Ch 2.1- understanding financial statements Flashcards
Liquidity
companys ability to repay short term loans
solvency
companys abilitiy to durvive over time
Profitabilitiy
operating success in a time period
2 ratios to consider before buying a share
1) EPS: earnings per share (how much income will u recieve for a share)
2) P-E ratio: how many times higher is the common share price compared to the EPS
CLASSIFIED statement of FP
simplified fp (groups similar assets/liabilities together)
Assets
the resources that a company owns or controls that will provide future economic benefits.
Current Assets
assets whose value will be realized <1 year
Non current assets
assets whose value will be realized >1 year
How do companies list assets on FP
most liquid-least liquid
trading investments
current asset/ this is an investment in debt or equity secruity that will be cash <1 year
A/R
Accounts receivable are amounts owed to a company by customers who purchased products or services on credit (on account).
N/R
Notes receivable are amounts owed to a company by customers or others that normally bear interest (which distinguishes them from accounts receivable).
Inventory
Inventory consists of goods held for sale to customers or that will be used to produce goods that will be sold to customers.
Supplies
Supplies include consumable items like office supplies and cleaning supplies that are not for sale.q
Prepaid expenses
Prepaid expenses represent the cost of expenses like rent and insurance paid in advance of use. They are current assets because they reflect benefits a company will receive during the year such as office space and insurance coverage.
Long term investments-
debt
Debt investments: Multi-year investments in debt securities (for example, loans, notes, bonds, or mortgages) that management intends to hold to earn interest
INVESTMNET IN OTHER COMPANIES
Long term investments-
equity
Equity investments: Equity securities (for example, shares) of other companies that management plans to hold for many years to generate investment income or for strategic reasons.
What is depreciation
it is the process of long term goods losing value over time
How is depreciation reported on the FP
The carrying amount is reported on the FP, but you show the whole thing like this
Land (doesnt depreciate) 40000
Buildings 75000
Less: Depreciation 15000 60000
Equipment 1000
Less: Depreciaiton 500 500
Total Property, plant, equip 100500
contra asset account
ACCUMULATEDD DEPRECIIATON
An account that is offset against (reduces) another related asset account on the statement of financial position.
HOW TO find carrying amount
cost- accumulated depreciation = carrying amount
Ammortization
depreciaiton of intangible assets (good will, copyrishts)
IFRS AND ASPE on depreciaiton and ammortization
aspe: use ammortization for both
ifrs: ammortization= intaginble
depreciation= tangible
Goodwill
- Only arises from the result of a merger or acquisiton of another company; If during the purchase of a company, if you pay ABOVE the market value of the company you are acquiring, the DIFFERENCE is called goodwill (This is positive synergies); THIS IS NEVER AMMORTIZED, but you can test this for impairment.