# Purchase Historical Restatement Historical

 Page 2/3 Date 31.05.2016 Size 243.43 Kb.
1   2   3

## Purchase Historical Restatement Historical

### Date Item Cost Ratio Cost

1/15/Y1 Machine X \$ 20,000 140/100 \$ 28,000

3/20/Y1 Machine Y 55,000 140/110 70,000

10/10/Y1 Machine Z 130,000 140/130 140,000

\$205,000 \$238,000

December 31, Year 2

Original Restated

## Purchase Historical Restatement Historical

### Date Item Cost Ratio Cost

3/20/Y1 Machine Y \$ 55,000 180/110 \$ 90,000

10/10/Y1 Machine Z 130,000 180/130 180,000

\$185,000 \$270,000
Alternatively, the restated historical cost at December 31, Year 2 could be determined as follows:
December 31, Year 2

Restated Restated

## Historical Historical

### Date Item (12/31/Y1) Ratio (12/31/Y2)

3/20/Y1 Machine Y \$ 70,000 180/140 \$ 90,000

10/10/Y1 Machine Z 140,000 180/140 180,000

\$210,000 \$270,000

Ignoring depreciation, machinery and equipment would be reported on the balance sheet at:

12/31/Y1 \$238,000

12/31/Y2 \$270,000

## c. The real interest expense is TL 5,000, which equates to a real interest rate of 0.5% (TL 5,000/ TL 1,000,000)

3. Doner Company

Net monetary assets, 1/1/Y1 \$5,000 x 150/100 = \$ 7,500

Plus: Increase in net monetary assets 15,000 x 150/120 = 18,750

Net monetary assts, 12/31/Y1 \$20,000 \$26,250

20,000

GPP Income Statement

Year 1

#### Other expenses (incl. income taxes) (35,000) x 150/120 = (43,750)

Net income \$ 5,000

## Subsidiary in Mexico

 GPI 1/1/Y1 100 Average 105 12/31/Y1 110

a.

 Balance Sheet, 1/1/Y1 Historical Restatement Restated to Cost Factor 12/31/Y1 GPP Machinery and equipment 1,000,000.00 110/100 1,100,000.00 Total assets 1,000,000.00 1,100,000.00 Contributed capital 1,000,000.00 110/100 1,100,000.00 Total stockholders’ equity 1,000,000.00 1,100,000.00
 Income Statement, Year 1 Historical Restatement Restated to Cost Factor 12/31/Y1 GPP Revenues 400,000.00 110/105 419,047.62 Depreciation expense (200,000.00) 110/100 (220,000.00) Other expenses (150,000.00) 110/105 (157,142.86) Purchasing power loss (11,904.76) Income 50,000.00 30,000.00

 Calculation of Purchasing Power Loss Net monetary assets, 1/1 0.00 110/100 0.00 plus: Increase in NMA, Y1* 250,000.00 110/105 261,904.76 Net monetary assets, 12/31 250,000.00 261,904.76 250,000.00 Purchasing power loss (11,904.76) * Revenues less other expenses

 Balance Sheet, 12/31/Y1 Historical Restatement Restated to Cost Factor 12/31/Y1 GPP Cash 250,000.00 none 250,000.00 Machinery and equipment 1,000,000.00 110/100 1,100,000.00 Less: accumulated depreciation (200,000.00) 110/100 (220,000.00) Total assets 1,050,000.00 1,130,000.00 Contributed capital 1,000,000.00 110/100 1,100,000.00 Retained earnings 50,000.00 above 30,000.00 Total stockholders' equity 1,050,000.00 1,130,000.00

 Calculation of Average Stockholders' Equity January 1, Year 1 (restated) 1,100,000.00 December 31, Year 1 1,130,000.00 2,230,000.00 Average stockholders’ equity 1,115,000.00

 b. Calculation of profit margin and return on equity on an inflation-adjusted basis Profit margin 30,000.00 7.16% 419,047.62 Return on Equity 30,000.00 2.69% 1,115,000.00

Subsidiary in Venezuela

 GPI 1/1/Y1 100 Average 115 12/31/Y1 130

a.

 Balance Sheet, 1/1/Y1 Historical Restatement Restated to Cost Factor 12/31/Y1 GPP Machinery and equipment 150,000,000.00 130/100 195,000,000.00 Total assets 150,000,000.00 195,000,000.00 Contributed capital 150,000,000.00 130/100 195,000,000.00 Total stockholders’ equity 150,000,000.00 195,000,000.00

 Income Statement, Year 1 Historical Restatement Restated to Cost Factor 12/31/Y1 GPP Revenues 60,000,000.00 130/115 67,826,086.96 Depreciation expense (30,000,000.00) 130/100 (39,000,000.00) Other expenses (22,500,000.00) 130/115 (25,434,782.61) Purchasing power loss (4,891,304.35) Income 7,500,000.00 (1,500,000.00)

 Calculation of Purchasing Power Loss Net monetary assets, 1/1 0.00 130/100 0.00 plus: Increase in NMA, Y1* 37,500,000.00 130/115 42,391,304.35 Net monetary assets, 12/31 37,500,000.00 42,391,304.35 37,500,000.00 Purchasing power loss (4,891,304.35) * Revenues less other expenses

 Balance Sheet, 12/31/Y1 Historical Restatement Restated to Cost Factor 12/31/Y1 GPP Cash 37,500,000.00 none 37,500,000.00 Machinery and equipment 150,000,000.00 130/100 195,000,000.00 Less: accumulated deprec (30,000,000.00) 130/100 (39,000,000.00) Total assets 157,500,000.00 193,500,000.00 Contributed capital 150,000,000.00 130/100 195,000,000.00 Retained earnings 7,500,000.00 above (1,500,000.00) Total stockholders' equity 157,500,000.00 193,500,000.00

 Calculation of Average Stockholders' Equity January 1, Year 1 (restated) 195,000,000.00 December 31, Year 1 193,500,000.00 388,500,000.00 Average stockholders’ equity 194,250,000.00

 b. Calculation of profit margin and return on equity on an inflation-adjusted basis Profit margin (1,500,000.00) -2.21% 67,826,086.96 Return on Equity (1,500,000.00) -0.77% 194,250,000.00

c. Both subsidiaries had the same profit margin and return on equity when these ratios were calculated from unadjusted historical cost information. After adjusting for inflation, the Mexican subsidiary appears to be substantially more profitable than the Venezuelan subsidiary.

5. Auroral Company

 Name of Company % Voting Rights IFRSs U.S. GAAP Accurcast 100% Full consolidation Full consolidation Bonello 45% Equity method – unless there is evidence that Auroral exercises effective control Equity method Cromos 30% Equity method Equity method Fidelis 100% Do not consolidate – fair value method Do not consolidate – fair value method Jenna 100% Full consolidation Full consolidation Marek 40% Full consolidation Equity method Phenix 90% Full consolidation Full consolidation Regulus 50% Proportional consolidation or equity method Equity method Synkron 15% Fair value method Fair value method Tiksed 70% Full consolidation Full consolidation Ypsilon 51% Full consolidation Full consolidation

6. Sandestino Company
a. Restated financial statements:
1. Proportionate Consolidation Method
Sandestino Company

Income Statement

Year 1
Revenues \$840,000

Expenses 475,000

Income before tax 365,000

Tax expense 105,000

Net income \$260,000
Sandestino Company

Balance Sheet

December 31, Year 1
Cash \$150,000 Liabilities \$280,000

Inventory 230,000 Common stock 600,000

Property, plant, & equipment (net) 810,000 Retained earnings 310,000

Total \$1,190,000 Total \$1,190,000

2. Equity Method
Sandestino Company

Income Statement

Year 1
Revenues \$800,000

Expenses (450,000)

Equity in Grand Sand’s net income 10,000

Income before tax 360,000

Tax expense (100,000)

Net income \$260,000

Sandestino Company

Balance Sheet

December 31, Year 1
Cash \$130,000 Liabilities \$250,000

Inventory 200,000 Common stock 600,000

Property, plant, & equipment (net) 650,000 Retained earnings 310,000

Investment in Grand Sand 180,000 Total \$1,160,000

Total \$1,160,000

b. Calculation of ratios:
Proportionate Consolidation Equity Method

Profit margin 260,000/840,000 = 0.3095 260,000/800,000 = 0.325

Debt/equity 280,000/910,000 = 0.3077 250,000/910,000 = 0.275
Sandestino’s profit margin would be higher and its debt-to-equity ratio would be lower if it used the equity method to account for its investment in Grand Sand.
7. Horace Jones Company
The first step in determining which business segments must be reported separately is to determine whether a majority of revenues are generated from external customers. As shown below, this criterion is met by all segments other than C. Therefore, segment C will not be reported separately.

 Majority of Revenues Test A B C D E F Revenues: External sales revenue 1,030 350 20 140 130 120 Intersegment sales revenue 30 20 200 10 0 0 Total revenues 1,060 370 220 150 130 120 External revenues as % of total revenues 97% 95% 9% 93% 100% 100%

The next step is to apply the three significance tests to determine whether the second criterion for a reportable segment is met.

 Revenue Test Total Percentage Segment Revenues of Total A 1,060 52% reportable B 370 18% reportable C 220 11% D 150 7% E 130 6% F 120 6% Total 2,050 100%

 Profit or Loss Test Segment Segment Segment Result Segment Revenues Expenses Profit Loss A 1,060 824 236 reportable B 370 560 (190) reportable C 220 158 62 D 150 144 6 E 130 73 57 reportable F 120 101 19 Total 2,050 1,860 380 (190)

 Asset Test Total Percentage Segment Assets of Total A 1,650 47% reportable B 650 19% reportable C 500 14% D 280 8% E 300 9% F 120 3% Total 3,500 100%

Of the five business segments that meet the criterion of having a majority of revenues from external sources, only three segments meet at least one of the significance tests. Segments A, B, and E will be reported separately; segments C, D, and F will be combined into Other Segments. However, if total external revenues attributable to separately reportable segments is less than 75% of total consolidated revenue, additional segments must be reported even if they do not meet any of the significance tests.

 75% Test External Percentage of Segment Revenues Consolidated Revenues A 1,030 58% B 350 20% C 20 n/a D 140 n/a E 130 7% F 120 n/a Total consolidated revenues 1,790 84%

Because A, B, and E collectively comprise more than 75% of total consolidated revenues, segments C, D, and F will be combined.

The schedule below provides a suggestion for how the information items required to be presented for primary format segments might be presented. A reconciliation is provided for the amounts that appear in the consolidated income statement.

 Segment Segment Segment Other Corp- Elimin- Consoli- A B E Segments orate ations dated Total revenues 1,060 370 130 490 - (260) 1,790 Cost of goods sold 600 300 60 300 - (200) 1,060 Depreciation and amortization 80 100 5 35 10 230 Other operating expenses 120 150 5 55 50 380 Allocated corporate expense 24 10 3 13 - (50) - Segment profit or loss 236 (190) 57 87 120 Interest expense 30 Income taxes 30 Net income 60 Other information: Segment assets 1,650 650 300 900 100 3,600 Segment liabilities 750 300 140 510 - 1,700 Capital expenditures 200 50 20 105 10 385 Depreciation and amortization 80 100 5 35 10 230

8. Schering AG
Schering’s Primary Reporting Format is geographic. The following table indicates the heading used by Schering to report information required by IAS 14 for each reportable primary reporting format segment:

 IAS 14 Requirement Schering heading Segment revenue Segment net sales Segment profit or loss Segment result Carrying amount of segment assets Segment assets Segment liabilities Segment liabilities Cost during the period to acquire property, plant, and equipment, and intangible assets Investments in intangibles and property, plant and equipment Depreciation and amortization Depreciation Significant noncash expenses, other than depreciation and amortization Other significant non-cash expenses Aggregate share of profit or loss and aggregate investment in equity method associates and joint ventures. Not found, might not be applicable

IAS 14 also requires a reconciliation between the information disclosed for primary segments and the aggregate information in the consolidated financial statements. Schering provides this reconciliation; consolidated amounts are referred to as “Schering AG Group.”
When the primary reporting format is geographical segments, three items of information as shown below should be provided for each business segment whose external revenues are 10% of total external revenues or whose segment assets are 10% or more of total segment assets.

 IAS 14 Requirement Schering heading Revenue from external customers External net sales Carrying amount of segment assets Segment assets Capital expenditures Investments in intangibles and property, plant and equipment

Geographical segments can be determined on the basis of where assets are located or on the basis of where customers are located. If the primary reporting format is geographical segments based on location of assets and customer location is different from asset location, the company should disclose revenues from external customers for each customer-based geographical segment that has 10% or more of total external revenues. If the primary reporting format instead is geographical segments based on customer location and assets are located in geographical areas different from customers, the company should disclose:

• the carrying amount of segment assets for each asset-based geographical segment that has 10% or more of total external revenues, and

• capital expenditures during the period for each asset-based geographical segment that has 10% or more of total capital expenditures.