Understanding Balance Sheets Flashcards
The B.S. is also called:
- the statement of financial position
Basic B.S. formula:
= A = L + E
= E = A - L
B.S. purpose and presentation formats:
- purpose: present the financial position of a company on a particular date
- the values are reported as the value at the end of the reporting periord
Presentation formats
- classified
- or liquidity-based
Current and Non-Current Classification
- IFRS and GAAP require this format
- assets and liabilities are separated into current A(L) and non-current A(L)
Liquidity-based presentation
- Only permitted under IFRS
- presented in descending order of liquidity (cash at the top)
- used in banking industries
Current Assets:
- expected to be used or converted to cash within a year
ex. cash and cash equivalents accounts receivable inventories marketable securities
Measuring inventories: IFRS v GAAP
- IFRS: measured at the lower of cost or net realizable value
- GAAP: measured at the lower of cost or market value
Current Liabilities:
- expected to be settled within one year
ex.
- accounts payable
- financial liabilities: borrowings, notes payable, commercial paper, and any portions of long-term liab. due within one year
- income taxes payable
- accrued expenses
- unearned revenue
Non-Current Assets
- include all assets that are not current
- tangible and intangible
ex.
- Property, Plant, and Equipment (PPE)
- Investment property (not under GAAP)
- Goodwill
- Financial Assets
- Deferred Tax Assets
PPE measured under IFRS v GAAP
- IFRS: reported as either a cost model or a revaluation model
- GAAP: permits only the cost model
Non-current Assets: Intangible assets under IFRS v GAAP
patents, licenses, trademarks
- IFRS: measured using a cost model or a revaluation model
- GAAP: cost model only
Goodwill
IFRS and GAAP treatments
- when acquiring a company
- if the purchase price is greater than the FAIR VALUE at acquisition, the excess amount is recognized as an asset on the acquirer’s B.S.
- fair value, not book value - under both IFRS and GAAP; goodwill is capitalized.
- not amortized, but tested for impairment annually
Non-current assets: Financial Assets
define
measurement basis
categories of financial assets
- define: include stocks, bonds, derivatives, loans and receivables
- measurement basis: measured at either FAIR VALUE or AMORTIZED COST
- categories:
1. Measured at Cost or Amortized Cost
2. Measured at Fair value through profit or loss (FVTPL) - IFRS
Held-for-trading - GAAP
3. Measured at Fair value through OCI (FVTOCI) - IFRS
Available-for-sale - GAAP
Non-current assets: Financial Assets
- Categories and treatment
Realized gains for all 3 categories are shown on the I.S.
- Category name:
IFRS: Measured at fair value through P/L (FVTPL)
GAAP: Held-for-trading
Treatment: measured at fair value (its in the name), unrealized gains show on I.S. - Category name:
IFRS: measured at fair value through OCI (FVTOCI)
GAAP: Available for sale
Treatment: measured at fair value (its in the name), unrealized G/L shown under OCI. For GAAP: this category only applies to debt securities (not for equity securities) - Category Name:
IFRS: Measured at cost or amortized cost
Treatment: IFRS only? Applies only to assets that will be held to maturity, ie long-term bonds. Unrealized G/L are not recorded anywhere.
Non-current asset: Deferred Tax Asset
- DTA
- arise when taxable income is higher than accounting profit
- DTA reverses when tax benefits are realized in the future, resulting in lower cash outflows
