Introduction to Balance Sheets

Transcription

1 Consolidated Statements of Cash Flows Three years ended December 25,1999 (in millions -except per share amounts) Cash and cash equivalents, beginning of year $2,038 $4,102 $4,165 Cash flows provided by (used for) operations: Net income 7,314 6,068 6,945 Adjustments to reconcile net income to net cash provided by (used for) operations Depreciation 3,186 2,807 2,192 Amortization of goodwill and other acquisition-related intangibles Purchased in-process research and development Gains on sales of marketable strategic equity securities (883) (185) (106) Net loss on retirements of property, plant, and equipment Deferred taxes (219) 77 6 Change in assets and liabilities Accounts receivable 153 (38) 285 Inventories (404) Accounts payable 79 (180) 438 Accrued compensation and benefits Income taxes payable 726 (211) 17 Tax benefit from employee stock options Other assets and liabilities (819) (378) Cash flows provided by (used for) investing activities: Additions to property, plant, and equipment (3,403) (3,55 Acquisitions, net of cash received (2,979) Purchases of available-for-sale investments (7,055) ales of available for sale investments 831 es and other changes in available-for-sale investments 7 Balance Sheets» Exercises Total adjustments 4,021 2,994 Net cash provided by operating activities 11,335 9,062 for) investing activities Introduction to Balance Sheets C H A P T E R P R I N T C O N T E N T S List of Chapter Exercises Exercise Materials Note: Excel templates and exercise solutions are only found on-line. Go to your Course Map or the URL at the top to locate exercise web pages. You are free to share and customize this work, as long as you attribute G. Peter & Carolyn R. Wilson and respect the Creative Commons Attribution-Noncommercial-Share Alike United States license NavAcc LLC

2 Navigating Accounting Exercises Chapter: Balance Sheets Section: What Do I See? Module: What Do I See on Balance Sheets? bs.wis.010 Comparing and contrasting items on all financial statements bs.wis.020 Identifying primary and major categories on balance sheets bs.wis.030 Identifying common line items on balance sheets bs.wis.040 Applying hierarchical approach to analyzing balance sheets bs.wis.050 Applying definitions and measurement to assets, liabilities and owners equity (Your Balance Sheet) Section: What s Behind the Numbers? Module: Framing Record Keeping and Reporting No exercises Module: Recording Entries: BSE bs.wbn.bse.001 Interactive Exercise: Recording BSE entries (Bischoff E1 - E5) bs.wbn.bse.010 Recording BSE entries and determining effects on balance sheets (ABC Company) bs.wbn.bse.020 Recording BSE entries and tracing to line items (CreativeABCs Company) bs.wbn.bse.030 Recording BSE entries and creating balance sheets (Chancellor's Sweet Treats) bs.wbn.bse.040 Recording BSE entries and creating balance sheets (JP's Smart Phone Accessories) bs.wbn.bse.050 Recording BSE entries and creating statements (Bryan's Health & Fitness) Module: Recording Entries: JE bs.wbn.je.010 Recording JEs and creating balance sheets (ABC Company) bs.wbn.je.020 Recording JEs and creating balance sheets (CreativeABCs Company) bs.wbn.je.030 Recording JEs and creating balance sheets (Chancellor's Sweet Treats) bs.wbn.je.040 Recording JEs and creating balance sheets (JP's Smart Phone Accessories) bs.wbn.je.050 Recording BSE entries and creating statements (Bryan's Health & Fitness) Module: Accounting Judgment: Basics bs.wbn.jud.010 Applying recognition decisions and fair value measurement (SimpleSales, Inc.) Section: How Do I Use the Numbers? Module: Analyzing Financial Condition: Basics bs.hun.afc.010 Analyzing common size balance sheets bs.hun.afc.020 Analyzing risks and rewards bs.hun.afc.030 Assessing the consequences and implications of financial leverage (Mall exercise) bs.hun.afc.040 Analyzing balance sheets and financial condition (Analysis Mini-Case Series- Marriott & Starwood); no solution Module: Connecting Preparers' and Users' Decisions No exercises Module: Factors Driving Dispersion of Measures No exercises Balance Sheets Page 2

3 Balance Sheets» What Do I See?» Exercises E X E R C I S E S bs.wis.010 Comparing and contrasting items on all financial statements These questions pertain to Nippon Steel s and United States Steel s balance sheets and select footnotes. See the exercise materials for this section. Check your answers in the provided solution. (a) Compare and contrast the following items for Nippon Steel and U.S. Steel: Balance sheets dates, reporting periods, and fiscal years Basis of presentation: currencies and rounding Accounting standards to which the reports comply Search This exercise helps you learn how to search for information. (b) Based on what you observed above in part (a) on the companies balance sheets and notes, what can you infer about the rest of their annual report? What might be similar? What might be different? (c) Based on the items above in part (a), what concerns, if any, would you have in analyzing and comparing the financial positions of Nippon Steel and U.S. Steel? Compute This exercise helps you learn how to compute information. (d) Both Nippon Steel and U.S. Steel use iron ore and other commodities to make their products. Without knowing more about their businesses, what concerns, if any, would you have in comparing the financial positions of Nippon Steel and U.S. Steel? You may customize this work, as long as you credit G. Peter & Carolyn R. Wilson and respect the Creative Commons Attribution-Noncommercial-Share Alike United States license NavAcc LLC. Balance Sheets Page 3

4 Consolidated Balance Sheets Nippon Steel Corporation and Consolidated Subsidiaries As of March 31, 2009 and 2008 Thousands of U.S. dollars Millions of yen (Note 3) ASSETS Current assets: Cash and bank deposits (Notes 4 and 14) 124, ,455 $ 1,262,421 Marketable securities (Notes 14 and 17) 13,038 9, ,731 Receivables: Notes and accounts receivable (Notes 4) 567, ,080 5,781,308 Less: Allowance for doubtful accounts (5,442) (7,685) (55,402) 562, ,394 5,725,905 Inventories (Note 5) 1,021, ,157 10,399,506 Deferred tax assets (Note 8) 91,532 65, ,819 Other 67,978 58, ,032 Total current assets 1,880,556 1,752,424 19,144,417 Fixed assets: Tangible fixed assets: Buildings and structures (Note 4) 1,566,226 1,559,635 15,944,484 Machinery and equipment (Note 4) 5,203,212 5,151,838 52,969,687 Lease assets 19, ,414 6,788,536 6,711,473 69,108,585 Less: Accumulated depreciation (5,392,755) (5,283,202) (54,899,271) 1,395,780 1,428,271 14,209,314 Land (Notes 4 and 7) 330, ,651 3,367,448 Construction in progress 93,265 76, ,460 1,819,830 1,824,724 18,526,223 Intangible fixed assets: Patents and utility rights 12,133 17, ,526 Software 1,504 1,580 15,318 Goodwill 5,946 3,543 60,539 Lease assets 464 4,731 20,050 23, ,115 Investments and others: Investments in securities (Notes 4, 6 and 17) 957,392 1,396,521 9,746,439 Deferred tax assets (Note 8) 52,731 31, ,819 Other (Notes 4 and 6) 145, ,004 1,482,932 Less: Allowance for doubtful accounts (5,549) (5,112) (56,495) 1,150,243 1,593,245 11,709,694 Total fixed assets 2,990,124 3,441,074 30,440,034 Total assets 4,870,680 5,193,498 $ 49,584,451 The accompanying notes are integral parts of these statements. Nippon Steel Corporation Annual Report Balance Sheets Page 4

5 Millions of yen Thousands of U.S. dollars (Note 3) LIABILITIES Current liabilities: Short-term loans and portion of long-term loans due within one year (Note 4) 342, ,009 $ 3,487,175 Commercial paper (Note 4) 148, ,000 1,506,668 Bonds due within one year (Note 4) 43,250 95, ,293 Notes and accounts payable 604, ,989 6,153,337 Accrued expenses 236, ,749 2,408,676 Advances received 33,101 49, ,980 Current portion of lease obligations 3,019 30,734 Accrued income taxes and enterprise taxes 43, , ,565 Allowance for losses on construction contracts 4,666 3,384 47,501 Provision for environmental remediation 5,402 Other 67,252 63, ,644 Total current liabilities 1,526,354 1,721,947 15,538,577 Long-term liabilities: Bonds and notes (Note 4) 324, ,274 3,308,232 Long-term loans (Note 4) 585, ,433 5,959,956 Lease obligations (excluding current portion) 6,966 70,916 Deferred tax liabilities (Note 8) 26, , ,696 Deferred tax liabilities on revaluation of land (Notes 7 and 8) 9,154 9,179 93,197 Accrued pension and severance costs (Note 18) 136, ,536 1,388,379 Reserve for repairs to blast furnaces 37,013 39, ,800 Allowance for retirement benefits of directors and corporate auditors 4,400 4,191 44,800 Other 38,891 38, ,926 Total long-term liabilities 1,169,517 1,057,596 11,905,905 Total liabilities 2,695,871 2,779,543 27,444,482 Commitments and contingent liabilities (Note 15) NET ASSETS (Note 13) SHAREHOLDERS EQUITY Common stock: Authorized 9,917,077,000 shares Issued 6,806,980,977 shares as of March 31, 2009 and , ,524 4,270,843 Capital surplus 114, ,364 1,163,938 Retained earnings 1,458,622 1,377,823 14,849,053 Less: Treasury stock, at cost* (262,152) (261,272) (2,668,765) VALUATION AND TRANSLATION ADJUSTMENTS Unrealized gains on available-for-sale securities (Note 17) 22, , ,738 Deferred hedge income (loss) (1,149) (1,508) (11,706) Unrealized gains on revaluation of land (Note 7) 11,187 11, ,890 Foreign currency translation adjustments (94,348) 13,923 (960,488) MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 506, ,176 5,152,464 Total net assets 2,174,809 2,413,954 22,139,968 Total liabilities and net assets 4,870,680 5,193,498 $ 49,584,451 * 516,602,427 shares at March 31, ,477,120 shares at March 31, Nippon Steel Corporation Annual Report Balance Sheets Page 5

6 Notes to Consolidated Financial Statements Nippon Steel Corporation and Consolidated Subsidiaries 1. Basis of Presenting Consolidated Financial Statements The accompanying consolidated financial statements of Nippon Steel Corporation and its subsidiaries (collectively NIPPON STEEL ) are prepared on the basis of accounting principles generally accepted in Japan, and are compiled from the consolidated financial statements prepared by Nippon Steel Corporation as required by the Financial Instruments and Exchange Act of Japan. 2. Summary of Significant Accounting Policies (1) Principles of consolidation Nippon Steel Corporation had 261, 264 and 270 subsidiaries as of March 31, 2009, 2008 and 2007, respectively based on the criterion of exercise of control. The consolidated financial statements include the accounts of Nippon Steel Corporation and 251 of its subsidiaries (March : 254 subsidiaries, March : 258 subsidiaries). Non-adoption of the consolidation accounting treatment for the unconsolidated subsidiaries does not have a material effect on total assets, net sales, net income or retained earnings in the consolidated financial statements. For details of the subsidiaries and affiliates included in the consolidation, reference should be made to the list of major subsidiaries and affiliates of Nippon Steel Corporation on page 48 and 49 of this document. All consolidated subsidiaries, with certain exceptions, use a fiscal year ending on March 31, which is the same as that of Nippon Steel Corporation. For consolidated subsidiaries using a fiscal year-end other than March 31, certain adjustments have been made, if appropriate, in preparing the consolidated financial statements to reflect material transactions that might have taken place between their fiscal year-end and March 31. For the purposes of preparing the consolidated financial statements, all inter-company transactions and balances, as well as unrealized profits within NIPPON STEEL have been eliminated, together with the portion thereof attributable to minority interests. Elimination of investments in consolidated subsidiaries has been done to include equity in the net income of the subsidiaries for the period subsequent to the date of acquisition in the consolidated statements of income. For consolidated subsidiaries and affiliates where NIPPON STEEL exercises control or influence, the assets and liabilities of those companies, including the portion attributable to minority shareholders, are fully marked to their respective fair values at the date of acquisition of control or influence. Goodwill accounted for on an equity basis is amortized over the period for which the excess cost is expected to contribute to consolidated net income, where it is possible to estimate such a period, using the straight-line method. Otherwise, the excess is amortized over five years. (2) Investments in unconsolidated subsidiaries and affiliates Investments in unconsolidated subsidiaries and material affiliates are accounted for on an equity basis. Although Nippon Steel Corporation had 10 unconsolidated subsidiaries (March : 10 unconsolidated subsidiaries, March : 12 unconsolidated subsidiaries) and 135 affiliates (March : 138 affiliates, March : 141 affiliates), the equity method has been applied to the investments in 73 significant affiliates (March : 72 affiliates, March : 67 affiliates) based on the criterion of exercise of influence, since non-adoption of the equity method for the others has no material effect on net income or retained earnings in the consolidated financial statements. (3) Important assets and liabilities in foreign currencies and foreign currency translation Monetary assets and liabilities of the Company and its domestic subsidiaries denominated in foreign currencies are translated into yen at the rate prevailing on the balance sheet date, and the resulting foreign exchange gains or losses are recognized as income or expenses. For foreign consolidated subsidiaries, assets and liabilities are translated into yen at the rate prevailing at each balance sheet date, revenue and expense accounts are translated at the average rate of exchange in effect during the fiscal year, and foreign currency translation adjustments are included in the translation adjustments and minority interests item under net assets. Change to Summary of Significant Accounting Policies (Year ended March 31, 2009) Foreign currency translation for revenue and expense accounts of foreign consolidated subsidiaries was previously made at the rate prevailing at each balance sheet date, but, beginning with the fiscal year ended March 31, 2009, the translation is made at the average rate of exchange in effect during the year. In light of the growing importance of overseas subsidiaries and affiliates, this change was made to provide a more-accurate presentation of the income and expense items. As a result of this change, net sales were 36,524 million ($371,822 thousand) higher, the gross margin was 10,010 million ($101,905 thousand) higher, operating profit was 8,666 million ($88,222 thousand) higher, and ordinary profit and income before income taxes and minority interests were both 26,292 million ($267,659 thousand) higher than they would have been prior to the change. The effects on Segment Information are described in Note 15. Nippon Steel Corporation Annual Report Balance Sheets Page 6

7 UNITED STATES STEEL CORPORATION CONSOLIDATED BALANCE SHEETS December 31, (Dollars in millions) Assets Current assets: Cash and cash equivalents $ 1,218 $ 724 Receivables, less allowance of $39 and $52 (Note 19) 1,423 2,106 Receivables from related parties (Note 26) Inventories (Note 9) 1,679 2,492 Income Tax Receivable (Note 10) Deferred income tax benefits (Note 10) Other current assets Total current assets 5,015 5,732 Investments and long-term receivables, less allowance of $22 and $10 (Note 11) Property, plant and equipment, net (Note 12) 6,820 6,676 Intangibles net (Note 13) Goodwill (Note 13) 1,725 1,609 Assets held for sale (Note 6) Deferred income tax benefits (Note 10) Other noncurrent assets Total assets $15,422 $16,087 Liabilities Current liabilities: Accounts payable $ 1,396 $ 1,440 Accounts payable to related parties (Note 26) Bank checks outstanding Payroll and benefits payable Accrued taxes (Note 10) Accrued interest Short-term debt and current maturities of long-term debt (Note 16) Total current liabilities 2,474 2,778 Long-term debt, less unamortized discount (Note 16) 3,345 3,064 Employee benefits (Note 20) 4,143 4,767 Deferred credits and other noncurrent liabilities Total liabilities 10,443 11,028 Contingencies and commitments (Note 28) Stockholders Equity Common stock issued 150,925,911 shares and 123,785,911 shares (par value $1 per share, authorized 400,000,000 shares) (Note 22) Treasury stock, at cost (7,575,724 shares and 7,587,322 shares) (608) (612) Additional paid-in capital 3,652 2,986 Retained earnings 4,209 5,666 Accumulated other comprehensive loss (2,728) (3,269) Total United States Steel Corporation stockholders equity 4,676 4,895 Noncontrolling interests Total liabilities and stockholders equity $15,422 $16,087 The accompanying notes are an integral part of these consolidated financial statements. F-6 Balance Sheets Page 7

8 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA United States Steel Corporation 600 Grant Street Pittsburgh, PA MANAGEMENT S REPORT TO STOCKHOLDERS February 24, 2010 To the stockholders of United States Steel Corporation: Financial Statements and Practices The accompanying consolidated financial statements of United States Steel Corporation are the responsibility of and have been prepared by United States Steel Corporation in conformity with accounting principles generally accepted in the United States of America. They necessarily include some amounts that are based on our best judgments and estimates. United States Steel Corporation financial information displayed in other sections of this report is consistent with these financial statements. United States Steel Corporation seeks to assure the objectivity and integrity of its financial records by careful selection of its managers, by organizational arrangements that provide an appropriate division of responsibility and by communication programs aimed at assuring that its policies, procedures and methods are understood throughout the organization. United States Steel Corporation has a comprehensive formalized system of internal controls designed to provide reasonable assurance that assets are safeguarded, that financial records are reliable and that information required to be disclosed in reports filed with or submitted to the Securities and Exchange Commission is recorded, processed, summarized and reported within the required time limits. Appropriate management monitors the system for compliance and evaluates it for effectiveness, and the internal auditors independently measure its effectiveness and recommend possible improvements thereto. The Board of Directors pursues its oversight role in the area of financial reporting and internal control over financial reporting through its Audit Committee. This Committee, composed solely of independent directors, regularly meets (jointly and separately) with the independent registered public accounting firm, management, internal audit and members of the disclosure committee to monitor the proper discharge by each of their responsibilities relative to internal control over financial reporting and United States Steel Corporation s financial statements. Internal Control Over Financial Reporting United States Steel Corporation s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of United States Steel Corporation s management, including the chief executive officer and chief financial officer, United States Steel Corporation conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. F-1 Balance Sheets Page 8

9 1. Nature of Business and Significant Accounting Policies Nature of Business United States Steel Corporation (U. S. Steel or the Company) produces and sells steel mill products, including flat-rolled and tubular products, in North America and Europe. Operations in North America also include transportation services (railroad and barge operations), real estate operations and engineering consulting services. Significant Accounting Policies Principles applied in consolidation These financial statements include the accounts of U. S. Steel and its majority-owned subsidiaries. Additionally, variable interest entities for which U. S. Steel is the primary beneficiary are included in the consolidated financial statements and their impacts are either partially or completely offset by noncontrolling interest. Intercompany accounts, transactions and profits have been eliminated in consolidation. Investments in entities over which U. S. Steel has significant influence are accounted for using the equity method of accounting and are carried at U. S. Steel s share of net assets plus loans, advances and our share of earnings less distributions. Differences in the basis of the investment and the underlying net asset value of the investee, if any, are amortized into earnings over the remaining useful life of the associated assets. Income from investees includes U. S. Steel s share of income from equity method investments, which is generally recorded a month in arrears, except for significant and unusual items which are recorded in the period of occurrence. Gains or losses from changes in ownership of unconsolidated investees are recognized in the period of change. Intercompany profits and losses on transactions with equity investees have been eliminated in consolidation, subject to lower of cost or market inventory adjustments. U. S. Steel evaluates impairment of its equity method investments whenever circumstances indicate that a decline in value below carrying value is other than temporary. Under these circumstances, we adjust the investment down to its estimated fair value, which then becomes its new carrying value. Investments in companies whose equity has no readily determinable fair value are carried at cost and are periodically reviewed for impairment. Use of estimates Generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at year-end and the reported amounts of revenues and expenses during the year. Significant items subject to such estimates and assumptions include the carrying value of property, plant and equipment; goodwill and intangible assets; valuation allowances for receivables, inventories and deferred income tax assets and liabilities; environmental liabilities; liabilities for potential tax deficiencies and potential litigation claims and settlements; and assets and obligations related to employee benefits. Actual results could differ materially from the estimates and assumptions used. Sales recognition Sales are recognized when products are shipped, properties are sold or services are provided to customers; the sales price is fixed and determinable; collectibility is reasonably assured; and title and risks of ownership have passed to the buyer. Shipping and other transportation costs charged to buyers are recorded in both sales and cost of sales. F-10 Balance Sheets Page 9

10 Balance Sheets» What Do I See?» Exercises E X E R C I S E S bs.wis.020 Identifying primary and major categories on balance sheets Part I These questions pertain to Intel s balance sheet. See the exercise materials for this section. Check your answers in the provided solution. (a) Complete the following table for Intel (in $ millions): Assets = Liabilities + Owners' equities Search This exercise helps you learn how to search for information. Intel year-end 2008 Intel year-end 2009 = + = + Compute This exercise helps you learn how to compute information. (b) Complete the following table for Intel (in $ millions): Current assets + Non-current assets = Current liabilities + Non-current liabilities + Owners' equities Intel year-end 2008 Intel year-end = = + + (c) True or False: At the end of fiscal 2009, Intel recognizes $21,157 million of assets it expects to realize benefits from in the near future. (d) True or False: At the end of fiscal 2009, Intel owes debtors $7,591 million that must be paid within one year. (e) True or False: Intel s net assets decreased from the end of fiscal 2008 to the end of fiscal (Net assets = total assets - total liabilities.) (f) True or False: Intel s net assets at the end of fiscal 2009 was equal to its total stock holders equity at the end of fiscal Continued on next page... You may customize this work, as long as you credit G. Peter & Carolyn R. Wilson and respect the Creative Commons Attribution-Noncommercial-Share Alike United States license NavAcc LLC. Balance Sheets Page 10

11 2 NAVIGATING ACCOUNTING Part II These questions pertains to Teco s PLC balance sheet. See the exercise materials for this section. Check your answers in the provided solution. (g) Complete the following table for Tesco ( million): Assets - Liabilities = Owners' equities Tesco fiscal 2009 Tesco fiscal = - = (h) Complete the following table for Tesco ( million): Current assets + Non-current assets = Current liabilities + Non-current liabilities + Owners' equities Tesco fiscal 2009 Tesco fiscal = = + + (i) Locate or estimate Tesco s net assets ( million) at the end of fiscal (Net assets = total assets - total liabilities.) Balance Sheets Page NavAcc LLC, G. Peter & Carolyn R. Wilson

12 INTEL CORPORATION CONSOLIDATED BALANCE SHEETS December 26, 2009 and December 27, 2008 (In Millions, Except Par Value) Assets Current assets: Cash and cash equivalents $ 3,987 $ 3,350 Short-term investments 5,285 5,331 Trading assets 4,648 3,162 Accounts receivable, net of allowance for doubtful accounts of $19 ($17 in 2008) 2,273 1,712 Inventories 2,935 3,744 Deferred tax assets 1,216 1,390 Other current assets 813 1,182 Total current assets 21,157 19,871 Property, plant and equipment, net 17,225 17,574 Marketable equity securities Other long-term investments 4,179 2,924 Goodwill 4,421 3,932 Other long-term assets 5,340 5,819 Total assets $53,095 $50,472 Liabilities and stockholders equity Current liabilities: Short-term debt $ 172 $ 102 Accounts payable 1,883 2,390 Accrued compensation and benefits 2,448 2,015 Accrued advertising Deferred income on shipments to distributors Other accrued liabilities 1,636 1,901 Income taxes payable Total current liabilities 7,591 7,818 Long-term income taxes payable Long-term debt 2,049 1,185 Long-term deferred tax liabilities Other long-term liabilities 1,003 1,141 Commitments and contingencies (Notes 22 and 28) Stockholders equity: Preferred stock, $0.001 par value, 50 shares authorized; none issued Common stock, $0.001 par value, 10,000 shares authorized; 5,523 issued and outstanding (5,562 in 2008) and capital in excess of par value 14,993 13,402 Accumulated other comprehensive income (loss) 393 (393) Retained earnings 26,318 26,537 Total stockholders equity 41,704 39,546 Total liabilities and stockholders equity $53,095 $50,472 1 As adjusted due to changes to the accounting for convertible debt instruments. See Note 3: Accounting Changes. See accompanying notes. 51 Balance Sheets Page 12

13 Group balance sheet 27 February 28 February 24 February Restated* Restated* notes m m m Non-current assets Goodwill and other intangible assets 10 4,177 4,076 2,336 Property, plant and equipment 11 24,203 23,152 19,787 Investment property 12 1,731 1,539 1,112 Investments in joint ventures and associates Other investments Loans and advances to customers 17 1,844 1,470 Derivative financial instruments 22 1,250 1, Deferred tax assets ,258 32,085 23,864 Current assets Inventories 15 2,729 2,669 2,430 Trade and other receivables 16 1,888 1,820 1,311 Loans and advances to customers 17 2,268 1,918 Loans and advances to banks and other financial assets ,541 Derivative financial instruments Current tax assets Short-term investments 1,314 1, Cash and cash equivalents 19 2,819 3,509 1,788 11,392 13,081 5,992 Non-current assets classified as held for sale ,765 13,479 6,300 Current liabilities Trade and other payables 20 (9,442) (8,665) (7,359) Financial liabilities Borrowings 21 (1,529) (3,471) (2,084) Derivative financial instruments and other liabilities 22 (146) (525) (443) Customer deposits 24 (4,357) (4,538) Deposits by banks 25 (30) (24) Current tax liabilities (472) (362) (455) Provisions 26 (39) (10) (4) (16,015) (17,595) (10,345) Net current liabilities (4,250) (4,116) (4,045) Non-current liabilities Financial liabilities Borrowings 21 (11,744) (12,391) (5,972) Derivative financial instruments and other liabilities 22 (776) (302) (322) Post-employment benefit obligations 28 (1,840) (1,494) (838) Deferred tax liabilities 6 (795) (676) (791) Provisions 26 (172) (200) (23) (15,327) (15,063) (7,946) Net assets 14,681 12,906 11,873 Equity Share capital Share premium account 4,801 4,638 4,511 Other reserves Retained earnings 9,356 7,776 6,842 Equity attributable to owners of the parent 14,596 12,849 11,786 Minority interests Total equity 14,681 12,906 11,873 * See note 1 Accounting policies. Sir Terry Leahy Laurie McIlwee Directors The financial statements on pages 70 to 120 were authorised for issue by the Directors on 5 May 2010 and are subject to the approval of the shareholders at the Annual General Meeting on 2 July Tesco PLC Annual Report and Financial Statements 2010 Balance Sheets Page 13

14 Balance Sheets» What Do I See?» Exercises E X E R C I S E S bs.wis.030 Identifying common line items on balance sheets These questions pertains to Intel s and Tesco PLC s balance sheets. See the exercise materials for this section. Check your answers in the provided solution. (a) Identify the asset on Tesco s balance sheet that most likely represents the same concept as Intel s accounts receivable. Search This exercise helps you learn how to search for information. (b) Identify two non-current assets disclosed by both Intel and Tesco that have slightly different captions, but most likely represent the same concepts. (c) Identify the liability on Tesco s balance sheet that most likely represents the same concept as Intel s accounts payable. (d) Identify the liability on Intel s balance sheet that most likely represents the same concept as Tesco s borrowings. (e) Identify the owner s equity line-item on Tesco s balance sheet that most likely represents the same concept as Intel s common stock. You may customize this work, as long as you credit G. Peter & Carolyn R. Wilson and respect the Creative Commons Attribution-Noncommercial-Share Alike United States license NavAcc LLC. Balance Sheets Page 14

15 INTEL CORPORATION CONSOLIDATED BALANCE SHEETS December 26, 2009 and December 27, 2008 (In Millions, Except Par Value) Assets Current assets: Cash and cash equivalents $ 3,987 $ 3,350 Short-term investments 5,285 5,331 Trading assets 4,648 3,162 Accounts receivable, net of allowance for doubtful accounts of $19 ($17 in 2008) 2,273 1,712 Inventories 2,935 3,744 Deferred tax assets 1,216 1,390 Other current assets 813 1,182 Total current assets 21,157 19,871 Property, plant and equipment, net 17,225 17,574 Marketable equity securities Other long-term investments 4,179 2,924 Goodwill 4,421 3,932 Other long-term assets 5,340 5,819 Total assets $53,095 $50,472 Liabilities and stockholders equity Current liabilities: Short-term debt $ 172 $ 102 Accounts payable 1,883 2,390 Accrued compensation and benefits 2,448 2,015 Accrued advertising Deferred income on shipments to distributors Other accrued liabilities 1,636 1,901 Income taxes payable Total current liabilities 7,591 7,818 Long-term income taxes payable Long-term debt 2,049 1,185 Long-term deferred tax liabilities Other long-term liabilities 1,003 1,141 Commitments and contingencies (Notes 22 and 28) Stockholders equity: Preferred stock, $0.001 par value, 50 shares authorized; none issued Common stock, $0.001 par value, 10,000 shares authorized; 5,523 issued and outstanding (5,562 in 2008) and capital in excess of par value 14,993 13,402 Accumulated other comprehensive income (loss) 393 (393) Retained earnings 26,318 26,537 Total stockholders equity 41,704 39,546 Total liabilities and stockholders equity $53,095 $50,472 1 As adjusted due to changes to the accounting for convertible debt instruments. See Note 3: Accounting Changes. See accompanying notes. 51 Balance Sheets Page 15

16 Group balance sheet 27 February 28 February 24 February Restated* Restated* notes m m m Non-current assets Goodwill and other intangible assets 10 4,177 4,076 2,336 Property, plant and equipment 11 24,203 23,152 19,787 Investment property 12 1,731 1,539 1,112 Investments in joint ventures and associates Other investments Loans and advances to customers 17 1,844 1,470 Derivative financial instruments 22 1,250 1, Deferred tax assets ,258 32,085 23,864 Current assets Inventories 15 2,729 2,669 2,430 Trade and other receivables 16 1,888 1,820 1,311 Loans and advances to customers 17 2,268 1,918 Loans and advances to banks and other financial assets ,541 Derivative financial instruments Current tax assets Short-term investments 1,314 1, Cash and cash equivalents 19 2,819 3,509 1,788 11,392 13,081 5,992 Non-current assets classified as held for sale ,765 13,479 6,300 Current liabilities Trade and other payables 20 (9,442) (8,665) (7,359) Financial liabilities Borrowings 21 (1,529) (3,471) (2,084) Derivative financial instruments and other liabilities 22 (146) (525) (443) Customer deposits 24 (4,357) (4,538) Deposits by banks 25 (30) (24) Current tax liabilities (472) (362) (455) Provisions 26 (39) (10) (4) (16,015) (17,595) (10,345) Net current liabilities (4,250) (4,116) (4,045) Non-current liabilities Financial liabilities Borrowings 21 (11,744) (12,391) (5,972) Derivative financial instruments and other liabilities 22 (776) (302) (322) Post-employment benefit obligations 28 (1,840) (1,494) (838) Deferred tax liabilities 6 (795) (676) (791) Provisions 26 (172) (200) (23) (15,327) (15,063) (7,946) Net assets 14,681 12,906 11,873 Equity Share capital Share premium account 4,801 4,638 4,511 Other reserves Retained earnings 9,356 7,776 6,842 Equity attributable to owners of the parent 14,596 12,849 11,786 Minority interests Total equity 14,681 12,906 11,873 * See note 1 Accounting policies. Sir Terry Leahy Laurie McIlwee Directors The financial statements on pages 70 to 120 were authorised for issue by the Directors on 5 May 2010 and are subject to the approval of the shareholders at the Annual General Meeting on 2 July Tesco PLC Annual Report and Financial Statements 2010 Balance Sheets Page 16

17 Balance Sheets» What Do I See?» Exercises E X E R C I S E S bs.wis.040 Applying hierarchical approach to analyzing balance sheets Part I: Financial Leverage analyzing primary elements These questions pertain to Adidas, Nike s, and Puma s balance sheets. See the exercise materials for this section. Check your answers in the provided solution. Financial leverage measures the degree to which a company s assets are funded through owners equity versus liabilities. Unfortunately, there is no universally accepted measure for financial leverage. Typically, it s measured using one of the following ratios: Liabilities divided by Assets (L/A) Assets divided by Owners equity (A/OE) Liabilities divided by Owners equity (L/OE), also called debt-to-equity ratio (a) Calculate financial leverage using each of the three formulas given above for Adidas, Nike, and Puma for their most recent year using the following table: Search This exercise helps you learn how to search for information. Compute This exercise helps you learn how to compute information. Financial Leverage Formula L / A A / OE Adidas year-end 2009 Nike year-end 2009 Puma year-end 2009 Usage This exercise helps you learn how to use accounting information. L / OE (b) Using the financial leverages computed in (a) above, rank the companies from highest to lowest using each of the formulas. Rank Using L / A Using A / OE Using L / OE 1. Highest 2. Middle 3. Lowest (c) Compare and contrast the companies rankings using the three different formulas for computing financial leverage in (b). What do you conclude from your findings? Continued on next page... You may customize this work, as long as you credit G. Peter & Carolyn R. Wilson and respect the Creative Commons Attribution-Noncommercial-Share Alike United States license NavAcc LLC. Balance Sheets Page 17

18 2 NAVIGATING ACCOUNTING Part II: Working Capital & Current Ratio analyzing major categories These questions pertain to Adidas and Puma s balance sheets. See the exercise materials for this section. Check your answers in the provided solution. Working capital measures a company s short-term financial health. It s computed as current assets less current liabilities. Everything else equal, if a company s current liabilities exceed its current assets, it may not be able to meet its obligations in the short term. (d) Calculate working capital for Adidas and Puma for their most recent year. (Working capital = current assets - current liabilities.) (e) Using the working capital computed in (d), which company has the highest working capital? What does this indicate in terms of its short-term financial health? Current ratio is a liquidity ratio. It s computed as current assets divided by current liabilities. Everything else equal, if a company s current ratio is less than one, it may not be able to meet its obligations in the short term. (f) Calculate current ratios for Adidas and Puma for their most recent year. (Current ratio = current assets / current liabilities.) (g) Using the current ratios computed in (f), which company has the highest current ratio? What does this indicate in terms of its short-term financial health? (h) Compare and contrast your conclusions using working capital measures versus current ratios in (e) and (g) above. Balance Sheets Page NavAcc LLC, G. Peter & Carolyn R. Wilson

19 adidas AG Consolidated balance sheet (IFRS) in millions N - 01 Note Dec. 31, 2009 Dec. 31, 2008 Change in % Cash and cash equivalents Short-term financial assets (46.5) Accounts receivable 7 1,429 1,624 (12.0) Other current financial assets (44.3) Inventories 9 1,471 1,995 (26.3) Income tax receivables (18.9) Other current assets (28.4) Assets classified as held for sale Total current assets 4,485 4,934 (9.1) Property, plant and equipment (18.4) Goodwill 12 1,478 1,499 (1.4) Trademarks 13 1,342 1,390 (3.4) Other intangible assets (21.2) Long-term financial assets (5.3) Other non-current financial assets (4.8) Deferred tax assets Other non-current assets Total non-current assets 4,390 4,599 (4.6) Total assets 8,875 9,533 (6.9) Short-term borrowings (75.1) Accounts payable 1,166 1,218 (4.3) Other current financial liabilities Income taxes (39.5) Provisions (1.3) Accrued liabilities (8.7) Other current liabilities Liabilities classified as held for sale (100.0) Total current liabilities 2,836 3,645 (22.2) Long-term borrowings 17 1,569 1,776 (11.7) Other non-current financial liabilities Pensions and similar obligations Deferred tax liabilities (6.3) Non-current provisions Non-current accrued liabilities (40.7) Other non-current liabilities (7.7) Total non-current liabilities 2,263 2,488 (9.1) Share capital Reserves 212 (10) Retained earnings 3,350 3, Shareholders equity 26 3,771 3, Minority interests (61.0) Total equity 3,776 3, Total liabilities and equity 8,875 9,533 (6.9) From 2009, other (non-)current financial assets/liabilities are shown separately from other (non-)current assets/liabilities. Rounding differences may arise in percentages and totals. The accompanying Notes are an integral part of these consolidated financial statements. 166 Consolidated Financial Statements Consolidated Balance Sheet Balance Sheets Page 19

20 NIKE, INC. CONSOLIDATED BALANCE SHEETS May 31, (In millions) ASSETS Current assets: Cash and equivalents... $ 2,291.1 $ 2,133.9 Short-term investments... 1, Accounts receivable, net (Note 1)... 2, ,795.3 Inventories (Notes 1 and 2)... 2, ,438.4 Deferred income taxes (Note 9) Prepaid expenses and other current assets Total current assets... 9, ,839.3 Property, plant and equipment, net (Note 3)... 1, ,891.1 Identifiable intangible assets, net (Note 4) Goodwill (Note 4) Deferred income taxes and other assets (Notes 9 and 18) Total assets... $13,249.6 $12,442.7 LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: Current portion of long-term debt (Note 8)... $ 32.0 $ 6.3 Notes payable (Note 7) Accounts payable (Note 7)... 1, ,287.6 Accrued liabilities (Notes 5 and 18)... 1, ,761.9 Income taxes payable (Note 9) Total current liabilities... 3, ,321.5 Long-term debt (Note 8) Deferred income taxes and other liabilities (Note 9) Commitments and contingencies (Notes 15 and 18)... Redeemable Preferred Stock (Note 10) Shareholders equity: Common stock at stated value (Note 11): Class A convertible 95.3 and 96.8 shares outstanding Class B and shares outstanding Capital in excess of stated value... 2, ,497.8 Accumulated other comprehensive income (Note 14) Retained earnings... 5, ,073.3 Total shareholders equity... 8, ,825.3 Total liabilities and shareholders equity... $13,249.6 $12,442.7 The accompanying notes to consolidated financial statements are an integral part of this statement. 54 Balance Sheets Page 20

21 64 Foreword ı PUMAVision ı Management Report ı Share ı Brand ı Financial Statements ı Report of the Supervisory Board ı Board of Management Financial Statements Statement of Financial Position Notes million million ASSETS Cash and cash equivalents Inventories Trade receivables Other current assets Current assets 1, ,362.0 Deferred taxes Property, plant and equipment Intangible assets Other non-current assets Non-current assets Total assets 2, ,898.7 LIABILITIES AND SHAREHOLDERS' EQUITY Current bank liabilities Trade payables Tax provisions Other current provisions Liabilities from acquisitions Other current liabilities Current liabilities Deferred taxes 8, Pension provisions Liabilities from acquisitions Other non-current liabilities Non-current liabilities Subscribed capital Group reserves Retained earnings 1, ,175.6 Treasury stock Minority interest Shareholders' equity 18 1, ,177.2 Total liabilities and shareholders' equity 2, ,898.7 Balance Sheets Page 21

22 Balance Sheets» What Do I See?» Exercises E X E R C I S E S bs.wis.050 Applying definitions and measurement to assets, liabilities and owners equity This exercise will help you better understand some of the key concepts in accounting by relating them to a representative student. We introduce the concepts here and develop them more formally in later modules. No solution is provided. Part I: Asset definition Here are some things you need to know to complete the exercises: Assets are resources with probable future benefits controlled by the entity as a result of past events or circumstances. A resource can meet the definition of an asset and still not be reported on the entity s balance sheet. To be recognized on the balance sheet, a resource must meet two criteria: it must meet the definition of an asset and it must be possible to measure its financial value reliably. Judgment This exercise helps you learn how to analyze accounting judgments. Required Answer the following from the perspective of a representative student: You are an entity and you have a balance sheet. (a) Measurement aside, what tends to be your 2-3 biggest assets? That is, what are the resources with probable future benefits controlled by you as a result of past transactions (events or circumstances). (b) Do you meet the definition of an asset on your parent s balance sheet? (c) Does your apartment or dorm room meet the definition of an asset on your balance sheet? (d) Does a car leased for four years meet the definition of an asset on your balance sheet? (e) Does a car rented for two days meet the definition of an asset on your balance sheet? (f) Which assets on Intel s balance sheet most resemble cash and cars on students balance sheets? See the exercise materials for Intel s balance sheet. (g) Is the patent for Intel s latest microprocessor chipset recognized on Intel s balance sheet? Continued on next page... You may customize this work, as long as you credit G. Peter & Carolyn R. Wilson and respect the Creative Commons Attribution-Noncommercial-Share Alike United States license NavAcc LLC. Balance Sheets Page 22

23 2 NAVIGATING ACCOUNTING Part II: Asset measurement Here are some things you need to know to complete the exercises: A thousand objective measurement experts have agreed to measure the financial value of the assets identified earlier for a representative student. The representative student s assets are similar to those controlled by you. The experts will interview the representative student to acquire information needed to complete this task. Required Answer from the perspective of a representative student for each of your assets: (h) What will experts need to know to measure the financial value of the asset? How much uncertainty is there about these things? (i) How reliable are their estimates: to what extent would the experts agree on the measurements? Would their estimates be closely bunched together? Widely dispersed? Somewhere in between? (j) Compare the dispersions of objective experts estimates of Intel s cash and cash equivalents and its property, plant & equipment as reported on Intel s balance sheet. Part III: Liabilities definition Here are some things you need to know to complete the exercises: Liabilities are an entity s obligations to sacrifice, or otherwise stand ready to sacrifice, economic benefits to other entities in the future. The obligations may be legal or social obligations where the entity is bound by contract, promise, or moral responsibility. To be recognized on balance sheets, obligations must be probable, meet the definition of a liability, and it must be possible to measure its financial value reliably. Required Answer from the perspective of a representative student: (k) Putting aside measurement, what tends to be your biggest liabilities? That is, what are the biggest legal or social obligations you have that will require sacrifices of future benefits? (l) Which of Intel s liabilities most resemble credit cards and college loans on students balance sheets? Continued on next page... Balance Sheets Page NavAcc LLC, G. Peter & Carolyn R. Wilson

24 EXERCISE 3 Part IV: Liabilities measurement Required Answer from the perspective of a representative student for each of your liabilities: (m) What will experts need to know to measure the financial value of the liability? How much uncertainty is there about these things? (n) How reliable are their estimates: to what extent would the experts agree on the measurements? Would their estimates be closely bunched together? Widely dispersed? Somewhere in between? (o) Compare the dispersions of objective experts estimates of Intel s short-term debt and its long-term debt as reported on its balance sheet. Part V: Owners equity definition Here is some thing you need to know to complete the exercises: Owners equity is a residual claim on an entity s assets, which equals its assets less its liabilities. Required Answer from the perspective of a representative student: (p) What do you need to know to estimate the financial value of your owners equity? (q) What determines the dispersion of experts estimates of the financial value of your owners equity? Part VI: Owners equity measurement Here is some thing you need to know to complete the exercises: The market value of Intel s owners equity was approximately $112 billion at the end of fiscal (5.523 billion shares x $20.33 per share market price at its fiscal year end.) Required (r) Why does the $112 billion market value of Intel s owners equity differ from the $41.7 billion recognized on Intel s balance sheet at the end of fiscal 2009? NavAcc LLC, G. Peter & Carolyn R. Wilson Balance Sheets Page 24