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CorporateFinancialReporting

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Session5 RevisiononDeferralsandAccruals

CashReceipts Revenue (or +Increasein Increasein


(Payments)for Expense)for Deferral(Prepaid/ Accrual(Receivables
Revenue(Expense) = theperiod Unearned) /Payables)

Revenue (or CashReceipts Increasein +IncreaseinAccrual


Expense)forthe (Payments)for Deferral(Prepaid/ (Receivables/
period= Revenue(Expense) Unearned) Payables)

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2001 2000 Increase(decrease)
Revenue Deferral
Unearnedfeerevenue 1600 1100 500
RevenueAccrual
AccountsReceivable 1800 2100 300
Interestreceivable 680 570 110
Expense Deferral
Prepaidrent 7900 5900 2000
Expense Accrual
Salariespayable 850 1200 350
Interestpayable 810 730 80
Revenue or
Expenseforthe CashReceipts(Payments)for
period= Revenue(Expense) =Answer

FeeReceived
FeeRevenue 21710

InterestReceived
InterestRevenue 2030

RentPaid
RentExpense 11600

SalariesPaid
Salariesexpense 6820
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InterestPaid
InterestExpense 1840
2001 2000 Increase(decrease)
Revenue Deferral
Unearnedfeerevenue 1600 1100 500
RevenueAccrual
AccountsReceivable 1800 2100 300
Interestreceivable 680 570 110
Expense Deferral
Prepaidrent 7900 5900 2000
Expense Accrual
Salariespayable 850 1200 350
Interestpayable 810 730 80
Revenue or
Expenseforthe CashReceipts(Payments)for IncreaseinDeferral +IncreaseinAccrual(Receivables
period= Revenue(Expense) (Prepaid/Unearned) /Payables) =Answer
IncreaseinUnearned
FeeReceived Revenue Decreasein Accountsreceivable
FeeRevenue 21710 500 300 20,910

InterestReceived +IncreaseinInterestreceivable
InterestRevenue 2030 110 2,140

RentPaid Increase inPrepaidrent


RentExpense 11600 2000 9,600

SalariesPaid DecreaseinSalariespayable
Salariesexpense 6820 350 6,470
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InterestPaid +increaseinInterestpayable
InterestExpense 1840 +80 1,920
KeepanEyeonCash
ThedifferenceforSierrais$2,840 ($5,700 $2,860).Thefollowing
summaryshowsthecausesofthisdifference.

Page170,BE41 5
REVISION Deferrals Accruals
PrepaidExpense Unearned Accrued Accrued
Revenue Expense Revenue
Examples Insurance,Rent Customer Interest, Revenueearned
deposits Salaries, Tax notcollected
Cashexchange Assets...Dr. Cash ..Dr.
(inadvance) Cash Cr. Liability Cr.
Reasonfor Prepaid Unearned Expenses Revenues
Adjustment expenses Revenue incurredbutnot earnedbutnot
recordedin recordedin yetpaidincash yetreceived in
asset havebeen liabilityhave orrecorded cashorrecorded
used beenearned
Adjustment ExpenseDr. LiabilityDr. ExpenseDr. AssetDr.
Entry Assets.Cr. RevenueCr. Liability.Cr. RevenueCr.
WithoutAdjustmentEntry:
Overstated Assets,Profit, Liability Profit,Equity
Equity
Understated Expenses Revenue,Profit, Expenses, Revenue, Assets,
Equity Liability Profit,Equity
Cashexchange LiabilityDr. Cash .Dr.
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(later) CashCr. Revenue Cr.
Chemalite CashAccount
Dr. CashAccount Cr.
Issued Stock 375 PaidforLegal Fees 7.5

BoughtMaterials 75
PurchaseofMachinery 62.5
Total 375 Total 145
ClosingBalance 230

Dr. CashAccount Cr.


OpeningBal 230 PaidforPrototype 23.75

Receivedfromcustomers 685 BoughtMaterials 175


Borrowedfrombank 50 PaidforAdvertisement 22.5
PaidforDL&MOH 350
PaidforCorpSalaries 80
PurchaseofMachinery 150
Repaymentofdebt 50
PaymentofInterest 0.75
Total 965 Total 852
ClosingBalance 113
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IncomeStatement
Fortheyearended31stDec2003 InthebooksofChemalite
Netsales $754,500
Costofgoodssold 545,000 Alternative1:
Grossprofit 209,500
Operatingexpenses
Advertising $22,500
R&DExpense(Prototype) $23,750
SalariesandExpenses $80,000
DepreciationonMachinery $10,625 BalanceSheetason31stDecember2003
AmortisationofPatent $25,000 Assets
LegalFees 7500 Currentassets
Totaloperatingexpenses $169,375 Cash $113,000
OperatingIncome 40,125 Accountsreceivable 69,500
Less:Otherexpensesandlosses Inventories 55,000
Interestexpense 750 Totalcurrentassets $237,500
Incomebeforeincometaxes(PBT) 39,375 Property,plantandequipment
Incometaxexpense 0 Equipment 212,500
Netincome(PAT) 39,375 Less:Accumulateddepreciation
Equipment10,625 201,875
Costofgoodssold Patent 100,000
MaterialConsumed 195,000 Totalassets 539,375
DirectManufacturingExpenses 350,000 LiabilitiesandStockholdersEquity
545,000 Liabilities 0
Stockholdersequity
Commonstock 500,000
Retainedearnings 8
39,375
TotalLiabilitiesandStockholdersEquity 539,375
IncomeStatement
Fortheyearended31stDec2003 InthebooksofChemalite
Netsales $754,500
Costofgoodssold 555,625
Grossprofit 198,875 Alternative2:ConsideringDepreciation
Operatingexpenses onmachineryaspartofCOGS
Advertising $22,500
R&DExpense(Prototype) $23,750
SalariesandExpenses $80,000
DepreciationonMachinery BalanceSheetason31stDecember2003
AmortisationofPatent $25,000 Assets
LegalFees 7500 Currentassets
Totaloperatingexpenses $158,750 Cash $113,000
OperatingIncome 40,125 Accountsreceivable 69,500
Less:Otherexpensesandlosses Inventories 55,000
Interestexpense 750 Totalcurrentassets $237,500
Incomebeforeincometaxes(PBT) 39,375 Property,plantandequipment
Incometaxexpense 0 Equipment 212,500
Netincome(PAT) 39,375 Less:Accumulateddepreciation
Equipment10,625 201,875
Patent 100,000
Costofgoodssold Totalassets 539,375
MaterialConsumed 195,000 LiabilitiesandStockholdersEquity
DirectManufacturingExpenses 350,000 Liabilities 0
DepreciationonMachinery 10,625
Stockholdersequity
555,625
Commonstock 500,000
Retainedearnings 9
39,375
TotalLiabilitiesandStockholdersEquity 539,375
HINDALCO
Note1:COGS 2016 2015 2014
CostofRawMaterialconsumed 19,209.45 21,056.29 18,804.28 Sch26
LabourCost(assumingtheentireemployee 1,698.06 1,589.48 1,345.47 IS
OtherManufacturingExpense
PowerandFuel 6,508.06 5,200.77 3,557.61 IS
Depreciation(relatedtoPlant&machinery) 987.77 670.87 728.14 Sch12
ConsumptionofStoresandSpares 684.92 599.58 494.35 sch33
RepairstoMachinery(assumingrelatedtofact 471.68 479.85 402.64 Sch33
RatesandTaxes(assumingrelatedtofactory) 23.13 23.27 25.31 sch33
Rent(assumingrelatedtofactory) 53.65 38.46 35.46 sch33
Insurance(assumingrelatedtofactory) 121.84 106.76 80.52 sch33
ResearchandDevelopment 19.44 23.46 23.74
MiscellaneousExpenses(d) 1,339.63 1,224.67 1,197.72 sch33
CostofownManufacturedProductsCapitalized 22.60 21.23 54.92 sch33
TransfertoCapitalWorkinProgress 8.66 29.28 81.56 sch33
ManufacturingCosts 31,086.37 30,962.95 26,558.76
Add:OpeningInventoriesWIP 3,842.98 3,924.04 3,442.06 Sch27
Less:ClosingInventoryWIP 3,355.74 3,842.98 3,924.04 Sch27
Costofgoodsmanufactured 31,573.61 31,044.01 26,076.78
PurchasesofStockinTrade 1.48 37.04 0.03 Sch25
ExciseDutyonInventories 2.68 18.01 4.50 Sch27
Add:OpeningInventoriesFinishedGoods 556.94 525.68 326.95 Sch27
ClosingInventoryFinishedGoods 849.80 556.94 525.68 Sch27
COSTOFGOODSOLD 31,279.55 31,067.80 25,882.58

Task:PrepareMultistepIncomeStatementforHindalco andcheckwhetheryougotthenetprofit
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correct.Canyouexplaintheperformance?
HINDALCO:
ACC
IncomeStatement(Multistep,classifiedasper
function)fortheyearended31stMarch 2016 2015 2014
Change
20162015 Growth% CS2016 CS2017 CS2018
NetSales 33,922.04 34,094.41 27,573.06 172.4 0.5 100.0 100.0 100.0
Less:COGS(Note1) (31,279.55) (31,067.80) (25,882.58) 211.8 0.7 92.2 91.1 93.9
GrossProfit 2,642.49 3,026.61 1,690.48 384.1 12.7 7.8 8.9 6.1
OtherOperatingRevenues 395.62 430.62 277.87 35.0 8.1 1.2 1.3 1.0
OperatingExpenses(Note2) (996.95) (877.74) (299.76) 119.2 13.6 2.9 2.6 1.1
OperatingProfit 2,041.16 2,579.49 1,668.59 538.3 20.9 6.0 7.6 6.1
NonOperatingitems:OtherIncome 1,066.21 882.21 1,124.42 184.0 20.9 3.1 2.6 4.1
EBIT 3,107.37 3,461.70 2,793.01 354.3 10.2 9.2 10.2 10.1
Less:FinanceCosts (2,374.76) (1,637.09) (711.65) 737.7 45.1 7.0 4.8 2.6
ProfitBeforeExceptionalItemsandTax 732.61 1,824.61 2,081.36 1,092.0 59.8 2.2 5.4 7.5
ExceptionalItems(Net) (577.70) (395.98) 0.0 1.7 1.4
EBTorPBT(ProfitbeforeTax) 732.61 1,246.91 1,685.38 514.3 41.2 2.2 3.7 6.1
TaxExpenses: (125.36) (321.77) (272.05) 196.4 61.0 0.4 0.9 1.0
PAT 607.25 925.14 1,413.33 317.9 34.4 1.8 2.7 5.1

EBITDA(EBIT+Depreciation)(p14ofAR) 4,384.37 4,298.73 3,687.31


Note2.OperatingExpenses 2016 2015 2014
OtherExpenses
RepairstoBuildings 58.42 47.47 39.90 sch33
PaymentstoAuditors(a) 5.06 4.46 3.48 Sch33
Depreciation(otherthanPlant&machinery) 289.23 166.16 95.15 IS&sch12
FreightandForwardingExpenses(10%assuming 607.24 607.12 464.76 sch33
ProvisionforDoubtfulLoans,AdvancesandRecei 7.70 48.73 5.39 sch33
BadLoans,AdvancesandReceivableswrittenoff/ 23.41 2.80 0.39 sch33
PriorPeriodItems(Net) 1.87 0.62 0.21 sch33
Donation(c) 6.16 18.36 2.07 sch33
Directors'FeesandCommission 2.25 4.19 7.58 sch33
Lossonassetsheldforsale 2.25 8.36 sch33
(Gain)/LossonChangeinFairValueofDerivative 13.26 29.29 319.17 sch33 11
OperatingExpenses 996.95 877.74 299.76
ThankYou

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