Herv Stolowy 12 January 2012

Financial Accounting and Statement Analysis HEC MBA Program Frequently Asked Questions and Additional Information
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List of questions and comments

General questions
%uestion &erms in 'rench

Chapter 2: Introduction to financial statements

%uestion (e)ative endin) cash *alance %uestion +eanin) of ,reserves%uestion .etained earnin)s, *onus issue and stock "rice %uestion .ecordin) of de"reciation %uestion Income statement ratios %uestion /er"etual and "eriodic inventory systems for finished )oods %uestion 0usoni 12ssi)nment 2$34 1increasin) or decreasin) order of liquidity4 2dditional information 5orelli 12ssi)nment 2$64 %uestion 5orelli 12ssi)nment 2$64 %uestion Stora7nso 12ssi)nment 2$84 ! 1 %uestion Stora7nso 12ssi)nment 2$84 ! 2

Chapter 3: Financial statements presentation

%uestion %uestion %uestion %uestion 5lassification *y nature or *y term in a vertical *alance sheet (okias 0alance sheet 12ssi)nment (okia 9 others4 0enettons 0alance sheet 1mid!term test4 &elefonicas income statement 1mid!term test4

Chapter 5: Accounting principles and end-of-period adjustments

%uestion (o offsettin) "rinci"le

Chapter 13: Financial fi ed assets and !usiness com!inations

%uestion Interest in earnin)s of equities

Chapter 1": Cash flo# statement

2dditional information /ernod .icard 12ssi)nment 16$64 : ;"dated financial statements and questions 2dditional information /rocter 9 <am*le 12ssi)nment 16$=4 : ;"dated financial statements %uestion %uestion %uestion %uestion %uestion %uestion %uestion %uestion %uestion %uestion %uestion %uestion %uestion %uestion %uestion %uestion .eduction of share ca"ital >irect method and chan)e in inventory 5han)e in the sco"e of consolidation Schedule of cash flow Share "remium +inority interests /urchase of shares >vorak 5om"any 1.eview 16$14 : /urchase of fi?ed assets >vorak 5om"any 1.eview 16$14 : Sale of fi?ed assets >vorak 5om"any 1.eview 16$14 : 'inancial e?"enses and revenues >vorak 5om"any 1.eview 16$14 : 0ank overdraft +itsu*ishi 7lectric 1.eview 16$24 : /otential cash flow and deferred ta?es Janacek 5om"any 12ssi)nment 16$24 : /rovisions Janacek 5om"any 12ssi)nment 16$24 : <ain on sale of fi?ed assets Janacek 5om"any 12ssi)nment 16$24 : 2ccounts receiva*le /ernod .icard 12ssi)nment 16$64

Chapter 15: Financial statement anal$sis

%uestion %uestion %uestion %uestion %uestion %uestion 5om"arison of an income statement *y nature and an income statement *y function .atios *ased on sales 0ank overdraft 1*alance sheet analysis4 +aintenance e?"ense 7*itda (okia 9 7ricsson 1assi)nment 1=$=4 : 2vera)e collection "eriod

Questions re!lies and additional information

General questions
Question" #erms in Frenc$ .eadin) ,@es 7chos- last week, I was confused *y some 'rench 2ccountin) terms$ >o you ha""en to have a document which translates the main cate)ories of the various accountin) documents into 'renchA %e!ly Bou will find in the course we* site a multilin)ual )lossary 1= lan)ua)es, includin) 'rench4$ 5ould you tell me if the terms you are lookin) for are not in the )lossaryA

Chapter 2: Introduction to financial statements

Question" &egati'e ending cas$ (alance 5an a ne)ative endin) cash *alance *e shown in the *alance sheet or does it have to *e matched *y an equivalent overdraft on the lia*ilities sideA %e!ly 2 ne)ative endin) cash *alance is always dis"layed as a *ank overdraft in the *alance sheet 1within the lia*ilities4$ Question" Meaning of )reser'es* In a financial statement, whenever we account for ,.eserves-, is it assumed that its a ,5ash .eserve-A >urin) the discussion in our )rou", there was some confusion if reserves can also mean ,money invested *y a com"any-$ Ce think ,.eserves- and ,money invested *y a com"any- are different as ,.eserves is money thats not even earnin) interest in the *ank-$ 2re we correct in this hy"othesisA In the class, I remem*er you mentionin) ,(ever to use money from reserve for investment-$ /lease let us know$ %e!ly It is difficult to e?"lain in a few lines the conce"t of reserves$ Have you read the *ook on "a)es 8= 1*ottom4 to 8DA Bou have some elements there, which corres"ond to the course$ 2s I said, the account ,reserves- re"resents a "iece of "a"er where the com"any writes that it did not distri*ute cash for dividends and, consequently avoided a cash "ayment 1which re"resents then a savin)4$ 2s you can ima)ine, there is no cash in a "iece of "a"er$ So the idea of ,cash reserve- is strictly im"ossi*le$ Question" %etained earnings (onus issue and stock !rice In class you said that .etained 7arnin)sE.eserves can *e converted to new shares as a ,*onus issue$- Bou said it only has a "sycholo)ical effect$ How does the market see this if a com"any decides to convert .etained 7arnin)s to new sharesA How does it affect the stock "riceA

%e!ly Bour question is very interestin), *ut more relevant for the 5or"orate 'inance course you will have later in your "ro)ram$ Bou can however visit the followin) link htt" EEeconomictimes$indiatimes$comEarticleshowE1=21=8D$cms where you will find a very interestin) discussion on the relationshi" *etween *onus issue and stock "rice$ Question" %ecording of de!reciation It is a*out de"reciation$ Bou told us that every transaction has at least 2 im"acts on the *alance sheet, *ut concernin) de"reciation 1which is considered as an ,e?"ense-4, as I understood, there is only one im"act it reduces the equi"ment value 1so the assests4$ Should not this *e followed *y a reduction of the shareholders equityA %e!ly &he conce"t of de"reciation is recorded with two im"acts 1 ! >e"reciation e?"ense 1in the income statement F re"resents a reduction in shareholdersG equity4 2 ! 2ccumulated de"reciation 1which re"resents a reduction of assets4$ Bou can see the dou*le im"act in one of the slides at the end of 5ha"ter 2$ Question" Income statement ratios 2t "a)e D0, when lookin) at the different income statement ratios, I )et the im"ression that (et income, 70I& and income *efore interest and ta? are all the same$ Chen a""lied to case 2$6 that means that the net income is here re"resented *y ,o"eratin) "rofit-$ Shouldnt the net income *e equal to the ,net "rofit for the "eriod-A %e!ly Bou are ri)ht concernin) the 7arnin)s *efore interest and ta? 170I&4 and Income *efore interest and ta? which re"resent e?actly the same conce"t$ However, these conce"ts are different from the (et income$ Hn "a)e D0, the am*i)uity stems from the fact that we wrote 1takin) the e?am"le of the .H74 (et incomeE2vera)e equity 1or income *efore interest and ta?E2vera)e equity4$ &he ,or- does not mean that the conce"ts are strictly alike *ut that there are two alternative ways to com"ute the .H7$ 0oth definitions will "rovide different 1*ut equivalent in terms of financial statement analysis4 ratios$ 1See the rest of the re"ly *elow4$ Question" Per!etual and !eriodic in'entory systems for finis$ed goods 1E Ce learned a*out "eriodic and "er"etual systems for raw materials$

1$aE Chat a*out Iwork in "ro)ressIA 5ould we use *oth systems for Cork in /ro)ressA >o you have an e?ercise E an e?am"le to "ractice the Iwork in "ro)ressI notionA 1$*E Chat a*out Ifinished "roductsIA &hrou)h Schumann e?ercise we saw an accountin) method that could *e qualified as I"eriodicI$ 5ould we use a I"er"etualI method for 'inished "roducts as wellA >o you have an e?am"leA %e!ly Bour question is totally relevant$ I do not cover this issue on "ur"ose, *ecause its too com"le? for *e)inners and not really useful for financial statement analysis$ Bou have some elements of e?"lanations at the very end of the cha"ter 2$ &ell me if you need more$ 10ut I dont have s"ecific materials, e$)$, e?ercises on this issue4$ Question" Busoni +Assignment ,-./ +increasing or decreasing order of liquidity/ In the e?ercise like 0usoni one, where we need to show the im"act of the events on the financial statements with & accounts, do we need to follow an order of liquidityA If we follow the order of the transactions as you )ive us, is it an errorA %e!ly Bou can follow any order 1increasin) or decreasin)4$ 0ut you must *e consistent within the order chosen$ Additional information" Corelli +Assignment ,-0/ 'ollowin) one )rou"s question, we would like to make clearer that the accounts should *e related to one column only 1one Jfamily4, *ecause one account is only one "art of a dou*le entry$ 17?ce"tionally, one account in the list should *e mentioned in two columns4$ Question " Corelli +Assignment ,-0/ .e)ardin) 2ssi)nment 2$3, there is one "oint I dont understand &he ,'inancial >e*t- is related to ,@ia*ilities- *ut the ,@oan- is related to ,2ssets-$ Since a loan is actually also a financial de*t, for what reason the two are related differentlyA %e!ly 2 ,loan- can *e received 1then its a de*t4 or )ranted 1its an asset4$ Ce should "refera*ly use the term ,loan- in the second case only$ If there is no s"ecific information, we must assume that the loan has *een )ranted$ Question" StoraEnso +Assignment ,-1/ 2 3 Chen a""lied to case 2$6 that means that the net income is here re"resented *y ,o"eratin) "rofit-$ Shouldnt the net income *e equal to the ,net "rofit for the "eriod%e!ly

&here is no am*i)uity at this "oint$ &he ,net income- is equal to the ,/rofit for the "eriodand is totally different form the ,H"eratin) "rofit- 1which is equivalent, in this case, to the 70I&4$ 1Hnce a)ain, you will )et used to these terminolo)ical differences$ &he most im"ortant is to look at the content of the conce"t4$ Question" Stora Enso +Assignment ,-1/ 4 , %uestion 1 of the assi)nment asks us to com"ute ratios for Stora7nso$ Hne of these will *e the cash ratio$ +y question concerns the marketa*le securities of Stora7nso$ 5an we consider the shares that Stora7nso has in associated com"anies to *e readily marketa*leA 2lso, ,short!term investments- mi)ht include cash equivalents like *onds to *e redeemed within the year, *ut it is mi?ed with ,receiva*les-$ 5an we consider ,short term investments and receiva*les- as a cash equivalentA %e!ly Short!term investments can reasona*ly *e assimilated to cash and cash equivalents$ Chen their amount is mi?ed with receiva*les, it is necessary to refer to the notes and search for a s"lit *etween the two items$ If no information is availa*le, an assum"tion should *e made$

Chapter 3: Financial statements presentation

Question" Classification (y nature or (y term in a 'ertical (alance s$eet In "re"aration for the midterm e?am, I was lookin) at "ast tests and had a question re)ardin) classification of *alance sheets as natureEterm$ I came across a vertical *alance sheet where the 2ssets were classified as 'i?ed 1intan)i*le assets, tan)i*le, investments4 and current 1receiva*les, inventory and cash4$ However the vertical *alance sheet did not list financial and o"eratin) lia*ilities instead listin) current and non!current$ &he answer I saw for this was that this was a *alance sheet *y ,term- and not *y ,nature-$ +y question is does the classification de"end only on the way the lia*lities are mentionedA &his seems to *e like its ,*y nature- if the assets are looked at, and ,*y term- if the lia*ilities are looked at$ How does one decideA %e!ly Bour question is hi)hly relevant$ &he distinction *y natureE*y term a""lies to *oth assets and lia*ilities$ However, in "ractice, assets are 1almost4 always classified in the same way, whether *y nature or *y term$ &hats why I said in class that you should concentrate on lia*ilities *ecause you can only see the difference 1*y nature vs$ *y term4 with the lia*ilities$ Question" &okia5s Balance s$eet +Assignment &okia 6 ot$ers/ Chy (okias 0alance sheet is not horiKontal *ut vertical insteadA %e!ly &he (okias *alance sheet is vertical *ecause the assets are dis"layed a*ove the lia*ilities, and not on the left of the lia*ilities$

Question" Benetton5s Balance s$eet +mid2term test/ Chy is 0enetton *alance sheet horiKontalA %e!ly 0enetton *alance sheet is horiKontal *ecause the assets are dis"layed on a different "a)e from the lia*ilities$ 1In a vertical format, assets and lia*ilities always a""ear on the same "a)e, one a*ove the other4$ as a confirmation, we have the "a)e num*ers indicated$

Question" #elefonica5s income statement +mid2term test/ &he income statement of &elefonica is horiKontal$ >oes it mean that, therefore, no classification can *e made a*out e?"enses and de)ree of sim"lificationA 1referrin) to fi)ure 3$8, 5ha"ter 34$ %e!ly &he horiKontal format is rarely found in "ractice$ &his is why, in 'i)ure 3$8, this "art of the tree has not *een develo"ed$ However, with a horiKontal income statement, the distinctions multi"le ste"Esin)le ste" and natureEfunction are "ossi*le$ In the case of &elefonica, we find su*!levels of income 1e$)$, o"eratin) income4$ &his is a multi"le ste" format$ &he e?"enses are classified *y nature 1see the "ersonnel e?"enses4$

Chapter 5: Accounting principles and end-of-period adjustments

Question" &o offsetting !rinci!le In reference with the ,no offsettin)- accountin) "rinci"les, in case of dis"utes, can one ,"laywith the lia*ility in favor of to com"ensate dis"uted receiva*les on a )iven su""lier$ ,He is not "ayin) me so I do not "ay himL- 'or e?am"le, 2 "rovides a service to 0 and 0 sells "arts 1=0 5;4 to 2 inde"endently of this service$ 0 dis"utes the quality or com"letion of the service 1e?"ectations were *eyond actual service delivered4 and refuses to "ay the total amount invoiced 130 5; remainin) due4$ 5an 2 also deduct in retaliation of the "arts "urchased, ,*alancin)- its financial statements inde"endently of the contract content and the "urchase order 1"ayin) 20 5; of "arts value4A Hr is the dis"ute inte)rated under a "rovisionA >oes the dis"uted amount influence the view, es"ecially when cost to recover is hi)her than amount itselfA %e!ly

Chapter 13: Financial fi ed assets and !usiness com!inations

Question" Interest in earnings of equities Chat is interest in earnin)s of equity com"any net of dividendsA

%e!ly Share of earnin)s of associates 1affiliated com"anies4$

Chapter 1": Cash flo# statement

Additional information" Pernod %icard +Assignment 30-0/ 4 7!dated financial statements and questions Since the initial writin) of this case study, we u"dated the cash flow statement with the annual re"ort 2000, 2001 and 2002$ Ce "rovide in the course we*site an e?cel file with the u"dated cash flow statement$ &he format ado"ted over the "eriod is consistent with the last years 120024 format$ &he format has *een si)nificantly chan)ed in 2002$ Some of the questions raised for the ori)inal case study are no more valid$ Chen necessary, we also "rovide 1in italics4 an u"date of the question$ Ce su))est to start the study of the /ernod .icard cash flow statement with a com"arison of the two formats$

/lease find *elow the list of questions$ 1$ Chat does the ,cash flow- (cash flow from operations in the 2002 version) item in the o"eratin) activities re"resentA 2$ Chich method is used for com"utin) the cash flow from o"eratin) activitiesA 3$ Chat does the ,chan)e in workin) ca"ital need- (increase (decrease) in working capital requirement in the 2002 version) item in the o"eratin) activities re"resentA 3a. In the 2002 version which concept is missing after the increase (decrease) in working capital requirement! 3". In the 2002 version which unusual concept is disclosed after the #ash flow from operations! 3c. In the 2002 version which common concept are not disclosed! 6$ How does the statement *alanceA Is this the traditional method of *alancin) a cash flow statementA =$ Cith the hel" of the note accom"anyin) the cash flow statement, restate the final "art of the statement in order to *alance it with cash and cash equivalents$ 1+arketa*le securities are assumed to *e a cash equivalent4$ Additional information" Procter 6 8am(le +Assignment 30-9/ 4 7!dated financial statements Since the initial writin) of this case study, we u"dated the cash flow statement with the annual re"ort 2000, 2001 and 2002$ Ce "rovide in the course we*site an e?cel file with the u"dated cash flow statement$

Question" reduction of s$are ca!ital /a)e =3M of the *ook 11st edition4 Chere in the *alance sheet can I find /ayment on reduction of share ca"ital 1re"ayment of shares4A %e!ly Bou dont find it e?"licitly$ 2 note is necessary$ However, if, in an assi)nment, there is a decrease in share ca"ital, it can *e assumed that there was a re"ayment 1althou)h other e?"lanations are "ossi*le4$ Question" :irect met$od and c$ange in in'entory In "a)e =61 11st edition4 you e?"lain how the direct method works$ Im not sure I understand why chan)es in inventory are taken into account to )et the cost of merchandise sold$ 'or cash flow "ur"oses, it seems to me that "urchases should Nust *e adNusted with the chan)e in accounts "aya*le$ In my o"inion, the chan)e in inventory affects the income statement since sometimes you record "urchases *ut you dont consume all of them and you have to adNust$ 0ut I dont see the meanin) here since it doesnt involve cash "ayments$ %e!ly Bour question is hi)hly relevant$ &here are two hy"otheses, de"endin) on the format$ 1 % Format !$ function &he cost of )oods sold is disclosed$ &he direct method will work this way$ 5ost of )oods sold @ess 5han)e 1endin) minus *e)innin)4 in inventories 1in the workin) ca"ital need4 /lus 5han)e 1endin) minus *e)innin)4 in accounts "aya*le 1in the workin) ca"ital need4$ F 5ash "aid to su""liers 2 % Format !$ nature &let's ta(e a simple e ample #ith merchandise onl$) ,/urchases- and ,5han)e in inventories of merchandise- are disclosed$ &here are two methods of com"utations /urchases O 5han)e in inventories of merchandise F ,5ost of merchandise sold@ess 5han)e in inventories 1in the workin) ca"ital need4 /lus 5han)e in accounts "aya*le 1in the workin) ca"ital need4$

F 5ash "aid to su""liers Bou all notice that the chan)e in inventories is added then su*tracted$ 2 shorter method can then *e used /urchases O 5han)e in inventories of merchandise F ,5ost of merchandise sold@ess 5han)e in inventories 1in the workin) ca"ital need4 /lus 5han)e in accounts "aya*le 1in the workin) ca"ital need4$ F 5ash "aid to su""liers In other words /urchases /lus 5han)e in accounts "aya*le 1in the workin) ca"ital need4$ F 5ash "aid to su""liers Question" C$ange in t$e sco!e of consolidation Chat does it mean *y ,effective chan)e in the sco"e of consolidation-A %e!ly I )uess you mean ,effect of chan)es in the sco"e of consolidation-$ &his line re"resents the im"act of the acquisition of a su*sidiary on the cash flow statement$ ;sually it is equal to the cost of acquisition 1minus the cash found in the su*sidiary4$ Question" Sc$edule of cas$ flo; Chy do we need a schedule of cash flowA %e!ly 2 schedule of cash flow is not a standardiKed term$ It sim"ly means the detail of the com"utation of the cash flow$ Question" S$are !remium Chat is share "remiumA %e!ly &he share "remium is the difference *etween the issuance "rice of a share and the nominal value 1"ar value4$ See more details in 5ha"ter 11$ Question" Minority interests Chy is ,minority interests- considered a non!cash item to *e included in the o"eratin) activities usin) the indirect methodA

%e!ly +inority interests re"resent the share of earnin)s of su*sidiaries *elon)in) to minority shareholders$ It has reduced the net income *ut it is not a real cash e?"ense$ It is then considered as a non!cash e?"ense$ Question" Purc$ase of s$ares I Nust want to make sure I did understand well the classification "rinci"le Chen investin) in another com"any throu)h *uyin) a quantity of shares, this o"eration should *e classified in investin) activities, and the dividends of this investments in o"eration 5'A %e!ly &otally correct$ Question" :'orak Com!any +%e'ie; 30-3/ 4 Purc$ase of fi<ed assets 0ased on the solution "rovided, there is /urchase of fi?ed assets !6,000 5ash "aid on "urchase of fi?ed assets !3,M=0 I see the a*ove as re"etition in a way$ &he way I inter"ret it is that the total "urchase of fi?ed assets is 6,000 5;, of which 3,M=0 5; is "aid in cash and the rest is in the form of "aya*les$ Hence, if there is 2 lines, there is a re"etition$ Had I understood this wron)lyA How should this *e inter"retedA %e!ly &here is no re"etition$ &he cash amount is inte)rated in the com"utation of the cash flow$ &he other fi)ure 1"urchase4 is a sim"le indication of the determination of the cash movement$ Question" :'orak Com!any +%e'ie; 30-3/ 4 Sale of fi<ed assets &he sale "rice of the fi?ed assets is 6=0 whereas the *ook value of sold items 1which I assume is the fi?ed assets4 is only 2=0, so there is a )ain on sale of fi?ed assets, ri)htA If there is a )ain, shouldnt I O200A &he solution was to !200$ %e!ly 2 )ain is su*tracted from the "rofit 1*ecause it has increased the "rofit4$ Question" :'orak Com!any +%e'ie; 30-3/ 4 Financial e<!enses and re'enues In review 16$1, financial e?"enses and revenues are ke"t in o"eratin) activitiesA ;sually, when )rantin) a loan, are the revenues from such a loan classified in the o"eratin) 5' 1considerin) a normal com"any and not a *ank4A

%e!ly &here are several "ossi*ilities 1see ta*le 16$164$ &he *est solution is to include all the elements related to the income statement in the o"eratin) cash flow$ Question" :'orak Com!any +%e'ie; 30-3/ 4 Bank o'erdraft &here are two methods as to how to "erceive an overdraft when "re"arin) the cash flow 1as seen in .16$1 the M=0 5; was either incor"orated in financin) activities or considered as ne)ative cash4$ Chich one would you want us to use in the e?amA %e!ly Bou can choose$ Question" Mitsu(is$i Electric +%e'ie; 30-,/ 4 Potential cas$ flo; and deferred ta<es Chen determinin) the "otential cash flow, you dont Nust addEsu*tract non!cash e?"ensesEincome *ut also the account ,deferred ta? income-$ &hat account is not a non!cash e?"ense nor a non!cash income$ I thou)ht it could *e there *ecause it has taken a "art when determinin) the firms "rofit since the com"any is not )oin) to "ay what has *een recorded as Iincome ta? e?"enseI *ut that account minus the Ideferred ta? incomeI account$ &herefore, you should add this amount to the net income as the com"any is not really "ayin) what has *een entered as income ta? e?"ense$ However, in the +itsu*ishi case, it is included with a ne)ative si)n, which decreases the net income, this meanin) that the income ta? e?"ense for the year is even hi)her$ %e!ly Bour question arises from the fact that we have not studied the deferred ta?ation$ I would su))est to refer to cha"ter 8$ &o sim"lify, a deferred income ta? e?"ense is the difference *etween the income ta? e?"ense com"uted on the *asis of the ta?a*le income 1F the income ta? which will *e really "aid4 and a ,fictitious- income ta? e?"ense com"uted on the *asis of an ,economic- income 1which is less related to ta? re)ulation4$ &he deferred income ta? you found in the cash flow statement is the same amount you will find in the income statement 1see *elow the last line4$ 2s you will understand from your readin) of cha"ter 8, deferred income ta? e?"ense can *e "ositive or ne)ative 1de"endin) on the difference *etween the ta?a*le income and the ,economic- income4$ In the "resent case, the deferred income ta? is "ositive in 2000 and 1PPP and ne)ative in 1PPD$ 10e careful, a "ositive deferred income ta? is re"orted with a ne)ative si)n, *ecause the e?"enses have a "ositive si)nQ Sorry for that4$ &o answer more directly the question, I should say that the deferred income ta? e?"ense is a non cas$ e<!ense, *ecause it is *y construction a fiction$ 1Hnly the income ta? e?"ense : ,current income ta? e?"ense- in the case of +itsu*ishi4 is a cash e?"ense$

2s the deferred ta? e?"ense is a non cash e?"ense, it should *e added *ack to the net income 1if it has reduced the net income4 or su*tracted from the net income 1if it has increased the "rofit4$ In our case, the deferred ta? e?"ense has increased the net income in 2000 1see a*ove4$ It should *e then su*tracted 1hence the ne)ative si)n4$

Question" =anacek Com!any +Assignment 30-,/ 2 Pro'isions Hn no 2$ .econciliation Statement Is it correct to take "rovisions from the "revious yearA If so, why is this when you take de"reciation from the "revious yearA %e!ly Bou do not take the de"reciation e?"ense from the "revious year *ut the de"reciation e?"ense from the current$ 1Bou adNust the net income of year R2 with the de"reciation e?"ense of the same year4$ &he same e?"lanation a""lies to "rovisions$ 1&he only difference is that you do not inte)rate "rovisions linked to current asset4$ Question" =anacek Com!any +Assignment 30-,/ 4 8ain on sale of fi<ed assets Hn no 2$ .econciliation Statement

>o you calculate )ainEloss on sale of fi?ed assets *y su*tractin) the sales "rice from the *ook value for the current yearA I would intuitively have thou)ht I should use the reverse, i$e$ Su*tract *ook value from the sales "rice with the difference indicatin) my )ain or lossA %e!ly &he )ain on sale is com"uted as follows sales minus *ook value$ &he )ain on sale is then su*tracted 1*ecause it has increased the net income4 and a loss is added *ack 1*ecause it has reduced the net income4$ Question" =anacek Com!any +Assignment 30-,/ 4 Accounts recei'a(le Hn no 2$ .econciliation Statement Cith res"ect to accounts receiva*le, I can see that the fi)ure is ne)ative of the difference *etween the current and "revious year on the *alance sheet$ I read that this is a ne)ative im"act u"on cash *ecause it means that less customers have "aid off their trade de*t than new customers have added to the trade *alance *ut I dont know if I written this down ri)ht or still understand why the fi)ure is ne)ative$ 5an you hel"A %e!ly Bour e?"lanation is correct$ Bou can "ut it another way$ &he chan)e in accounts receiva*le 1endin) less *e)innin)4 is "ositive$ It means that we have more receiva*les at the end$ &he im"act of this evolution on cash is then ne)ative$ Question" Pernod %icard +Assignment 30-0/ I do not understand some "arts of the restated cash flow statement in this instance$ 7)$ Chy is 1PPD cash "rovided *y o"eratin) activities 1P8$D not 1P8$MA Chy is cash used in investment activities 1PPP !2=3$1 not !2=2$PA Chy is the currency translation effect for 1PPP !83$= and not !83$DA %e!ly &he ori)inal version of the /ernod .icard cash flow statement has some roundin) "ro*lems$

Chapter 15: Financial statement anal$sis

Question" Com!arison of an income statement (y nature and an income statement (y function If we want to com"are two income statements, one *y function and one *y nature, is it true that we can only com"are some *alances, isnitA I mean, in an IS *y function, since we dont have the 70I&>2, will use only the *alances at our dis"osalA %e!ly

&his is a*solutely correct$ If you have to com"are an income statement *y nature and an income statement *y function, you can only take the *alances, which are common to *oth statements$ Question" %atios (ased on sales In the ratios found in cha"ter 1= that are related to sales, do we divide *y sales or *y total "roduction when the information is availa*leA %e!ly It is "refera*le to divide *y sales$ Question" Bank o'erdraft +(alance s$eet analysis/ 5an we have overdraft in the same time as /ositive 5ash in *alance sheetsA Ive seen this in assi)nment 1=$6 15lu* +ed4 does that refer to different *ank accountsA %e!ly Bes it is not only "ossi*le *ut in reality com"ulsory 1*ecause of the non offsettin) accountin) "rinci"le4$ &hat refers to different *ank accounts$ Question" Maintenance e<!ense 'rom the solution of review e?am"le 1=$1 +aintenance seems to *e considered as outsourced$ Sometimes, maintenance is done in!house$ &o avoid misunderstandin)s, would you mind )ivin) more details for such accounts in the e?am$ %e!ly If maintenance is not outsourced, it will not *e re"orted in the income statement$ 1It would "ro*a*ly *e included in the salaries e?"ense4$ In this case, the "ro*lem you mention does not e?ist in "ractice$ If maintenance it outsourced, it should *e dealt with as e?ternal e?"enses$ Question" E(itda +y dou*t is a*out the differences of calculatin) the 70I&>2$ Chen calculate the 70I&>2 I *elieve we should also consider the Hther H"eratin) activities, once its "art of the normal "rocedure of the com"any and therefore should *e included in the 70I&>2$ &he others o"eratin) revenues are not &a?es, de"reciation, amortiKation so why you do not consider it as "art of the 70I&>2A 2ctually, I may *e mistaken, *ut I "refer to consider the others o"eratin) revenues as "art of the 70I&>2, once it is "art of the o"eration of the com"any$ 0ut I know that some "eo"le use the other way$ 2m I wron)A %e!ly 0oth solutions are "ossi*le$ &raditionally, other o"eratin) revenues are not si)nificant and therefore not included in the 70I&>2$ 1&hats why, in the income statement *y nature, they

are disclosed in the o"eratin) income only4$ However, in some com"anies, this item is hi)hly im"ortant$ In this case, I think you can include it in the 70I&>2$ Question" &okia 6 Ericsson +assignment 39-9/ 4 A'erage collection !eriod In your solution to (okia assi)nment, you com"uted avera)e collection "eriod usin) receiva*les at end of year and not the avera)e receiva*les 1*e)innin) O endin) E24, while it is stated in the ratio definitions as the avera)e of the receiva*lesA Is it a fle?i*le definitionA In year 1PPP, it chan)es from P0 days to MD days$ Chat should we use in the e?amA %e!ly 0oth solutions are acce"ta*le$