Task 1 - Adjustments to watch out for Flashcards
Statement SFP/SPL
Inventory
There might be something damaged/unsaleable that you could fix and sell for example… and you are gven the selling price.
Think about NRV which would be the SP minus the cost of fixing it. Then compare to the Cost …. if NRV is lower then ADJUST the CLOSING INVENTORY figure.
IN 2 PLACES !!!! So in COS working if you Decrease the CI figure you are increasing COS which will have the effect of reducing profit… and you also Reduce the CI figure which appears on the SFP as an asset …
Statements - SFP/SPL
Bonus share issue
Reduce Retained Earnings / Increase Share capital
No cash involved
Statements - SFP-/SPL
Loan interest still to do
Remember there are always 2 sides..
.. and watch if its art paid.. one Kaplan example adjustments were
1.The loan interest has not been accounted for.
(Nothing in TB so had to do the full amt)
- x has not yet accrued for the UNPAID loan interest
(In this case a figure equal to half the amount was in the TB meaning had to only do the other 6m)
Dr Finance costs (SPL) / Cr Trade & OP (SFP)
Statements - SFP/SPL
Bank
Trial Balance:
Just watch out for the Cash & Cash equivalents actually being an OD !!! very easy to miss this !
Watch other balances too though I can’t think of any other likely tricks here
Statements - SFP-/SPL
Revaluation
- A Reval note shouldn’t affect the Dep’n calculation:
I THINK it will probably be clear that the Reval is at the YEAR END to avoid this complexity… this means when working out the Dep’n just deducting what it says is ‘included in the TB’ for land from the global L&B amount and then working out Buildings dep’n.. treat the - The reval adjustment is treated separately .. and as always there are 2 sides. It goes straight into OCI n the SFP (Credit) … and gets Debited to the PPE total via the workings box…. BUT ALSO gets added to any existing Revaluation on the SFP !!! There is probably a RE workings box but it doesn’t touch RE because its unrealised.
Other adjustments I think hit the Equity also but more indirectly .. ie. they hit Profit which then goes through RE … with the Reval need to do 3 things
- Put straight into in OCI on SPL
- Put in the workings of PPE so it hits PPE on the SFP
- Put straight into Equity on the SFP (may add to exist.
Cahflow
Revaluation
I thnik this would be a red herring if present in a CF question… its non-cash so if it does appear on the SPL it shoud be in OCI which is after the PB4Tax fig which is the start of the reconciiliation.
Cashflow
Bonus issue
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Cashflow - useful check when doing the second part
Check through the non-operating items adjusted in that section… they all need to appear elsewhere.
eg. When calculating PPE purchases workings … I missed deducting Dep’n …. but when I looked over the Operating section adjustments I realised.
Same goes for things like Dididends received… and loss/gain on disposal… they need put back in workings somewhere (dep’n) or straight back in (Divs rec’d to investment section)
Cashflow
There’s interest paid hidden in T & OP on the SFPs
- Pull it out of the T&OP movement working/adjustment
- Do the same with the Finance cost figure from the SPL… ie. add it back in because it might be an accrued/pp (same as do with tax amt)
- Then treat the Interest paid readjust back in the same as tax.. the NET whatever was on the SPL and the Movement on the SFP
(correct working is c/d figure from SFP … add this year from PnL… deduct c/f fig from SFP)
Do the same for interest using the c/d & b/d figs given i the notes
Cashflow
Revaluation - tricky one to look out for.
Revaluation figure (that changed YoY in the SFPs).... might not be in Notes Might just appear on the SFPs
- It needs included in the workings for calculating PPE purchases via the balancing figure… like dep’n it is hidden in the c/f figure so needs to go in the calc to get the right balancing figure…. if you don’t put it in then the balancing figure is a combination of Purchases and the Reval… but the reval is non-cash so shouldn’t be in there when building the CF
Cashflow
Dividends
Normally dividend amount is given in notes.
You don’t adjust the ops initial part of CF because unlike Dep’n the Divs are not hidden in the PB4T fig.
You just need to included it as outflow in the Financing part of the CF
If not given the amount should be able to work it out via:
b/d RE + PAT - c/d RE ……. just don’t forget to put it in the CF !!! (I missed it when missing it balanced a revaluation mistake the same size)
CF approach?
- Check the SPF and SPL for anything funky that’s not mentioned in the bullets/notes:
- A change in Reval reserve. (needs to go in PPE calc)
- A C&CE amount AND OD amount same YE. (net ‘em)
- Be sure to understand the bullets, maybe note ‘todos’
- Remember the adjusted out bits from Ops all need adjusted back in.. useful check
- Just be aware of funky extras like a line on SFP for ‘Investments at Cost’ … just work out same as PPE .. b/d & c/f amounts…. did you ‘buy’ some investments which are really just assets like PPE
Cashflow
Investments @ cost
Had one kaplan example where there was an ‘investments at cost’ line on the SFP.
(There were also dividends received on the SFP
The answer handled these separately.
Dividends rec’d got adjusted out in Ops and back in
‘Purchases of investments’ appeared separatley.
You could get the same total global total using calc like for Purchases of PPE…
b/d amt … add div rec’d … deduct c/d bal
Prob just have to look at number of proforma lines available and workings boxes & decide whether to lump together or do separately
From MyAAT it looks like (like interest?) depn may be in the notes along with apportionment instructions but also already included in the TB… in which case I assume its one lump in a ‘Depn chg’ expense account and just needs reapportioned according t instruction
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