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BALANCE SHEET - Coggle Diagram

- - - - Cash and
        cash equivalent
        
        Financial assets, short-term, highly liquid investment, interest rate risk is insignificant
        
        Ex: T-bills, commercial paper, money market funds
        
        Reported at amortized cost / fair value
      - Marketable
        security
        
        Financial assets, traded in public market, value can be readily determined, disclose details in footnotes
        
        Ex: T-bills, T-notes, T-bonds, equity securities
      - Account
        receivable
        
        Financial assets, customers own firm for goods sold on credit -> reveal collection problems
        
        Reported at net realizable value, which based on estimated bad debt expense (which increase allowance for doubtful account -> contra account, should be considered relative to the growth rate of sales)
        -> Accounts receivable at net realizable value = Gross receivables - Allowance for doubtful account
      - Inventory
        
        Manu firm: report separately inventories of raw materials, WiP, finished goods
        
        Costs
        
        Purchase cost (less trade discount and rebates)
        
        Conversion (manufacturing) costs including labor and overhead
        
        Other costs necessary to bring the inventory to its present location and condition
        
        All of these costs are capitalized and included in balance sheet -> expense recognition is delayed until the inventory is sold and revenue is recognized
        
        Period cost -> not capitalized -> record in the period incurred: abnormal waste of materials, labor or overhead; storage costs (unless required as part of production), administrative overhead, selling cost, freight-out to customers
        
        Method
        to mesure
        
        Standard costing: often used by manu firm, assign pre-determined amount of materials, labor, overhead to good produced
        
        Retail method: measure inventory at retail P -> cost = retail P - gross profit
        
        Cost flow
        methods
        
        Note:
        
        GAAP -> use LIFO or retail method report to increase inventory cost (have advantage in inflation: LIFO COGS > FIFO COGS -> lower earnings -> lower tax)
        -> Use market value = replacement cost
        
        IFRS: prohibit LIFO, lower inventory cost (compared to GAAP)
        -> Use net realizable value = Selling P - Completion cost - Selling / Disposal cost
        
        COGS + Ending inventory = Purchase + Beginning inventory
        
        4 methods: Specific identification, FIFO, LIFO (prohibited under IFRS, Weighted-average cost
        
        LIFO and FIFO when prices have been rising and inventory quantities are stable or increasing
        LIFO - compared to FIFO: Higher COGS, Lower gross profit, Lower inventory balances, Higher inventory turnover, Lower tax
        
        LIFO and FIFO when prices have been decreasing and inventory quantities are stable or increasing
        LIFO - compared to FIFO: Lower COGS, Higher gross profit, Higher inventory balances, Lower inventory turnover
        
        Systems
        
        Periodic inventory system:
        (1) Inventory values and COGS are determined at the end of the accounting period
        (2) No detailed records of inventory are maintained -> Inventory acquired during the period is reported in Purchases account
        (3) End of period: purchases are added to beginning inventory to arrives Cost of Goods Available for Sales
        -> COGS = Goods available for sale - Ending inventory
        
        Perpetual inventory system:
        (1) Inventory values and COGS are updated continuously
        (2) Inventory purchased and sold is recorded directly in Inventory when the transactions occur (Purchase account is not necessary)
        
        Two systems give the same results for the FIFO and specific identification method but produce different values for inventory and COGS under LIFO & weighted average cost method
      - Other current A
        
        not material if shown separately -> combine to single acc
        
        Ex: prepaid expense
  - - - PP&E
        
        tangible A, used in the production of goods and services
        
        land and buildings, machinery equipment, furniture, natural resource
        
        IFRS: cost model / revaluation model
        GAAP: cost model only
        
        Cost model:
        PPE
        (except land)
        
        reported at amortized cost = historical cost - accumulated depreciation, amortization, depletion, impairment losses
        
        Land: indefinite life -> not depreciated
        
        Historical cost = Purchases P + Other cost (to get the asset ready for use)
        
        Affected by depreciation method and related estimate (salvage value, useful life)
        
        Must be test for impairment: if Carrying value > Recoverable amount -> Impaired -> written down to its recoverable amount, recognize loss
        IFRS: Recoverable value (Giá trị có thể thu hồi) = Fair value - Selling costs / Asset's value in use
        -> Loss recoveries are allowed under IFRS, not GAAP
        
        Revaluation
        model
        
        PPE is reported = fair value - accumulated depreciation
        
        Changes in fair value are reflected in shareholder's equity: Increase in asset's carrying value is recognized as revaluation surplus in owner's equity (unless it reverses a previously recognized loss)
      - Investment property
        
        IFRS: assets that generate rental income / capital appreciation
        GAAP: not have specific definition
        
        IFRS: reported at amortized cost / fair value -> cost model / fair value model BUT a firm must use the same valuation model (cost/ fair value) for all of its investment properties
        
        Fair value model: any change in fair value is recognized in income statement -> Increase in fair value above historical cost -> recognized as gains on IS
        
        Figure 23.3
      - Deferred tax assets
        (Tài sản thuế hoãn lại)
        
        result of temporary differences between financial reporting income and tax reporting income
        
        created when the amount of taxes payable > income tax expenses
        created by unusual tax losses from prior period
        
        when expenses / losses are recognized in income statement before they are tax deductible
        when revenues / gains are taxable before they are recognized in income statement
        
        will reverse when the expense is deducted for tax purpose / revenue is recognized in income statement
        
        Ex
  - - - GAAP: record as expense
      - IFRS:
        must identify:
        
        research stage -> expense
        More: start-up & training costs, administrative overhead, advertising & promotion costs, relocation & reorganization costs, termination costs
        
        development stage -> capitalize
  - - - Capitalization (Vốn hoá): if that expenditure provides a future economic benefit over multiple accounting periods / make assets ready for use or increase future benefits
      - Expensing(Chi phí hoá): if that expenditure provides an uncertain future economic benefit and it is expensed in period incurred
      - Expenditure capitalized -> recorded as assets -> allocate to income statement as Depreciation exp or Amortization exp (except for land and goodwill) -> higher NI in first year, lower NI in subsequent years
      - Ex:
      - Capitalized
        interest
        
        Construct an assets for its own use (except for resale): interest accruing during the construction period is capitalized as part of asset's cost
        
        Identifiable intangible asset: (1) Capable of being separated from the firm or arise from a contractual or legal right (2) Controlled by the firm (3) Expected to provide future economic benefits. Ex: patents
        
        Unidentifiable intangible asset: (1) cannot be purchased separately and (2) may have an indefinite life. Ex: Goodwill
        
        Accounting
        
        The asset was created internally: Cost to create intangible assets are expensed as incurred, with some exceptions:
        (1) Under IFRS, research costs are expensed as incurred / Development costs may be capitalized
        (2) Under GAAP, research costs and development costs are expensed as incurred
        (3) Under IFRS, Software development costs are expensed as incurred until the product’s technological feasibility has been established, it will be capitalized
        
        Purchased intangible assets: Initially recorded on the balance sheet at cost, typically its fair value at acquisition
        
        Intangible Assets obtained in a Business combination: Goodwill created in a business combination is capitalized on the balance sheet, cost of any internally generated "goodwill" are expensed
      - Effects
        
        Financial statements: Capitalizing will:
        (1) Higher: total assets, equity, NI (1st year), Operating CF and (2) Lower: NI (subsequent years), Investing CF
        
        Ratios: Capitalizing will higher: Debt to Assets ratio, Debt to Equity ratio, Initial ROA, Initial ROE, Interest coverage ratio
        
        No difference in Total Net income and Cash flow over the life of an asset
    - - Depreciation: The systematic allocation of an asset’s cost over time
      - Historical cost: The original purchase price of the asset including installation and transportation costs
      - Carrying (book) value: The net value of an asset or liability on the balance sheet (= Historical cost – Accumulated depreciation - Impairment charges)
      - Methods
        
        Straight line depreciation: Depreciation is the same amount each year over the asset’s estimated life
        
        Accelerated depreciation: More depreciation expense is recognized in early years of an asset’s life and less in the later years - > Double-declining balance
        
        Units-of-production method: Depreciation is based on usage rather than time -> applied to natural resource: referred to as depletion
        Units-of-production depreciation = (Cost - Salvage) / Useful life * Output units in period
        
        Component depreciation: IFRS: depreciate components of an assets separately -> require useful life estimate for each component -> useful life of each component is estimated and depreciation expense is computed separately for each
        (Seldom used under GAAP)
      - Effects
        
        Straight-line: higher NI, higher total A, higher E, higher ROA, higher ROE
        
        Accelerated: higher depreciation expense, higher assets turnover ratios
        
        same CF for both method
      - Change in
        depreciation
        estimate
        
        Salvage value: Also known as residual value or disposal value, is the estimated monetary value of an asset at the end of its useful life when it is expected to be sold, disposed of or retired
        
        Firms can manipulate depreciation expense by increasing or decreasing these estimates as longer useful lives / higher salvage value -> decrease annual depreciation, increase reported NI
        
        Change in depreciation estimate is applied to the asset's carrying value and depreciation is calculated going forward using new estimate with no effect in previous periods
        
        Ex:
    - - Intangible assets with definite lives are amortized over their useful life
      - The same method: straight line, accelerated, and units of production are permitted
      - Choice of method: same effects as depreciation
      - Ex:
      - (1) Average age = Acc depre / Annual depre exp
        (2) Total useful life = Historical cost / Annual depre exp
        (3) Remaining useful life = Ending net PPE / Annual depre exp
    - - Revaluation
        
        Cost model: GAAP & IFRS: most long-lived assets are reported depreciated cost, no fair value alternative for asset reporting
        -> Carrying (book) value = Historical cost - Acc. depre/amor - impairment charges
        IFRS: Revaluation model: an asset is carried at its depreciated cost, but at each revaluation date, the balance sheet value is adjusted to fair value. Between revaluation dates, depreciation is recorded for asset
        -> Carrying value = its value as of the last revaluation date - subsequent depre / amor
        
        Effects on FSs
        
        First Revaluation Date:
        Fair value < Carrying value → recording Loss in Income Statement
        Fair value > Carrying value → recording Revaluation surplus in Equity
        
        Subsequent Revaluation Dates
        Fair value < Carrying value → the difference reduces revaluation surplus and then the excess is recorded as Loss in Income statement
        Fair value > Carrying value → the gain reverses any previously loss from valuation and then the excess is recorded in revaluation surplus
        
        Ex:
      - Impairment
        (Suy giảm giá trị)
        
        IFRS
        
        When there are events (such as significant decline in market value) or change in the asset’s physical condition) → The asset value must be tested for impairment
        
        An asset is impaired when the carrying value > the recoverable amount
        
        Recoverable amount is the greater of: Fair value less any selling costs & The value in use
        
        If impaired, the asset’s value must be written down to the recoverable amount on the BS, impairment loss is recognized in the IS.
        
        Intangible assets with indefinite lives are not amortized, they are tested for impairment at least annually.
        
        Impairment loss ( = Carrying value - Recoverable amount) is recognized when Carrying amount > Fair value
        -> indication that firm has not recognized sufficient depreciation or amortization expense -> overstated earnings
        
        Indicators: significant adverse change in market conditions, technological advancements, legal or regulatory changes
        
        GAAP
        
        When there is events and circumstances indicate the firm may not be able to recover the carrying value through future use
        
        Step 1: apply Recoverability test -> Step 2: Measure loss
        
        Recoverability: An asset is consider impaired if carrying value > asset's future undiscounted CF stream (involve considerable management discretion)
        Loss measurement: If impaired, asset’s value must be written down to fair value on the BS, impairment loss is recognized in the IS
        (Impairment loss = Carrying value - Fair value of A / Discounted value of its future CF)
        
        Held-for-use/
        Held-for-sale
        
        Asset is available for immediate sale -> tested for impairment -> no longer depreciated or amortized
        
        Impaired if: Carrying value > (Fair value - Selling cost)
        -> asset is written down to net realizable value in BS, loss is recognized in IS
        
        Ex:
      - Derecognition
        (Chấm dứt ghi nhận)
        
        Derecognition occurs when assets are sold, exchanged or abandoned
        
        Sold: asset is removed from BS, the Gain / Loss = Sale - Carrying value in IS or reported separately if material
        
        Abandoned: no proceeds, carrying value of asset is removed from BS and a Loss = Carrying value is recognized in the IS
        
        Exchanged: carrying value of old assets is removed from BS, new asset is recorded at fair value, Gain / Loss = Carrying value of old asset - Fair value of old / new asset is reported on IS
      - Effects on FSs
        
        Impairment
        
        In the year of impairment: decrease asset's carrying value, asset and equity (RE), ROA, ROE
        Reason: impairment charge -> loss in NI
        
        In the subsequent periods: higher NI as lower depreciation expense (as assets has lower depreciable value), higher ROA & ROE, higher asset turnover
        
        No impact on CF (as impairment does not reduce taxable income and it is an unrealized loss until the asset is disposed of)
        
        Upward revaluation
        
        Higher: assets, equity, depreciation expense
        
        Lower: debt ratio and debt-to-equity ratio, ROA & ROE, profitability in period after revaluation
        
        If increase in A is the result of higher operating capacity -> higher revenue, higher NI
        
        Analyst should check the source of appraisal (sự đánh giá, thẩm định) that supports the revaluation (prefer appraisals from independent sources)
      - Required disclosures
        
        Differences in disclosure requirements for tangible and intangible assets under IFRS and GAAP
        
        Generally
        
        Carrying values for each class of asset
        
        Accumulated depreciation and amortization
        
        Title restrictions and assets pledged as collateral
        
        For impaired assets, the loss amount and reasons under the loss
        
        For revalued assets (IFRS only), the revaluation date, fair value and carrying value was determined and the carrying value using historical cost model
- - - - Settlement (thanh toán sổ sách) is expected during the normal operating cycle
      - Settlement is expected within 1 year
      - Held primarily for trading purposes
      - There is not an unconditional right to defer settlement for more than 1 year
    - - Account payable
        
        amount firm owes to suppliers for goods / services purchased on credit
        
        analyze this relative to purchases -> credit problems with suppliers
      - Note payable and
        current portion of
        long-term debt
        
        Note payable: obligations in the form of promissory notes owned to creditors and lenders
        -> can be reported as non-current liabilities of maturity > 1 year
        
        Current portion of long-term debt: principal portion of debt due within 1 year/ operating cycle (whichever is greater)
      - Accrued liabilities /
        accrued expenses
        (Nợ dồn tích)
        
        expenses that have been recognized in the income statement but are not yet contractually due
        
        result of accrual method of accounting: expenses are recognized as incurred
        
        Taxes payable (may included): current taxes that have been recognized in the income statement but have not yet been paid
        
        Ex: interest payable, wages payable, accrued warranty expense
      - Unearned revenue
        
        Cash collection in advance of providing goods/ services
        
        Not require a future outflow of cash like acc payable
        May be indication of future growth
  - - - Long-term
        financial liabilities
        
        includes: bank loans, note payable, bonds payable, derivatives
        
        if not issued at face amount -> reported at amortized cost = issue price - principal pmt + amortized discount - amortized premium
        
        can be reported at fair value (Ex: held - for - trading liabilities: short position in stock, derivative liabilities and non-derivative liabilities with exposures hedged by derivatives)
      - Deferred tax liabilities
        (Thuế hoãn lại phải trả)
        
        amount of income tax payable as a result of taxable temporary differences
        
        are created when income tax expense > taxes payable (> < deferred tax assets)
        
        when expenses / losses are tax deductible before they are recognized
        
        when revenue / gains are recognized before they are taxable
        
        Ex
    - - Terminology
        
        Face value / Maturity value / Par value: (Mệnh giá) amount of principal that will be paid to bondholder at maturity
        
        Coupon rate: interest rate stated in bond
        
        Coupon payment: periodic interest bondholders
        
        Effective rate of interest / Bond yield: interest rate that present value of future CF of bond = issue P
        -> market rate of interest required by bondholders and depends on (1) risks, (2) overall structure of interest, (3) timing of CF
        -> likely to change over the bond's life
        
        Balance sheet liability / Book value / Carrying value of bond = present value of its remaining CF, discounted at market interest rate at issuance
        -> At maturity: liability = face value
      - Types
        
        Par bond: Price at face value
        (1) Bond yield = Coupon rate
        (2) BS: Proceeds received (increase A and L) = Par value
        (3) Book value of bond liability will not change overtime
        (4) IS: Interest expense = Coupon payment
        (5) CFS: Proceeds -> Cash inflow from financing activities
        Coupon pmt -> Cash outflows from operating activities
        At maturity: repayment of face value -> cash outflow from financing activities
        
        Discount bond (Trái phiếu chiết khấu): Priced below par
        (1) Bond yield > Coupon rate
        (2) BS: Proceeds received < Par value
        (3) Book value liability increases until it reaches face value at maturity
        (4) IS: Interest expense < Coupon payment
        
        Premium bond (Trái phiếu gia tăng): Priced above par
        (1) Bond yield < Coupon rate
        (2) BS: Proceeds received > Par value
        (3) Book value liability decreases until it reaches face value at maturity
        (4) IS: Interest expense < Coupon payment
        
        Zero – coupon bond: Pure discount bond with make no periodic interest payment
        
        Note: Interest expense and book value of bond liability are calculated using bond's yield at issued time
      - Effective interest
        rate method
        
        Interest expense = Book value of bond liability (bgn of period) * Bond yield (at issuance)
        
        Amortization of the discount / premium = Coupon payment - Interest expense
        (1) is subtracted each period from bond liability on BS (premium bond)
        -> Decrease book value of bond liability over time & Decrease interest expense so that: coupon pmt + discount amortization = interest expense that would have prevailed
        (2) is added each period from bond liability on BS (discount bond)
        -> Increase book value of bond liability over time & Increase interest expense so that: coupon pmt + discount amortization = interest expense that would have prevailed
        
        IFRS: require effective interest rate method
        GAAP: prefer effective interest rate method but also allow straight-line method (total discount / premium is amortized by equal amount each period)
        
        Ex:
      - Issuance cost,
        Derecognition,
        Disclosure
        
        Issuance cost
        
        Legal and accounting fees, printing cost, sale commission & other fees
        
        Initial bond liability on BS (Proceeds) is reduced by the amount of issuance costs, increasing effective interest rate -> issuance costs are treated as unamortized discount
        
        usually netted against (tính vào) bond proceeds (số tiền thu được từ bond) (inflow) and reported on CFS as Financing CF
        
        Fair value
        Reporting option
        
        increase bond yield -> decrease fair value of bond liability and vice versa
        
        Fair value of a bond is economic liability at a point in time
        
        Effects of
        issuing a bond
        
        BS effects
        
        IS effect
        
        CF effect
        
        Derecognition
        
        At maturity: no gain / loss as premium / discount has been fully amortized -> book value of liability = face value, cash outflow to repay bond: financing CF
        
        Redeem (mua lại) before maturity as fallen interest rate / surplus cash through operation / enough fund from issuance of equity
        -> Recognize gain / loss by subtracting the redemption price from book value of bond liability at reacquisition date (gain if carrying value > redemption price)
        Any gain / loss from redeeming -> reported in IS (continuing operation), separately disclose additional information BUT may be eliminated for analysis and forecasting
        
        Capitalize redemption bonds' issuance cost -> written off remaining unamortized costs and included in gain / loss calculation
        
        CFS - Indirect method: gain / loss is subtracted from / added to NI in calculating CF from operations,
        redemption price: outflow from financing activities
      - Debt covenants
        
        Debt covenants (Khế ước nợ): Restrictions imposed by the lender on the borrower to protect the lender’s position → reduce default risk and borrowing costs
        -> Technical default: The lender/ bondholders can demand immediate repayment of principal if the firm violates a covenant
        
        Types
        
        Affirmative covenants: The borrower promises to do certain things: (1) Make timely payments of principal and interest, (2) Maintain certain ratios, (3) Maintain collateral
        
        Negative covenants: The borrower promises to refrain from certain activities: (1) Increasing dividends or repurchasing shares, (2) Issuing more debt, (3) Engaging in M&A
        
        Discussion and
        Analysis section
        
        The nature of the liabilities
        
        Maturity dates
        
        Stated and effective interest rates
        
        Call provisions and conversion privileges
        
        Restrictions imposed by creditors
        
        Assets pledged as security
        
        The amount of debt maturing in each of the next 5 years
      - Lease and pension accounting
        (Cho thuê và lương hưu)
        
        A firm (lessee - người đi thuê) purchases the right to use an asset from another firm (lessor - người cho thuê) for a specific period
        Lessee makes periodic payment -> alternative to financing the purchase of an asset
        
        Requirements
        
        It must refer to a specific asset
        
        It must give the lessee effectively all the asset's economic benefit during the term of the lease
        
        It must give the lessee the right to determine how to use the asset during the term of the lease
        
        Advantages
        
        Less initial cash outflow
        
        Less costly financing
        
        Less risk of obsolescence
        
        Financial Reporting of
        Leases from Lessee
        
        Finance Lease: Both the benefits and risks of ownership are substantially transferred to the lessee
        
        Operating Lease: If either the benefits or the risks of ownership are not substantially transferred to the lessee
        
        Criteria for
        financial lease
        
        One of those 5:
        
        Ownership of the leased asset transfers to the lessee
        
        The lessee has an option to buy the asset and is expected to exercise it
        
        The lease is for most of the asset's useful life
        
        The PV of the lease pmt >= asset's fair value
        
        The lessor has no other use for the asset
        
        IFRS: all leases, except for short-term (<12 months) / low value ($5,000) require the lessee to record a right-of-use asset and a lease liability
        right-of-use asset: amortized over the term of the lease, amortization amount -> income statement
        lease liability: reduced each period by the decrease in principal portion outstanding that results from each lease payment
        
        Ex:
- - - - Contributed capital / Issued capital
        
        the amount contributed by equity shareholders
        
        Par value of common stock: stated / legal value, no relationship to fair value
        -> can exist or not but if exist, it is reported separately in stockholder's equity
        -> Total proceeds from issuing equity security = Par value of the issued share + Additional paid-in capital
        
        Authorized shares: numbers of shares that may be sold under firms's articles of incorporation
        Issued shares: number of shares that have actually been sold to shareholders
        Outstanding shares = Issued shares - Shares that have been reacquired by firm
      - Preferred stock
        
        has certain rights and privileges not conferred by common stock
        
        can be classified as debt / equity, depending on the terms
        Ex: perpetual preferred stock -> non-redeemable: cổ phiếu ưu đãi vĩnh viễn: không thể mua lại -> equity
        mandatory redemption preferred stock (in fixed amount): cổ phiếu ưu đãi mua lại bắt buộc (với số lượng cố định) -> liability
      - Non-controlling interest / Minority interest: minority shareholder's pro-rata share of the E of a subsidiary that is not wholly owned by the parent
      - Retained earnings: undistributed NI since inception, the cumulative earnings that have not been paid out to shareholders as dividends
      - Treasury stock: stock that has been reacquired by the issuing firm but not yet retired (Cổ phiếu quỹ: cổ phiếu đã được công ty phát hành mua lại nhưng chưa bị thu hồi)
        -> reduces stockholders' equity and not represent an investment in firm, no voting rights, not receive dividends
      - Accumulated other comprehensive income: includes all changes in stockholders' equity except for transactions recognized in income statement (NI) and transactions with shareholders (issuing stocks, reacquiring stocks, paying dividends) -> at a point in time # comprehensive income: measure over a period of time, includes NI
      - Statement of changes in stockholders' equity: summarize all transactions that increase / decrease the equity accounts for the period, including transactions with shareholders and reconciles the beginning and ending balance of each equity account (capital stock, additional paid-in-capital, retained earnings, accumulated other comprehensive income - which are disclosed)