lecture 2: income statement

Question 1

when should the revenue be recognized and costs?

Answer 1

• timing of good displacement: at dispathment
• measurement price
• long term contract: continuous or at one point
• mutiple elements
• principal vs. agent
• warranties
• other

Question 1

when should the revenue be recognized and costs?

Answer 1

• timing of good displacement: at dispathment
• measurement price
• long term contract: continuous or at one point
• mutiple elements
• principal vs. agent
• warranties
• other

Question 2

when is the control of the promised good transfered to the customer?

Answer 2

• vendor has a right to payment
• customer has legal title of goods
• customer is in physical possession
• transfer of risk and reward occurred
• customer accepted goods

Question 3

output method (in long term contract)

Answer 3

expert survey the work to determine the value

Question 4

input method (in long term contract)

Answer 4

compate INPUT costs incurred to date to total expected input costs (cost-to-cost method)

Question 5

principal (company)

Answer 5

principal= ordering the goods,
firm has to report gross revenue and costs

Question 6

agent (company)

Answer 6

agent= acts on behalf of the principal,
firm has to report NET fees or commissions

Question 7

warranties (2 kinds)

Answer 7

• distric service warranty= revenue allocated to the warranty (= reducing amount of revenue allocated to the underlying goods)
• assurance warranty : no impact on RR (only a provision)

Question 8

advertising revenue

Answer 8

(is a madia revenue)
recognized on publication/ transmission of ads

Question 9

production revenue

Answer 9

(is a media revenue)
recognized on delivery of content and acceptance by customers

Question 10

license and distribution revenue

Answer 10

(is a media revenue)
recognized full as soon as cutomer benefits from it.

Question 11

cost recognition cycle

Answer 11

oder is placed -> goods received from supplier (increasing AP)-> invoice received -> payment made

Question 12

revenue timing cycle

Answer 12

oder placed -> goods dispatched (revenues are recognised) -> incoive raised -> payment received

Question 13

separate disclosure items

Answer 13

require additional disclose due to size

Question 13

discontinued operations

Answer 13

disposed or held for sale

Question 14

operating income and EBIT

Answer 14

income generating from core activities and expected to be a recurring one, indicates profitability

• Earnings before interest and taxes (EBIT)

Question 15

EBITDA

Answer 15

earnings before income tax, depreciation and amortization = normalizing earnings

Question 16

EBITDA

Answer 16

earnings before income tax, depreciation and amortization = normalizing earnings

Question 17

advanced issues of Management discretion EM

Answer 17

• deferred taxation: time difference in tax and accounting
• stock options granting stock to employees = expense
• retirement benefits employee compensation; depends on the schema

Question 18

capital structure of earnings per share EPS

Answer 18

• simple= doesn’t have convertible securities
• complex= convertible to equity securities (convertible securities dilute EPS )

Question 19

diluted EPS

Answer 19

convertible securities cause EPS duluted upon conversion (3types: converible preferred stoch outstanding, convertible debt outstanding, employee stoch option)

Question 20

convertible preferred stock
-> if- converted method

Answer 20

what would EPS be if securities were converted at the beginning of the period

Question 21

convertible debt
-> if- converted method

Answer 21

what would the EPS be if the debt was converted

Question 22

stock options, warrants etc.
-> treasury stock method

Answer 22

what would EPS be IF options exercised and company had used proceed to REPURCHASE common stock.