The balance sheet and the statement
of changes in stockholders‘ equity
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Content
1.1 Purposes of the balance sheet
1.2 Recognition of the elements in a balance sheet
1.3 Measurement of the elements in a balance sheet
1.4 Limitation of the balance sheet
1.5 Classification of the elements in a balance sheet
2. Preparation of a statement of changes in stockholders' equity
3.1 Other disclosure issues
3.2 The SEC integrated disclosures
3.3 Reporting techniques used in an annual report
4. IFRS requirement
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2
Purposes of
Interrelationship
of
financial
statements
EXHIBIT 4-1
Interrelationship of Financial Statements
Income Statement
• Revenues
• Expenses
Beginning Balance Sheet
• Assets
• Liabilities
• Stockholders’ Equity
Ending Balance Sheet
• Assets
• Liabilities
• Stockholders’ Equity
Transactions
and Events
Statement of Cash Flows
• Operating Activities
• Investing Activities
• Financing Activities
balance sheet, income statement, and statement of cash flows in the remaining sections o
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3
his chapter and in later chapters of this book.
1.1 Purposes of the balance sheet
■
A balance sheet, or statement of financial position, shows the
financial position of a company at a particular date by
disclosing the economic resources (assets), the economic
obligations (liabilities), stockholders' equity, and related
information.
■
It reports a company's resource structure (major classes and
amounts of assets) and its financial structure (major classes
and amounts of liabilities and equity).
■
It is a detailed explanation of the basic accounting equation:
Assets = Liabilities + Stockholders' Equity.
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The balance sheet information helps external users
(a) assess the company's liquidity, financial flexibility, and
operating capability
■
■
■
Liquidity refers to how quickly a company can convert an asset
into cash to pay its bills. Information about liquidity helps users
evaluate the timing of cash flows.
Financial flexibility is the ability of the company to use
financial resources to adapt to change. Information about
financial flexibility is necessary for evaluating the uncertainty of
future cash flows.
Operating capability is the company's ability to maintain a
given physical level of operations defined by either the volume
of inventory produced or the productive capacity of the plant,
property, and equipment. This is important in evaluating the
amount of future cash flows.
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(b) evaluate its income-producing performance for the
period.
■
■
■
■
A company's capital, its economic resources less its
economic obligations, is the same as its net assets or
owners' equity.
By comparing beginning capital with ending capital the
financial statement user can tell whether capital for the
accounting period was decreased, maintained, or increased.
To the extent capital is maintained, there is return of
investment. This is capital maintenance资本保全.
To the extent capital is increased, there is the potential for
return on investment through dividends and/or market
price appreciation on the stock.
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■
Capital can be defined as either
(a) financial capital财务资本, the monetary value of the
net assets from investments by stockholders plus the
value of the increase in net assets resulting from earnings
retained by the corporation, or
(b) physical capital实物资本, a quantitative measure of the
physical productive capacity of the corporation to
provide goods or services.
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Disclosure
of
the
elements
of
the
balance
sheet
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1.2 Recognition of the elements
■
■
For an item of information to be recognized as an
element (i.e. formally recorded and reported in the body
of the financial statements), an item must (a) meet the
definition of an element, (b) be measurable, (c) be
relevant, and (d) be reliable.
Assets are economic resources
(a) acquired as a result of past transactions or events,
(b) which will provide probable future economic benefit
(service potential),
(c) over which the company has control.
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■
Liabilities are
(a) Present economic obligations,
(b) arising from past transactions or events,
(c) which will be settled by probable future transfer of
assets or performance of services.
■
Stockholders' equity is the residual interest剩余权益
of the stockholders in the assets of the corporation after
all liabilities have been settled (that is, company assets
minus liabilities).
Therefore, stockholders' equity is determined by defining
assets and liabilities.
■
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1.3 Measurement of the elements
■
■
Assets and liabilities must have a monetary value for
balance sheet presentation.
The FASB has identified two alternatives for measuring
(valuing) the elements of a company’s balance sheet: (1)
historical cost and (2) fair value.
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■
Historical cost is the exchange price in the transaction in
which an asset was acquired and is a measure of entry value
进⼊入价值.
■
■
■
The cost of an asset is measured by the cash paid for the
asset or, in the case of a noncash asset exchange, by the
estimated cash equivalent of the noncash asset
exchanged.
After acquisition, this cost is known as the historical cost
of the asset.
Historical proceeds历史进项(得款) from a liability
would be the term used after the liability has been
incurred.
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■
Historical cost is the method primarily used on a
company’s balance sheet to report the value of its
“non-financial” assets and liabilities⾮非⾦金融性资产和
负债, such as property, plant and equipments固定资
产, bonds payable.
■
In general, after acquisition a company reports the
historical cost (exchange price) of an asset on its
balance sheet until another exchange has taken place.
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■
Fair value is the price that a company would receive to sell an
asset (or pay to transfer a liability) in an orderly transaction有序
交易 between market participants市场参与者 on the date of
measurement计量⽇日.
■
■
Fair value is based on market prices and is a measure of exit
value退出(脱⼿手)价值. In the case where a company
exchanges a noncash asset to acquire another asset, the fair
value must be measured to determine the cost at which to
record the acquisition.
Fair value may be used on a company’s balance sheet to report
the value of its “financial” assets (and liabilities)⾦金融资产(和
负债), such as cash, accounts receivable, and notes receivable.
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■
■
■
On a subsequent measurement date后续计量⽇日, the fair
value may have changed so it is different from the
historical cost (or previous fair value) and the company
may be required (or may elect) to report this fair value.
A fair value measurement is the “selling price” for a
particular asset (or the “payment price” for a liability) held
by a company.
In the case of an asset, the measurement assumes that the
asset is sold in a “hypothetical transaction” on the
measurement date. The transaction is hypothetical because
the company is not actually planning to sell the asset.
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■
To increase consistency and comparability in fair value
measurements, the FASB established a hierarchy which
prioritizes the inputs输⼊入值 a company is to use in its
valuation method.
(a) Level 1 inputs are quoted prices in active markets for
identical assets (or liabilities) that the company can
access on the measurement date.
(b) Level 2 inputs are exit values (other than the quoted
prices included in Level 1) that are observable for the
asset (or liability). Level 2 inputs are to be used when
Level 1 inputs are not readily available. Level 2 inputs
include, for example, quoted market prices for similar
assets (or liabilities) in active markets.
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(c) Level 3 inputs are unobservable inputs不可观察输⼊入值
for the asset (or liability). These inputs should be used to
measure fair value only when Level 1 or Level 2 inputs are
not available, or the costs of obtaining them exceed the
benefits. Unobservable inputs may be used by a company
to report the net realizable value可变现净值 or present
value现值 as the fair value of its financial assets (or
liabilities).
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utes of the asset (or liability).
EXHIBIT 4-2
Fair
value
measurement
Fair Value Measurement
Need Fair Value
observable
▼
Select Highest Appropriate Level of Input for Valuation
• Level 1: Quoted Price for Identical Asset (or Liability) in Active Market
• Level 2: Adjusted Quoted Price for Similar Asset (or Liability)
• Level 3: Unobservable Inputs (e.g., Present Value of Expected Cash Flows)
▼
Use Valuation Method Consistent with
• Market Approach (using level 1, 2 or 3 inputs)
• Income Approach (using level 3 input)
• Cost Approach (using replacement cost)
▼
Measure Best Fair Value
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1.4 Limitation of the balance sheet
■
Issues relating to recognition
■
A company’s balance sheet does not include all of its
economic resources and economic obligations, such
as human resources or intellectual capital智⼒力资本 ,
possible legal obligations. (off-balance-sheet items资
产负债表外项⽬目)
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■
Issues relating to measurement
■
The use of historical costs for valuing assets and
liabilities does not help users assess the likely
amounts of future cash flows relating to these items.
Do
you
believe
in
Magic?
2007
stockholders’
equity
Market
value
$67
billions
Book
value
$30.7
billions
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■
Many of the amounts that a company reports are based on
estimates, which are subject to change. Estimates are
involved in determining the amounts for items such as
uncollectible accounts坏账 and depreciation, as well as
warranty and pension liabilities保修和养⽼老⾦金负债.
p48
■
■
When a company reports a fair value for an asset (or
liability), it may measure the fair value differently than
another company with a similar asset (or liability).
In periods of inflation some amounts listed on a company’s
balance sheet do not show the “purchasing power” of its
assets and liabilities.
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1.5 Classification of the elements
Assets
•Current assets
•Long-term investments
•Property, plant, and equipment
•Intangible assets
•Other assets
Liabilities
•Current liabilities
•Long-term liabilities
•Other liabilities
Stockholders' Equity
•Contributed capital
- Capital stock
- Additional paid-in capital
•Retained earnings
•Accumulated other comprehensive
income
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■
Current assets流动资产 are cash and other assets that a company
expects to convert into cash, sell, or consume within one year or the
normal operating cycle营业周期, whichever is longer.
■
■
■
An operating cycle, usually a year or less, is the average time taken by
a company to spend cash for inventory, process and sell the
inventory, and collect the cash from the sale
Current assets, usually presented in the order of their liquidity,
include cash (and cash equivalents), temporary investments in
marketable securities有价证券, receivables, inventories, and prepaid
items.
Temporary investments短期投资 in marketable securities are listed
at their fair value; receivables are listed at the net realizable value;
inventories are listed at the lower of their cost or market value成本
与市价孰低; and prepaid items are shown at historical cost, less any
amount used up.
23
Operating
cycle:
current
assets,
current
liabilities
EXHIBIT 4-3
and
working
capital
Operating Cycle: Current Assets, Current Liabilities, and Cash Flows
Make Collections of
Accounts Receivable
Acquire Inventory
1. Pay cash
2. Incur accounts
payable
1. Collect cash
2. Incur bad debts
Operating
Cash Flows
Incur General and
Administrative Expenses
Incur Selling Expenses
1. Pay cash
2. Incur current payables
3. Reduce prepaid items
1. Pay cash
2. Incur current payables
3. Reduce prepaid items
Make Sales (Revenues)
1. Collect cash
2. Increase accounts
receivable
3. Reduce deferred revenues
Incur Cost of Goods Sold
operating cycle flow
1. Reduce inventory
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operating
cash flows
24
JOHNSON & JOHNSON
At December 30, 2007 and December 31, 2006
(in millions)
Current assets (in part):
Inventories (Notes 1 and 2)
2007
2006
$5,110
$4,889
2007
$ 905
1,384
2,821
$5,110
2006
$ 980
1,253
2,656
$4,889
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in part):
2 Inventories
At the end of 2007 and 2006, inventories were comprised of:
(Dollars in Millions)
Raw materials and supplies
Goods in process
Finished goods
1.
Questions:
What
is
the
percentage
of
each
type
of
inventory
for
2007
and
2006?
What
is theypercentage
of each (type
inventory for
andt2006?
2.
1.Why
might
ou
be
concerned
or
oofptimistic)
in
2007
regard
o
the
changes
in
2.the
Why
might you be concerned (or optimistic) in regard to the changes in the
percentages?
percentages?
25
■
Current liabilities流动负债 are obligations that a company
expects to liquidate within one year or the operating cycle (if
longer) through the use of current assets or the creation of
other current liabilities.
■ An obligation that is due within the next accounting period
but which will be refinanced by issuing new long-term
liabilities is not classified as a current liabilities.
■ Accounts and short-term notes payable, wages payable,
interest payable, the current portion of long-term debt长期
■
负债流动部分／1年内到期的长期负债, and deferred
revenues (collections for goods and services not yet
provided) are examples of current liabilities.
Each is listed on the balance sheet at the amount owed
(historical proceeds).
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■
The difference between a company‘s current assets and its
current liabilities is called working capital营运资本. A
company's working capital is a measure of the short-run
liquidity of the company. Current ratio流动⽐比率 and
quick ratio速动⽐比率 are commonly used.
(p52, example 2-1)
Working capital
Current ratio
Quick ratio
■
253600 – 145800 = $107800
253600/145800 = 1.74
(14300+19700+65000)/145800 = 0.68
C2-5
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■
Long-term investments长期投资 are investments that the
company plans to hold for more than one year or its operating
cycle, if longer.
■
Examples are investments in equity securities权益性证券
(such as capital stock of another firm) and debt securities债
务性证券 (such as bonds); land, buildings, and equipment
held for future use (such as expansion); special cash funds
held for future use; and non-current financial instruments
such as share (stock) options股票期权; cash surrender value
of life insurance policies⼈人寿保险单退保(解约)⾦金额, etc..
■
They are valued at its historical cost or fair value, depending
on the types of investment.
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■
The property, plant, and equipment固定资产 section of a
company's balance sheet includes all tangible assets有形资产
(fixed assets) used in its operations, such as land, buildings,
machinery, furniture, and natural resources.
■
Except for land, these assets are either depreciated折旧,
amortized摊销 (for leased assets), or depleted折耗 (for
natural resource assets).
■
For depreciable assets, a contra-asset account资产备抵账户
(such as accumulated depreciation) is deducted from the
original asset cost in order to display both the historical cost
and the book value (present undepreciated cost).
(p52, example 2-1) (p55, real report 2-2)
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A
CAMPBELL SOUP COMPANY
(in millions)
Assets (in part):
Plant assets, net of depreciation (Note 13)
July 29, 2007
July 30, 2006
$2,042
$1,954
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in part):
13 Plant Assets (in part):
Land
Buildings
Machinery and equipment
Projects in progress
Accumulated depreciation
2007
$ 66
1,152
3,400
191
4,809
(2,767)
$2,042
2006
$ 56
1,052
3,144
245
4,497
(2,543)
$1,954
Questions:
1.
What
percentage
of
the
total
cost
is
“projects
in
progress”
on
July
30,
2006,
and
Questions:
July
29,
2007?
1. What percentage of the total cost is “projects in progress” on July 30, 2006, and
2.
What
might
July 29,
2007?this
indicate?
2. What might this indicate?
30
Intangible Assets
■ Intangible
assets⽆无形资产
noncurrent
Intangible
assets lack
physical substance are
and are
not financialeconomic
instruments (see definition on
page 238).such
They include
patents,
copyrights, trademarks,
franchises, goodwill,
trademarks,
resources,
as patents,
copyrights,
franchises
trade names, and customer lists. A company writes off (amortizes) limited-life intangi特许使⽤用权,
computer
software assesses
costs, goodwill,
and
ble assets
over their useful
lives. It periodically
indefinite-life
intangibles (such
as goodwill) for impairment. Intangibles can represent significant economic resources,
organization
that
are used
in the
operations but
yet financial
analysts costs开办费
often ignore them,
because
valuation
is difficult.
PepsiCo, Inc. reported intangible assets in its balance sheet as shown in Illustrathat have no physical existence实物形态.
tion 5-12.
■ These assets are recorded at historical cost.
PepsiCo, Inc.
(in millions)
Intangible assets
Other Assets
Goodwill
Trademarks
Other identifiable intangibles
$3,374
1,320
147
Total intangibles
$4,841
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The items included in the section “Other assets” vary widely in practice. Some include items
■
■
Intangible assets with finite useful lives (e.g., patents)
are amortized over their useful lives and reported on
the balance sheet at book value.
Intangible assets with indefinite lives (e.g.,
trademarks) and goodwill are not amortized but are
reviewed for impairment annually. They are reported
at their historical cost or, if impaired, at their lower
fair value.
(p52, example 2-1)
32
■
Most business assets will fit into one of the categories already
described. Sometimes a balance sheet will have a section labeled
"Other Assets" or "Deferred Charges" 递延费⽤用for assets that
cannot be classified otherwise. Because of their vagueness such
classifications, as well as "Other Liabilities," should rarely be used.
■ Examples of other assets are long-term prepayments, deferred tax
assets递延所得税资产, prepaid pension costs, bond issue costs,
assets of a component of the company that is being discontinued
公司终⽌止经营部分的资产, advances to officers对⾼高级职员的
预付款(即应收款), idle fixed assets, cash from customers’
■
security deposits on returnable containers可回收包装物押⾦金,
assets leased to others, and assets temporarily restricted by foreign
countries.
Classification within this section is made judiciously.
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■
Long-term liabilities长期负债 (noncurrent liabilities) are
obligations that a company does not expect to liquidate using
current assets or creating current liabilities within one year or the
operating cycle, if longer.
■ Examples are long-term notes payable, obligations under
capital lease contracts, mortgages payable应付抵押贷款,
accrued pension costs应计养⽼老⾦金费⽤用, and bonds payable.
■
Bonds债券 (sometimes called debentures) are often sold for
more than face value (at a premium溢价) or less than face
value (at a discount折价). On a balance sheet, the bond
obligation is reported at its book value. The book value is the
face value of the obligation plus any unamortized premium or
less any unamortized discount.
(p57, real report 2-3)
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34
A
KIMBERLY-CLARK CORPORATION
Liabilities and Stockholders’ Equity (in part):
December 31
2007
2006
(in millions)
Long-term Debt
$4,393.9
$2,276.0
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in part):
Note 4. Debt (in part)
Long-term debt is comprised of the following:
Weighted-Average
Interest Rate
Notes and debentures
Dealer remarketable securities
Industrial development revenue
bonds
Bank loans and other financings
in various currencies
Total long-term debt
Less current portion
Long-term portion
December 31
Maturities
5.80%
4.42%
3.61%
2009–2038
2008–2016
2009–2037
8.05%
2008–2031
2007
2006
(Millions of dollars)
$3,958.6
$2,145.1
200.0
200.0
280.4
297.6
196.0
170.5
$4,635.0
241.1
$4,393.9
$2,813.2
537.2
$2,276.0
Fair value of total long-term debt, based on quoted market prices for the same or
similar debt issues, was approximately $4.8 billion and $2.8 billion at December 31,
2007 and 2006, respectively. Scheduled maturities of long-term debt for the next five
years are $241.1 million in 2008, $69.9 million in 2009, $488.3 million in 2010,
$9.1 million in 2011, and $405.4 million in 2012.
35
2007 and 2006, respectively. Scheduled maturities of long-term debt for the next five
years are $241.1 million in 2008, $69.9 million in 2009, $488.3 million in 2010,
$9.1 million in 2011, and $405.4 million in 2012.
At December 31, 2007, the Corporation had fixed-to-floating interest rate swap
agreements related to a $500 million 5% Note that matures on August 15, 2013.
At December 31, 2006, the Corporation had a $1.5 billion unused revolving credit
facility that was scheduled to expire in June 2010. In September 2007, the Corporation
renegotiated this facility, maintaining availability at $1.5 billion with a feature that
would allow for increasing this facility to $2.0 billion. The previous lender participation
structure was substantially unchanged and the cost of the facility was reduced. This facility, which expires in September 2012, remained unused at December 31, 2007.
Debt payable within one year is as follows:
December 31
2007
2006
(Millions of dollars)
Commercial paper
$ 643.5
$ 618.4
Current portion of long-term debt
241.1
537.2
Other short-term debt
213.3
170.8
Total
$1,097.9
$1,326.4
At December 31, 2007 and 2006, the weighted-average interest rate for commercial
paper was 4.5 percent and 5.3 percent, respectively.
Questions:
36
1. What information regarding cash flows is available in the note but is not available in the
Questions:
1. What
information
regarding
cash
flows
is
available
in
the
note
but
is
not
available
in
the
balance
sheet?
2.
Compute
the
approximate
interest
expense
on
the
notes
and
debentures
for
the
year
ended
December
31,
2007.
3.
Provide
an
estimate
of
what
the
interest
expense
on
the
notes
and
debentures
will
be
for
the
year
ended
December
31,
2008.
What
assumptions
must
be
made
to
provide
this
estimate?
■
Other liabilities
■ Examples are deferred tax liabilities, obligation of a
component of the company that is being discontinued, and
long-term advances from customers.
■ Classification within this section is made judiciously.
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37
■
■
Assets and liabilities may also be further classified
according to
(a) their expected function in the central operations of the
company (i.e., held for resale or used in production),
(b) The method of valuation (i.e., net realizable value vs.
historical cost),
(c) their financial flexibility (i.e., used in operations vs. held
for investment) or
(d) the extent to which they result from usual or recurring
activities vs. unusual or nonrecurring activities (i.e. core
vs. noncore).
These subcategories are intended to enhance the external
usefulness of the financial statement information.
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38
■
Owner’ s equity
Sole proprietorship The owner is personally liable for the debts of the
business. A single capital account is used to report the
owner’s equity.
Partnership
The partners are personally liable, jointly and severally
共同和分别, for the debts of the business. Each
single capital account is established for each partner.
Corporation
The stockholders’ responsibility for the debts of the
business is limited to investments by them. Paid-in
capital投⼊入资本 should be separately reported.
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39
Stockholders’ equity
① Contributed capital实收资本、投⼊入资本 represents amounts
owners have invested in the business. Contributed capital is
separated into capital stock股本 which reports the legal capital 法
定资本or par value⾯面值 of the stock, and additional paid-in
capital增收资本(资本公积) which reports the difference
between the par value and the market value when issued.
■
Corporations may issue two types of capital stock, common
and preferred, each of which has distinguishing characteristics.
Copyrights@ 2010 South-Western/Cengage Learning， 赵旸 UIBE
40
② Retained earnings留存收益 represents the cumulative amount
of undistributed past net income kept in the business for
operating purposes or for purposes of expansion. (may be a
deficit, may be appropriated拨定 or restricted)
③ Accumulated other comprehensive income累计其他综合收
益includes the total amount of items of other comprehensive
income, such as unrealized increases (gains) or decreases (losses)
in
■ changes in the fair value of investments in available-for-sale
securities可供出售证券
■
translation adjustment difference折算调整差额
■
the fair value of derivative financial instruments衍⽣生⾦金融⼯工具
the gains, losses or prior pension service cost adjustments
■
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41
④ Miscellaneous items
■
■
■
Donated assets from a government unit
Discovered assets which are not previously recorded
Both increase the assets and stockholders’ equity.
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42
2. Preparation of a statement of changes
in stockholders' equity
■
The statement of changes in stockholders’ equity
report the changes in a company’s financial structure,
and help users in assessing its financial flexibility.
■
Changes in stockholders’ equity =
+ Investments by owners
+ Comprehensive income
- Distributions to owners
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43
EXAMPLE 4-2
Statement of Changes in Stockholders’ Equity
SCHEDULE A
CARON MANUFACTURING COMPANY
Statement of Changes in Stockholders’ Equity
For Year Ended December 31, 2010
Common
Stock,
$5 par
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Balance, January 1, 2010
$65,000
Unrealized increase in value of
available-for-sale securities
Net income
Cash dividends paid
Common stock issued
6,500
Balance, December 31, 2010
$71,500
$143,400
$ 64,900
$10,000
62,500
(11,200)
30,500
$173,900
$116,200
2,000
$12,000
Total
$283,300
2,000
62,500
(11,200)
37,000
$373,600
16. “Omnibus Opinion—1967,”
Opinion No. 12 (New
York:赵旸
AICPA,
Copyrights@ 2010APB
South-Western/Cengage
Learning，
UIBE 1967), par. 10 (FASB Cod.44# 50510-50).
3.1 Other disclosure issues
■
GAAP requires disclosure in a company’s notes of
information related to its accounting policies会计政策
including revenue recognition and asset allocation
principles that involve:
(a) a selection from existing alternatives,
(b) principles peculiar to a specific industry, or
(c) an innovative application of an accounting principle.
Copyrights@ 2010 South-Western/Cengage Learning， 赵旸 UIBE
45
BLACK & DECKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in part)
Note 1: Summary of Accounting Policies (in part):
Principles of Consolidation: The Consolidated Financial Statements include the
accounts of the Corporation and its subsidiaries. Intercompany transactions have been
eliminated.
Inventories: Inventories are stated at the lower of cost or market. The cost of United
States inventories is based primarily on the last-in, first-out (LIFO) method; all other
inventories are based on the first-in, first-out (FIFO) method.
Property and Depreciation: Property, plant, and equipment is stated at cost. Depreciation is
computed generally on the straight-line method. Estimated useful lives range from 10 years
to 50 years for buildings and 3 years to 15 years for machinery and equipment.
1. Why
is
it
important
to
disclose
the
accounting
method
used
to
compute
the
cost
of
inventory
and
to
compute
depreciation?
Questions:
1. Why is it important to disclose the accounting method used to compute the
2. If
the
company
used
accelerated
deprecation
for
financial
reporting
cost of inventory and to compute depreciation?
how
used
would
the
income
statement
and
balance
sheet
be
2. purposes,
If the company
accelerated
deprecation
for financial
reporting
purposes,
how would the
affected?
income statement and balance sheet be affected?
46
■
Disclosure about the financial instruments
① GAAP requires a company to disclose the fair value of all its
financial instruments (both assets and liabilities), whether
recognized or not on the balance sheet.
② The Statement also requires a company to disclose all
significant concentrations of credit risk信⽤用风险集中度 due
to its financial instruments.
③ GAAP also requires a company to recognize all derivative
financial instruments (e.g., stock options) as either assets or
liabilities on the balance sheet, and to measure these items at
fair value.
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47
④ A company is also required to disclose other information (e.g.,
the types of derivative instruments held, objectives in holding
the instruments, and strategies for achieving these objectives),
as well as the company‘s risk management policy风险管理政
策 in regard to each type of instrument. A company typically
makes these disclosures in the notes to its financial statements.
⑤ GAAP now allows a company to elect to report certain
financial instruments at their fair value, and to report any
changes in their fair value in earnings. They must be separated
from those similar financial instruments reported using another
measurement attribute计量属性 (e.g. historical cost) on the
balance sheet.
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48
p433-439 in the chapter 9
■
Loss (Gains) contingencies或有损失(利得) are possible
losses or gains that the company may incur if some future
event occurs or fail to occur.
■ If the company has a gain contingency, there is a
possible increase in its assets or a decrease in its
liabilities. Adhering to the convention of conservatism
and to the revenue recognition principle, these gains
usually are not reported in the financial statements and
should be judiciously explained if disclosed in the
notes.
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49
• Loss contingencies include
• the bad debts, sales returns and allowances, the
obligation related to property taxes, product
warranty and premium offers (should be accrued)
• the threat of expropriation of the assets, pending
litigation, actual claims and assessment, guarantees
of indebtedness of others, and agreements to
repurchase receivables (or the related property that
were sold (may be accrued)
• the uninsured risks of damage by fire, explosion, or
other hazards, general or unspecified business risk,
and risk of loss from catastrophes assumed by
property and casualty insurance companies (be
usually not accrued)
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50
No
No
Loss
Probable?
or
No
No
Yes
and
Reasonably estimated?
Reasonable possibility
Disclosure
Report amount in
financial statements
Yes
Disclose in notes to the
financial statements
① If it is probable that the loss has been incurred and if the
The disclosure of any loss contingencies of a company is important to provide exte
amount can be reasonably estimated, an estimated loss from a
nal users with additional information for helping predict its use of its financial resourc
contingency
is accrued
and information
reported directly
the for instance, th
in the loss
future.
The additional
quantitative
would on
include,
amount
of any claim(s)
against
theascompany,
bestof
estimate
of the max
company's
balance
sheet
a liabilitytheorcompany’s
a reduction
an asset.
mum exposure to loss(es), and a tabulation of its recognized loss contingencies. The add
tional
information
include, for instance,
description
② qualitative
A company
discloses would
loss contingencies
in the anotes
to its of the conti
gency, factors that are likely to affect the ultimate outcome, an assessment of the mo
financial statements if there is only a reasonable possibility that
likely outcome, and the terms of relevant insurance.21 Examples of a loss contingency th
the lossin may
havetobeen
incurredstatements
or if the include
amountguarantees
of the loss
are disclosed
the notes
the financial
of the debts
others cannot
and pending
litigation against
the company, where either the outcome of the li
be reasonably
estimated.
gation or the amount of possible loss is uncertain. An illustration of this type of conti
2-5)
gency for Pinnacle Entertainment Inc. is shown in Real(p66,
Reportreal
4-5.report
Gain contingenci
are not reported in a company’s financial statements and, if disclosed in a note,51 shou
1.
2.
PINNACLE ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS (in part)
Note 11. Commitments and Contingencies
Legal
Jebaco Litigation: On August 9, 2006, Jebaco, Inc. (“Jebaco”) filed suit in the U.S.
District Court for the Eastern District of Louisiana against Harrah’s Operating Co., Inc.,
Harrah’s Lake Charles, LLC, Harrah’s Star Partnership, Players LC, LLC, Players Riverboat
Management, LLC, Players Riverboat II, LLC, and Pinnacle Entertainment, Inc. The lawsuit arises out of an agreement between Jebaco and Harrah’s (as successor in interest to
the various Players defendants) whereby Harrah’s is obligated to pay Jebaco an annual fee
based on the number of patrons entering Harrah’s two Lake Charles, Louisiana riverboat
(Continued)
What
possible
impact
might
settlement
of
this
Ibid., par. 8–17 (FASB Cod. # 450-20) and “Disclosure of Certain Loss Contingencies [an amendment
litigation
have
on
Pinnacle
Entertainment’s
results
FASB Statements No. 5 and 141(R)]” FASB Proposed Statement of Financial Accounting Standards (Norwa
Conn.:of
FASB,
2008).
o
perations
and
future
financial
position
given
Ibid., par. 8–17 (FASB Cod. # 450-20).
that
its
net
income
for
2006
was
$77
million
and
its
December
31,
2006
stockholders’
equity
was
$695
million?
52
casinos “Jebaco Agreement”). In November, 2006, we closed the transaction to acquire
the Harrah’s Lake Charles subsidiaries, including the two riverboats. The lawsuit filed by
Jebaco asserts that Harrah’s, in ceasing gaming operations in Lake Charles and ceasing
payments to Jebaco, breached its contractual obligations to Jebaco and asserts damages
of approximately $34 million. Jebaco also asserts our agreement with Harrah’s violates
state and federal antitrust laws. The lawsuit seeks antitrust damages jointly and severally
against both us and Harrah’s based on a trebling of the $34 million in damages Jebaco
alleges it has suffered. The defendants have answered the complaint, denying all claims
and asserting that the lawsuit is barred, among other reasons, because of the approval of
our transaction with Harrah’s by the Louisiana Gaming Control Board and the lack of
antitrust injury to Jebaco. In January of 2007, all of the defendants moved to dismiss all
of the claims of the complaint, which motions were denied. While the outcome of this
litigation is uncertain, management intends to defend it vigorously.
Question:
1.
What possible impact might settlement of this litigation have on Pinnacle
Entertainment’s results of operations and future financial position given that its
net income for 2006 was $77 million and its December 31, 2006 stockholders’53
equity was $695 million?
■
Subsequent events资产负债表⽇日后事项 are the events
that occur between the balance sheet date and the date of
issuance of the annual report.
① Non-adjusting events ⾮非调整事项
If a subsequent event provides evidence about conditions
that did not exist on the balance sheet date, they must be
disclosed in the notes so that users may interpret the financial
statements in light of the most recent company information.
Examples include a fire or flood loss, a litigation settlement,
and the sale of a bond or stock issue after the balance sheet.
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54
② Adjusting events 调整事项
If a subsequent event provides information about conditions
that existed on the balance sheet date and significantly affect
the estimates used in the preparation of the financial
statements, the statements themselves are adjusted.
Example
■ A customer, Specific Motors Ltd. owed your company
$16,000 on 31 December 2004. this company had always
been considered a good credit risk until on 15 February
2005, it went into voluntary liquidation. Of the $16,000
debt, $12,000 is still outstanding and the company is
expected to pay approximately 25cents in every $ on this
outstanding amount.
Copyrights@ 2010 South-Western/Cengage Learning， 赵旸 UIBE
55
■
GAAP requires that a company‘s transactions
between related parties关联⽅方交易 be disclosed in
the notes to its financial statements. This disclosure
includes the nature of the relationship, a description of
the transaction including the dollar amounts, and any
amounts due to or from the related party at the balance
sheet date.
■
C2-5
Copyrights@ 2010 South-Western/Cengage Learning， 赵旸 UIBE
56
■
■
Many users of financial statements are interested in
evaluating trends of a company over time. For this
reason, a company's financial statements are often
prepared on a comparative basis by presenting 2 or
more years' information side by side. In addition,
supplementary schedules often summarize some of the
more critical accounting information for periods of up
to 10 years.
In the auditor’s report审计报告 an opinion is
expressed about the effectiveness of the company’s
internal control over its financial reporting and the
fairness in accordance with GAAP of the company’s
financial statements and accompanying notes.
Copyrights@ 2010 South-Western/Cengage Learning， 赵旸 UIBE
57
rs in the period ended December 31, 2013 in
reporting includes those policies and procedures that (i) perta
unting principles generally accepted in the
the maintenance of records that, in reasonable detail, accura
To
the
Stockholders
and
Board
of
rica. Also in our opinion, the Company mainand fairly reflect the transactions and dispositions of the asset
Directors
International
espects, effective
internalof
control
over financial Business
the company; (ii) provide reasonable assurance that transact
Machines
Corporation:
mber 31, 2013,
based on criteria
established in
are recorded as necessary to permit preparation of financial st
In our opinion,
the accompanying
Financial
A company’s
grated Framework
(1992) issued
by the Com- Consolidated
ments in accordance
withStategenerally accepted
accountinginterna
princip
mentsofappearing
onCommission
pages 78 through
146receipts
present
fairly,
in all of designed
to are
provide
Organizations
the Treadway
and that
and
expenditures
the company
beingrea
m
any’s management
is responsible
for theseposition
onlyofinInternational
accordance with
authorizations
management
and dia
material respects,
the financial
Business
ofoffinancial
reporting
for maintaining
effective
internal control
over
tors ofatthe
company;31,
and
(iii) provide
reasonable
assura
Machines
Corporation
and its
subsidiaries
December
2013
for external
purposes
d for its assessment
of the
the results
effectiveness
regarding
timelyfor
detection
of unauthorized
acquisi
and 2012 and
of theirofoperations
andprevention
their cashorflows
accounting
principles.
nancial reporting,
in the
accompanyuse, or December
disposition 31,
of the
company’s
assets that
couldthos
hav
each ofincluded
the three
years
in the period ended
2013
in
reporting
includes
Report on Internal Control over Financial
material effect on the financial statements.
conformity with accounting principles generally accepted in the
the maintenance of rec
on page 76. Our responsibility is to express
Because of its inherent limitations, internal control over finan
United States of America. Also in our opinion, the Company mainand fairly reflect the tra
ncial statements and on the Company’s interreporting may not prevent or detect misstatements. Also, project
tained, in all material respects, effective internal control over financial
the company; (ii) provid
cial reporting based on our integrated audits.
of any evaluation of effectiveness to future periods are subjec
reporting as
December
onthat
criteria
established
in inadequate
are recorded
as necess
dits in accordance
withofthe
standards31,
of 2013,
the based
the risk
controls
may become
because
of chan
InternalBoard
Control—Integrated
Framework
(1992) issued
by the
the degree
Com- of compliance
ments in accordance
w
unting Oversight
(United States). Those
in conditions,
or that
with the policie
mittee
of Sponsoring
Organ
izations ofprocedures
the Treadway
Commission
and that receipts and ex
at we plan
and perform
the audits
to obtain
may deteriorate.
(COSO).
Company’s
management
is responsible for these
only in accordance with
e about whether
theThe
financial
statements
are
tement and
whether
effective internal
control
financial
statements,
for maintaining
effective internal control over
tors of the company;
g was maintained
all materialand
respects.
financialinreporting
for itsOur
assessment of the effectiveness of
regarding prevention or
l statements
included
on areporting,
test
PricewaterhouseCoopers
LLP
internal
controlexamining,
over financial
included in the accompanyuse, or disposition of
porting the
and disclosures
in on
the Internal
New Control
York, Newover
York Financial
ingamounts
Management’s
Report
material effect on the f
assessing the accounting principles used and
25, 2014
Reporting appearing on page 76. OurFebruary
responsibility
is to express
Because of its inher
made by management, and evaluating the
58 preve
opinions on these financial statements and on the Company’s interreporting may not
ment presentation. Our audit of internal control
3.2 The SEC integrated disclosures
(a) Comparative balance sheets for two years and comparative
income statements and statements of cash flows for three
years;
(b) A five-year summary of critical accounting information;
(c) Management's discussion and analysis (MD&A) of the
company's financial condition, changes in financial
condition, and results of operations; and
(d) Disclosures on common stock market prices and dividends.
(e) Miscellaneous disclosures
Copyrights@ 2010 South-Western/Cengage Learning， 赵旸 UIBE
59
MANAGEMENT DISCUSSION
Overview
Forward-Looking and Cautionary Statements
Management Discussion Snapshot
Description of Business
Year in Review
Prior Year in Review
Other Information
Looking Forward
Liquidity and Capital Resources
Critical Accounting Estimates
Currency Rate Fluctuations
Market Risk
Financing Risks
Cybersecurity
Employees and Related Workforce
Global Financing
26
26
27
28
35
53
63
63
65
67
70
70
71
71
72
72
Report of Management
76
Report of Independent Registered
Public Accounting Firm
77
CONSOLIDATED FINANCIAL STATEMENTS
Earnings
Comprehensive Income
Financial Position
Cash Flows
Changes in Equity
78
79
80
81
82
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
Significant Accounting Policies
Accounting Changes
Acquisitions/Divestitures
Financial Instruments
Inventories
Financing Receivables
Property, Plant and Equipment
Investments and Sundry Assets
Intangible Assets Including Goodwill
Borrowings
Other Liabilities
Equity Activity
Contingencies and Commitments
Taxes
Research, Development and Engineering
Earnings Per Share of Common Stock
Rental Expense and Lease Commitments
Stock-Based Compensation
Retirement-Related Benefits
Segment Information
Subsequent Events
84
94
95
100
107
107
110
110
111
112
114
116
119
121
123
123
124
124
127
141
146
Five-Year Comparison of Selected Financial Data
147
Selected Quarterly Data
148
Performance Graph
149
Board of Directors and Senior Leadership
150
Stockholder Information
60
151
In addition, for a large company, the company’s chief
Report
of Management
executive
officer and chief financial officer both must
International Business Machines Corporation and Subsidiary Companies
certify that the company’s annual report in the Form 10-K
is both complete and accurate.
Management Responsibility
for Financial Information
Ma
Ov
Responsibility for the integrity and objectivity of the financial information presented in this Annual Report rests with IBM management.
The accompanying financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America, applying certain estimates and judgments
as required.
IBM maintains an effective internal control structure. It consists,
in part, of organizational arrangements with clearly defined lines
Ma
ade
Inte
pro
rep
pu
acc
61
3.3 Reporting techniques used in an
annual report
■
One of two basic formats is generally used for balance
sheet presentation:
① The report form报告式 (the most common format) in
which asset accounts are listed first and then liability and
stockholders' equity accounts are listed in sequential
order directly below assets, and
② The account form账户式 that lists asset accounts on
the left-hand side and liability and stockholders' equity
accounts on the right-hand side of the statement.
Copyrights@ 2010 South-Western/Cengage Learning， 赵旸 UIBE
62
■
■
■
Balance sheets often show a single amount for a company's
inventory and/or its total property, plant, and equipment. In
such cases, to comply with generally accepted disclosure
rules, a detailed listing of inventory by major category
Rounding
Rounded to the nearest million dollars for many major
companies
Supporting schedules (e.g., listing of equipment items)
and parenthetical notations (e.g., method of valuation for
an account) may be used to disclose required and/or
optional supplementary information, in addition to notes (or
footnotes).
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63
4. IFRS requirement
■
■
Under IFRS, a balance sheet, statement of changes in
equity, income statement, and statement of cash flows are
required as well as related notes and explanatory materials.
In general, classification of items is similar to that
required under U.S. GAAP, although companies usually
report noncurrent assets before current assets, "capital
and reserves" (stockholders' equity) before liabilities, and
noncurrent liabilities before current liabilities.
(p73, example 2-3)
Copyrights@ 2010 South-Western/Cengage Learning， 赵旸 UIBE
64
Vodafone Group Plc
Consolidated Balance Sheet at 31 March
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investments in associated undertakings
Other investments
Deferred tax assets
Post employment benefits
Trade and other receivables
Current assets
Inventory
Taxation recoverable
Trade and other receivables
Cash and cash equivalents
Assets included in disposal group held for sale
Total assets
Equity
Called up share capital
Share premium account
Own shares held
Note
2007 $m
2007 £m
2006 £m
9
9
11
14
15
6
25
17
79,856
30,915
26,465
39,817
11,565
807
161
972
190,558
40,567
15,705
13,444
20,227
5,875
410
82
494
96,804
52,606
16,512
13,660
23,197
2,119
140
19
361
108,614
16
567
41
9,888
14,726
25,222
–
215,780
288
21
5,023
7,481
12,813
–
109,617
297
8
4,438
2,789
7,532
10,592
126,738
8,213
85,771
(15,841)
4,172
43,572
(8,047)
4,165
52,444
(8,198)
17
18
29
19
21
21
(Continued)
65
Additional paid-in capital
Capital redemption reserve
Accumulated other recognized income and expense
Retained losses
Total equity shareholders’ funds
Minority interests
Total equity
Non-current liabilities
Long term borrowings
Deferred tax liabilities
Post employment benefits
Provisions
Trade and other payables
Current liabilities
Short term borrowings:
Third parties
Related parties
Current taxation liabilities
Trade and other payables
Provisions
Note
21
21
22
23
2007 $m
197,214
17,976
6,508
(167,820)
132,021
445
132,466
2007 £m
100,185
9,132
3,306
(85,253)
67,067
226
67,293
24
6
25
26
27
35,035
9,106
242
583
1,053
46,019
17,798
4,626
123
296
535
23,378
16,750
5,670
120
265
566
23,371
24
24,36
7,825
1,657
10,016
17,272
525
37,295
–
215,780
3,975
842
5,088
8,774
267
18,946
–
109,617
3,070
378
4,448
7,477
139
15,512
2,543
126,738
27
26
Liabilities included in disposal group held for sale
Total equity and liabilities
29
2006 £m
100,152
128
4,090
(67,356)
85,425
(113)
85,312
The Consolidated Financial Statements were approved by the Board of directors in 29 May 2007 and were signed on its
behalf by:
Arun Sarin
Chief Executive
Andy Halford
Chief Financial Officer
The accompanying notes are an integral part of these Consolidated Financial Statements.
The unaudited US dollar amounts are prepared on the basis set out in note 1.
66