Financial

Statement
Analysis

K R Subramanyam
John J Wild

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
 6-2

Analyzing Operating Activities

6
CHAPTER
 6-3

Pengertian Operasi
• Kegiatan Utama perusahaan secara
reguler atau normal
• Menghasilkan arus kas masuk Utama
disebu dengan pendapatan
• Mengakibatkan arus kas keluar utama
disebut dengan beban
• Arus kas masuk dan arus kas keluar
menghasikan laba (rugi).
 6-4

Income Measurement
Concepts

Illustration
Illustration Facts:
Facts:
•• Company
Companywith
with$100,000
$100,000in
incash
cash

•• Buys
BuysBuilding
Buildingfor
for$100,000
$100,000

•• Rents
RentsBuilding
Buildingfor
for $12,000
$12,000per
peryear
year

•• End
Endof
ofthe
thefirst
firstyear:
year: Building
Buildingvalued
valued at
at$125,000
$125,000
 6-5

Income Measurement
Concepts

Illustration
Illustration Facts:
Facts:
••Net
Net(free)
(free)cash
cashflow
flow==$(88,000)
$(88,000)
••Operating
Operatingcash
cashflow
flow==$12,000
$12,000
••Economic
Economicincome
income==$37,000
$37,000
••($12,000
($12,000rental
rentalincome
income++$25,000
$25,000holding
holdinggain)
gain)
••Accounting
Accountingincome
income==$11,500
$11,500($12,000
($12,000rental
rental
income
income--$500
$500depreciation*)
depreciation*)

*Building
*Building useful
useful life
life is
is 50
50 years
years and
and its
its salvage
salvage
value
value is
is $75,000—yearly
$75,000—yearly straight-line
straight-line depreciation
depreciation
is
is $500
$500
 6-6

PENGUKURAN LABA
KONSEP LABA
Laba
Laba Ekonomi
Ekonomi
••Laba
Labaekonomi
ekonomibisanya
bisanyamerupakan
merupakanarusaruskas
kas++perubahan
perubahannilai
nilaiwajar
wajar
aktiva
aktiva
••Laba
Labamencakup
mencakupbaik
baikkomponen
komponenyg ygsudah
sudahdirealisir
direalisir(arus
(aruskas)
kas)
maupun
maupunyg ygbelum
belum(laba
(labaatau
ataurugi
rugikepemilikan)
kepemilikan). .
••Laba
Labaekonomi
ekonomimengukur
mengukurperubahan
perubahannilai
nilaipemegang
pemegangsaham
saham
••Laba
Labaekonomi
ekonomimerupakan
merupakanindikator
indikatordasar
dasarkinerja
kinerjaperusahaan
perusahaan --
mengukur
mengukurdampak
dampakkeuangan
keuanganseluruh
seluruhkejadian
kejadianpada
padasuatu
suatuperiode
periode
secara
secarakomprehensif
komprehensif
••Laba
Labaekonomi
ekonomimencakup
mencakupbaik
baikkomponen
komponenberulang
berulangmaupun
maupuntaktak
berulang
berulang
••Tidak
Tidakterlalu
terlalubermanfaat
bermanfaatuntuk
untukmeramalkan
meramalkanpotensi
potensilaba
labamasa
masa
depan
depan
 6-7

PENGUKURAN LABA
KONSEP LABA
Laba
Laba permanen
permanen
••Sering
Seringdisebut
disebutlaba
lababerkelanjutan
berkelanjutanatau
ataulaba
labayg ygdinormalkan
dinormalkan––
merupakan
merupakanrata-rata
rata-ratalaba
labastabil
stabilyg
ygditaksir
ditaksirdapat
dapatdiperoleh
diperolehsepanjang
sepanjang
umur
umurperusahaan
perusahaan
••Secara
Secarasederhana
sederhanalaba
labapermanen
permanendiasumsikan
diasumsikantetap
tetapsepanjang
sepanjang
periode.
periode.
••Laba
Labapermanen
permanenmencerminkan
mencerminkanlaba labajangka
jangkapanjang
panjang
••Merupakan
Merupakanproporsi
proporsilangsung
langsungdengan
dengannilai
nilaiperusahaan
perusahaan
••Umumnya
Umumnya,,untuk
untukperusahaan
perusahaanyg ygmasih
masihberlangsung,
berlangsung,nilai
nilai
perusahaan
perusahaandapat
dapatdicerminkan
dicerminkandengan
denganmembagi
membagilaba labapermanen
permanen
dengan
denganbiaya
biayamodal
modal
 6-8

Konsep Laba- Laba Akuntansi

• Laba akuntansi diukur berdasarkan konsep akuntansi akrual.
• Laba akuntansi mencakup laba ekonomi dan laba permanen.
• Laba akuntansi bukan merupakan pengukuran laba secara
langsung
• Laba akuntansi mempunyai masalah pengukuran yang
mengurangi kemampuannya mencerminkan realitas ekonomi
• Konsekuensinya adalah tugas analis laporan keuangan
adalah menyesuaikan laba akuntansi untuk mencerminkan
konsep laba alternatif yang lebih baik.
 6-9

Konsep Laba- Laba Akuntansi

Pengakuan pendapatan dan Pengaitan (macting)
•Tujuan utama akuntansi akrual adalah pengukuran laba
•Dua proses utama dalam pengukuran laba adalah pengakuan
pendapatan dan pengaitan beban
•Pengakuan pendapatan adalah titik awal pengukuran laba
•Dua kondisi wajib untuk dapat diakui adalah bahwa pendapatan
harus :
– Telah atau dapat direalisasi
– Telah dihasilkan
•Ketika pendapatan telah diakui, biaya yg berhubungan dikaitkan
dengan pendapatan atau pengakuan bebab (expense matching)
untuk menghitung laba
 6-10

Laba akuntansi dan laba

ekonomi
• Sacara konseptual, akuntansi akrual mengkonversi arus
kas menjadi suatu pengkuran yang secara prinsip
mendekati konsep laba ekonomi
• Laba ekonomi :
– Merupakan arus kas ditambah perubahan nilai wajar aktiva
– mencakup tidak hanya arus kas kini tetapi juga perubahan nilai
sekarang arus kas masa depan
• Laba akuntansi merupakan produk lingkup pelaporan
keuangan yg melibatkan standar akuntansi, mekanisme
pengaturan dan insentif manajer. Laba diatur oleh aturan
akuntansi yg beberapa dianatarnya memiliki arti ekonomis
dan lainnya tidak
 6-11

Penyebab Perbedaan Laba

Ekonomi dan Akuntansi
• Konsep laba alternatif
– Laba pensiun menggunakan laba permanen, sementara laba efek
menggunakan laba ekonomis
• Biaya historis
– Mempengaruhi laporan laba rugi:
• Biaya penjualan terkini tidak tercermin pada laporan laba rugi
• Keuntungan dan kerugian aktiva tetap belum direalisasi tidak diakui
• Basis transaksi
– Kontrak pembelian tidak diakui pada laporan keuangan sebelum
transkasi terjadi
• Konservatisme
• Manajemen laba
 6-12

Konsep Laba akuntansi

Laba
Laba akuntansi
akuntansi terdiri
terdiri dari:
dari:
••Laba
Labapermanen
permanen––komponen
komponenlaba labayg
ygdiharapkan
diharapkanterjadi
terjadisepanjang
sepanjang
waktu
waktu
••Komponen
Komponensementara
sementara––Komponen
Komponenlabalabaakuntansi
akuntansisementara
sementara
tidaka
tidakadiharapkan
diharapkanuntuk
untukterjadi
terjadiberulang
berulangbiasanya
biasanyamerupakan
merupakan
peristiwa
peristiwayg
ygterjadi
terjadisatu
satukali
kali
••Komponen
Komponenyg ygtidak
tidakrelevan
relevandengan
dengannilai-komponen
nilai-komponenyg ygtidak
tidak
relevan
relevandengan
dengannilai
nilaitidak
tidakmemiliki
memilikikonten
kontenekonomi
ekonomi––komponen
komponen
ini
iniadalah
adalahdistorsi
distorsiakuntansi.
akuntansi.Tidak
Tidakberdampak
berdampakpadapadanilai
nilaiperusahaan.
perusahaan.
 6-13

PENGUKURAN LABA
Measurement
Dua komponen utama dalam Akuntansi laba:
•Revenues (gains)
•Expenses (losses)
 6-14

PENGUKURAN LABA
Pengukuran
Pendapatan dan Keuntungan

•Pendapatan adalah arus kas masuk dari pendapatan

atau arus masuk prospektif dari operasi*
•Keuntungan adalah arus kas masuk atau arus kas
masuk prospektif dari non operasi**
 
* Revenues are expected to recur
**Gains are non-recurring
 6-15

Income Measurement
Measurement
Beban dan Kerugian

•Beban adalah arus kas keluar yang terjadi , arus

kas keluar prospektif atau alokasi peristiwa lampau
dari operasi perusahaan
•Kerugian adalah penurunan aset bersih
perusahaan dari non operasi perusahaan
Expenses and losses are resources consumed, spent,
or lost in pursuing revenues and gains
 6-16

Income Measurement
Alternatives
Dua dimensi Laba:

1. operating versus non-operating

2. recurring versus non-recurring*

 *Motivated by need to separate permanent and

transitory components
 6-17

Income Measurement
Alternatives
Pengukuran laba alternatif dalam laporan laba rugi
menampilkan:
•Net income—mengacu pada ukuran “bottom line” atas
pendapatan
•Comprehensive income—mencerminkan hampir seluruh
perubahan pada ekuitas yg tidak berasal dari aktivitas pemilik.
Merupakan pengukuran laba pada baris terbawah dan merupakan
perkiraan akuntan atas laba ekonomi.
•Continuing income—merupakan suatu pengukur yg tidak
mencakup pos luar biasa, dampak kumulatif perubahan akuntansi
dan damapak penghentian operasi.*
•Core income—merupakan pengukuran yg mengeluarkan semua
pos yg tidak berulang yg dilaporkan dalam baris terpisah pada
laporan keuangan

*Often erroneously referred to as “operating income”

 6-18

Income Measurement
Analysis
Laba
Labaoperasi
operasivs vsnon
nonoperasi
operasi
  
Laba
Labaoperasi-mengukur
operasi-mengukurlaba labaperusahaan
perusahaanyg ygberasal
berasaldari
dariaktivitas
aktivitas
operasi
operasiygygmasih
masihberlangsung
berlangsung
 Tiga
 Tigaaspek
aspekyg ygpenting
pentingdalam
dalamlabalabaoperasi:
operasi:
laba
labaoperasi
operasiterkait
terkaithanya
hanyadengan
denganlaba
labaygygberasal
berasaldariaktivitas
dariaktivitasoperasi
operasi
(karenanya setiap pendapatan yg tidak terkait dengan operasi
(karenanya setiap pendapatan yg tidak terkait dengan operasi usaha usaha
bukan
bukanmerupakan
merupakanbagian
bagianlaba
labaoperasi)
operasi)
Laba
Labaoperasi
operasiterpusat
terpusatpada
padalaba
labaperusahaan
perusahaansecara
secarakeseluruhan
keseluruhandan dan
bukan
bukanhanya
hanyauntuk
untukpemgang
pemgangekuitas
ekuitas(pendapatan
(pendapatandandanbeban
bebankeuangan
keuangan
(bunga)
(bunga)dikeluarkan)
dikeluarkan)
Laba
Laba operasihanya
operasi hanyaterkaiat
terkaiatdengan
denganaktivitas
aktivitasusaha
usahayg
ygmasih
masih
berlangsung
berlangsung(laba
(labaoperasi
operasiyg ygdihentikan
dihentikandikeluarkan
dikeluarkandari
darilaba
labaoperasi)
operasi)
  
Non-operating
Non-operatingincome--includes
income--includesall allcomponents
componentsof ofnet
netincome
income
excluded
excludedfrom
fromoperating
operatingincome
income
Useful
Useful to separate non-operatingcomponents
to separate non-operating componentspertaining
pertainingtotofinancing
financingand
and
investing
investing
 6-19

Income Measurement
 

Analysis
Determination
Determinationof
ofComprehensive
ComprehensiveIncome—sample
Income—samplecompany
company

Laba Bersih 1205

Pendapatan Komprehensif lainnya:
+/- Keuntungan(kerugian) lepemilikan efek dapat dijual yg
belum direalisir 305
+/- Penyesuaian translasi valas (12)
+/- Penyesuaian tambahan kewajiban pensiun minimum (17)
+/- Keuntungan (kerugian) kepemilikan instrumen derivatif
yg belum direalisiasi 945 1221
Laba Komprehensif 2426
 6-20

Non-Recurring Items
 

 Extraordinary items

 Discontinued segments

 Accounting changes

 Restructuring charges

 Special items
 6-21

Non-Recurring Items
  Pos Yang Tidak Berulang
(Pos Luar Biasa )
Criteria
Criteria
Sifat
Sifatyang
yangtidak
tidaklazim
lazim
Jarang
Jarangterjadi
terjadi

Examples
Examples
Kerugian
Kerugiantak
takdiasuransikan
diasuransikandari
darisuatu
suatukecelakaan
kecelakaanutama
utama((gempa
gempabumi,
bumi,
angin
angintopan),
topan),kerugian
kerugiandari
daripengambil
pengambilalihan,
alihan,dan
dankeuntungan
keuntungandan
dan
kerugian
kerugiandari
dariawal
awalpenghapusan
penghapusanhutang
hutang

Disclosure
Disclosure & & Accounting
Accounting
Diklasifikasikan
Diklasifikasikansecara
secaraterpisah
terpisahdalam
dalamlaporan
laporanlaba
labarugi
rugi
Dikeluarkan
Dikeluarkanketika
ketikamenghitung
menghitunglaba
labapermanen
permanen
Dimasukkan
Dimasukkandalam
dalamperhitungan
perhitunganlaba
labaekonomi
ekonomi
 6-22

Non-Recurring Items
Operasi Yang Dihentikan
Akuntansi,
Akuntansi, dua
dua tahap
tahap

•• Lapoaran
Lapoaranlabalabarugi
rugitahun
tahunberjalan
berjalandan
dandua
duatahun
tahunsebelumnya
sebelumnya
akan
akandisajikan
disajikankembali
kembalistelah
stelahmengeluarkan
mengeluarkandampak
dampakoperasi
operasiygyg
dihentikan
dihentikan dari
daripos
posyg ygmenentukan
menentukanlaba
labadari
darioeprasi
oeprasiyg
ygmasih
masih
berlangusung
berlangusung
•• Keuntungan
Keuntunganatau ataukerugian
kerugianyg ygberkaitan
berkaitandgn
dgnoperasi
operasiyg
yg
dihentikan
dihentikandilaporkan
dilaporkansecara
secaraterpisah
terpisahsetelah
setelahdikurangi
dikurangipajak
pajak
dan
dandikeluarkan
dikeluarkandari
darilaba
labausaha
usahaygygmasih
masihberlangsung.*
berlangsung.*
  
*Reported
*Reportedin intwo
twocategories:
categories:
(i)operating
(i)operatingincome
incomeor orloss
lossfrom
fromdiscontinued
discontinuedoperations
operationsuntil
untilthe
the
measurement
measurementdate, date,and
and
(ii)(ii)
(ii)(ii)gains
gainsand
andlosses
losseson ondisposal
disposal
 6-23

Non-Recurring Items
 

Discontinued Operations

Analisis
Analisis untuk
untuk operasi
operasi ygyg dihentikan:
dihentikan:
•• Sesuaikan
Sesuaikanthd thdlaba
lababerjalan
berjalandan
danmasa
masalalu
laluuntuk
untukmenghilangkan
menghilangkan
dampak
dampakatasataspenghentian
penghentianoperasi
operasi
 Perusahaan
Perusahaanmengungkapan
mengungkapaninformasi
informasiini
iniuntuk
untuktahun
tahun
berjalan
berjalandandandua
duatahun
tahunlalu
lalu
 Untuk
Untukawal
awaltahun:
tahun:
 Dinyatakan
Dinyatakandalam
dalamringkasan
ringkasaninformasi
informasiatau
atau
pengungkapan
pengungkapansukarela
sukarelalainnya
lainnya
 Berhati-hati
Berhati-hatiketika
ketikamelaksanakan
melaksanakananalisis
analisistemporal
temporal
•• Sesuaikan
Sesuaikanasetasetdan
dankewajiban
kewajibanuntuk
untukmenghilangkan
menghilangkanoperasi
operasi
yang
yangdihentikan
dihentikan
•• Pertahankan
Pertahankankerugian
kerugianatau
ataukeuntungan
keuntungankumulatif
kumulatifdari
darioperasi
operasi
dihentikan
dihentikandidi(dalam)
(dalam)hak
hakkekayaan
kekayaan
 6-24

Non-Recurring Items
Accounting Changes
First Type of Accounting Change is
Accounting Principle Change—Melibatkan
Change
perubahan dari satu prinsip ke prinsip
lainnya

 Disclosure includes:
• Perubahan prinsip akuntansi
• Peruabahan estimasi akuntansi
• Perubahan entitas pelapor
• Koreksi kesalahan
 6-25

Non-Recurring Items
Accounting Changes
Second Type of Accounting Change is
Accounting Estimate Change –
membutuhkan beberapa estimasi terhadap
masa manfaat aset, biaya garansi,
keuangan persediaan, asumsi pensiun dan
piutang tdk tertagih
• Penerapan prospektif,
• Pengungkapan pada catatan
(mengungkapakan dampak perubahan
terhadap laba bersih dan laba sebelum pos
luar biasa-termasuk laba per lembar saham)
 6-26

Non-Recurring Items
 

Accounting Changes
Analyzing Accounting Changes
• Perubahan akuntansi bersifat “kosmetik” dan
tidak memiliki konsekuensi arus kas.
• Dapat mencemrinkan realitas ekonomisecara
lebih baik
• Wasapada terhadap manajemen laba
• Impact comparative analysis (apples-to-apples)
• Affect both economic and permanent income
 For permanent income, use the new
method and ignore the cumulative effect
 For economic income, evaluate the
change to assess whether it reflects
reality
 6-27

Non-Recurring Items
 

Pos Khusus
Special
Special Items--transactions
Items--transactionsand
andevents
eventsthat
thatare
areunusual
unusualor
or
infrequent
infrequent(tidak
(tidaklazim)
lazim)
  
Challenges
Challengesfor
foranalysis
analysis


 Often
Oftenlittle
littleGAAP
GAAPguidance
guidance

 Economic
Economicimplications
implicationsare
arecomplex
complex

 Discretionary
Discretionarynature
natureserves
servesearnings
earningsmanagement
managementaims
aims
  
Two
Twomajor
majortypes
types


 Asset
Assetimpairments
impairments(write-offs)
(write-offs)

 Restructuring
Restructuringcharges
charges
 6-28

Non-Recurring Items
 

Special Items
Asset
AssetImpairment—ketika
Impairment—ketikanilai nilaiwajar
wajaraset
asetlebih
lebihrendah
rendahdibandingkan
dibandingkannilai
nilai
tercatat
tercatat
  
Some
Somereasons
reasonsfor forimpairments
impairments
Decline
Declinein indemand
demandfor forasset
assetoutput
output
Technological
Technologicalobsolescence
obsolescence
Changes
Changesin incompany
companystrategy
strategy
  
Accounting
Accountingfor forimpairments
impairments
Report
Report at thelower
at the lowerofofmarket
marketor orcost
cost
No
Nodisclosure
disclosureabout
aboutdetermination
determinationof ofamount
amount
No
Nodisclosure
disclosureabout
aboutprobable
probableimpairments
impairments
Flexibility
Flexibilityinindetermining
determiningwhen
whenandandhow
howmuch
muchtotowrite-off
write-off
No plan required for asset disposal
No plan required for asset disposal
Conservative
Conservativepresentation
presentationof ofassets
assets
 6-29

Non-Recurring Items
 

Special Items
Restructuring
RestructuringCharges—costs
Charges—costsusually usuallyrelated
relatedto
tomajor
majorchanges
changesin
incompany
company
business
business
  
Examples
Examplesof ofthese
thesemajor
majorchanges
changesinclude
include
 Extensive
Extensivereorganization
reorganization
 Divesting
Divestingbusiness
businessunits
units
 Terminating
Terminating contractsand
contracts andjoint
jointventures
ventures
 Discontinuing
Discontinuingproduct
productlines
lines
 Worker
Workerretrenchment
retrenchment
 Management
Managementturnover
turnover
 Write-offs
Write-offs combinedwith
combined withinvestments
investmentsin inassets,
assets,technology
technologyor
ormanpower
manpower
  
Accounting
Accountingfor forestimated
estimatedcosts
costsof ofrestructuring
restructuringprogram
program
 Establish a provision (liability) for estimated costs
Establish a provision (liability) for estimated costs
 Charge
Chargeestimated
estimatedcosts
coststotocurrent
currentincome
income
 Actual
Actualcosts
costsinvolve
involveadjustments
adjustmentsagainst
againstthe
theprovision
provisionwhen
whenincurred
incurred
 6-30

Non-Recurring Items
 

Analyzing Special Items

Earnings Management with Special Charges

(1)  Special charges often garner less investor

attention under an assumption they are non-recurring
and do not persist

(2)  Managers motivated to re-classify operating

charges as special one-time charges

(3) When analysts ignore such re-classified charges

it leads to low operating expense estimates and
overestimates of company value
 6-31

Non-Recurring Items
 

Analyzing Special Items

Income Statement Adjustments

 
(1) Permanent income reflect profitability of a company
under normal circumstances
• Most special charges constitute operating expenses
that need to be reflected in permanent income
• Special charges often reflect either understatements
of past expenses or investments for future profitability
 
(2) Economic income reflects the effects on equity of all
events that occur in the period
• Entire amount of special charges is included
 6-32

Non-Recurring Items
Analyzing Special Items

Balance Sheet Adjustments

Balance sheets after special charges often better reflect
business reality by reporting assets closer to net realizable
values
 
Two points of attention
(1) Retain provision or net against equity?
• If a going-concern analysis, then retain
• If a liquidating value analysis, then offset against equity
 
(2) Asset write-offs conservatively distort asset and liability
values
 6-33

Revenue Recognition
Guidelines
Revenue
Revenue Recognition
Recognition Criteria
Criteria
 Earning
Earningactivities
activitiesare
aresubstantially
substantiallycomplete
completeand
andnonosignificant
significant
added
addedeffort
effortisisnecessary
necessary
 Risk
Riskof
ofownership
ownershipis iseffectively
effectivelypassed
passedto
tothe
thebuyer
buyer
 Revenue,
Revenue,andandrelated
relatedexpense,
expense,are
aremeasured
measuredor orestimated
estimatedwith
with
accuracy
accuracy
 Revenue
Revenuerecognized
recognizednormally
normally
yields
yieldsan
anincrease
increasein incash,
cash,
receivables
receivablesor orsecurities
securities
 Revenue
Revenuetransactions
transactionsare areat
atarm’s
arm’s
length
lengthwith
withindependent
independentparties
parties
 Transaction
Transactionis isnot
notsubject
subjecttotorevocation
revocation
 6-34

Revenue Recognition

Guidelines
Some
Somespecial
specialrevenue
revenuerecognition
recognitionsituations
situationsare
are

 Revenue
RevenueWhen
WhenRight
Rightof
ofReturn
ReturnExists
Exists
 Franchise
FranchiseRevenues
Revenues
 Product
ProductFinancing
FinancingArrangements
Arrangements
 Revenue
Revenueunder
underContracts
Contracts
 Percentage-of-completion
Percentage-of-completionmethod
method
 Completed-contract
Completed-contractmethod
method
 Unearned
UnearnedRevenue
Revenue(amount
(amountofofrevenues
revenuesthat
thatare
arestill
still
unrecognized
unrecognizedappear
appearin
inthe
thebalance
balancesheet
sheetas
asaaliability)
liability)
 6-35

Revenue Recognition
 
Analysis
Revenue
Revenueis isimportant
importantforfor
 Company
Companyvaluation
valuation
 Accounting-based
Accounting-basedcontractual
contractualagreements
agreements
 Management
Managementpressure
pressuretotoachieve
achieveincome
incomeexpectations
expectations
 Management
Managementcompensation
compensationlinked
linkedtotoincome
income
 Valuation
Valuationof ofstock
stockoptions
options
  
Analysis
Analysismust
mustassess
assesswhether
whetherrevenue
revenuereflects
reflectsbusiness
businessreality
reality
 Assess
Assessrisk
riskof
oftransactions
transactions
 Assess
Assessrisk
riskof
ofcollectibility
collectibility
  
Circumstances
Circumstancesfueling
fuelingquestions
questionsaboutaboutrevenue
revenuerecognition
recognitioninclude
include
 Sale
Saleof
ofassets
assetsor oroperations
operationsnot notproducing
producingcash
cashflows
flowstotofund
fundinterest
interest
or
ordividends
dividends
 Lack
Lackofofequity
equitycapital
capital
 Existence
Existenceof ofcontingent
contingentliabilities
liabilities
 6-36

Deferred Charges

Costs
Costs incurred
incurred but
but deferred
deferred because
because they
they are
are
expected
expected to
to benefit
benefit future
future periods
periods

Consider
Consider four
four categories
categories of
of deferred
deferred costs
costs

••Research
Research and
and development
development
••Computer
Computer software
software costs
costs
••Costs
Costs in
in extractive
extractive industries
industries
••Miscellaneous
Miscellaneous (Other)
(Other)
 6-37

Deferred Charges
Research and Development
Accounting for R&D is problematic due to:*

• High uncertainty of any potential benefits

• Time period between R&D activities and determination of success
• Intangible nature of most R&D activities
• Difficulty in estimating future benefit periods
 
Hence:
• U.S. accounting requires expensing R&D when incurred
• Only costs of materials, equipment, and facilities with alternative
future uses are capitalized as tangible assets
• Intangibles purchased from others for R&D activities with alternative
future uses are capitalized
 
*These accounting problems are similar to those encountered with
employee training programs, product promotions, and advertising
 6-38

Deferred Charges
Computer Software Costs
[Note:
[Note:Accounting
Accountingfor for costs
costsofofcomputer
computer software
software to
to be
be
sold,
sold, leased,
leased,oror otherwise
otherwisemarketed
marketed identifies
identifies aapoint
point
referred
referredto
toas
astechnological
technologicalfeasibility]
feasibility]
  
Prior
Priortototechnological
technological
feasibility,
feasibility,costs
costs
are
areexpensed
expensedwhen when
incurred
incurred
  
After
Aftertechnological
technological feasibility,
feasibility, costs
costsare
arecapitalized
capitalizedasas
an
anintangible
intangibleasset
asset
 6-39

Deferred Charges
Costs in Extractive Industries
Search
Searchand
anddevelopment
developmentcosts
costsfor
fornatural
naturalresources
resourcesisisimportant
importantto
to
extractive industries including oil, gas, metals, coal, and nonmetallic
extractive industries including oil, gas, metals, coal, and nonmetallic
minerals
minerals
  
Two
Twobasic
basicaccounting
accountingviewpoints:
viewpoints:
•• “Full
“Full‑cost”
‑cost”view—all
view—allcosts,
costs,
productive and nonproductive,
productive and nonproductive,
incurred
incurredininthe
thesearch
searchfor
forresources
resources
are
arecapitalized
capitalizedand
andamortized
amortizedtoto
income
incomeas asresources
resourcesare
areproduced
produced
and
andsold
sold

•• “Successful
“Successfulefforts”
efforts”view—all
view—allcosts
coststhat
thatdo
donot
notresult
resultdirectly
directlyin
in
discovery
discoveryof
ofresources
resourceshave
havenonofuture
futurebenefit
benefitand
andshould
shouldbe
be
expensed
expensedas
asincurred.
incurred.Prescribed
Prescribedfor
foroil
oiland
andgas
gasproducing
producing
companies
companies
 6-40

Employee Benefits

Overview

 Increase in employee benefits supplementary to salaries and

wages
 Some supplementary benefits are not accorded full or timely
recognition:
• Deferred compensation contracts
• Stock appreciation rights (SARs)
• Junior stock plans
• Employee Stock Options (ESOs)
 6-41

Employee Benefits
Employee Stock Options
ESOs are a popular form of
incentive compensation
—reasons include:

 Enhanced employee performance

 Align employee and company incentives
 Viewed as means to riches
 Tool to attract talented and enterprising workers
 Do not have direct cash flow effects
 Do not require the recording of costs
 6-42

Employee Benefits
Employee Stock Options
Option Facts
• Option to purchase shares at a specific price on or after a future
date
• Exercise price is the price a holder has the right to purchase
shares at
• Exercise price often set equal to
stock price on grant date
• Vesting date is the earliest date
the employee can exercise
option
• In-the-Money: When stock
price is higher than exercise
price
• Out-of-the-Money: When stock price
is less than exercise price
 6-43

Employee Benefits
Employee Stock Options

Two main accounting issues

• Determining Dilution of earnings per share (EPS)
 ESOs in-the-money are dilutive securities and affect diluted
EPS
 ESOs out-of-the-money are antidilutive securities and do not
affect diluted EPS
• Determining Compensation expense
 Determine cost of ESOs granted
 Amortize cost over vesting period
 6-44

Interest Costs
Interest Defined

Interest
Compensation for use of money
Excess cash paid beyond the money (principal)
borrowed
 
Interest rate
Determined by risk characteristics of borrower
 
Interest expense
Determined by interest rate, principal, and time
 6-45

Interest Costs

Interest Analysis

• Interest on convertible debt is controversial by

ignoring the cost of conversion privilege
• Diluted earnings per share uses number of shares
issuable in event of conversion of convertible debt
• Analysts view interest as a period cost—not
capitalizable
• Changes in a company borrowing rate, not explained
by market trends, reveal changes in risk
 6-46

Income Taxes


Temporary Income Tax Differences

GAAP

GAAP
GAAP
GAAP
Financial
Taxable Income
Statement Income
 Differences
Differencesthat
that are
aretemporary
temporaryin innature
nature
 expected
expectedto toreverse
reverseininthe
thefuture
future
 mainly
mainlyininthe
thenature
natureofoftiming
timingdifferences
differencesbetween
betweentax
tax
and
andGAAP
GAAPaccounting
accounting
 accounted
accountedfor for using
usingdeferred
deferredtax
taxadjustments
adjustments
 6-47

Income Taxes
Income Tax Accounting

•• Identify
Identifytypes
typesand
andamounts
amountsof
oftemporary
temporarydifferences
differencesand
andthe
the
nature
natureand
andamount
amountof ofeach
eachtype
typeofofoperating
operatingloss
lossand
andtax
taxcredit
credit
carryforward
carryforward
•• Measure
Measuretotal
totaldeferred
deferredtax
taxliability
liabilityfor
fortaxable
taxabletemporary
temporary
differences
differences
•• Compute
Computetotal
totaldeferred
deferredtaxtaxasset
assetfor
fordeductible
deductibletemporary
temporary
differences
differencesand
andoperating
operatingloss
losscarryforwards
carryforwards
•• Measure
Measuredeferred
deferredtax
taxassets
assetsfor foreach
eachtype
typeof
oftax
taxcredit
credit
carryforward
carryforward
•• Reduce
Reducedeferred
deferredtax
taxassets
assetsby byaavaluation
valuationallowance
allowance
 6-48

Income Taxes
Income Tax Analysis

• Financial Statement Adjustments

• Present Valuing Deferred Tax Assets and
Liabilities
• Forecasting Future Income and Cash Flows
• Analyzing Permanent and Temporary
Differences
• Earnings Management and Earnings Quality