Interpretation Theory of Financial Statement

STATEMENT OF CASH FLOW

          CASH FLOW (Easy System)

Profit Before Tax  (PBIT)		xxxxxx
Add: Depreciation	xxxxx
Less: Profit on Disposal	(xxxxx)
Add: Loss On disposal	xxxxx
Less:Increase in Inventory	(xxxxx)
Add: Decrease in Inventory	xxxxx
Less: Increase in Receivable	(xxxxx)
Add.: Decrease in Receivable	xxxxx
Less: Decrease in Payable	(xxxxx)
Add: Increase In Payable	xxxxx
		xxxxx
Cash Flow from Operation		xxxxx
Less Interest Paid	(xxxxx)
Less Tax Paid	(xxxxx)
		xxxxx
Net Cash From Operating Exp.		xxxxx
Investing Activities
Less:         Purchase of non Current Asset		(xxxxx)
Add:         Sale of Non Current Asset		xxxxx
Add:          Dividend Received		xxxxx
Add.:         Interest Received		xxxxx
Financing Activities
Add: Issue of Share		xxxxx
Less: Repayment of Loan		(xxxxx)
Add: Loan From Others		xxxxx
Less: Dividend Pay/Interest Pay		(xxxxx)

Consolidated Financial Statements

The general principles involved in consolidated financial statements are:

1. A consolidated financial statement should essentially provide true and fair picture of financial condition and operating result of the business faction.

2. A consolidated financial statement needs to be prepared on the basis of legal-entity based financial statements of the parent company and its subsidiaries which belong to the business faction, and prepared in accordance with the GAAP.

3. A consolidated financial statement needs provide a clear vision about the financial info requisite for interested parties not to mislead their judgments about the business groups’ condition.

4. The procedures and policies used for preparing consolidated financial statements need to be applied ad infinitum and should not be changed without any reason.

Checklist for preparation of consolidated financial statements

1. Estimate group holdings and establish each entity’s status in the question.

2. Ascertain the fair value of acquired assets and calculate net assets of the subsidiary.

3. Estimate goodwill arising on acquisition.

4. Adjust for any intra-group activities.

5. Estimate the balance carried forward on consolidated retained earnings.

Few theory:

Consolidated Sales = Total Individuals Sales – Intra group Sale

Consolidated COGS = Total Cost – Intra group Sales + Unrealized profit

Consolidated COGS = Total Cost – (Intra group Sales - Unrealized profit)

Consolidated Profit = Total Individual Profit – Unrealized Profit

Consolidated  Receivable = Total receivable –Intra group Receivable

Consolidated  Payable = Total Payable –Intra group Payable

Closing Inventory increase profit will increase

If A parent company have  Only Associate company then it will not possible to create consolidated accounts.

Need at least on e subsidiary company.

Parents company of Associate company profits will show profit after tax in Associate will show profit before tax in consolidated accounts.

NCI = Fare value + Post acquisition profit – unrealized Profit as per percentage

If Parent Sold to Subsidiary Company and if any unrealized profit gain then the full amount of unrealized profit will be deduct from the group profit.

If Subsidiary Sold to Parent Company and if any unrealized profit gain then the percentage of unrealized profit  will deduct from the group profit. And Unrealized profit will deduct From NCI (as per percentage of NCI)

GoodWill= Trasfer share capital + NCI at the date of acquisition –Share capital-Retained earnings – Fair value of plant higher than carrying value

CALCULATION FORMAT

Consolidated SOCI

Description	P.Co.	S.Co.	Workings	Consolidated SOCI
Revenue Cost of Sales Gross Profit Administrative Expense Profit Before Taxation Income Tax Profit Attributable to Owners of P.Co of NCI Investment on Retained Earnings Group profit for the year Retained Earnings b/f Retained Earnings c/f

Goodwill Calculation

Consideration Transferred                                           ****

Add: Non Controlling Interest                                      ****

Total                                                                            ****

Less: Net Acquisition-date Faire Value

of identifiable assets acquired                         ****

Ordinary Share Capital                                                 ****

Share Premium                                                             ****

Retained earnings at acquisition                                   ****

Fair value adjustment at acquisition                 ****

                                                                                    ****

Goodwill                                                                      ****

NON CONTROLLING INTEREST CALCULATION

1.      NCI = Opening NCI + Year End retained Earning x % of NCI

(If Opening and Closing retained earning are  given separately)

2.      NCI = Opening NCI + (Closing Retained Earning – Opening Retained Earning) x % of NCI

3.      Cost of the Investment = Ordinary Share Value + Retained Earnings at acquisition + Profit as per percentage and proportionate time (month) + Goodwill

4.      Cost of the Investment = Ordinary Share Value + Retained Earnings at acquisition + Profit as per percentage and proportionate time (month) + Goodwill- Non controlling interest (if any)

Such as Parent company acquires Subsidiary company on 1^st October, 2012 and the year end is 31^st December,2012. So, Profit proportionate is 1^st October to 31^st December that means 3 months.

If profit is 80000 tk during the year then the cost of investment will be 80000 x 9/12 = 60,000 tk. which is the cost of investment.

5.      For Associate Company ,no legal form of Consolidated Income Statement and no need to prepare consolidated Income Statement.

6.      For Subsidiary Company Consolidated Income Statement is Required.

7.      If any parents comapny has no subsidiary company only associate company the no need to prepare consolidated income Statement. In this purpose SOFP Shows the Investment in Associate and the income will show in the SOCI, before tax.

8.      Mark Up 40% means When Sales 100 then CGS 125.

Ex. If sales 5000tk then CGS will be 5000x 100/125 = 40000

And Profit will be – 50,000 – 40000

If unrealised profit then how to calculate consolidated retained earning:

Condition : 100% Acquire

If Subsidiary company sold some goods to parents company but the goods still in inventory then the unsold goods profit will be deduct (as per parents company percentage ) from the retained earnings then added parents company retained earnings.

Condition : less than 100%  such as 60% Acquire

If the above condition is presence

1.      Calculate the intra group sales profit

2.      Calculate unsold/unrealized profit as per percentage

3.      Deduct the unrealised profit from the consolidated gross  profit

Example: On 1May 2008 Symphony Co. Acquired 60% of the share capital of Sprint for 1,20,000 $. During the year Symphony Co. sold goods to sprint Co for $30,000 including a profit margin of 25%. 40% of these goods were in inventory at the year end.

The following extract was taken from the financial statement of Symphony Co and Sprint company at 30^th April, 2009

                                                            Symphony                   Sprint

                                                            $000                            $000

Revenue                                              750                              400

Cost of sales                                        (420)                            (100)

Gross Profit                                         330                              300

What is the consolidated gross profit?

Step-1.

Intragroup sales: $30000 and Profit margin 25% then profit will be $7500 (30000 x 25%)

Step-2

 Unrealized profit will be 7500 x 40% = 3000.

Step-3

(330000 + 300000) – 3000 = $327000