information,B/S,P/L,550(parent only),100,550,Share Capital(1 ordinary),90,-,-,Goodwill,1450,100,-,200,300,850,-,750,1450,20,30,100,100,-,1200,Zhuhai,3411,2360,300(200+100),200,Payables,0(cancel out after adjusting),27,Amounts payable to Zhuhai,373(17
11、3+200),173,Payables,600(300+300),300,Debenture Loans,2138,1610,Equity,167.6,-,Minority interest,1420.4,1110,Reserves,3411,2360,Total Assets,123(100+20+3),100,Cash at Bank,0(cancel out after adjusting),-,Amounts receivable from Beijing,350(250+100),250,Receivables,288(200+100-12),200,Inventory,-,450,
12、Investment in Zhuhai,2560(1360+1200),1360,Non-current Assets,Group,Beijing,Consolidated income statement treatment,1.Eliminate inter-company sales-reduce sales of Zhuhai by 260-reduce cost of sales of Beijing by 2602.Minority Interest in P/LMinoritys share of Subsidiarys profit after tax minus unrea
13、lized profit300*20%-12*20%=57.6,information,B/S,P/L,Consolidated income statement,3.retained earning b/wd for the groupretained earning b/wd for parent 710Parents share of post acquisition profit b/wd(450-350)*80%=80retained earning b/wd for the group 790 4.Adding sales and cost of sales sales:3300+
14、(2100-260)=5140 cost of sales:(1600-260)+1200+12URP=2552,information,B/S,P/L,688,300,400,Profit after tax,57.6(300*20%-12*20%),-,-,Minority interest,750,450,300,300,600,250,50,900,1200,2100,Zhuha,1420.4,1110,Retained Earnings c/fwd,790,710,Retained Earnings b/fwd,630.4,400,Profit for the year,700(40
15、0+300),400,Income tax,1388,800,Profit before tax,1070(820+250),820,Selling expense,130(80+50),80,Admin expense,2588,1700,Gross profit,2552(1600-260+1200+12),1600,Cost of sales,5140(3300+2100-260),3300,Revenue,Group,Beijing,INCOME STATEMENTS,Fixed Assets,Practical example 2,Simple plc has purchased a
16、 car.The details are as follows:Cost of machine$800,000Residual value$104000Estimated life 4 years1.)Calculate:the annual depreciation charge using the a)straight-line method,b)diminishing balance and b)sum of digits method2.)Comment on which depreciation method is the most appropriate in this case
17、and why.3.)Explain the purpose of recording depreciation on fixed assets,Practical example 2 straight line,$,000Cost 800Depreciation for year 1 174Net book value 626Depreciation for year 2 174Net book value 452Depreciation for year 3 174Net book value 278Depreciation for year 4 174Residual value 104
18、,Cost-estimated residual value=depn.charge per year Estimated economic life(800-104)/4=174,Practical example 2 diminishing balance,Depn rate=1-n(residual value)/cost=1 4(104)/800=40%Cost 800Depreciation for year 1 320(800*40%)Net book value 480(800 320)Depreciation for year 2 192(480*40%)Net book va
19、lue 288(480 192)Depreciation for year 3 115Net book value 173Depreciation for year 4 69Residual value 104,Practical example 2 sum of digits年数总和法,Cost 800Depreciation for year 1 278 696*4/10(depn rate)Net book value 522Depreciation for year 2 209 696*3/10Net book value 313Depreciation for year 3 139
20、696*2/10Net book value 174Depreciation for year 4 70 696*1/10Residual value 104,Step1:Total depreciable cost=Cost-estimated residual value=800-104=696 Step2:Total digits:1+2+3+4=10 Step3:Calculate the depn.Rate(4/10,3/10,2/10,1/10)Step 4:total depreciable cost*depn.rate for each year,Practical examp
21、le 3,A fixed asset costs 15,000 six year ago.It was depreciated using straight line method with no residual value.The company has now adopted the current value approach for its building and this building has been valued to 16,000.The fixed asset has an estimated useful life of 30 years which still h
22、olds true.Calculate:The NBV The old annual depreciation charge The new annual depreciation charge,Practical example 3,NBV at the date of revaluation:15,000(15,000/30 x 6)=12000Revaluation surplus:=16,000-12000=4000 This will be credited to revaluation reserve(surplus).Old dep.15,000/30=500New dep.16
23、000/(30-6)=667,EPS calculation,Example 4,1 January:10000 ordinary shares in issue1 March:2000 ordinary shares issued for cash 31 April:Bonus issue(发行红利股),1 for 4.31 July:Rights issue(配股)at 1 per share on the basis of 2 for 5 held(Market price of the share before rights issue was 1.5).Profit after ta
24、x is 20000 Required:Calculate the EPS for this year,Example 4,1.Bonus fraction as at 31 April:12000+(12000*1/4)=5 12000 42.Calculation of theoretical Ex-rights price 理论除权价格 1*2 shares=2 1.5*5shares=7.52+7.5=9.5 9.5/7shares=1.36(This is the theoretical Ex-rights price)Bonus fraction as at 31 July for
25、 rights issue:1.5/1.36=1.1=11/10,Date Actual Time Bonus Bonus Shares factor Fraction Rights1 January:10000 2/12*5/4*11/10=2292 Cash issue 2000 1 March:12000 2/12*5/4*11/10=2750Bonus 300031 April:15000 3/12*11/10=4125 Rights issue 6000 31 July:21000 5/12=8750Weighted average no.of shares for the year
26、=17917EPS=profit/weighted no.of shares=20000/17917=110 p,Practical example 5,Jay plcs profit after tax and minority interest was 1,095,000 for the year ended 31 December 2007.Notes:1)On 1 January 2007,there were 4,000,000 ordinary shares of 25p each,in issue.2)On 31 March 2007,there was a bonus issu
27、e(红利股发行)of 1 new ordinary share for every 4 held.3)On 1st September 2007,there was an issue of one million 25p ordinary shares for cash at full market price.4)A rights issue(供股,配股）was made to the ordinary shareholders on the 31st October 2007,at 50 pence per share,on the basis of one share for every
28、 four held.The market price immediately before the rights issue was listed as 1.5)The EPS figure for last year was 20 pence.REQUIRED a)Calculate the earnings per share figure for 2007.b)Recalculate the earnings per share figure for the year 2006.,Impairment Review,Impairment of intangible assets,Imp
29、airment is a“reduction in the recoverable amount of a fixed asset or goodwill below its carrying amount Impairment loss减值损失 is to be recorded when Carrying amount账面价值is more than recoverable amount可回收金额,which is higher of net realizable value and value in useNet realizable value可收现价值-estimated selli
30、ng price in the ordinary course of business minus any cost to complete and to sell the goods.Value in use现值-PV of future cash flows-discounted at required rate of returnIf impaired-(i.e.carrying amountrecoverable amount)written down asset value to the revised carrying amount,Impairment of intangible
31、 assets,Revised carrying amount=the lower ofCarrying amount OR recoverable amount(higher of)Net realizable value value in use,Impairment of intangible assets,Allocating impairment losses:1.specific fixed assets.2.goodwill3.other capitalised intangibles4.other tangible fixed assets on a pro rata basi
32、s(or other more appropriate basis),Indicators of Impairment,Current period trading losses or net cash outflow from operating activities,combined with either:past operating losses/net cash outflows or expectation of continuing operating losses/net cash outflowsSignificant decline in a fixed assets ma
33、rket value.Evidence of obsolescence or physical damage to a fixed assetsignificant adverse changes in:business or marketsstatutory or regulatory environmentCommitment by management to undertake significant reorganisationMajor loss of key employeesSignificant increase in market rates of interest,Tina
34、 plc acquired a Taxi business on 1 January 2008,for 380,000.The values of the assets of the business at that date based on Net Realisable Values(NRV)were as follows:Vehicles240,000Intangible assets(Taxi Licence 40,000Receivables 20,000Cash 10,000Payables(10,000)300,000,Example 6,Example 6,On 1 Febru
35、ary 2008,the taxi company had five of its vehicles stolen.The NRV of these vehicles was 50,000.These vehicles were not insured adequately.Because of this event,Coco plc wants to recognise an impairment loss of 80,000(inclusive of the loss of stolen vehicles)due to the decline in the value of the inc
36、ome generating unit(i.e.the Taxi business).On 1 March 2008,a competitor firm commenced business in the same area.As a result,business revenue is anticipated to fall by 25%,and that a further impairment loss has occurred due to a decline in the present Value in Use of the business which is calculated at 260,000.The NRV of the taxi licence has fallen to 20,000 as a result of the rival taxi operator.The NRV of the other assets have remained the same as at 1 February 2010.,
