Date post: | 18-Dec-2015 |
Category: |
Documents |
Upload: | meryl-perry |
View: | 218 times |
Download: | 0 times |
Summary in finance, MBA2001 2
Some Words on the State Exam
20 questions in four different blocks (subjects)–Basics of Business Economics (3 Theorems)
–Accounting (3 Theorems)
–Corporate Finance (9 Theorems)
–Macro-Finance (5 Theorems)Only one out of twenty should be drawn4 - 5 for the answerConversationCoherent knowledgePreparation timeTwo or three different boards, with two membersImmediate mark as in the course unit exam
Summary in finance, MBA2001 3
Accounting
1. Balance Sheet– Notation of balance sheet– The structure of the balance sheet– Contents of main groups and groups
2. Income Statement– The concept and of structure of the income statement– Total cost and turnover cost type of income statement– The contents of profit and loss categories
3. Cash-flow– The concept and of structure of the cash flow statement– Direct and indirect type of cash flow– Effect of economic events on the BS, CF and IS
(Connection between the three statements)
Summary in finance, MBA2001 5
Balance Sheetas the Part of the Financial Report (Statement)
Report
Analytical records
Documents (i.e. invoices)
Ledger(Continuous record of
economic events)
Balance SheetIncome StatementNotes to the ReportBusiness Report
Disclosure
Ord
er o
f doc
umen
tsAudit
Stocktaking
Summary in finance, MBA2001 6
Balance Sheettypes of financial report
• Simplified report–Started to use this type before January 2001.
–Revenue < 50 million
• Simplified annual financial statement–Revenue–Average number of employees–Total Assets
•Annual financial statement•Consolidated annual financial statement
Summary in finance, MBA2001 7
Balance SheetConcept and Structure
Purpose: is to show the financial position of a business on a specific date.
The financial position is shown from two points:Assets are the properties and property rights of the firm
(what we hold)
Liabilities are the equity of the owners and the debts(from what we bought)
Assets = Liabilities (+ owner’s equity)
The properties are listed in a predefined order
Measurement unit: Value
Signed by a chartered accountant
Two value column (for the previous and actual year)
Summary in finance, MBA2001 8
Balance Sheet Structure
BS, Dec. 31th of 200X LiabilitiesAssets
A. Main GroupI. Group
1. Item2. Item
II. Group1. Item2. Item3. Item
B. Main GroupI. Group
1. Item
C. Main Group I. Group
1. Item2. Item
II. Group1. Item2. Item
D. Main Group I. Group
1. Item
Totals Totals
Summary in finance, MBA2001 9
Balance SheetMain Groups and Groups
Balance Sheet, 200X. Dec.. 31. LiabilitiesAssets
A. Fixed AssetsB. Current AssetsC. Accrued Incomes and prepaid expenses
D. Owners equityE. ProvisionsF. Liabilities (Debts)G. Passive Accruals and deferred items
Total Assets Total liabilities
Summary in finance, MBA2001 10
Assets Balance SheetMain Groups and Groups
The assets are classified by the duration of ownership
Fixed AssetsProperties which have been held by the firm for more than one
year.
Current AssetsThose which cannot be included in the above group.
The management should decide on the classification.
Active Accruals(Accrued incomes and prepaid expenses)
The revenues and expenditures has to be cleared to the year for which it has been occurred, in this main group the cleared revenues are increased or the expenditures are decreased.
Summary in finance, MBA2001 11
Liabilities Balance SheetMain Groups and Groups
Shareholder’s EquityCapital which is placed at owner's disposal for permanent use.
ProvisionsProvisions are liabilities, which created in charge of the
Earnings Before Interest and Tax (EBIT) by definition, so it formulate transition between shareholder's equity and liabilities.
Liabilitiesare acknowledged debts that has to be performed in money
Passive Accruals(Deferred incomes and accrued expenses)
in this main group the cleared revenues are decreased or the expenditures are increased.
Summary in finance, MBA2001 12
Balance SheetMain Groups and Groups
Balance Sheet, 200X. Dec.31. LiabilitiesAssetsA. Fixed Assets
I. Intangible AssetsII.Tangible AssetsIII. Invested Financial Assets
B. Current AssetsI. InventoriesII. ReceivablesIII. SecuritiesIV. Cash
C. Active accruals
D. EquityI. Subscribed CapitalII. Unpaid Subscribed CapitalIII. Capital ReserveIV. Committed ReserveV. Accumulated profit ReserveVI. Evaluation ReserveVII. Retained Earnings
E. ProvisionF. Liabilities
I. Junior DebtII. Long-term DebtIII. Short-term Debt
G. Passive Accruals
Total Assets Total Liabilities
Summary in finance, MBA2001 13
Fixed Balance SheetAssets Main Groups and Groups
Intangible assetsTradable, non-material assets which permanently (for more than
one year) serve the firm.Constituents
Rights representing pecuniary value, Goodwill, Intellectual product,
R&D, Value of establishment or reorganisation, Revaluation upwards
Tangible assetsMaterial assets which directly or indirectly and permanently
serve the company.Constituents
Land, buildings and connecting property rights, Machinery and equipment, Other equipment, Investments, Advance payments towards investments, Revaluation upwards
Depreciation
Summary in finance, MBA2001 14
Fixed Balance SheetAssets Main Groups and Groups
Invested financial assets (Long term investments)Investment into another entity for the sake of some kind of
cause like control or long term return.
ConstituentsProfit-sharing, Securities, Loans, Long-term bank deposits
Depletion
Summary in finance, MBA2001 15
Current Balance SheetAssets Main Groups and Groups
InventoriesThose current assets, which can be stocked, and have
quantitative measure, likeStock (in hand),Goods,Advance payments made towards inventories,Livestock,Work in progress and semi-finished products,Finished products
ReceivablesContractual claims that acknowledged by the partner.Constituents
Accounts receivable (buyers),Draft receivables,(Unpaid issued capital),Other receivables
Summary in finance, MBA2001 16
Current Balance SheetAssets Main Groups and Groups
SecuritiesShort term securities (maturity or its owning is shorter than one
year)
E.g.Shares bought for sale,
Own shares, shares Other securities
Bonds and other securities bought for sale,
CashLiquid assets include:
cash, cheques and bank deposit
Summary in finance, MBA2001 17
Owner’s Balance SheetEquity Main Groups and Groups
Subscribed CapitalPaid-in capital represents the amounts invested in the corporation by the
stockholders. This amount can be found in the statement of establishment.
Unpaid Subscribed (Issued) CapitalSome kind of receivable, just for better information this is shown here
Capital reserveCapital which is paid in above the par value by the owners.
Committed ReserveLimit for dividend pay off, formed in charge of the capital reserve or the
accumulated profit reserve
Accumulated profit reserveis the sum of the retained earnings in the previous years.
Evaluation reserveis the sum of the revaluation upwards on the asset side.
Retained Earnings (Net profit)
Summary in finance, MBA2001 18
Liabilities Balance SheetMain Groups and Groups
Junior DebtsLong-term liabilities
Long-term loansConvertible bondsDebts on issue of bondsInvestment and development creditsOther long-term creditsOther non-current liabilities
Short-term liabilitiesLiabilities with expiration less than one year, or with a less then one year
ownership. LikeShort-term loansShort-term creditsAdvance payments received from purchasersAccounts payable (suppliers)Overdraft debtsOther short term liabilities (like: Accrued salaries, Social insurance etc.)
Passive accruals
Summary in finance, MBA2001 19
Income Statement As the Part of the Financial Report
Report
Analytical records
Documents (i.e. invoices)
Ledger(Continuous record of
economic events)
Balance SheetIncome StatementNotes to the ReportBusiness Report
Disclosure
Summary in finance, MBA2001 20
Income Statement Concept and Structure
The income statement shows the difference of the annual revenues and expenditures.
Uniform structure, predefined earning categories.
It gives information on the profit gaining capability of the firm.
It is a report about the derivation of retained earnings.
By the law of accounting:“The profit and loss account shall contain the breakdown of the entrepreneur's balance-sheet net profit figure, that is the after-tax profit retained by the entrepreneur, the main factors influencing the development of profits and losses,...“
Summary in finance, MBA2001 21
Income Statement Concept and Structure
Trading Revenues- Trading expenditures (costs)A/ Trading profit (EBIT)
Financial revenues- Financial expenditures .B/ Financial profitC/ Usual Entrepreneurial Profit or Loss ( A B)
Extraordinary Revenues- Extraordinary Expenditures .D/ Extraordinary profitE/ Pre-tax profit (EBT) ( C D)- Tax liability .F/ After-tax profit - Paid (approved) dividend .G/ Retained earnings (balance-sheet net profit)
Summary in finance, MBA2001 22
Income Statement Types
In Hungary:–Total Costs profit and loss account procedure (“A”)
–Turnover costs profit and loss account procedure (“B”)
(US, UK GAAP: single step and multiple step)
The differences between the two types can be found in the derivation of the trading profit.
Summary in finance, MBA2001 23
Income Statement Types
Total cost typeNet sales revenues
Other revenues
Capitalised value of own performance
Trading Incomes
Annual total costs
Other expenditures
Trading expenditures .
A/ Trading (Business) profit
Turnover cost typeNet sales revenues
Other revenues
Trading incomes
Costs of sales
Other expenditures
Trading expenditures .
A/ Trading (Business) profit
Summary in finance, MBA2001 24
Net sales Income Statement
Revenues TypesThe consideration –value of sold inventories (products, materials, good etc), and
services performed,
–accepted by the partner,
–not including the VAT
– increased by the subsidies and extra charges and
–reduced by consumption tax and any reductions shall be entered as net revenues
• Net Domestic Sales Revenue• Net Export Sales Revenue
Revenues Cash inflow
Summary in finance, MBA2001 25
Other Income Statement
Revenues TypesOther revenues are revenues not forming part of the net sales revenues which arise in the course of regular activity (business), like:–Received compensation–Received penalty–Revenues from intangible and tangible asset sold–Utilisation of the previous year’s provisions formed
Summary in finance, MBA2001 26
Capitalised value of Income Statementown performance Types
Two parts–Capitalised value of self-manufactured assets are
the total amount of the value of self-manufactured assets capitalised (entered among assets) in the calendar (business) year.
–Change in self-manufactured inventoriesdifference between the opening and closing self-manufactured inventory of the year.
A
Summary in finance, MBA2001 27
Total Income StatementCosts Types
Material type expenditures–utilisation of material purchased–purchase value of goods sold–utilized service used–other services–further billed value of subcontractors’ work
Payments to personnel–wages–personnel involvement–other payments to personnel, etc.
Depreciation
A
Summary in finance, MBA2001 28
Costs of Income StatementSales Types
That part of the total costs which can be connected to the revenues, so it is equal to
Total costs - Capitalised value of own performance• Direct cost of sales as–costs of products,–materials and–goods sold– services performed accounted as direct cost–costs of trading activities that may accounted for directly
• Indirect cost of sales as–costs of sales (marketing costs)–administrative costs–other general costs (overheads)
B
Summary in finance, MBA2001 29
Other Income StatementExpenditures Types
Other expenditures are costs and payments not connected directly or indirectly to the net sales revenues which are incurred in the course of the regular activity (business).–Paid compensation–Paid penalty–Expenditures of (i.e. book value) of intangible and tangible
asset sold–Provisions formed–etc.
Summary in finance, MBA2001 30
Comparison Income Statementof the two types Types
Net sales revenue: 10.000 thousand HUF
Other incomes 3.000 thousand HUF
Other expenditures 2.000 thousand HUF
Total costs 11.000 thousand HUF
Capitalised value of selfmanufactured assets 1.000 thousand HUF
Change in self-manufacturedinventories 2.000 thousand HUF
Calculate the trading profit!
(Use the total - and turnover cost type of profit and loss accounts!)
Summary in finance, MBA2001 31
Comparison Income Statementof the two types Types
1. Calculate the capitalised value of own performance:1000+2000=3000 thousand HUF
2. Determine the costs of sales:11000-3000=8000 thousand HUF
Type „A”Net sales revenues 10000
Other revenues 3000
Capitalised value of own performance 3000
Trading Incomes 16000
Yearly total costs 11000
Other expenditures 2000
Trading expenditures 13000.
A/ Trading (Business) profit 3000
Type „B”Net sales revenues 10000
Other revenues 3000
.
Trading incomes 13000
Costs of sales 8000
Other expenditures 2000
Trading expenditures 10000 .
A/ Trading (Business) profit 3000
Summary in finance, MBA2001 32
Income Statement Profit and Loss Categories
Trading Revenues- Trading expenditures (costs)A/ Trading profit (EBIT) Financial revenues- Financial expenditures .B/ Financial profitC/ Usual Entrepreneurial Profit or Loss ( A B) Extraordinary Revenues- Extraordinary Expenditures .D/ Extraordinary profitE/ Pre-tax profit (EBT) ( C D)- Tax liability .F/ After-tax profit Use of accumulated profit reserve for dividends- Paid (approved) dividend .G/ Retained earnings (balance-sheet net profit)
Summary in finance, MBA2001 33
Financial Income StatementProfit Profit and Loss Categories
Financial profit is the difference of the revenues and expenditures of financial transactions.
Financial revenues:– interest received– interest related revenues–dividends–profit-sharing–other revenues of financial transactions
Financial expenditures– interest paid– interest related payments–write-off (depletion) of financial investments dividends–other expenditures of financial transactions
Summary in finance, MBA2001 34
Usual Entrepreneurial Income StatementProfit or Loss Profit and Loss Categories
The sum of the trading (business) profit or loss and the financial profit or loss.
Gives information on the profit gaining capability of the firm’s normal course of activity.
Summary in finance, MBA2001 35
Extraordinary Income StatementProfit Profit and Loss Categories
Extraordinary profit figure is the difference of the extraordinary revenues and extraordinary expenditures.
Extraordinary revenues and extraordinary expenditures are independent of the entrepreneurial activity i.e. fall outside of the entrepreneur’s normal course of business, they are listed in the law of accounting.
Summary in finance, MBA2001 36
Cash-Flow Concept and Structure
The statement of cash-flows focuses on cash receipts and cash payments, so the main question to be answered is:
Did the company’s cash balance increase or decrease during the year and, why?
The statement shows why cash changed over the period by reporting net cash provided or used by–operating activities,–investing activities and–financing activities.
Summary in finance, MBA2001 37
Cash-Flow Direct and indirect method
Direct methodinvolves listing each major class of cash receipts transactions and cash disbursements transactions for each of the three activity areas.The operating activity transactions include cash received from customers, cash paid to merchandise or raw material suppliers, cash paid to employees for salaries or wages, and cash paid for other operating expenses etc.
Indirect methodThis method shows the net incomes as the first source of operating cash,derives cash flows from operating activities by explaining the CHANGE in each of the non-cash operating accounts in the balance-sheet.
Summary in finance, MBA2001 38
Direct Cash-Flowmethod Structure
Cash-flows from operating activitiesCash received from customersCash paid to suppliersPayments for compensation of employeesOther operating expenses paidInterest paidTaxes paid .Net cash provided by operating activities
Cash-flows from investing activitiesProceeds from sale of landInvestment in plant and equipment .Net cash used for investing activities
Cash flows from financing activitiesAdditional long-term borrowingPayment of long-term debtPurchase of treasury stockPayment of dividends on common stocks .Net cash used for financing activities
Summary in finance, MBA2001 39
Indirect Cash-Flowmethod Structure
Cash-flows from operating activitiesNet profit (income)Add (deduct) items not affecting cash
Depreciation expendituresIncrease in accounts receivableIncrease in inventoriesIncrease in current liabilities
Other net .Net cash provided by operating activities
Cash-flows from investing activitiesProceeds from sale of landInvestment in plant and equipment .Net cash used for investing activities
Cash flows from financing activitiesAdditional long-term borrowingPayment of long-term debtPurchase of treasury stockPayment of dividends on common stocks .Net cash used for financing activities
Summary in finance, MBA2001 40
Law of Cash-FlowAccounting StructureCash-flows from operating activities
Pre-tax profitDepreciationDepletionForming or using provisionsProfits of selling fixed assetsChange in accounts payableChange in other short term debtsChange in passive accruals and deferred itemsChange in accounts receivableChange in current assets
(without accounts receivable and cash)Paid, payable taxPaid dividend .Net cash provided by operating activities
Cash-flows from investing activitiesProceeds from sale of land, plant and equipm.Investment in plant and equipmentReceived profit-sharing and dividend .Net cash used from investing activities
Cash flows from financial activitiesIncomes of public offeringIncomes of bond or other security offering Long-term borrowingPayment of long-term debtReceived cashStock withdrawalPayments of debtsLong term loans, bank depositsPermanently granted cashChange in claims against founding members
and in other long term liabilities .Net cash used for financing activities
Change in cash
Summary in finance, MBA2001 41
Cash-FlowConnection between the CF, the IS, and the BS
Balance sheet vs. income statement:–Retained earnings can be found in both statements
–Change in cash cannot be seen in the profit and loss account
Cash-flowthis statement can be compiled from the data presented in the
balance-sheet and income statement
Both the balance-sheet and income statement use accrual accounting (recognises revenue when it is earned, expenses when they are incurred) while the cash-flow uses cash-flow accounting (recognises transactions when cash has been received or paid).