FS 2 difficile aperto

Bonds are evaluated by discounting future cash flows at present value. Four key issues to consider in bond valuation are: amount of money at issuance, determination of interest expense, amortization of discount/premium, and payment due at maturity.

Liabilities are classified as short-term or long-term, definite or indefinite in amount, certain or contingent. Short-term, definite, and certain liabilities are reported at nominal value, while long-term, definite, and certain liabilities are reported at present value. Liabilities of indefinite amount need to be estimated and contingent liabilities are disclosed in the notes.

Cash flow statement can be prepared using the direct method (labeling each cash flow as operating, investing, or financing) or the indirect method. The indirect method is used by 99.9% of companies for preparing the cash flow statement.

<p>The direct method involves reporting actual cash receipts and payments for operating, investing, and financing activities. The indirect method involves adjusting net income for non-cash items and changes in operating assets and liabilities to derive cash flow from operations.</p> Signup and view all the answers

<p>The cash flow statement provides a detailed explanation of cash inflows and outflows related to the functioning, investment, and financing of a business. Cash inflows and outflows are grouped into operations, investing, and financing activities.</p> Signup and view all the answers

<p>The purpose is to reconcile the income position to the cash position and to identify which portion of the income is also cash flow.</p> Signup and view all the answers

<ol> <li>Start with the Balance Sheet equation: ASSET = LIABILITY + EQUITY. 2. Re-classify the Balance Sheet equation to include cash and non-cash current assets and long-lived assets. 3. Focus on the cash by rearranging the Balance Sheet equation. 4. Calculate the change in cash using the balance sheet equation.</li> </ol> Signup and view all the answers

<p>It is possible due to the difference between cash flow and earnings flow, which may not coincide.</p> Signup and view all the answers

<p>The equation represents the change in cash equal to the change in all the other items, including net income, non-cash current assets, current liabilities, long-lived assets, long-term liabilities, capital, and dividends.</p> Signup and view all the answers

<p>The cash flow changes can be observed by looking at the cash flow changes on the left side of the equation.</p> Signup and view all the answers

<p>Accrued liabilities include expenses that have been incurred but not yet paid or invoiced. An example of accrued liabilities is accrued interest on a loan, where the interest expense has been incurred but not yet paid to the lender.</p> Signup and view all the answers

<p>Unearned revenues represent payments received for services not yet delivered. An example of unearned revenues is a customer making an advance payment for a subscription service that has not yet been provided.</p> Signup and view all the answers

<p>Provisions are amounts set aside for future expenses and risks. An example of provisions is setting aside funds for an expected lawsuit settlement or for the replacement of a depreciating asset.</p> Signup and view all the answers

<p>Market interest rates affect bond prices inversely. When market interest rates rise, bond prices fall, and vice versa, due to the relationship between coupon rates and market rates.</p> Signup and view all the answers

<p>The present value of a bond obligation is computed based on the bond's cash flows and market interest rates. It depends on the timing and amount of the bond's cash flows, as well as the prevailing market interest rates.</p> Signup and view all the answers

<p>Goodwill = Price paid - Equity book value – FMV adjustments, where Price paid is the amount paid for the acquired company, Equity book value is the total equity of the acquired company, and FMV adjustments represent the fair market value adjustments for identifiable assets.</p> Signup and view all the answers

<p>Goodwill = Price paid - Equity book value – FMV adjustments, where Price paid is the new amount paid for the acquired company, Equity book value is the total equity of the acquired company, and FMV adjustments represent the fair market value adjustments for identifiable assets.</p> Signup and view all the answers

<p>When the acquiring company does not buy 100% of the acquired company, the remaining portion is controlled by the shareholders of the acquired company, and this results in the need to identify and disclose 'minority interests' or 'interest of the non-controlling company' when consolidating the financial statements of the two companies.</p> Signup and view all the answers

<p>Goodwill is the excess of the cost of an acquired company over the sum of the fair market value of its identifiable assets less the liabilities.</p> Signup and view all the answers

<p>Goodwill is affected by fair market value adjustments for identifiable assets through the formula: Goodwill = Price paid - Equity book value – FMV adjustments, where Price paid is the amount paid for the acquired company, Equity book value is the total equity of the acquired company, and FMV adjustments represent the fair market value adjustments for identifiable assets.</p> Signup and view all the answers

<p>Equity attributable to the parent company represents the portion of equity owned by the parent company, while equity attributable to the shareholder of B represents the portion of equity owned by the specific shareholder of B.</p> Signup and view all the answers

<p>The ownership percentages determine whether an investment is considered a financial investment, leading to an affiliation, or a consolidation, where the entities are treated as a single legal entity. Different ownership percentages also dictate the method of reporting and the level of influence exerted.</p> Signup and view all the answers

<p>The considerations for reporting financial investments at cost or fair value include the representation of power of influence and investment in the financial investment scenario. The decision depends on whether the company has the power to influence decisions and whether fair value provides a more accurate representation of the investment's worth.</p> Signup and view all the answers

<p>The Equity Method is used for financial investments to adjust the investment based on the investee's profits and dividends. It involves recognizing the investor's share of the investee's profits or losses in the investor's income statement and adjusting the carrying amount of the investment.</p> Signup and view all the answers

<p>The key considerations and procedures involved in the preparation of consolidated financial statements include pooling revenues, expenses, assets, and liabilities of all legal entities within the consolidation perimeter. Additionally, homogeneity checks such as separate entities' financial statements closing dates, accounting principles, currency adopted, and format of financial statements need to be conducted. Intercompany transactions need to be eliminated, and typical accounting items in consolidation are minority and goodwill interest.</p> Signup and view all the answers

<p>The different categories of financial asset investments include short-term or long-term, trading, held-to-maturity, and available-for-sale. They impact accounting and presentation in the Balance Sheet differently, with trading securities reported immediately after cash, held-to-maturity bonds reported at amortized cost, and available-for-sale securities reported at fair value with unrealized gains or losses.</p> Signup and view all the answers

<p>The different accounting methods for equity investments based on the level of influence exerted include M&amp;A for high influence, equity method for lighter influence, and available-for-sale or trading securities for very little influence. They differ in the way the investor accounts for the investment and records any changes in value.</p> Signup and view all the answers

<p>Liability classifications are determined based on when the underlying obligation expires or needs to be settled through the outflow of resources embodying economic benefits. The criteria for classifying short-term and long-term liabilities are based on financial criteria, with current liabilities of known amounts including accounts payable.</p> Signup and view all the answers

<p>The decision on investment classification is typically made by the Board of Directors, with the CFO likely making a proposal. The decision is checked by auditors.</p> Signup and view all the answers

<p>Bonds are majorly invested in by financial institutions, and the investor's intent determines if it's available-for-sale or held-to-maturity. Different categories of bonds include trading, available-for-sale, and held until maturity, with the criterion for representing the investment being amortized cost for the held-to-maturity category.</p> Signup and view all the answers