Assets资产andliabilities负债

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1、MANG 6269Fundamentals of Financial AccountingSession 3 Accounting for assets:Property,plant and equipment inventories receivablesTodays lecture:Recap from last timeMeasurement issues and estimates in financial statements:Non current assets and depreciationCurrent assets:InventoriesReceivablesprepaym

2、entsCurrent liabilitiesAccruals NON-CURRENT(OR FIXED)ASSETS AND DEPRECIATIONWhat is a Non Current Asset?What is Meant by:Property,plant and equipmentIntangible Fixed AssetsInvestments held for long termWhat is meant by“Cost”of a fixed asset?What is meant by Depreciation?Methods of DepreciationDefini

3、tions-AssetAsset:A resource controlled by the enterprise andThere must be an exclusive right of controla future economic benefit associated with the item is expected to flow to the enterprise The benefit must have arisen from some past transaction or events the item has a cost or value that can be m

4、easured with reliabilityAdapted from International Accounting Committee,Framework for the Preparation and Presentation of Financial Statements,1989Non-current assetAssets acquired for use in the enterpriseon a continuing basisnot for resaleUse may be in the production or supply of goods or servicesf

5、or rental to othersor for administrative purposesIAS16ExamplesTangibleIntangibleCost of property,plant and equipment includes:its purchase price+import duties and non-refundable purchase taxes-trade discounts and rebates.any costs directly attributable to bringing the asset to the location and condi

6、tion necessary for it to be capable of operating in the manner intended by management.Any obligations for costs to be incurred for dismantling etc.Examples of attributable costRepairs and improvementsCost of Repairs are charged to the income statement e.g.Cost of improvements -added to the cost of a

7、 buildinge.g.DepreciationNon-current(fixed)assets are gradually used up in providing goods and services over time.Purpose of accounting depreciation is to spread the cost of a non-current(fixed)asset over its expected useful life.Depreciation is a method of allocating cost.Achieves a matching of cos

8、ts against the related revenues.WeetmanEffect on Accounting EquationAssets=Liabilities+Owners FundsDepreciation:“The measure of the cost or revalued amount of the economic benefits of the tangible fixed asset that have been consumed during the period”.Consumption includes the wearing out,the using u

9、p or other reduction in the useful economic life of a tangible fixed asset whether arising from use,effluxion of time,or obsolescence through either changes in technology or demand for the goods and services produced by the asset.”“The fundamental objective of depreciation is to reflect in operating

10、 profit the cost of use of the tangible fixed assets(i.e.the amount of economic benefits consumed by the entity)in the period.FRS15Depreciable amount is the cost of an asset,less its residual value.”“Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life

11、.”IAS16Note:influence of accruals concept.Net book value is Cost less accumulated depreciation (i.e.The portion of cost that has not yet been used up)Methods of Depreciation include:Straight lineReducing BalanceMachine hoursExample A machine is bought for 20,000.Its expected useful life is 3 years o

12、r 60,000 machine hours of use,and its estimated residual value is 8,000.For the Reducing balance method,use 25%.Actual hours used:Year 1 19,000;year 2 21,000;year 3 19,500.Profit before depreciation in year 1 is 4,500.What is net profit under each of 3 depreciation methods?ExampleA small business bu

13、ys a machine for 20,000.The owner expects it to last for four years and to be scrapped for nothing at the end of that time.She decides to use straight line depreciation.What will be shown in the Income statement each year?What will be shown in the balance sheet each year?Land and Buildings at Valuat

14、ionMost fixed assets are shown in the accounts at cost(less accumulated depreciation).However some companies may choose to include land and buildings at revalued amount(less depreciation).If a company makes this choice,all the assets in the category must be revalued,and they must be revalued at regu

15、lar intervals.Revaluation reserveLook out for the accounting policy.IAS 16 refers to open market value whereas FRS 15 required valuation to be at existing use value,ImpairmentIf circumstances change,directors need to review their non-current assets and see if their value in the accounts(the net book

16、 value)has been impaired.If necessary,they will need to reduce the value of the fixed assets to the higher of the net realisable value(what it can be sold for less expenses)or the value in use (the“present”value of estimated future cash flows).Inventories(Stocks and work-in progress)What are invento

17、ries?Accounting for inventoriesObjectives of inventories valuationNormal valuation:Lower of cost and net realisable valueWhat is the cost of inventories?cost flow assumptionscost of manufactured goods,or of servicesWhat is net realisable value?What are inventories?Examples from different types of bu

18、siness:Corner shopCrisp manufacturerToy manufacturerBuilderSolicitorWHAT ARE INVENTORIES?Assets:(a)held for sale in the ordinary course of business;(b)in the process of production for such sale;or(c)in the form of materials or supplies to be consumed in the production process or in the rendering of

19、services.(IAS2)Common categories:“a)goods or other assets purchased for resaleb)consumable storesc)raw materials and components purchased for incorporation into products for saled)products and services in intermediate stages of completion(Work-in-Progress)e)long term contract balancesf)finished good

20、s.”SSAP 9Accounting for inventoriesinventories is likely to be a very material figure i.e.large relative to profit.Consider the impact on A-L=C+Profits ExampleFor a retailer or wholesaler:Opening inventories+Purchases=Cost of the inventories available during the yearHow much of this cost has been“us

21、ed up”and should be charged against profit as Cost of Sales?How much of this cost has not been used up and should be carried forward as closing inventories with future economic benefit?Note:Accruals concept:matching sales revenue of goods sold with cost of goods sold.PracticalitiesWhere there are no

22、 detailed records of cost of sales then:Step 1:Physical stocktakeStep 2:Value at costWhere detailed records of cost of sales and inventories are kept after every sale,then Physical stock take (either all at once or a little at a time)to check records to actual inventories.Use inventories figure from

23、 the accounting recordsExampleOpening inventory5,000Purchases60,000Closing inventory8,000Cost of Sales?Opening inventory8,000Purchases:90,000Cost of sales88,000Closing inventory?Valuation of inventoriesLower of Cost andNet realisable valueNB Prudence conceptObjectives of inventories valuation at ful

24、l costTo determine profitFor financial statementsbasis for cost+pricing(sometimes)Cost:Comprises:All costs of purchase,costs of conversion and other costs incurred in bringing the inventories to their present location and condition.IAS 2Cost of purchasethe purchase price,import duties and other taxe

25、s transport,handling and other costsLess Trade discounts,rebates and other similar itemsSSAP 9Cost Flow ModelsFIFOWeighted AverageLIFONB:LIFO is not acceptable under IAS 2(revised 2003)or SSAP 9Examples-WidgetsJan 10 Bought 200 widgets 10 eachJan 17Bought 300 widgets 11 eachJan 25 Sold 270 widgetsWh

26、at is the Cost of Sales?Cost of conversionDirect labour.Direct expensesa systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods.Example 1:Toy Manufacturer making Teddy BearsCost of Finished Bear:Direct Materials(fluffy material,

27、glass button eyes,stuffing etc etc)3 per unitDirect Labour (piece rate)4 per unitand a share of indirect costs:Power:3,000Rent and Business rates1,800Foremans salary2,000Depreciation of machines900Other300Total for the month8,000?per unitDuring the month,1000 bears have been made.Therefore a reasona

28、ble share of production overheads would be:8,000=per unit.1,000Cost of Finished Bear:Direct Materials 3 per unitDirect Labour (piece rate)4 per unitshare of indirect costs:per unitTotalper unitNB The estimates and judgements which have been used.Valuation of Partly Made Bear,at cost:A share of produ

29、ction overheads could be based on direct labour cost:Cost of direct labour=1000 bears at 4 each=Production overhead=8,000 in the monthProduction overhead/cost of direct labour=Costs of partly made bear:Materials 2.30 ActualLabour 2.00Actual at piece rateOverheads 2 x Direct labour cost Total Net Rea

30、lisable Value:“The estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.”IAS 2NB Normally Cost NRV.Then inventories is valued at cost.Accruals(Realisation)and Prudence conceptsOccasionally NRV Cost.Then i

31、nventories is valued at NRVPrudence concept Net Realisable Value:For a retailer or wholesaler or for the finished goods of a manufacturer,normally:Selling price less selling and distribution costs.Example retailerCost NRVLower of Cost and NRVLine A5,0007,000Line B2,0003,000Line C20080001,000Irrepara

32、bly damagedLine D1500750Out of fashionTotal12,500Net Realisable Value:For work in progress(or raw materials)of a manufacturer or of a service industry:Normal selling priceless costs to completion and selling and distribution costs in the normal course of business.Example 3Valuation of Partly Made Be

33、ar:Costs so Far(See example 1):Materials 2.30Labour 2.00Overheads 4.00 Total 8.30Estimated Costs to Complete:Further Materials plus further Labourplus further Overheadsat 2 x direct labour cost)Total Net Realisable Value:Selling Price less estimated Costs to Completion25-6.70=18.30Lower of Cost and

34、NRV =Lower of 8.30 and 18.30=8.3043Receivables(Debtors)These are the amounts of money owed to the business by its customers.Normally,when businesses make sales on credit,they expect their customers to pay!Checks on credit rating BEFORE sale is madeIf they are unsure,may ask for deposits or full paym

35、ent in advance.Importance of credit control proceduresNormally it is expected that customers will pay reasonably promptly,and the receivable is valued at invoice amount44Bad and Doubtful DebtsSometimes customers will not pay:They may go bankrupt,or have significant financial difficultiesThey may dis

36、pute the debt.The debt can only be shown as an asset if there is an expected future economic benefitTherefore,when business knows that a customer will not pay,the debt is“written off”as a“bad debt”:The account receivable(asset)balance is reduced to zeroThe bad debt written off is treated as an expen

37、se.Doubtful Debts impairment of receivablesWill the entity get all its money back?At the end of the accounting period,is there evidence that the value of the receivables is impaired?e.g.Significant financial difficulty of the debtorLate paymentsProbable bankruptcyGranting concessions to the debtor e

38、.g.rescheduling repaymentsObservable data relating to future cash flows for a group of receivables e.g.Increase in rate of Delayed payments or payments on account Unemployment rates in the area going upDoubtful Debts impairment of receivablesIf receivables are impaired,Businesses make an allowance(o

39、r provision)for doubtful debts:Deducted from accounts receivable total on balance sheetIncrease charged as an expense in the income statementExampleReceivables at invoice value at 31 Dec 2012 amount to 12,500.Included in this amount is 3,500 owing from Bloggs Builders Ltd.This customer has been very

40、 late in its payments and is in financial difficulty.The company is still asking for all the moneys but it is estimated that only half of the debt will be recovered.What amount should be shown in the balance sheet?Weir Group plc-accounting policyTrade receivables,which generally are of a short dated

41、 nature,are recognised and carried at original invoice amount less an allowance for estimated irrecoverable amounts.Provision is made when there is objective evidence that the Group will not be able to recover balances in full.Balances are written off when the probability of recovery is assessed as

42、being remote.Longer term receivablese.g.A customer owes 1,000,but the contract states that the debt is repayable in 2 years time.Current interest rates are 3%.Valued at Fair value or amortised costTaking into account the time value of money:Valued in Balance sheet now at 943Valued in the balance she

43、et at the end of year 1 at 971Receivables and PrudenceExample of a prepaymentAt Jan 1 there is a prepayment of rent of 700 for two months.Four payments for rent of 1,200 each are paid during the year.At the end of the year it is recognised that of this,800 is a prepayment covering rent for the first

44、 two months of the following year.Example of an accrualAt Jan 1 the business estimates it owes 400 for gas.During the year payments for gas are made totalling 3,600.At the end of the year,it is estimated that the business owes 550 for gas.Estimates and judgementsReferences:IAS 16 International Accou

45、nting Standard,Property,plant and equipment,IASB Dec 2003(amended 2004)FRS 15 Tangible Fixed assets,Financial reporting standard,UK Accounting Standard Board 1999IAS 2 Inventories(Revised 2003)International Accounting Standard Number 2,(revised),International Accounting Standards Board,Dec 2003Quotations from SSAP 9:Statement of Standard Accounting Practice Number 9,Accounting Standards Committee,revised 1988)Weetman:Pauline Weetman Financial and Management Accounting 4th edition Pearson 2007 Copyright演讲完毕，谢谢观看！