Fsa Balance Sheet

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FINANCIAL STATEMENT ANALYSIS ACC-504
Instructor: Dr. Kumail Rizvi

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21/5/2013

Kumail Rizvi, PhD, CFA, FRM

INCOME STATEMENT


Grouping of the expenses
 

21/5/2013

Grouping by Nature Grouping by Function

Kumail Rizvi, PhD, CFA, FRM



Formatting
Multi-step format (GP Subtotal)  Single-Step format (No GP subtotal) 

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REVENUE
21/5/2013

Profit = Income – Expenses  “Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants”  Income includes Revenue and Gains 

Kumail Rizvi, PhD, CFA, FRM

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IASB, IAS NO. 18, REVENUE


Conditions for recognizing revenue

   

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Transfer the risk and rewards of ownership of goods No retention of Managerial involvement and effective control Amounts can be measured reliably Probability of flow of economic benefits Cost incurred or to be incurred can be measured reliably

Kumail Rizvi, PhD, CFA, FRM



Goods sold on consignment should not be recognized when transferred

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IASB, IAS NO. 18, SERVICES
When the outcome estimation is reliable, recognized revenues with reference to the stage of completion at the balance sheet date  Conditions for reliable estimation of outcome 
21/5/2013 Kumail Rizvi, PhD, CFA, FRM

Amount can be measured reliably  Probability of flow of economic benefits  Stage of completion can be measured reliably  Cost incurred or to be incurred can be measured reliably  

Disclose revenue recognition policies in footnotes
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FASB 605-10-25, REVENUE RECOGNITION


Realized or Realizable and Earned
Evidence of Arrangement: No delivery before the contract  Product or Service has been delivered. Shipping only is not sufficient  Price is determined or determinable. No Contingency price is allowed  Seller is reasonably sure of collecting money 

21/5/2013 Kumail Rizvi, PhD, CFA, FRM

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REVENUE RECOGNITION: SPECIAL CASES


Before Goods are delivered or Services Rendered
 

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Ratably


Equal proportion Calculate % of completion and apply it on revenues

Percentage of Completion Method


Kumail Rizvi, PhD, CFA, FRM



At the time goods are delivered or Services Rendered


Normal Revenue recognition criteria (Completed Contract Method)



After Goods are delivered or Services Rendered
Installment Method (recognize profit as per its %)  Cost Recovery Method (recognize profit after the recovery of cost) 
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21/5/2013 Kumail Rizvi, PhD, CFA, FRM

RATABLY

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21/5/2013 Kumail Rizvi, PhD, CFA, FRM

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21/5/2013 Kumail Rizvi, PhD, CFA, FRM

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21/5/2013 Kumail Rizvi, PhD, CFA, FRM

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21/5/2013 Kumail Rizvi, PhD, CFA, FRM

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21/5/2013 Kumail Rizvi, PhD, CFA, FRM

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21/5/2013 Kumail Rizvi, PhD, CFA, FRM

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21/5/2013 Kumail Rizvi, PhD, CFA, FRM

BARTER TRANSACTIONS
Concept  Modern Day Usage  Implication w.r.t Valuation  IFRS 
21/5/2013 Kumail Rizvi, PhD, CFA, FRM




Fair Value of revenue from similar nonbarter transactions with unrelated parties Fair value if and only if a company has historically received cash payments for such services and can thus use this historical experience as a basis for determining fair value

FASB


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GROSS VERSUS NET REPORTING
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For Gross reporting
    

Company is the primary obligor Bears inventory risk Bears credit risk Can choose supplier Has reasonable latitude to establish price

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Kumail Rizvi, PhD, CFA, FRM

ANALYST JOB: IMPLICATION FOR FINANCIAL ANALYSIS
21/5/2013

Result of a policy is recognizing revenues sooner or later (less conservative, conservative)  To what extent policy requires the company to make estimates  Why different with the policies of peers 

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Kumail Rizvi,...
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