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FA CC Lecture 06 Word

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5 views4 pages

FA CC Lecture 06 Word

Uploaded by

Ahmud Saania
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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IAS 10 Events After Reporting Period

The reporting period is the period


at the end of which the F/S are
prepared… Till when???
e.g. 30 June, 31st Dec, 31st Mar
th

etc

F/S are signed and approved by the board for publish

Adjusting events non-adjusting events

Adjusting Events:
Those events regarding whom a chance or condition existed at reporting
date that they might occur!!! These are adjusted in the F/S….

e.g. inventory valuation


bad and doubtful debt
fraud or error

Non-Adjusting Events:
Those events regarding whom NO chance or condition existed at reporting
date regarding their occurrence… these are NOT adjusted in the F/S… only a disclosure is
given if they are of material nature…

e.g major sale purchase of asset after the Y/E


natural disaster
bad debt happened after the Y/E
b4 the Y/E “disclose in notes”
proposed after the y/E “IGNORE”
Dividend
Declared b4 the y/e “ adjusted”
After the y/e “ignore”
IAS 37 Provisions, Contingent Liabilities, Contingent Assets:

Provisions:
A liability of un-certain timing and amount…

Legal Provision:
Required by some law, statute or court order…

Constructive provision:
Not required by law, created because of past business practice, advertisement,
image already created in the user’s mind…

Contingent Liability:
A possible obligation, arising from some past event, the settlement of which is
dependent on the occurrence or non-occurrence of another independent event under
the control of the organization…

Contingent Asset:
A possible economic benefit, arising from some past event, the inflow of which is
dependent on the occurrence or non-occurrence of another independent event under
the control of the organization…

Outcome Contingent Liability Contingent Asset


Virtually certain > 95% Provide Recognize
Probable > 75% Provide Disclose in notes
Possible ~ 50% Disclose in notes Ignore
Remote 10-20% Ignore Ignore
Ratio Analysis:

- Profitability
- Working capital / liquidity ratios
- Efficiency ratios
- Solvency ratio

Profitability ratios:

These measure the company’s use of its assets and control of its expenses to
generate an acceptable level of return.

i- Gross profit %age = Gross profit / sales x 100 = xxx %

ii- Operating Profit margin = profit before interest and tax / sales x 100

iii- Profit before tax %age = Profit before tax / sales x 100

iv – ROCE “Return on Capital Employed”

PBIT / capital employed* x 100 = %age

Capital employed = total equity + long term debt

V – ROE “Return on Equity”

Profit after tax and preference dividends / total equity x 100

Liquidity Ratios:
Liquidity measures the company’s ability to pay its short-term debt

i- current ratio = current assets / current liabilities = ideal 2:1

if the current ratio is higher then the ideal… i.e. its 3:1, 3.5:1 or etc then its
means you have over capitalization of resources…

and, if the current ratio is lower then the ideal, i.e. 0.5:1 or 0.7:1 etc it’s
indicating that you are in over trading

ii- Quick ratio = current assets – inventory / current liabilities = ideal 1:1
Efficiency Ratios:

I – inventory turnover in days = inv. / COS x 365 = xxx in days

Ii – Receivables turnover in days = Rec. / sales x 365 = xxx in days

iii- payable turnover in days = payables /COS x 365 = xxx in days

iv- Working capital cycle = inv. Days + rec. days – payable days

v- Asset turn over = Revenue / (total assets – current liab.) = xxx In times

Solvency Ratios:

i- Interest cover = PBIT / interest = xxx in times

ii – Gearing Ratio = Debt / equity + debt x 100

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