A86045 Accoun,ng and Financial Repor,ng (2015/2016)
Transcript of A86045 Accoun,ng and Financial Repor,ng (2015/2016)
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A86045Accoun,ngandFinancialRepor,ng(2015/2016)
Session6CostsandExpenses
PaulG.SmithB.A.,F.C.A.
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SESSION6OVERVIEW
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Session6Overview
Mins
Sessionoverviewandobjec,ves 5
Reviewofpre-workandsession5recap 5
Classifica,onofCostsandExpenses 5
CostofSales 20
Othergoodsandservices 5
Employeeexpenses(Payroll,Share-basedpayments,OtherPostEmploymentBenefits(OPEBs)
25
Classexercise 15
Requiredreadingandassignmentfornextsession 5
Summaryandvalida,on,overviewofsession7 5
90
3A86045Accoun,ngandFinancialRepor,ng
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CourseObjec,ves
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Attheendofthiscoursestudentswillbeableto:• Readandperformahighlevelinterpreta2onofthefinancialstatementsofcompaniesapplyinginterna9onalaccoun9ngstandards
• Iden2fyandevaluatetheimpactonacompaniesaccountsofalterna9veaccoun9ngmethods
• Carryoutahighlevelassessmentofthetheeconomic-financialposi9onofacompanyrepor9ngunderIAS/IFRS.
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CourseOverview
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1.Financialrepor,ngunderIFRS 15.Inventories
2.Financialanalysisandra,os 16.Review
3.Financialanalysisandra,os-cont’d 17.Accountsreceivable
4.Review 18.Groupaccounts
5.Revenues 19.Taxa,on(directandindirect)
6.Costsandexpenses 20.Non-financialliabili,es
7.Non-currentFinancialassets/liabili,es 21.Review
8.Non-currentassets-Tangibleassets 22.Review
9.Financialleases 23.CashFlowStatement
10.Review 24.Review
11.Non-currentassets-Intangibleassets 25.Review
12.Impairmentofassets 26.Businesscombina,ons
13Review 27.Finaltest
14.Midtermtest
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Objec,vesofSession5
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Attheendofthissessionsessionstudentswillbeableto:1.Recognizeandunderstandthedifferencebetweenaprofitandlossaccountwiththecostsandexpensespresentedbynatureandbyfunc,on.2.Calculatecostofgoodssold/costofsales3.Understandtheaccoun,ngforpayrollexpenses,stockop,onsandotheremployeebenefits.
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SESSION5RECAPANDPRE-WORK
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Session5Summary
• Revenues–largestnumberintheincomestatementandtheareamostsuscep,bletomanipula,on
• Fivestepapproachtorevenuerecogni,on• Importanceofindustrycontextandunderstanding
• Frameworkforrevenuerecogni,on• IFRS15,IAS18andIAS11
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Session6Pre-work• Reading– MelvilleInterna,onalFinancialRepor,ngAPrac,calGuide:• Chapter14–Employeebenefits
– IASBTechnicalsummaries• IAS19Employeebenefits• IFRS2Share-basedpayments
• Exercises– Melville13.1–13.6Pluson-linemul,plechoiceques,onsforchapter13
– EX5Revenues
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CLASSIFICATIONOFCOSTSANDEXPENSES
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Classifica,onofcostsandexpenses
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Session'1'SM3'Profit'and'Loss'Account'by'Nature'and'by'Destination
A86045'Accounting'and'Financial'Reporting Paul'G.'Smith
Revenu
es
Cost'of'sales
Gorss%p
rofit
Other'ope
ratin
g'income
Selling'and
'distrib
ution'expe
nses
Adminstrativ
e'expe
nses
Other'ope
ratin
g'expe
nses
Ope
ratin
g%profit
Finance'costs
Finance'income
Share'of'profit'of'associate'and
'JV
Profit%be
fore%ta
x%Co
nt%ope
ratio
ns
Income'tax'expe
nse
Profit%for%the
%year%from%con
t%ope
ratio
ns
Profit'after'tax'from
'disc
ont'o
peratio
ns
Profit%for%the
%year
Continuing%operationsRevenues 180.462 180.462
Other'operating'income 1.584 1.584
Changes'in'inventories (1.134) (1.134)Raw'materials'and'consumables (127.739) (127.739)Employee'benefits'expense (35.880) (3.451) (14.001) (18.428)Depreciation'and'amortization (3.922) (3.922)impairment'on'nonVcurrent'assets (200) (200)Other'expenses (1.153) (2) (1.151)Finance'costs (2.766) (2.766)Finance'income 1.186 1.186Share'of'profit'of'associate'and'JV 671 671Profit'befor'tax'from'continuing'operations 11.109Income'tax'expense (3.098) (3.098)Profit%for%the%year%from%continuing%operations 8.011
Discontinued%operations
Profit%after%tax%from%discontinued%operations 220
Profit%for%the%year 8.231 220180.462 (136.448) 44.014 1.584 (14.001) (18.428) (1.151) 12.018 (2.766) 1.186 671 11.109 (3.098) 8.011 220 8.231
Session6
Session5
Sessions8-12
Session18
Session19
ByNatureofExpense
ByDesHnaHonorFuncHonofExpense
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COSTOFGOODSSOLD(COGS)
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CostofGoodsSold(COGS)Openinginventory 100
Purchases 2,000 2,000
2,100
Closinginventory (150)
Changeininventory (100–150) (50)
Costofgoodssold 1,950 1,950
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Costofgoodssold(COGS)isthesameasCostofSales(COS)
OR
WewilllookatmethodsofvaluinginventoriesinSession15
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OTHERCOSTSANDEXPENSES
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OtherCostsandExpenses
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Accoun,ngperiod
1/1/XX 31/12/XX30/09/XX30/06/XX31/03/XX
Electricitybill
Insurancecontract
Accrual
Deferral
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EMPLOYEEEXPENSES
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Employeeexpenses
• Payroll• Postemploymentbenefits(PEB)• Share-basedcompensa,on
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PAYROLLEXPENSES
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Payrollexpenses
BasicSalary Company’ssocialcharges
TerminaHonindemnity
Totalcosttocompany
Employee’sgrosssalary
50,000 15,000 5,000 70,000
Socialcharges (5,000)
Incometaxes (15,000)
Employee’snetsalary
30,000
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Whataretheaccoun9ngentriesforthis?
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Payrollexpenses-accoun,ng
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Drpayrollexpense 50,000
Drtermina,onindemnityexpense 5,000
Drsocialsecurityexpense 15,000
Crsocialsecurityliability(15,000+5,000) 20,000
Crtermina,onindemnityprovision 5,000
Crincometaxauthori,es 15,000
Crcash 30,000
70,000 70,000
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Othershort-termemployeebenefits
• Holiday/vaca,onpay• Profitsharing/bonuses• Non-monetarybenefits– Car– Phone– Medicalcare
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POSTEMPLOYMENTBENEFITS
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Postemploymentbenefits-Pensions-IAS19
Definedbenefit• Theplandefinesthe
benefitsthatanindividualwillreceivebasedonanumberoffactorssuchasage,yearsofserviceandcompensa,on.
DefinedcontribuHon• Theplanspecifieshowan
individual’scontribu,onsaredeterminedasopposedtothebenefitsthattheywillreceive
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Fixedcosttothecompanyandnofurtherobliga,ononceliabilityis
sefled.
Thecompany’sobliga,onistoprovidetheagreedbenefits
thereforetheactuarialriskandinvestmentriskfallonthecompany.
Fundedvs.Unfunded
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Accoun,ngfordefinedbenefitplansandotherpostemploymentbenefits
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Assump,onsrequired(alsotobedisclosed)• Discountrate• Infla,on• Rateofincreaseinsalaries• Rateofincreaseinpensionpayments• Long-termmedicalcostinfla,on• Expectedlong-termratesofreturn:
• Equi,es• Bonds• Property• Others
• Lifeexpectancies/mortalityrates
AnActuarialValua9onisnormallyRequired
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Accoun,ngfordefinedbenefitplans
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a) Determinethedeficitorsurplus.Thisinvolves:a) Usinganactuarialtechniquesuchasthe“projectedunitcredit”methodto
es,matetheul,matecosttotheen,tyforserviceincurrentandpriorperiodsandmakees,matesaboutdemographicandfinancialvariables
b) Discoun,ngthebenefittodeterminethenetpresentvaluec) Deduc,ngthefairvalueofanyplanassets
b) Determiningtheamountofthenetdefinedbenefitliability/assetc) Determiningtheamounttoberecognizedinprofitandloss:
a) Currentservicecostb) Anypastservicecostandgainorlossonseflementc) Netinterestonthenetdefinedbenefitliability(asset)
d) Determiningthere-measurementsofthenetdefinedbenefitliability(asset)toberecognizedinothercomprehensiveincomecomprising:a) Actuarialgainsandlossesb) Returnonplanassetsc) Anychangeintheeffectoftheassetceiling
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SHAREBASEDCOMPENSATION
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Share-basedpayments-StockOp,ons
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GrantDate Ves,ngDate ExerciseDate
Ves,ngcondi,ons• Service• Performance
Costofop,onrecognized(Adjustedannually)
TheFairvalueoftheop9onismeasuredattheGrantDate
Nofurtheradjustmentoncevested
LapseDate
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StockOp,ons–Valua,on
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Op,onValue Intrinsicvalue TimeValue= +
SharepriceLess
Exerciseprice
Vola,lityInterestrate
Timetoexpira,onDividendrate
Ves,ngperiodEarlyexercise
Non-transferabilityPerformancehurdles
Employeeop,onsOp9onpricingmodels:
• Black-Scholes-Merton• Binomial• MonteCarloSimula9on
AnActuarialValua9onisnormallyRequired
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StockOp,ons–Accoun,ng
Cashse]ledDrEmploymentcosts CrLiability
Equityse]ledDrEmploymentCosts CrEquity
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Ifop9onsaremodified,cancelledorevennotexercised,thecostisnotmodifiedorreversed
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CLASSEXERCISE
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ClassExercise
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Anen,tygrants100shareop,onstoeachofits500employees.Ves,ngiscondi,onalupontheemployeesworkingfortheen,tyoverthenextthreeyears.Theen,tyes,matesthatthefairvalueofeachshareop,onis€15.Theen,tyes,matesthat20%oftheoriginal500employeeswillleaveduringthethreeyearperiodandthereforeforfeittheirrightstotheshareop,ons.Ifeverythingturnsoutexactlyasexpected,calculatetheamountstheen,tywillrecognizeduringtheves,ngperiodforservicesrenderedasconsidera,onfortheshareop,ons.
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Classexercise-solu,on
Year CalculaHonofcumulaHveexpense
CumulaHveexpense€
Expensefortheperiod
1 50,000op,onsx80%x€15x1/3 200,000 200,000
2 50,000op,onsx80%x€15x2/3 400,000 200,000
3 50,000op,onsx80%x€15x3/3 600,000 200,000
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REQUIREDREADINGANDASSIGNMENTFORNEXTSESSION
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OverviewSession7
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• Non-currentFinancialAssets/Liabili,es• FinancialInstruments-Standardsanddefini,ons
• FairValueandAmor,zedCost
• RiskManagement
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Session7Pre-work• Reading
– MelvilleInterna,onalFinancialRepor,ng–APrac,calGuide:• Chapter11–FinancialInstruments
– IASBTechnicalSummaries• IAS32FinancialInstruments:Presenta,on• IAS39FinancialInstruments:Recogni,onandMeasurement• IFRS7FinancialInstruments:Disclosures• IFRS9FinancialInstruments
• Exercises– Melville14.1–14.5,Pluson-linemul,plechoiceques,onsforchapter14.– EX6.CostsandExpenses
• Research– Iden,fythenatureoftheFinancialInstrumentsinyourchosencompanyand
bepreparedtodiscusshowtheyareclassifiedandaccountedfor.
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SUMMARYANDVALIDATION
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Session6Summary
• Classifica,onofcosts/expensesbynatureorbydes,na,on
• Costofgoodssold• Othercosts/expenses–accruals/deferrals• Employeeexpenses– Payroll– Pensions– Stockop,ons
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Session6Valida,on
• Whatisthedifferencebetweenadefinedbenefitplanandadefinedcontribu,onplan?
• Overwhatperiodisthecostofthefairvalueofastockop,onrecognized?
• Whatisthedifferencebetweenandaccrualandaprepayment/deferral?
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