Accounting principles and procedures Flashcards
Can you tell me what the financial statements are?
Statement of financial position, or balance sheet
Statement of comprehensive income, or profit and loss
Statement of cash flow
Statement of changes in equity
What does the cash flow statement tell you?
It shows the actual cash receipts and expenditures for the period
What is a profit and loss account?
Its a summary of the income and expenditure transactions over a period, but includes non cash items such as depreciation.
What is depreciation?
it measures how an asset depreciates in value over time
What is the basis of value called related to IFRS?
Fair value
What is the difference between management accounts and audited accounts?
Management accounts are prepared at any point and are not a legal requirement, whereas audited accounts are prepared at year end and are audited by a third party, so could be considered more reliable
What is a balance sheet?
Shows the assets and liabilities of a company at a given point in time, split into current and non-current. Current means it could be converted into cash within 12 months (trade receivables etc) and non-current are long term assets such as real estate
Your red book valuation for an established events space, you used the DCF approach. Can you briefly explain this?
The DCF approach sums the future cash flows of the business and discounts the sum of these (including a future exit value) to the present day using a discount rate. The discount rate consists of an inflation rate and all risks yield derived from market evidence, and given the cash flow assumptions is a growth explicit model
What yield did you use for the leasehold interest events space?
We adopted a yield of c.15% to reflect the term and rent obligation. The business however was producing strong income with a rent cover of around 2x
What was the term of the leasehold interest events space?
25 years from 2006
What was the resulting value of the events space?
£28m
What were the add backs you adjusted for to get to your FMOP?
Charitable donations and directors bonuses
What comparables did you rely on for this type of asset?
We looked at single asset hotel transactions that were “trophy” assets located in Central London, as the property was so unique and high value.
