cs.wbn.map.020 Identifying entries financial-statement effects (Bischoff Global Sportswear and

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1 Cash-Flow Statements» What s Behind Cash-Flow Statements» SCF Entry Map» Eercises SOLUTIONS cs.wbn.map.020 Identifying entries financial-statement effects (Bischoff Global Sportswear and Daimler) This eercise eamines how Bischoff entries would have affected Daimler s financial statements if Daimler had recorded them. Daimler s financial statements are on pages The Bischoff entries are described below and recorded using mini-bse matrices and journal entries on pages 4-6. Required For each Bischoff entry E1-E18 below, complete the related table on pages by identifying the Daimler financial statement line items that would have been directly affected (and the direction of the effects) if Daimler had recorded the entry during the year ended December 31, Choose the most appropriate line items on Daimler s financial statements. If there is not a suitable line item, perhaps because Daimler did not record the entry, use other and assume the reported number for other is positive. Guidance: (1) Determine the appropriate line item(s) affected using Daimler s financial statements on pages For eample, write cash and cash equivalents rather than cash because this is on Daimler s balance sheet. (2) Include line item(s) directly affected, including the effect(s) of closing entries for events affecting income. Ignore taes. Record Keeping This eercise helps you learn how to do record keeping and reporting. Search This eercise helps you learn how to search for information. Usage This eercise helps you learn how to use accounting information. Events (3) Don t include totals or sub-totals indirectly affected by the entry. For eample, don t report net profit on the income statement. However, net profit is NOT a total on the statement of shareholders equity. (4) Three or four lines were included below for each statement, but you may need none or more than one line. Write NONE if no line item is effected on the statement. (5) Indicate if the effect(s) of the entries associated with the event increased or decreased the line item. Put an X in the appropriate column if the above event increases or decreases that line item. Be sure to mark only one bo in each statement s row. NOTE: If a reported negative number changes from -2 to -3, it decreases; if it changes from - 2 to - 1, it increases. Bischoff Global Sportswear (BGS) recorded the following events during fiscal 2013, which ended December 31, All amounts are in millions of Canadian dollars. E1: Issued share capital for cash. During 2013, BGS issued common stock to its owners in echange for $10 million cash. E2: Issued non-current debt for cash. During 2013, BGS borrowed $10 million cash from several banks and promised to repay this principal with interest over 5-10 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.

2 2 NAVIGATING ACCOUNTING years. Loan contracts specified that the borrower (BGS) issued debt to the lender (banks). E3: Purchased PP&E with cash. During 2013, BGS purchased $20 million of property, plant, and equipment with cash. PP&E are tangible assets used to support day-today business operations. Among other things, PP&E includes buildings, manufacturing equipment, furniture, computers, and automobiles. E4: Purchased merchandise for resale. During 2013, BGS purchased $80 million of merchandise from other companies on account that were invoiced upon delivery. It plans to resale this merchandise to customers for a profit. These products complement the ones BGS manufactures and allows BGS to meet customers needs, which reduces the customers transaction costs. E5: Paid invoices due. During 2013, BGS paid suppliers $225 million for goods and services previously purchased on account. Among other things, these include merchandise purchased for resale, materials purchased for manufacturing, advertising services, and utilities. BGS s policy is to pay invoices just in time to avoid penalties. E6a: Recognized revenue when goods were delivered. During 2013, BGS recognized $415 million of revenues when goods were delivered to customers, which was the same time customers were billed for their purchases on account. For these sales, BGS concluded it met all of the IFRS criteria for revenue recognition when goods were delivered. E6b: Recognize product cost when goods were delivered. During 2013, BGS recognized $208 million of cost of goods sold when goods were delivered to customers. This occurred at the same time revenues were recognized in entry E6a. Entries E6a and E6b could have been combined. E7: Collected amounts due from customers. During 2013, BGS collected $380 million from customers who had been billed earlier when goods were delivered. BGS recognizes revenue when it concludes the IFRS revenue recognition criteria are met, which can occur at times other than when cash is collected. For this reason, revenue is recorded separately from collections. BGS s policy is to accrue obligations in Accrued liabilities when it has NOT received an invoice and recognize obligations in Accounts payable when it receives an invoice. E8: Paid previously accrued epenses not invoiced. During 2013, BGS paid $10 million for previously accrued epenses that are never invoiced. For eample, BGS paid employees for work performed during the last few days of The related epense and obligation had been accrued in a 2012 year-end adjusting entry. E9: Received invoices for previously accrued epenses. During 2013, BGS received $7 million of invoices for services received and previously epensed in For eample, at the end of 2012, BGS recorded an adjusting entry to epense advertisements that ran the last day of At that time, BGS was obligated to pay the advertiser but had not yet been invoiced. E10: Recognized epenses when invoiced. During 2013, BGS recognized $20 million of epenses for services received and invoiced, but not paid during For eample, BGS recognized epense during 2013 when it received invoices for advertising services received during 2013.

3 EXERCISE 3 E11: Paid epenses when recognized. During 2013, BGS recognized $30 million of epenses when it paid for services received in For eample, BGS recognized an epense when it paid employees in 2013 for services performed during Office supplies purchased with credit cards is another eample of a non-invoiced epense. E12: Prepaid future epenses. During 2013, BGS paid $20 million in advance for services it had not yet received when the payments were made. For eample, BGS paid advertisers to create advertisements before the advertisements were created and BGS paid rent before benefiting from the use of buildings. E13: Recognized epenses before invoiced. At the end of interim reporting periods during 2013, BGS recognized a total of $3 million of epense for services performed during the periods for which BGS had not yet received invoices by the end of the periods and the timing and amount to be paid in the future was known. For eample, advertisements ran on the last day of an interim period for which the fees were known. E14: Recognized epenses previously prepaid. At the end of interim reporting periods during 2013, BGS recognized a total of $25 million of epense for services performed during the interim periods that were prepaid prior to receiving the services. For eample, BGS recognized rent epense at month-end, when the monthly rent was prepaid at the start of the month. E15: Recognized depreciation epense. At the end of interim reporting periods during 2013, BGS recognized a total of $7 million of epense that represented the portion of the historical cost of PP&E used up during the interim periods. E16: Sold PP&E for cash. During 2013, BGS received $15 million cash when it sold a building with $20 million of historical cost and $8 of accumulated depreciation. Consistent with an IFRS option, BGS does not recognize unrealized gains associated with PP&E. E17: Declared dividends on share capital. During 2013, BGS declared $25 million of common stock dividends. When dividends are declared by a company s board of directors, the company is obligated to pay shareholders the declared amount at a future date. E18: Paid dividends on share capital. During 2013, BGS paid $20 million of previously declared common stock dividends.

4 4 NAVIGATING ACCOUNTING E1 Issued share capital for cash = Owners' Eq. + C = + SCap Cash and cash equivalents $ $10 = + + $10 Share capital $10 E2 Issued non-current debt for cash = Liabilities + C = + LTD Cash and cash equivalents $ $10 = + + $10 Long-term debt $10 E3 Purchased PP&E with cash = + C + PPE = Property, plant, and equipment, net $ $ $20 = Cash and cash equivalents $20 E4 Purchased merchandise on account for resale = Liabilities + Inven = + AP Inventories $ $80 = + + $80 Accounts payable $80 E5 Paid invoices due = Liabilities + C = + AP Accounts payable $ $225 = + - $225 Cash and cash equivalents $225 E6a Recognized revenue when goods were delivered = Owners' Eq. + AR = + Rev Accounts receivable $ $415 = + + $415 Revenues, net $415 E6b Recognize product cost when goods were delivered = Owners' Eq. + Inven = - CGS Cost of goods sold $ $208 = - + $208 Inventories $208 E7 Collected amounts due from customers = + C + AR = Cash and cash equivalents $ $ $380 = Accounts receivable $380

5 EXERCISE 5 E8 Paid previously accrued epenses not invoiced = Liabilities + C = + AcrL Accrued liabilities $ $10 = + - $10 Cash and cash equivalents $10 E9 Received invoices for previously accrued epenses = Liabilities = + AP + AcrL Accrued liabilities $7 = + + $7 + - $7 Accounts payable $7 E10 Recognized epenses when invoiced = Liabilities Owners' Eq = + AP - MSGA Miscellaneous SG&A epe $20 = + + $ $20 Accounts payable $20 E11 Paid epenses when recognized = Owners' Eq. + C = - MSGA Miscellaneous SG&A epense $ $30 = - + $30 Cash and cash equivalents $30 E12 Prepaid future epenses = + C + PrE = Prepaid epenses $ $ $20 = Cash and cash equivalents $20 E13 Recognized epenses before invoiced = Liabilities Owners' Eq = + AcrL - MSGA Miscellaneous SG&A epe $3 = + + $3 - + $3 Accrued liabilities $3 E14 Recognized epenses previously prepaid = Owners' Eq. + PrE = - MSGA Miscellaneous SG&A epense $ $25 = - + $25 Prepaid epenses $25 E15 Recognized depreciation epense = Owners' Eq. - AcDep = - DepE Depreciation epense $7 - + $7 = - + $7 Accumulated depreciation $7

6 6 NAVIGATING ACCOUNTING E16 Sold PP&E for cash = Owners' Eq + C + PPEhc - AcDep = + PPEGL Cash and cash equivalents $ $ $ $8 = + + $3 Accumulated depreciation $8 PP&E (historical cost) $20 Gain on PP&E disposals $3 E17 Declared dividends on share capital = Liabilities Owners' Eq = + DivP + RE $25 = + + $ $25 Dividend payable $25 E18 Paid dividends on share capital = Liabilities + C = + DivP Dividend payable $ $20 = + - $20 Cash and cash equivalents $20

7 EXERCISE 7 DAIMLER Consolidated Statement of Financial Position In millions of euros At December 31, Note Intangible assets 10 8,885 8,259 Property, plant and equipment 11 20,599 19,180 Equipment on operating leases 12 26,058 22,811 Investments accounted for using the equity method 13 4,646 4,661 Receivables from financial services 14 27,062 25,007 Marketable debt securities 15 1, Other financial assets 16 3,890 2,957 Deferred ta assets 9 2,274 2,772 Other assets Total non-current assets 95,520 87,014 Inventories 18 17,720 17,081 Trade receivables 19 7,543 7,849 Receivables from financial services 14 21,998 20,560 Cash and cash equivalents 10,996 9,576 Marketable debt securities 15 4,059 1,334 Other financial assets 16 2,070 2,007 Other assets 17 3,072 2,711 Total current assets 67,458 61,118 Total assets 162, ,132 Daimler indicates other financial assets mainly consist of investments and derivative financial instruments, as well as loans and other receivables due from third parties and other assets primarily comprise deferred ta assets and ta refund reimbursements (page 106, 2012 annual report). Thus, apparently two line items report deferred ta assets: Deferred ta assets and Other assets. Equity and liabilities Share capital 3,063 3,060 Capital reserve 12,026 11,895 27,977 24,228 Other reserves Treasury shares Equity attributable to shareholders of Daimler AG 43,879 39,624 non-controlling interest 1,631 1,713 Total equity 20 45,510 41,337 Provision for pensions and similar obligations 22 3,035 3,184 Provisions for income taes 727 2,498 Provisions for other risks 23 5,476 5,626 Financing liabilities 24 43,340 35,466 Other financial liabilities 25 1,711 1,911 Deferred ta liabilities 9 1,979 1,081 Deferred income 2,444 2,118 Other liabilities Total non-current liabilities 58,750 51,940 Trade payables 8,832 9,515 Provision for income taes 1,006 1,030 Provisions for other risks 23 6,313 6,799 Financing liabilities 24 32,911 26,701 Other financial liabilities 25 6,680 7,782 Deferred income 1,640 1,548 Other liabilities 26 1,336 1,480 Total current liabilities 58,718 54,855 Total equity and liabilities 162, ,132 The above statement should be read in conjunction with the accompanying notes Daimler indicates other financial liabilities mainly consist of liabilities from residual value guarantees and from wages and salaries, derivative financial instruments and accrued interest on financing liabilities and other liabilities primarily comprise deferred ta liabilities, ta liabilities and deferred income (page 107, 2012 annual report). Thus, apparently two line items report deferred income: Deferred income and Other liabilities. Daimler 2012 Annual Report, page 194

8 8 NAVIGATING ACCOUNTING DAIMLER Consolidated Statement of Income In millions of euros Year ended December 31, Note Revenue 4 114, ,540 Cost of sales 5-88,784-81,023 Gross profit 25,513 25,517 Selling epenses 5-10,451-9,824 General administrative epenses 5-3,973-3,855 Research and non-capitalized development costs 5-4,179-4,174 Other operating income 6 1,507 1,381 Other operating epense Share of profit/loss from investments accounted for using the equity method, net Other financial income/epense, net Earnings before interest and taes (EBIT) 8,615 8,755 Interest income Interest epense 8-1,725-1,261 Profit before income taes 7,718 8,449 Income taes 9-1,223-2,420 Net profit 6,495 6,029 Thereof profit attributable to non-controlling interest Thereof profit attributable to shareholders of Daimler AG 6,095 5,667 The above statement should be read in conjunction with the accompanying notes Earning per share information has been ecluded from statement for this eam Daimler 2012 Annual Report, page 192

9 EXERCISE 9 DAIMLER Consolidated Statement of Changes in Equity In millions of euros Share capital Capital reserves Retained earnings Currency transalation adjustment Financial assets availablefor-sale Derivative financial instruments Other reserves Share of investments accounted for using the equity method Treasury shares Equity attributable to shareholders of Daimler AG Noncontrolling interest Balance at January 1, ,058 11,905 20, ,373 1,580 37,953 Net profit 5,667 5, ,029 Unrealized gains/ losses Deferred taes on unrealized gains/ losses Total comprehensive income/loss 5, , ,642 Dividends -1,971-1, ,249 Share-based payment Capital increase/ issue of new shares Acquisition of treasury shares Issue and disosal of treasury shares Other Balance at 0 December 31, ,060 11,895 24,228 1, ,624 1,713 41,337 Net profit 6,095 6, ,495 Unrealized gains/ losses Deferred taes on unrealized gains/ losses Total comprehensive income/loss 6, , ,828 Dividends -2,346-2, ,733 Share-based payment Capital increase/ issue of new shares Acquisition of treasury shares Total equity Issue and disosal of treasury shares Changes in ownership interests in subsidiaries without loss of control Other Balance at December 31, ,063 12,026 27, ,879 1,631 45,510 The above statement should be read in conjunction with the accompanying notes Daimler 2012 Annual Report, page 195

10 10 NAVIGATING ACCOUNTING DAIMLER Consolidated Statement of Cash Flows In millions of euros At December 31, Profit before income taes 7,718 8,449 Depreciation and amortization 4,067 3,575 Other non-cash epense and income Gains (-)/losses on disposal of assets Change in operating assets and liabilities Inventories ,328 Trade receivables Trade payables ,762 Receivables from financial services -4,395-4,526 Vehicles on operating leases -3,676-2,874 Other operating assets and liabilities ,093 Income taes paid -2,102-2,817 Cash provided by/used for operating activities -1, Additions to property, plant and equipment -4,827-4,158 Additions to intangible assets -1,830-1,718 Proceeds from the disposal of property, plant, and equipment and intangible assets Investments in share property Proceeds from the disposal of share property 1, Acquisition of marketable debt securities -8,089-5,478 Proceeds from the sale of marketable debt securities 4,742 5,241 Other Cash provided by/used for investing activities -8,864-6,537 Change in short-term financing liabilities -68 2,589 Additions to long-term financing liabilities 36,904 26,037 Repayment of long-term financing liabilities -22,590-20,560 Dividend paid to shareholders of Daimler AG -2,346-1,971 Dividends paid to non-controlling interests Proceeds from issuance of share capital Acquisition of treasury shares Acquisition of non-controlling interest in subsidiaries Cash provided by/used for financing activities 11,506 5,842 Effect of foreign echange rate changes on cash and cash equivalents Net increase/decrease in cash and cash equivalents 1,420-1,327 Cash and cash equivalents at the beginning of the period 9,576 10,903 Cash and cash equivalents at the end of the period 10,996 9,576 The above statement should be read in conjunction with the accompanying notes Daimler reports that interest paid is classified as an operating cash flow (page 224, annual report). Daimler 2012 Annual Report, page 196

11 EXERCISE 11 E1 Issued share capital for cash Cash and cash equivalents NONE Share capital Capital increase/issue of new shares Proceeds from issuance of share capital E2 Issued non-current debt for cash Cash and cash equivalents NONE Financing liabilities NONE Additions to long-term financing liabilities E3 Purchased PP&E with cash Cash and cash equivalents NONE Property, plant and equipment NONE Additions to property, plant and equipment

12 12 NAVIGATING ACCOUNTING E4 Purchased merchandise on account for resale Inventories NONE Trade payables NONE Inventories Trade payables E5 Paid invoices due Trade payables NONE Cash and cash equivalents NONE Trade payables Cash provided by/used for operating activities E6a Recognized revenue when goods were delivered Trade receivables Revenue Net profit Profit before income taes Trade receivables

13 EXERCISE 13 E6b Recognize product cost when goods were delivered Inventories Cost of sales Net profit Profit before income taes Inventories (Reported negative number increases.) E7 Collected amounts due from customers Cash and cash equivalents NONE Trade receivables NONE Trade receivables (Reported negative number increases.) Cash provided by/used for operating activities (Reported negative number increases.) E8 Paid previously accrued epenses not invoiced Cash and cash equivalents NONE Other financial liabilities (Other liabilities is an acceptable alternative.) NONE Other operating assets and liabilities (reported negative number decreases.) Cash provided by/used for operating activities (reported negative number decreases.)

14 14 NAVIGATING ACCOUNTING E9 Received invoices for previously accrued epenses Trade payables NONE Other financial liabilities (Other liabilities is an acceptable alternative.) NONE Trade payables Other operating assets and liabilities E10 Recognized epenses when invoiced Trade payables General administrative epenses Net profit Profit before income taes Trade payables E11 Paid epenses when recognized Cash and cash equivalents General administrative epenses Net profit Profit before income taes Cash provided by/used for operating activities

15 EXERCISE 15 E12 Prepaid future epenses Cash and cash equivalents NONE Other financial assets (Other assets is also acceptable.) NONE Other operating assets and liabilities Cash provided by/used for operating activities E13 Recognized epenses before invoiced Other financial liabilities General administrative epenses (Other liabilities is an acceptable alternative.) Net profit Profit before income taes Other operating assets and liabilities (Reported negative number increases.) E14 Recognized epenses previously prepaid Other financial assets General administrative epenses (Other assets is also acceptable.) Net profit Profit before income taes Other operating assets and liabilities (Reported negative number increases).

16 16 NAVIGATING ACCOUNTING E15 Recognized depreciation epense Property, plant and equipment General administrative epenses Net profit Profit before income taes Depreciation and amortization E16 Sold PP&E for cash Cash and cash equivalents General administrative epenses (Reported negative number increases.) Property, plant and equipment Net profit Profit before income taes Gains (-)/losses on disposal of assets Proceeds from the disposal of property, plant, E17 Declared dividends on share capital Other financial liabilities NONE (Other liabilities is an acceptable alternative.) Dividends NONE (Negative reported number decreases.)

17 EXERCISE 17 E18 Paid dividends on share capital Cash and cash equivalents NONE Other financial liabilities (Other liabilities is an acceptable alternative.) NONE Dividend paid to shareholders of Daimler AG Dividends paid to non-controlling interests (viable alternative given facts)