Page 1 of 10 Ehab Abdou ( )

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Usefulness: Computing rates of return. Evaluating capital structure. Assess risk and future cash flows.

1 Statement of Financial Position, also referred to as the balance sheet: 1. Reports assets, liabilities, and equity at a specific date. 2. Provides information about resources, obligations to creditors, and equity in net resources. 3. Helps in predicting amounts, timing, and uncertainty of future cash flows. Usefulness: Computing rates of return. Evaluating capital structure. Assess risk and future cash flows. Analyze company s: Liquidity Solvency Financial flexibility Limitations Most assets and liabilities are reported at historical cost. Use of judgments and estimates. Many items of financial value are omitted. Classifications Sub classifications Page 1 of 10 Ehab Abdou ( )

2 Non-Current Assets Long-term Investments 1. Securities (bonds, ordinary shares, or long-term notes). Portfolio Type Valuation Classification Held for Collection Debt (Bonds) Amortized Cost Current or Non-Current Non-Trading Equity (Shares) Fair Value Current or Non-Current Trading Debt or Equity Fair Value Current 2. Tangible assets not currently used in operations (land held for speculation). 3. Special funds (sinking fund, pension fund, or plant expansion fund. 4. Non-consolidated subsidiaries or associated companies Property, Plant, and Equipment Tangible long-lived assets used in the regular operations of the business. Physical property such as land, buildings, machinery, furniture, tools, and wasting resources (minerals). With the exception of land, a company either depreciates (e.g., buildings) or depletes (e.g., oil reserves) these assets. Intangible Assets Lack physical substance and are not financial instruments. Other Assets Patents, copyrights, franchises, goodwill, trademarks, trade names, and customer lists. Amortize limited-life intangible assets over their useful lives. Periodically assess indefinite-life intangibles for impairment Items vary in practice. Can include: Long-term prepaid expenses Non-current receivables Assets in special funds Property held for sale Restricted cash or securities Page 2 of 10 Ehab Abdou ( )

We have to disclose the following. Basis of valuation (e.g., lower-of-cost-or-market).

3 Current Assets Cash and other assets a company expects to convert into cash, sell, or consume either in one year or in the operating cycle, whichever is longer Inventories: We have to disclose the following. Basis of valuation (e.g., lower-of-cost-or-market). Cost flow assumption (e.g., FIFO or average cost). Page 3 of 10 Ehab Abdou ( )

4 Receivables Prepaid Expenses Payment of cash, that is recorded as an asset because service or benefit will be received in the future. insurance supplies advertising Short-Term Investments Page 4 of 10 Ehab Abdou ( )

Equity Ordinary shares and preference shares - must disclose the par value and the authorized, issued, and outstanding amounts.

5 Cash and cash equivalents Generally any monies available on demand. Cash equivalents - short-term highly liquid investments that mature within three months or less. Restrictions or commitments must be disclosed. Equity Ordinary shares and preference shares - must disclose the par value and the authorized, issued, and outstanding amounts. Share premium - company usually presents one amount for ordinary and preference shares. Retained earnings - amount may be divided between the unappropriated and restricted amounts. Treasury shares - shown as a reduction of equity. Page 5 of 10 Ehab Abdou ( )

6 SCIENTIFIC PRODUCTS INC. STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2011 Assets Non-Current assets: Long term investments Investments in held to maturity Securities 20,000 Investments in Non-trading Securities 10,000 Long term notes 5,000 Bond sinking funds 15,000 Pension fund 12,000 Plant expansion fund. 8,000 Land held for future development (for sale) 35,000 Non consolidated subsidiaries 60, ,000 Property Plant and equipment Land 125,000 Building 200,000 Equipment 150,000 Furniture 50,000 (-) Accumulated depreciation -40, , ,000 Intangible assets Capitalization development costs 5,000 Goodwill 6,000 Patent 7,000 Franchise, net of amortization 8,000 Trade Mark - Trade names 9,000 35,000 Total Non-Current assets 685,000 Current assets Inventories, at lower of FIFO Cost or NRV 30,000 Accounts receivable 45,000 (-) Allowance for doubtful accounts -15,000 30,000 Prepaid expenses 20,000 Short term investments (trade securities) 15,000 Cash and cash equivalents 35,000 Total Current assets 130,000 Total assets 815,000 Page 6 of 10 Ehab Abdou ( )

7 Equity and Liabilities Owner's Equity Controlling interest Share capital - preference 300,000 Share capital - ordinary 400,000 Share premium - preference 10,000 Share premium - ordinary 25,000 Retained earnings 150,000 Accumulated other comprehensive income 450,000 Less: Treasury shares 100,000 Equity attributable to owners 335,000 Minority interest 125,000 Total Equity 460,000 Non-Current Liabilities Bond Liabilities due January 31, ,000 Provision related to pensions 75,000 Long term note payable 50, ,000 Current Liabilities Notes payable 50,000 Accounts payable 20,000 Interest payable 15,000 salary and wages payable 5,000 Provisions related to warranties 12,000 Deposits received from customers 3, ,000 Total Equity and Liabilities 815,000 Page 7 of 10 Ehab Abdou ( )

8 Statement of Cash Flow: BIG Screen Corporation Statement of Cash Flow For The Period Ending Dec 31, 2009 Cash Flow from Operating Activates: Net Income XX Adjustments to reconcile net income: Change in Current assets (Increase) - XX (Decrease) Change in Current Liabilities (Increase) (Decrease) - XX Depreciation, Amortization, depletion Bad Debit Expenses Loss on sale of (Fixed assets) = Net cash Provided (Used) by operating activities XX Cash flow from Investing Activities: Sale of Assets Purchase of assets - XX = Net cash Provided (Used) by Investing activities XX Cash flow from Financing Activities: Issuing of Stock Increase in Liabilities Dividends - XX = Net cash Provided (Used) by Financing activities XX (=) Change in Cash XX (+) Cash at beginning XX (=) Cash at the End XX Non Cash investing and financing activities: Page 8 of 10 Ehab Abdou ( )

9 Pr Statement of cash flows preparation. Selected financial statement information and additional data for Johnston Enterprises is presented below. Prepare a statement of cash flows for the year ending December 31, 2012 Johnston Enterprises Statement of Financial Position and Income Statement Data December 31, December 31, Property, Plant, and Equipment HK$1,241,000 HK$1,122,000 Less: Accumulated Depreciation (476,000) (442,000) 765, ,000 Current Assets: Inventory 391, ,000 Accounts Receivable 238, ,000 Cash 153, ,000 Total Current Assets 782, ,000 Total Assets HK$1,547,000 HK$1,445,000 Shareholders' Equity: Share capital ordinary HK$ 510,000 HK$ 467,500 Retained Earnings 374, ,000 Total Shareholders' Equity 884, ,500 Non-Current Liabilities: Bonds Payable 340, ,000 Current Liabilities: Accounts Payable 187, ,000 Notes Payable 51,000 68,000 Income Tax Payable 85,000 76,500 Total Current Liabilities 323, ,500 Total Liabilities 663, ,500 Total Liabilities & Shareholders' Equity HK$1,547,000 HK$1,445,000 Sales HK$1,615,000 HK$1,513,000 Less Cost of Goods Sold 731, ,000 Gross Profit 884, ,000 Expenses: Depreciation Expense 153, ,000 Salary Expense 391, ,000 Interest Expense 34,000 34,000 Loss on Sale of Equipment 17,000 0 Income Before Taxes 289, ,000 Less Income Tax Expense 119, ,000 Net Income HK$ 170,000 HK$ 153,000 Page 9 of 10 Ehab Abdou ( )

10 Additional Information: During the year, Johnston sold equipment with an original cost of HK$153,000 and accumulated depreciation of HK$119,000 and purchased new equipment for HK$272,000. Solution Johnston Enterprises Statement of Cash Flows For the Year Ended December 31, 2012 Net Income HK$ 170,000 Cash flow from operating activities Depreciation expense HK$153,000 Loss on sale of equipment 17,000 Decrease in accounts receivable 68,000 Increase in inventory (51,000) Increase in accounts payable 85,000 Decrease in notes payable (17,000) Increase in tax payable 8, ,500 Net cash provided by operating activities 433,500 Cash flow from investing activities Sale of equipment 17,000 Purchase of equipment (272,000) Net cash used by investing activities (255,000) Cash flow from financing activities Retirement of bonds payable (51,000) Issuance of share capital ordinary 42,500 Payment of dividends (136,000)** Net cash used by financing activities (144,500) Net increase in cash 34,000 Beginning cash 119,000 Cash at end of year HK$153,000 **Beginning R/E Net income Dividends Ending R/E HK$340,000 HK$170,000 Dividends HK$374,000 Dividends HK$136,000 Page 10 of 10 Ehab Abdou ( )

PREVIEW OF CHAPTER 5-2

PREVIEW OF CHAPTER 5-2 5-1 PREVIEW OF CHAPTER 5 5-2 Intermediate Accounting IFRS 2nd Edition Kieso, Weygandt, and Warfield 5 and Statement of Cash Flows Statement of Financial Position LEARNING OBJECTIVES After studying this