The document discusses accounting standards and principles related to leases. It provides:
1) An overview of key global accounting standards bodies and the standards they issue, including those relevant for leases.
2) Details on the accounting treatment for leases under IFRS and US GAAP, including the classification of leases as either finance or operating and their impact on financial statements.
3) An explanation of the initial recognition and subsequent measurement of right-of-use assets and lease liabilities for finance leases according to IFRS 16.
The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be referred to the ICAPreferred to the ICAPreferred to the ICAPreferred to the ICAP referred to the ICAP referred to the ICAPreferred to the ICAP referred to the ICAP
The document provides information on eight accounting conventions:
1. Convention of income recognition - Revenue is earned when goods/services are transferred.
2. Convention of matching costs and revenues - Expenses are matched with revenues, regardless of when paid.
3. Convention of historical cost - Transactions are recorded at original cost.
4. Convention of full disclosure - All accounting policies and changes are disclosed.
5. Convention of double aspect - Every transaction has two aspects (debit and credit).
6. Convention of materiality - Only material transactions are recorded.
7. Convention of consistency - Accounting policies are consistently applied.
8. Convention of conservatism - Assets and revenues are not overstated.
| Capital Budgeting | CB | Payback Period | PBP | Accounting Rate of Return |...Ahmad Hassan
After studying this, you should be able to:
• Understand the payback period (PBP) method of project evaluation and selection, including its: (a) calculation; (b) acceptance criterion; (c) advantages and disadvantages; and (d) focus on liquidity rather than profitability.
• Understand the three major discounted cash flow (DCF) methods of project evaluation and selection – internal rate of return (IRR), net present value (NPV), and accounting rate of return (ARR).
• Explain the calculation, acceptance criterion, and advantages (over the PBP method) for each of the three major DCF methods. l Define, construct, and interpret a graph called an “NPV profile.”
• Understand why ranking project proposals on the basis of the IRR, NPV, and ARR methods “may” lead to conflicts in rankings.
• Describe the situations where ranking projects may be necessary and justify when to use either IRR, NPV, or ARR rankings.
• Understand how “sensitivity analysis” allows us to challenge the single-point input estimates used in traditional capital budgeting analysis.
• Explain the role and process of project monitoring, including “progress reviews” and “postcompletion audits.”
This document discusses various methods for appraising investments, including:
- Discounting future cash flows to calculate net present value using an appropriate discount rate.
- Considering the timing of cash flows, as cash received sooner is more valuable than cash received later.
- Using metrics like internal rate of return, payback period, and accounting rate of return, but recognizing their limitations compared to net present value.
- Selecting projects that yield returns above the minimum acceptable rate, with the rate being higher for riskier projects.
The document discusses various topics related to investment decisions and capital budgeting. It defines capital expenditures and discusses factors like cost of acquisition, addition/expansion costs, and R&D costs. It also summarizes various capital budgeting techniques like payback period, accounting rate of return, net present value, internal rate of return, and profitability index. Key evaluation criteria for investment decisions include NPV, IRR, and reconsider assumptions. The document also highlights potential conflicts between NPV and IRR methods.
This document provides an overview of Chapter 10 from the textbook "Financial Accounting: A Decision-Making Approach" by King, Lembke, and Smith. The chapter discusses long-lived nonfinancial assets, also known as operating assets, and intangible assets. It covers topics such as determining asset costs, allocating costs over time using depreciation and depletion methods, accounting for asset disposals and impairments, accounting for intangible assets, and factors to consider when financing asset acquisitions. The chapter aims to explain how accounting for these assets facilitates decision making.
The document discusses various investment criteria for capital budgeting decisions, with a focus on net present value (NPV). It defines NPV as the difference between the present value of a project's expected future cash flows and the initial investment cost. The document also discusses other criteria like payback period, accounting rate of return, and internal rate of return. It provides examples to demonstrate how to calculate NPV and compares it to other criteria. It emphasizes that NPV is preferable because it considers the time value of money and risk, and indicates whether a project will increase firm value.
The document summarizes accounting principles for fixed assets, including:
1) Fixed assets are long-term tangible assets used in production that are not held for resale.
2) Costs associated with acquiring fixed assets include purchase price, transportation, installation, and permits.
3) Depreciation is allocated over the useful life of an asset to match costs with revenues. Straight-line and reducing balance methods are described.
4) Gains or losses may occur on disposal of fixed assets depending on sale price versus book value. Journal entries are provided as examples.
The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be referred to the ICAPreferred to the ICAPreferred to the ICAPreferred to the ICAP referred to the ICAP referred to the ICAPreferred to the ICAP referred to the ICAP
The document provides information on eight accounting conventions:
1. Convention of income recognition - Revenue is earned when goods/services are transferred.
2. Convention of matching costs and revenues - Expenses are matched with revenues, regardless of when paid.
3. Convention of historical cost - Transactions are recorded at original cost.
4. Convention of full disclosure - All accounting policies and changes are disclosed.
5. Convention of double aspect - Every transaction has two aspects (debit and credit).
6. Convention of materiality - Only material transactions are recorded.
7. Convention of consistency - Accounting policies are consistently applied.
8. Convention of conservatism - Assets and revenues are not overstated.
| Capital Budgeting | CB | Payback Period | PBP | Accounting Rate of Return |...Ahmad Hassan
After studying this, you should be able to:
• Understand the payback period (PBP) method of project evaluation and selection, including its: (a) calculation; (b) acceptance criterion; (c) advantages and disadvantages; and (d) focus on liquidity rather than profitability.
• Understand the three major discounted cash flow (DCF) methods of project evaluation and selection – internal rate of return (IRR), net present value (NPV), and accounting rate of return (ARR).
• Explain the calculation, acceptance criterion, and advantages (over the PBP method) for each of the three major DCF methods. l Define, construct, and interpret a graph called an “NPV profile.”
• Understand why ranking project proposals on the basis of the IRR, NPV, and ARR methods “may” lead to conflicts in rankings.
• Describe the situations where ranking projects may be necessary and justify when to use either IRR, NPV, or ARR rankings.
• Understand how “sensitivity analysis” allows us to challenge the single-point input estimates used in traditional capital budgeting analysis.
• Explain the role and process of project monitoring, including “progress reviews” and “postcompletion audits.”
This document discusses various methods for appraising investments, including:
- Discounting future cash flows to calculate net present value using an appropriate discount rate.
- Considering the timing of cash flows, as cash received sooner is more valuable than cash received later.
- Using metrics like internal rate of return, payback period, and accounting rate of return, but recognizing their limitations compared to net present value.
- Selecting projects that yield returns above the minimum acceptable rate, with the rate being higher for riskier projects.
The document discusses various topics related to investment decisions and capital budgeting. It defines capital expenditures and discusses factors like cost of acquisition, addition/expansion costs, and R&D costs. It also summarizes various capital budgeting techniques like payback period, accounting rate of return, net present value, internal rate of return, and profitability index. Key evaluation criteria for investment decisions include NPV, IRR, and reconsider assumptions. The document also highlights potential conflicts between NPV and IRR methods.
This document provides an overview of Chapter 10 from the textbook "Financial Accounting: A Decision-Making Approach" by King, Lembke, and Smith. The chapter discusses long-lived nonfinancial assets, also known as operating assets, and intangible assets. It covers topics such as determining asset costs, allocating costs over time using depreciation and depletion methods, accounting for asset disposals and impairments, accounting for intangible assets, and factors to consider when financing asset acquisitions. The chapter aims to explain how accounting for these assets facilitates decision making.
The document discusses various investment criteria for capital budgeting decisions, with a focus on net present value (NPV). It defines NPV as the difference between the present value of a project's expected future cash flows and the initial investment cost. The document also discusses other criteria like payback period, accounting rate of return, and internal rate of return. It provides examples to demonstrate how to calculate NPV and compares it to other criteria. It emphasizes that NPV is preferable because it considers the time value of money and risk, and indicates whether a project will increase firm value.
The document summarizes accounting principles for fixed assets, including:
1) Fixed assets are long-term tangible assets used in production that are not held for resale.
2) Costs associated with acquiring fixed assets include purchase price, transportation, installation, and permits.
3) Depreciation is allocated over the useful life of an asset to match costs with revenues. Straight-line and reducing balance methods are described.
4) Gains or losses may occur on disposal of fixed assets depending on sale price versus book value. Journal entries are provided as examples.
This document summarizes capital budgeting techniques for financial decision making. It discusses the net present value (NPV) rule, payback period, internal rate of return (IRR), and profitability index. The NPV rule accepts projects where NPV is positive and rejects those where it is negative. The payback period accepts projects with payback below a required period. IRR accepts projects where IRR exceeds the required return. The profitability index contrasts present value of cash inflows to outflows. Examples are provided to illustrate how to calculate and apply each method. Limitations of some techniques like IRR for mutually exclusive projects are also noted.
The document discusses various capital budgeting techniques used to evaluate long-term investment projects. It describes traditional methods like payback period and accounting rate of return, as well as discounted cash flow methods like net present value, internal rate of return, and profitability index. These time-adjusted methods account for the time value of money and required rate of return when analyzing projects. The document also discusses factors that introduce risk and uncertainty into capital budgeting decisions.
A brief introduction on International Accounting Standard (IAS - 17) named as Leasing, within the introduction disclosure requirements are described.
The second part covers the application of IAS - 17 on Financial Statements of Kohinoor Company Ltd.
This document discusses various capital budgeting techniques used to evaluate long-term investment projects. It defines key terms like capital budgeting, cash flows, payback period, discounted payback period, net present value (NPV), internal rate of return (IRR), and profitability index (PI). Formulas for calculating each technique are provided along with examples and decisions criteria. The document also presents a sample assignment comparing two mutually exclusive investment projects based on different evaluation criteria.
Estimating Cash Flows
This document discusses steps for estimating cash flows for DCF valuation, including:
1. Estimating current earnings and considering capital expenditures, depreciation, and working capital needs for future growth.
2. Measuring cash flows to the firm as EBIT(1-tax rate) - (Capex - Depreciation) - Change in working capital.
3. Updating earnings from financial statements and correcting for accounting treatments like operating leases and R&D expenses.
This document discusses lease financing and lease analysis. It covers the key parties in a lease transaction, the primary lease types, how leases are treated for tax purposes, and how leasing affects a firm's balance sheet. It also provides an example comparing the after-tax costs of owning vs leasing equipment for a firm, analyzing it from both the lessee and lessor perspectives. Key factors in lease analysis like residual value uncertainty and cancellation clauses are also discussed.
Capital budgeting is the process of evaluating long-term investments to maximize shareholder wealth. It involves assessing projects that require fixed assets operating for over one year. The key evaluation techniques are payback period, net present value (NPV), and internal rate of return (IRR), with NPV preferred as it considers total cash flows over time. NPV accepts projects when the present value of inflows exceeds outflows, while IRR accepts projects when the rate of return exceeds the cost of capital.
The document discusses various methods for evaluating the economic profitability of projects and investments, including the minimum attractive rate of return (MARR), present worth method, future worth method, annual worth method, internal rate of return method, external rate of return method, and payback period method. It also covers concepts for comparing mutually exclusive alternatives, such as using equivalent worth and rate of return methods, and considerations when useful lives are equal versus unequal among alternatives.
International Best Tax practices in India || An Article by CA. Sudha G. BhushanTAXPERT PROFESSIONALS
The document summarizes new tax provisions introduced in the Indian Budget of 2017 relating to international best practices. Key points include:
1) Thin capitalization rules were introduced to limit interest deductions for loans between related parties to 30% of EBITDA. This aims to prevent profit shifting through excessive interest payments.
2) Secondary adjustment rules were introduced to ensure consistency between transfer pricing adjustments and actual profits. If a primary transfer pricing adjustment is made, the excess cash must be received within a specified time or interest will apply.
3) Clarification was provided on determining a company's tax residence based on its place of effective management. This aims to prevent artificial shifting of control/management to avoid residential status in India
This document provides solutions to practice problems related to capital budgeting techniques and risk analysis. It addresses topics like sunk costs, cash flows, internal rate of return (IRR), modified internal rate of return (MIRR), sensitivity analysis, beta calculation, and risk adjustment. For example, it explains that the MIRR overcomes the unrealistic reinvestment assumption of the IRR method. It also provides steps to estimate a project's beta and discusses using risk-adjusted discount rates for projects with different risk levels.
This document provides solutions to practice problems related to capital budgeting techniques and risk analysis. It addresses topics like sunk costs, cash flows, depreciation, internal rate of return (IRR), modified internal rate of return (MIRR), net present value (NPV), risk measurement using standard deviation and coefficient of variation, beta estimation, sensitivity analysis vs simulation, cost of capital for small businesses, and risk-adjusted discount rates.
1 Time Value of MoneyMilestone One Time Value of Money (please fi.docxmonicafrancis71118
1 Time Value of MoneyMilestone One: Time Value of Money (please fill in YELLOW cells) Explanations:Interest Rate8% FCF (Free Cash Flows) is the net change in cash generated by the operations of a business during a reporting period, minus cash outlays for working capital, capital expenditures, and dividends during the same period. This is a strong indicator of the ability of an entity to remain in business.
Note: For Milestone One, please use the Free Cash Flows from the United Parcel Service 2017 Annual Report for the years 2015, 2016, and 2017 located on Page 2 of the Report.
FCF - YearsFCF - 2015FCF - 2016FCF - 2017Amounts*6,0826,0073,573Pv*(5,631.48)(5,150.03)(2,836.36)Total Pv*(13,617.88)*In millionsInterest Rate (given) - For purposes of this exercise, use 8% interest rate. Pv=FVN/(1+I)^NPV(I,N,0,FV)With 10% decrease in FCFInterest Rate8%FCF - YearsFCF - 2015FCF - 2016FCF - 2017Amounts*5,4745,4063,216Pv*(5,068.33)(4,635.03)(2,552.73)Total Pv*(12,256.09)*In millions
2 Stock and Bond ValuationMilestone Two: Stock Valuation and Bond Issuance (fill in the YELLOW cells) PART I: STOCK VALUATIONDividend from Financial Statements:Read the Explanations to the right of the calculation cells for specific information on the data.Explanations:Year Cash Div/share ($)Dividend YieldStockholder's Equity (in millions)Stock PriceNote:
1. The dividends declared and paid by UPS for 2015, 2016, and 2017 are found on the second page of the 2017 UPS Annual Report.
2. The dividend yield for 2015, 2016, and 2017 are found on the second page of the 2017 UPS Annual Report.
3. Stockholder's/Shareholder's equity for 2015, 2016, and 2017 are found on the second page of the UPS Annual Report. 20152.923.00%2,49197.333333333320163.122.70%429115.555555555620173.322.60%1,030127.69230769231. Stock Valuation - The new dividend yield if the company increased its dividend per share by 1.75Year Cash Div/Share ($) +1.75Dividend YieldStockholder's Equity (in millions)Stock PriceDividend Yield - annual cash dividend per share of common stock divided by the market price of a share of the common stock. (Dividend yield = Annual Dividend/Current Stock Price)
Note: Current Stock Price is not part of the Financial Statements - calculated using the formula for Dividend Yield20154.674.80%2,49197.333333333320164.874.21%429115.555555555620175.073.97%1,030127.69230769232. The dividend yield if the firm doubled it's outstanding sharesYear Cash Div/Share ($) Dividend YieldStockholder's Equity (in millions) -doubledStock PriceStockholder's Equity = Assets - Liabilities. This represents the ownership of a corporations. Owners are called stockholder because they hold stocks or share of the company. The main goal of every corporate manager is to generate shareholder value. .
This document discusses various investment criteria for capital budgeting decisions, with a focus on net present value (NPV). It defines NPV as the difference between the present value of a project's future cash flows and the initial investment cost. The document provides examples of calculating NPV for projects and discusses how NPV accounts for the time value of money and risk. It also discusses other criteria like payback period, accounting rate of return, and internal rate of return. It notes that the internal rate of return is the discount rate that makes the NPV equal to zero. The document compares the advantages and disadvantages of each method and emphasizes that NPV is generally the best criteria to use for capital budgeting decisions.
Here are the journal entries for the transactions:
1. Sold goods to X for cash Rs. 55,000
Dr. Cash Rs. 55,000
Cr. Sales Rs. 55,000
2. Deposited Rs. 50,000 into bank
Dr. Bank Rs. 50,000
Cr. Cash Rs. 50,000
3. Purchased stationery Rs. 400
Dr. Stationery Rs. 400
Cr. Cash Rs. 400
4. Purchased goods from Sen on credit Rs. 2,00,000
Dr. Sen Rs. 2,00,000
Cr. Purchases Rs. 2
The document discusses the new revenue recognition standard under GAAP which provides guidance for recognizing revenue from contracts with customers. The new standard aims to clarify and converge revenue recognition principles globally to reduce inconsistencies in practice. It establishes a principle that revenue should be recognized when control of goods or services transfers to a customer in an amount that reflects the consideration to which the entity expects to be entitled.
This document discusses different types of cash flow analysis that are important for lenders:
1) Traditional or EBITDA cash flow provides a cursory view of profitability but does not consider balance sheet impacts or timing differences.
2) Accrual cash flow remedies the shortcomings of traditional cash flow by integrating balance sheet changes using methods like Uniform Credit Analysis (UCA) cash flow.
3) Contractor's cash flow specifically analyzes future cash inflows and outflows from work-in-progress reports, balance sheets, and income statements to determine net cash flow and overhead coverage for construction companies.
This document contains practice assignments for ACC 291 Week 1. It includes instructions for recording transactions in a general journal for various businesses. Transactions include sales, returns, discounts, and payments. Students are asked to calculate amounts based on given list prices, discounts and sales tax rates. The assignments provide practice recording common accounting transactions and calculating related amounts.
This document contains a list of assignments for ACC 291 including practice and applied assignments for each week covering topics like accounting journals, ledger accounts, financial statements, and ratios. It also includes a final exam guide with practice questions and answers. The summary provides an overview of the accounting concepts and skills covered in the course through weekly homework assignments.
This document discusses various capital budgeting methods used to evaluate investment projects. It describes the net present value (NPV) method in detail. The NPV of a project is calculated by discounting the projected cash flows using the company's cost of capital. Positive NPV projects are accepted as they increase shareholder wealth. Examples are provided to illustrate the NPV calculation for projects with both equal and unequal cash flows. Perpetual cash flows can also be evaluated using the NPV method.
This document summarizes capital budgeting techniques for financial decision making. It discusses the net present value (NPV) rule, payback period, internal rate of return (IRR), and profitability index. The NPV rule accepts projects where NPV is positive and rejects those where it is negative. The payback period accepts projects with payback below a required period. IRR accepts projects where IRR exceeds the required return. The profitability index contrasts present value of cash inflows to outflows. Examples are provided to illustrate how to calculate and apply each method. Limitations of some techniques like IRR for mutually exclusive projects are also noted.
The document discusses various capital budgeting techniques used to evaluate long-term investment projects. It describes traditional methods like payback period and accounting rate of return, as well as discounted cash flow methods like net present value, internal rate of return, and profitability index. These time-adjusted methods account for the time value of money and required rate of return when analyzing projects. The document also discusses factors that introduce risk and uncertainty into capital budgeting decisions.
A brief introduction on International Accounting Standard (IAS - 17) named as Leasing, within the introduction disclosure requirements are described.
The second part covers the application of IAS - 17 on Financial Statements of Kohinoor Company Ltd.
This document discusses various capital budgeting techniques used to evaluate long-term investment projects. It defines key terms like capital budgeting, cash flows, payback period, discounted payback period, net present value (NPV), internal rate of return (IRR), and profitability index (PI). Formulas for calculating each technique are provided along with examples and decisions criteria. The document also presents a sample assignment comparing two mutually exclusive investment projects based on different evaluation criteria.
Estimating Cash Flows
This document discusses steps for estimating cash flows for DCF valuation, including:
1. Estimating current earnings and considering capital expenditures, depreciation, and working capital needs for future growth.
2. Measuring cash flows to the firm as EBIT(1-tax rate) - (Capex - Depreciation) - Change in working capital.
3. Updating earnings from financial statements and correcting for accounting treatments like operating leases and R&D expenses.
This document discusses lease financing and lease analysis. It covers the key parties in a lease transaction, the primary lease types, how leases are treated for tax purposes, and how leasing affects a firm's balance sheet. It also provides an example comparing the after-tax costs of owning vs leasing equipment for a firm, analyzing it from both the lessee and lessor perspectives. Key factors in lease analysis like residual value uncertainty and cancellation clauses are also discussed.
Capital budgeting is the process of evaluating long-term investments to maximize shareholder wealth. It involves assessing projects that require fixed assets operating for over one year. The key evaluation techniques are payback period, net present value (NPV), and internal rate of return (IRR), with NPV preferred as it considers total cash flows over time. NPV accepts projects when the present value of inflows exceeds outflows, while IRR accepts projects when the rate of return exceeds the cost of capital.
The document discusses various methods for evaluating the economic profitability of projects and investments, including the minimum attractive rate of return (MARR), present worth method, future worth method, annual worth method, internal rate of return method, external rate of return method, and payback period method. It also covers concepts for comparing mutually exclusive alternatives, such as using equivalent worth and rate of return methods, and considerations when useful lives are equal versus unequal among alternatives.
International Best Tax practices in India || An Article by CA. Sudha G. BhushanTAXPERT PROFESSIONALS
The document summarizes new tax provisions introduced in the Indian Budget of 2017 relating to international best practices. Key points include:
1) Thin capitalization rules were introduced to limit interest deductions for loans between related parties to 30% of EBITDA. This aims to prevent profit shifting through excessive interest payments.
2) Secondary adjustment rules were introduced to ensure consistency between transfer pricing adjustments and actual profits. If a primary transfer pricing adjustment is made, the excess cash must be received within a specified time or interest will apply.
3) Clarification was provided on determining a company's tax residence based on its place of effective management. This aims to prevent artificial shifting of control/management to avoid residential status in India
This document provides solutions to practice problems related to capital budgeting techniques and risk analysis. It addresses topics like sunk costs, cash flows, internal rate of return (IRR), modified internal rate of return (MIRR), sensitivity analysis, beta calculation, and risk adjustment. For example, it explains that the MIRR overcomes the unrealistic reinvestment assumption of the IRR method. It also provides steps to estimate a project's beta and discusses using risk-adjusted discount rates for projects with different risk levels.
This document provides solutions to practice problems related to capital budgeting techniques and risk analysis. It addresses topics like sunk costs, cash flows, depreciation, internal rate of return (IRR), modified internal rate of return (MIRR), net present value (NPV), risk measurement using standard deviation and coefficient of variation, beta estimation, sensitivity analysis vs simulation, cost of capital for small businesses, and risk-adjusted discount rates.
1 Time Value of MoneyMilestone One Time Value of Money (please fi.docxmonicafrancis71118
1 Time Value of MoneyMilestone One: Time Value of Money (please fill in YELLOW cells) Explanations:Interest Rate8% FCF (Free Cash Flows) is the net change in cash generated by the operations of a business during a reporting period, minus cash outlays for working capital, capital expenditures, and dividends during the same period. This is a strong indicator of the ability of an entity to remain in business.
Note: For Milestone One, please use the Free Cash Flows from the United Parcel Service 2017 Annual Report for the years 2015, 2016, and 2017 located on Page 2 of the Report.
FCF - YearsFCF - 2015FCF - 2016FCF - 2017Amounts*6,0826,0073,573Pv*(5,631.48)(5,150.03)(2,836.36)Total Pv*(13,617.88)*In millionsInterest Rate (given) - For purposes of this exercise, use 8% interest rate. Pv=FVN/(1+I)^NPV(I,N,0,FV)With 10% decrease in FCFInterest Rate8%FCF - YearsFCF - 2015FCF - 2016FCF - 2017Amounts*5,4745,4063,216Pv*(5,068.33)(4,635.03)(2,552.73)Total Pv*(12,256.09)*In millions
2 Stock and Bond ValuationMilestone Two: Stock Valuation and Bond Issuance (fill in the YELLOW cells) PART I: STOCK VALUATIONDividend from Financial Statements:Read the Explanations to the right of the calculation cells for specific information on the data.Explanations:Year Cash Div/share ($)Dividend YieldStockholder's Equity (in millions)Stock PriceNote:
1. The dividends declared and paid by UPS for 2015, 2016, and 2017 are found on the second page of the 2017 UPS Annual Report.
2. The dividend yield for 2015, 2016, and 2017 are found on the second page of the 2017 UPS Annual Report.
3. Stockholder's/Shareholder's equity for 2015, 2016, and 2017 are found on the second page of the UPS Annual Report. 20152.923.00%2,49197.333333333320163.122.70%429115.555555555620173.322.60%1,030127.69230769231. Stock Valuation - The new dividend yield if the company increased its dividend per share by 1.75Year Cash Div/Share ($) +1.75Dividend YieldStockholder's Equity (in millions)Stock PriceDividend Yield - annual cash dividend per share of common stock divided by the market price of a share of the common stock. (Dividend yield = Annual Dividend/Current Stock Price)
Note: Current Stock Price is not part of the Financial Statements - calculated using the formula for Dividend Yield20154.674.80%2,49197.333333333320164.874.21%429115.555555555620175.073.97%1,030127.69230769232. The dividend yield if the firm doubled it's outstanding sharesYear Cash Div/Share ($) Dividend YieldStockholder's Equity (in millions) -doubledStock PriceStockholder's Equity = Assets - Liabilities. This represents the ownership of a corporations. Owners are called stockholder because they hold stocks or share of the company. The main goal of every corporate manager is to generate shareholder value. .
This document discusses various investment criteria for capital budgeting decisions, with a focus on net present value (NPV). It defines NPV as the difference between the present value of a project's future cash flows and the initial investment cost. The document provides examples of calculating NPV for projects and discusses how NPV accounts for the time value of money and risk. It also discusses other criteria like payback period, accounting rate of return, and internal rate of return. It notes that the internal rate of return is the discount rate that makes the NPV equal to zero. The document compares the advantages and disadvantages of each method and emphasizes that NPV is generally the best criteria to use for capital budgeting decisions.
Here are the journal entries for the transactions:
1. Sold goods to X for cash Rs. 55,000
Dr. Cash Rs. 55,000
Cr. Sales Rs. 55,000
2. Deposited Rs. 50,000 into bank
Dr. Bank Rs. 50,000
Cr. Cash Rs. 50,000
3. Purchased stationery Rs. 400
Dr. Stationery Rs. 400
Cr. Cash Rs. 400
4. Purchased goods from Sen on credit Rs. 2,00,000
Dr. Sen Rs. 2,00,000
Cr. Purchases Rs. 2
The document discusses the new revenue recognition standard under GAAP which provides guidance for recognizing revenue from contracts with customers. The new standard aims to clarify and converge revenue recognition principles globally to reduce inconsistencies in practice. It establishes a principle that revenue should be recognized when control of goods or services transfers to a customer in an amount that reflects the consideration to which the entity expects to be entitled.
This document discusses different types of cash flow analysis that are important for lenders:
1) Traditional or EBITDA cash flow provides a cursory view of profitability but does not consider balance sheet impacts or timing differences.
2) Accrual cash flow remedies the shortcomings of traditional cash flow by integrating balance sheet changes using methods like Uniform Credit Analysis (UCA) cash flow.
3) Contractor's cash flow specifically analyzes future cash inflows and outflows from work-in-progress reports, balance sheets, and income statements to determine net cash flow and overhead coverage for construction companies.
This document contains practice assignments for ACC 291 Week 1. It includes instructions for recording transactions in a general journal for various businesses. Transactions include sales, returns, discounts, and payments. Students are asked to calculate amounts based on given list prices, discounts and sales tax rates. The assignments provide practice recording common accounting transactions and calculating related amounts.
This document contains a list of assignments for ACC 291 including practice and applied assignments for each week covering topics like accounting journals, ledger accounts, financial statements, and ratios. It also includes a final exam guide with practice questions and answers. The summary provides an overview of the accounting concepts and skills covered in the course through weekly homework assignments.
This document discusses various capital budgeting methods used to evaluate investment projects. It describes the net present value (NPV) method in detail. The NPV of a project is calculated by discounting the projected cash flows using the company's cost of capital. Positive NPV projects are accepted as they increase shareholder wealth. Examples are provided to illustrate the NPV calculation for projects with both equal and unequal cash flows. Perpetual cash flows can also be evaluated using the NPV method.
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Enhancing Adoption of AI in Agri-food: IntroductionCor Verdouw
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10. « Req (2) | Accounting Principles and Standards For Financial Analysts
The objective of accounting standards is to bring uniformity and comparability to the financial
statements, which then allows them to be relied upon by investors, lenders, creditors and others.
Two key accounting standards setting bodies in the world
International Accounting Standards Board (IASB)
International Financial Reporting Standards
(IFRS)
Financial Accounting Standards Board (FASB)
Generally Accepted Accounting Principles (US
GAAP)
Accounting standards are the rules and guidelines issued by the accounting institutions that specify how
transactions and other events are to be recognized, measured, presented and disclosed in financial
statements.
Some of the key standards that are relevant to financial analysts include :
Leases Income Taxes Share-based Payments Business Combinations
Financing Fees & Transaction Costs
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11. « Req (2) | Accounting Standards For Financial Analysts
Accounting for Leases
Asset
Lessor Lessee
Finance lease Operating lease
Right to Control Right to Control
Right to obtain substantially all
(≥ 90%) of the economic
benefits.
Right to direct the use of the
asset.
Right to Control
IFRS 16
IAS 17
2019
$20,000 | 5 years
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16. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting for Leases
A lease is a contract that conveys the right to control the use of an identified asset for a period of
time in exchange for consideration.
Accounting Treatment of Leases
IFRS
All leases are classified as finance leases.
There are exemptions for short term
leases (< 1 year) and low value leases
(< $5K approximate asset value or less).
US GAAP
Leases are classified based on
whether the arrangement is
effectively a purchase of the
asset:
Finance lease (control of the
underlying asset is transferred
to the lessee)
Operating lease (control of
the underlying asset is not
transferred to the lessee)
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18. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting for Leases
Initial Recognition of Balance Sheet Amounts
A right-of-use asset and lease liability must be recognized on the balance sheet for all leases
at lease commencement.
Lease Liability
Present value of the remaining
lease payments, discounted at
either:
The rate implicit in the lease
The lessee’s incremental
borrowing rate (IBR)
Right-of-Use Asset
The amount of the lease liability at
lease commencement
+ Lease payments made before
the commencement date, less any
lease incentives received
- Initial direct costs incurred
*IBR = The rate of interest that a lessee would have to
pay to borrow over a similar term, and with a similar
security, the funds necessary to obtain an asset of a
similar value to the right-of-use asset in a similar
economic environment.
2019
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19. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting for Leases
The income statement recognition and classification is based on how the lease is classified.
Finance Lease Operating Lease
Interest Expense
Based on the outstanding lease
liability balance
Amortization Expense
Straight-line over the
shorter of the lease
term or the asset useful
life
Lease Expense
Interest Expense Amortization Expense
Difference between the
average annual lease
payment and interest
expense
Based on the
outstanding lease
liability balance
Subsequent Recognition and Measurement
Over the lease term, the right-of-use asset must be amortized and interest expense on the
lease liability must be recorded.
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20. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting for Leases
Asset
Lessor Lessee
Finance lease Operating lease
Right to Control Right to Control
Right to obtain substantially all
(≥ 90%) of the economic
benefits.
Right to direct the use of the
asset.
Right to Control
IFRS 16
IAS 17
2019
$20,000 | 5 years
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25. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting Treatment of Income Taxes
Accountant Tax Advisor
IFRS Tax laws
Income Before Tax “EBT”
- Income tax
Net income
Revenue
Expenses
$22 k
$2 k
$20 k
Fixed assets
Cash $6,000
Depreciation rate for accounting
purposes is 33.3%
$7,000 35%
Tax rate
$13,000
Fixed assets
Accounting dep. $2,000
Tax dep. $1,500
Difference $500
Expenses - $500
Income Before Tax “EBT” $20,500
$7,175
Income tax
Net income $13,325
$7,175
Income Tax
Income Tax
$7,000
$2,000
Cash $6,000
Tax depreciation rate is 25%
$1,500
3 Years 4 Years
2021 | Income statement
IAS 12
Income tax
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26. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting Treatment of Income Taxes
$7,175
Income Tax
Income Tax
$7,000
Accountant
IFRS
Tax Advisor
Tax laws
Difference
Temporary permanent
Tax Depreciation & Accounting Depreciation
Accrued Expenses
Unearned Revenue
Tax Losses
Installment Sales
Capitalized Development Costs Amortized Over Time
Temporary Differences = carrying amount - Tax base
- $175
IAS 12
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27. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting Treatment of Income Taxes
Sales/Revenue
Cost of Goods Sold (COGS)
Gross Income (profit)
Selling/General/Administrative
Expenses “SG&A”
Research & Development “R&D”
Other expenses
Operating Income “EBIT”
Interest Expense
Income Before Tax “EBT”
Tax
Net income “net profit/Loss”
Accounting Income
Income statement
Accounting income Taxable income
Income Before Tax “EBT”
Expenses not deductible
under tax laws but
recognized for accounting
purposes .
+
Income included under tax
laws but not recognized for
accounting purposes
+
Expenses deductible
under tax laws but not
recognized for accounting
purposes.
-
Income not included under
tax laws but recognized for
accounting purposes.
-
= Taxable Income
IAS 12
Accountant
Tax Advisor
Tax laws
IFRS
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28. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting Treatment of Income Taxes
1 2 3 4
Cash $6,000
Depreciation rate for accounting purposes is 33.3%
Journal entries
Dr. depreciation expenses
Cr. Accumulated depreciation
$2,000
$2,000
initial Cost $6,000
Dr. Fixed Assets ( PP&E)
Cr.Cash
$6,000
$6,000
depreciation
0
Income statement
Balance sheet
0
IAS 12
$2,000 $2,000 $2,000 0
- $2,000
- $2,000
- $2,000
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31. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting Treatment of Income Taxes
1 2 3 4
IAS 12
Tax dep. to date
Cash $6,000
Tax Base
Fixed Assets (initial cost )
$4,500 $3,000 $1,500 0
Temporary Differences = carrying amount - Tax base
Tax Dep. $1,500 $1,500 $1,500 $1,500
$6,000 $6,000 $6,000 $6,000
- $1,500 - $3,000 - $4,500 - $6,000
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32. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting Treatment of Income Taxes
1 2 3 4
IAS 12
Tax Base
Carrying amount
“Net book value “
Temporary Difference - $500 - $1,000 - $1,500 0
<
$4,000 $2,000 0 0
$4,500 $3,000 $1,500 0
< <
TD Beginning Balance 0
TD Ending Balance - $500 - $1,000 - $1,500
Annual Temporary Difference - $500
- $500
- $500
- $1,000
- $500
- $1,500
0
$1,500
- - -
0
Total
Carrying amount of Asset > Tax Base of Asset = Deferred tax liability
Carrying amount of Asset < Tax Base of Asset = Deferred tax Asset
Cash $6,000
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33. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting Treatment of Income Taxes
1 2 3 4
Taxable Income
IAS 12
$20,500 $20,500 $20,500 $18,500
Current Tax expenses (35%) $7,175 $7,175 $7,175 $6,475
Annual Temporary Difference - $500 - $500 - $500 $1,500
-$175 -$175 -$175 $525
Deferred Tax Expense (35%)
Total Income Tax Expense $7,000 $7,000 $7,000 $7,000
+
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34. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting for Share-based Payments
Investors
ABC Inc.
Current share price $100
Increase in share price
CEO
wealth maximization
Buy ABC Inc shares
Maximize short-term profits
Bonus
CFO
R&D Expenses
R&D Expenses
$300,000
$100,000
Net Income
Decrease in share price
IFRS 2
Share-based Payments (SBP)
Jan -2022
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35. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting for Share-based Payments
Senior managers
Share-based Payments (SBP)
Equity-settled Payments Cash-settled Payments
Cash Share price
Shares
Classification
IFRS 2
Jan -2022
Agreement
BOD
Grant date | Rights Conferred Approved
Vesting Conditions
Service Conditions Performance Conditions
2 years of service
Market Conditions Non-market Conditions
Vesting period
3 years
Net Income
Employee Benefits
Shares
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36. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting for Share-based Payments IFRS 2
Calculating Employee benefit expense
At Jan -2022 Company XYZ grants 100 share options to each of its 500 employees,
which can be exercised at anytime over 3 years subject to a 2-year service condition.
• The fair value of each option is determined to be $20 at the grant date.
• An estimated 75% of the 500 employees will complete the service condition required
for receiving the options.
Grant date : Jan - 2022
Given :
Classification : Equity-settled Payments
Vesting period : 3 years
Service Conditions : 2 years service
fair value : $20
75% will complete
Grant date
Y 0 Y 1 Y 2 Y 3
Vesting period
Jan -2022 Jan -2023 Jan -2024 Jan -2025
N. Shares options : 100 per each
employee
Y 1 | Employee benefit expense
100 * 500 * 75% * $20 * ½ = $375,000
Y 2 | Employee benefit expense
( 100 * 500 * 75% * $20 * 2/2 ) - $375,000 = $375,000
Total Employee benefit expense = $ 375,000 + $ 375,000 = $ 750,000
Example n.1
500 emp
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37. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting for Share-based Payments IFRS 2
Example n.2
Company XYZ grants 100 share options to each of its 500 employees, exercisable over 3 years and
subject to:
i) A 3-year service condition;
ii) Company XYZ’s stock price must be at least 25% higher after the 3-year period compared to at the
grant date.
• 90% of employees are estimated to meet the service condition.
• The fair value of each option is determined to be $20 at the grant date
Grant date
Y 0 Y 1 Y 2 Y 3
Vesting period
Jan -2022 Jan -2023 Jan -2024 Jan -2025
Y 1 | Employee benefit expense = 100 x 500 x 90% x $20 x 1/3 = $ 300,000
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38. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting for Share based Payments IFRS 2
At the end of Year 2,
The price of Company XYZ’s stock has fallen and is 5% lower than at the grant date.
• Fewer employees left the company than expected and the revised estimate of employees that will meet
the service condition is 95%.
• The fair value of the options has fallen to $15.
Y 2 | Employee benefit expense = (100 x 500 x 95% x $20 x 2/3 ) - $300,000= $ 333,333
At the end of Year 3,
The price of Company XYZ’s stock has risen and is 25% higher than at the grant date.
The fair value of the options has risen to $30. Also, 480 employees have met the service condition.
Y 3 | Employee benefit expense = 100 x 480 x $20 x 3/3 – ($300,000 + $333,333) = $326,667
Total Employee benefit expense = $ 300,000 + $ 333,333 + $326,667 = $ 960,000
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39. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting For Business Combinations
A B
Control
> 90 % of a single asset
“single production line”
Asset acquisition
Business combinations
Inputs Substantive Process Output
Fair value concentration test
1
2
3
> 90 % of a group of assets
Test for Outputs
IFRS 3
economic resources systems The result of inputs and processes
Business combination
MAR 2022
| Acquirer | Acquiree
| Acquisition Date
workforce
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40. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting For Business Combinations
A B
| Acquirer | Acquiree
$75,000,000 | Cash paid
$25,000,000 | Shares to B shareholders
$2,000,000 | Transaction cost
Fair Value of Company B Tangible Assets $85,000,000
Fair Value of Company B Assumed Liabilities $25,000,000
Fair Value of Company B Intangible Assets $15,000,000
| Acquisition Consideration
Cash Consideration $75,000,000
Value of Shares to B shareholders $25,000,000
Total Consideration Transferred $100,000,000
| Net Assets Acquired
Tangible Assets $85,000,000
Intangible Assets $15,000,000
Assumed Liabilities - $25,000,000
$75,000,000
Fair Value of Acquired Net Assets
| Goodwill $100,000,000 - $75,000,000 = $25,000,000
pay
> Fair value of B
<
Goodwill
Fair value of B Bargain purchase
IFRS 3
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41. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting For Business Combinations IFRS 3
The acquisition method is used to account for business combinations and involves four steps:
Identify the Acquirer
Determine the Acquisition Date
Recognize and Measure the Assets Acquired, and the Liabilities Assumed
The acquisition date is the date on which the acquirer obtains control of the acquiree.
All forms of consideration are measured at fair value.
The assets acquired, liabilities assumed, and any non-controlling
interests are identified and measured at fair value
The acquirer begins consolidating the acquiree, if required.
On the acquisition date, the acquirer shall recognize, separately from
goodwill, the identifiable assets acquired, the liabilities assumed, and
any noncontrolling interest in the acquiree.
In a business combination, an acquirer must be identified for accounting purposes.
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42. « Req (2) | Accounting Principles and Standards For Financial Analysts
Identifiable assets acquired and liabilities assumed must:
Accounting For Business Combinations IFRS 3
Recognize and Measure Goodwill
Recognition Principles
Meet the definition of assets and liabilities.
Be part of what the acquirer and acquiree exchanged in the business combination.
Measurement Principles
An acquirer is required to measure the identifiable assets acquired, the liabilities assumed,
and any noncontrolling interest in the acquiree at their acquisition-date fair values.
Goodwill represents the future economic benefits arising from other assets acquired in a
business combination that are not individually identified and separately recognized.
Goodwill = Consideration Transferred - Fair Value of Net Assets Acquired
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43. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting For Financing Fees and Transaction Costs
A
Finance
Debt
Equity
Bank loan
Bonds
Common stocks
Preferred stocks
Bond | $ 1,000,000
Term | 5 Years
Annual Interest Rate | 5%
Debt Issuance Fee | 1%
Issuance Fee
Legal and Accounting Fees
Underwriting Fees
Registration Fees
Or
Financing Fees
Debt Issuance Fee = $1,000,000 * 1% = $10,000
Y1 Y2 Y3 Y4 Y5
$ 1,000,000
0 0 0 0
Principal
Interest
Annual Interest Rate = $1,000,000 * 5% = $50,000
$50,000 $50,000 $50,000 $50,000 $50,000
Investors
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44. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting For Financing Fees and Transaction Costs
A
Y1 Y2 Y3 Y4 Y5
$ 1,000,000
0 0 0 0
Principal
Interest $50,000 $50,000 $50,000 $50,000 $50,000
Fee Amortization = Total issuance fee * ( outstanding principal amount as of current year / total years principal amount )
Fee Amortization Y1 = $10,000 * ( $1,000,000 / $5,000,000) = $2,000
Fee Amortization Y2 = $10,000 * ( $1,000,000 / $5,000,000) = $2,000
Fee Amortization $2,000 $2,000 $2,000 $2,000 $2,000
Total Interest $52,000 $52,000 $52,000 $52,000 $52,000
+ + + + +
Issuance Fee $8,000 $6,000 $4,000 $2,000 0
Investor
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45. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting For Financing Fees and Transaction Costs
A
Finance
Debt
Equity
Bank loan
Bonds
Common stocks
Preferred stocks
Gross proceeds | $ 5,000,000
Share Issuance Fee | 4%
Issuance Fee
Legal and Accounting Fees
Underwriting Fees
Registration Fees
Or
Financing Fees
= $5,000,000 * 4% = $200,000
Share capital
Investor
| $25,000,000 Cash Balance | $250,000
Net Proceeds = $5,000,000 - $200,000
= $4,800,000
Share capital | $29,800,000
+
+
Cash Balance | $5,050,000
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46. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting For Financing Fees and Transaction Costs
A
Cash Balance = $5,050.000 - $4,800,000 - $100,000
B
Acquisition
M&A Advisory Fees | $100,000
Acquisition Financing $4,800,000
= $150,000
Transaction cost
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47. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting For Financing Fees and Transaction Costs
Financing fees and transaction costs are incurred when companies undertake certain
transactions such as securing external financing or business combinations.
Financing Fees
Debt Issuance Costs Share Issue Costs
The accounting treatment differs depending on the nature of the cost.
Transaction Costs
Debt issuance costs are the costs incurred by a company when they raise new debt.
These costs are recognized initially on the balance sheet as a contra account under
liabilities, and then amortized over the term of the related debt liability.
Share issue costs are the costs incurred by a company when they issue shares to the
public. These costs directly reduce the proceeds a company receives from an equity
offering.
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48. « Req (2) | Accounting Principles and Standards For Financial Analysts
Accounting For Financing Fees and Transaction Costs
Transaction costs are incurred by both acquirers and targets during the course of an M&A transaction.
Transaction costs represent services that have been rendered to and consumed by the
acquirer and are expensed as they are incurred.
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