311 Lecture 08 CF SEG Interim

Summary

In this comprehensive lecture, students are guided through the complexities of accounting for consolidation and segment reporting with an emphasis on practical application and real-world examples. The lecturer emphasizes the importance of understanding consolidation processes, including the use of work papers and evaluating financial statements like balance sheets and cash flows to evaluate a company's financial health. Segment reporting is also discussed, illustrating how companies like Apple use this method to disaggregate financial data to offer a clearer picture of their operational success across different business areas. The distinctions between direct and indirect reporting methods, as well as key accounting principles like the integration of financial reports for interim periods, lend further depth to the understanding of these crucial accounting practices.

Highlights

• Mastering consolidation involves understanding work papers, equity securities, and statutory mergers 📚.
• Direct and indirect cash flow methods differ mainly in the operating section, impacting financial interpretation 💸.
• Apple's real-world segment reporting exemplifies the application of comprehensive accounting standards 🍏.
• Interim reporting ensures consistency across quarterly and annual financial statements, adhering to ASC 270 📆.
• Branch accounting emerges as a strategy for exploring new markets with segmented financial analysis 🗺️.

Key Takeaways

• Consolidation of financial statements helps to provide a big-picture view of a company's operational and financial health 📊.
• Understanding the nuances between direct and indirect cash flow methods is crucial for accurate financial reporting 💡.
• Segment reporting allows companies to present more detailed financial information across different business divisions 📈.
• Real-world examples, like Apple's segment reporting, illustrate the practical application of these accounting principles 💼.
• Interim reporting bridges the gap between quarterly and annual financial reports, ensuring continuity in financial clarity 💬.

Overview

Consolidation in accounting is like piecing together a financial jigsaw puzzle, revealing a company's comprehensive financial picture. By mastering consolidation, accountants can seamlessly blend various statements, focusing on equity, security, and mergers. Through this process, work papers become invaluable tools in clarifying each financial move and its broader implications for business health.

Segment reporting is the backstage pass to understanding a company's internal workings. By splitting financial data into segments like geographical location and product lines, firms can portray a clearer, more strategic picture of their operations. This is especially important for big players like Apple, who must align their complex, multinational operations with sound financial reporting standards, serving both internal management and external stakeholders.

Interim financial reporting serves as a critical bridge, seamlessly connecting the dots between quarterly snapshots and annual disclosures. Holding tight to principles set out by ASC 270, organizations maintain consistency and accuracy across reporting periods, ensuring investors and management alike are informed with clarity and precision. This method not only supports regulatory compliance but also fosters strategic financial decision-making throughout the year.

Chapters

• 00:00 - 00:30: Introduction The introduction chapter sets the tone for the topic at hand, likely providing background information and establishing the context for the subsequent discussion. As indicated by the placeholder 'Music,' it seems to be an engaging or reflective piece, possibly using audio to create a mood or atmosphere, but lacks specific content details in the provided transcript. Therefore, without more textual content, a thorough summary is not possible.
• 00:30 - 01:00: Welcome Message This chapter serves as a motivating welcome for those on their journey to becoming an accountant or CPA. It highlights the opportunities and growth that can stem from achieving this qualification, positioning it as a stepping stone to various career advancements.
• 01:30 - 03:00: Consolidation and Carry Forward Items The chapter appears to cover regulations and guidelines around the sharing and distribution of educational content. The instructor notes that the video is unedited and emphasizes the importance of not distributing it outside the course without direct authorization. Furthermore, the instructor encourages students to report errors immediately via email, highlighting a commitment to ongoing improvement.
• 03:00 - 05:30: Consolidated Financial Statements and Cash Flow The chapter delves into the complex task of preparing consolidated financial statements and understanding cash flows. It emphasizes utilizing advanced software to enhance understanding and visualization of financial data. Key discussions revolve around maintaining a focus on big picture thinking, especially concerning carry forward items and how they interconnect. The conversation continues to build on previous ideas about the importance of consolidation in gaining insights into the overall financial performance and strategy.
• 05:30 - 10:00: Methods of Preparing Cash Flow The chapter titled "Methods of Preparing Cash Flow" discusses various methods involved in handling equity security and stock acquisition, especially when it constitutes over 50% acquisition. It highlights the complications in work papers when dealing with significant stock acquisitions and differentiates between statutory mergers, statutory consolidations, and ordinary stock acquisitions. The text indicates the ease of handling the process with proper general journal entries tailored for the specific nature of the acquisition, whether it be stock or asset.
• 10:00 - 20:00: Consolidated Cash Flow Example The chapter focuses on the concept of consolidation in accounting, particularly as it applies to the consolidating of the cash flow statement. It explores the consolidation process that involves peace books and s books adjustments, the elimination of investment accounts, and other critical steps. The content so far has been primarily addressing the Consolidated Income Statement (CIS) as it pertains to P+S plus adjustments during stock acquisitions. The chapter also promises discussion on statutory mergers, consolidations, and their impact on the balance sheet.
• 20:00 - 22:30: Branch Accounting Introduction The chapter introduces the concept of branch accounting, with a particular focus on the consolidated financial statement known as cash flow. It emphasizes the importance of retaining previous learning while continuing to build on new concepts for greater understanding in financial management.
• 22:30 - 30:00: Branch vs. Consolidation Accounting This chapter discusses the importance of cash flow in accounting, particularly focusing on the concept of liquidity. Using a checkbook analogy, it emphasizes the need for businesses to track their cash receipts and payments in real-time, rather than waiting until the end of the month. This approach helps in understanding the company's financial health and ensures effective cash management.
• 30:00 - 35:00: Interim Reporting Introduction The chapter introduces the concept of interim reporting, emphasizing the importance of understanding future cash needs for business operations. It touches on the necessity of monitoring cash flow regularly, especially concerning dividend payment strategies. The chapter also briefly mentions that net income is reported on a full accrual basis, hinting at the complexities involved in interim financial assessments.
• 35:00 - 56:00: Segment Reporting Standards and Examples The chapter discusses cash flow with a focus on reconciliation of net income, specifically from an operational perspective. It mentions F 95, which is applicable to all entities including consolidated and single entities, as well as not-for-profit organizations. F 95 outlines two methods for preparing cash flow: the indirect method and the direct method.
• 90:00 - 92:00: Conclusion and Summary The chapter discusses the two methods under Faz 95, focusing on the indifference between them. It emphasizes the categories of operating, investing, and financing, noting that these are applicable under both methods. In particular, it highlights that the investing and financing categories are exactly the same in both methods.

311 Lecture 08 CF SEG Interim Transcription

• 00:00 - 00:30 [Music] [Music] [Music]
• 00:30 - 01:00 dear professionals greetings and welcome back to your journey towards becoming an accountant or CPA the perfect place place to springboard to so many other
• 01:00 - 01:30 fields since I teach for all it is only natural that some would like and others will dislike my apologies this video is unedited and should not be made available to anyone outside this course without direct written authorization please report any errors throughout this course to me immediately via email okay professional let's continue improving
• 01:30 - 02:00 that powerful software of yours in the area of what we consider the complicated consolidation to improve your overall big thinking big picture let's stick to the carry forward items and keep connecting the pieces as we move forward as you recalled big picture in terms of consolidation go goes as
• 02:00 - 02:30 follows Equity security not debt or assets is somewhat complicated however if it's over 50% the complication lives on the work papers over 50% stock acquisition if it is a statutory merger or statutory consolidation be it stock or asset easier to handle some general journal entries in the correct set of books but if it's a stock acquisition
• 02:30 - 03:00 consolidation again involves peace books s books adjustments the investment in account the elimination of it and so forth so so far we've been focusing on Consolidated income statement as it relates to p+s plus adjustment in a stock acquisition that uh we will address also statutory mergers and consolidation the balance sheet and a
• 03:00 - 03:30 retain earning statement let's turn our Focus now to another major Consolidated financial statement known as the cash flow so hopefully you're not forgetting the pieces you have leared and you're going to keep tacking on the new pieces to build the collective knowledge we seek as you know cash flow those is governed
• 03:30 - 04:00 by FB 95 from your 2011 202 accounting you also will recall that the need for cash flow has to do with wanting to know what cash you receive versus what you paid how liquid are you the idea is what is my checkbook just like an individual at the end of the month you want to know well beforehand you're not going to wait for the the end of the month how you're doing on cash
• 04:00 - 04:30 the business has the same need the future needs of cash that means that you need to know now you may also as part of your dividend payment strategy keep a tap on cash regularly because you need to know what dividends you're going to pay we know that net income is on a full acral basis so the
• 04:30 - 05:00 cash flow in essence is a Reconciliation of that net income at least from operational and operational perspective F 95 applies to all entities Consolidated single entities including not for profit fast 95s dictates or calls for two different method in preparing the cash flet the indirect method and the direct method there are not much
• 05:00 - 05:30 indifference when compared the two methods actually if you use my acronym o operating investing and financing are the three categories calls for under Faz 95 on the both methods o applies operating investing financing in fact investing and financing are exactly the same on on the two different methods the
• 05:30 - 06:00 difference lies in the operating section but you know that from your accounting 2011 and 202 let's drill down a little bit more here operating section means tell me what cash you generated from your operation as opposed to investing this is other than operation or borrowing either in long-term or Equity Security in the operating section we simply take
• 06:00 - 06:30 the net income from operation knowing that the net income is on a full acral basis and therefore it includes non-cash items such as depreciation so what we do is we take this net income since it's already been calculated for operations and adjust it to get to cash from operation how we do that is we plus or minus all the deferral item
• 06:30 - 07:00 which is typically current assets the acral items that has to do with current assets and current liability and then the non-cash item that was processed or that was part of the net income we make adjustment for those items and it gets us to operating cash on the flip side direct method wants you to directly tell the rest of the world how did you raise money via sales how much you got from sales and what we will do is since sales
• 07:00 - 07:30 is not typically all cash it will be impacted by bad debts and receivables so we take the change of receivables and change of bad debt and adjust sales to get the cash then they want you to tell the rest of the world how did you spend this money well we paid for employee we paid our vendors for cost of goods purchase so that may have some impact from accounts receivable and acral prepayment as well so we take those account take the changes adjust these
• 07:30 - 08:00 items to get to the cash pay then two big items would be payments we made to interest and payments we made for dividends notice when we pay dividends it is an adjustment from operations however if we if we receive dividends stat is it's an adjustment from operation it's dividend income when we pay dividends we will report that as part as financing activities so that's
• 08:00 - 08:30 an important distinction right there a part of cash flow the other important outflow will be income tax it's not always an outflow sometimes you get a refund but that's a receivable situation we're talking about income tax expense everything else will fall in other category on the F 95 there are two methods direct and indirect investing and financing the same including the footnotes the
• 08:30 - 09:00 difference lies in op the operating section if you still don't understand this you need to go back to accounting 2011 and refresh yourself accounting for Consolidated cash flow is no different the great thing about cash flows is that the answer already lies in the cash account all we're trying to do is to take the ending cash balance subtract the
• 09:00 - 09:30 beginning come up with the difference and explain the difference in these three categories did that change have to do with operating investing and financing and that is the key so let's illustrate by looking at this situation we have bolaro company holds 80% of the common stock of Rivera's
• 09:30 - 10:00 Inc not only did they buy the common stock but also they bought 40% of the convertible debts the following Consolidated financial statements were given to you this is the Consolidated financial statement so you must keep that in mind we are not starting out with single entity here the Consolidated cash flow is derived from the Consolidated balance
• 10:00 - 10:30 sheet and the Consolidated income statement which we have gone through for several sessions now once those statements are completed this is the result and from these statements we are going to prepare the Consolidated cash flow so let's examine typically what do you do to prepare the cash flow you typically have some notes along with the financial statements but the whole idea
• 10:30 - 11:00 of cash flow is to take the ending balances of all the financial statements or the balance sheet that is and subtract it from the beginning and every single change has to make it in one of these categories so let's go down and see investing investing typically a purchase and sales of productive assets PPN
• 11:00 - 11:30 any uh Equity security purchase such as buying a a subsidiary or the sale of the subsidiary would be here financing activity as I mentioned earlier would be long-term debt not short-term dividend payment or issuance of common stock preferred shares or even treasury share activities in some instances you may have restricted cash addressed here in terms of not for-profit entity
• 11:30 - 12:00 types continuing with Consolidated cash flow here let's get a little closer with this financial statement that was given to us we know they bought 80% so there is a non-controlling interest here it is on the Consolidated statement so the combined net income for the parent is 229 but the total combined income is 250 for the period they had revenues cost of
• 12:00 - 12:30 goods sold then they had some non-cash depreciation some gains which is also considered to be part of the sale price so you can't duplicate counting gains or loss uh interest expense so the idea here for the income statement is you don't need to adjust for items that are already cash in nature the only thing you're going to adjust for are the things that are non-cash and that's typical cash flow for you so we go ahead and we subtract
• 12:30 - 13:00 the differences and we must account for all the differences for the balance sheet we'll come back to that additional information that were provided were as follows the parent issue bonds during the year for cash that's good to know so if we look at long-term debt we should see that the debt went up and yes the cash account was impacted by that armatization ation for database amounts
• 13:00 - 13:30 to 15,000 but hey that's already part of net income so we really don't need to do anything because it's it's not a non-cash armatization is a non-cash item that is true and it is part of uh depreciation and armatization the total already the parent sold a building with a cost of 80,000 but it had a book value of 40 so it costs 80 so we know that the
• 13:30 - 14:00 accumulated depreciation was 40,000 the difference of the two they're telling us that the cost was 80 so if we were to journalize this transaction we will debit the depreciation accumulative credit the cost then we will try to find out how much we receive we don't have that number however if we go to the financial statement you see there is a gain on the sale
• 14:00 - 14:30 30,000 so we have the credit side of this we could plug to find the debit side that allows us to figure out what we sold this equipment for 70,000 the building 70,000 that's the oldfashioned accounting 2011 there for you the subsidiary purchase equipment on July 23rd for 205 in cash so that's great to know that the subsidiary on an individual basis
• 14:30 - 15:00 had that transaction so we could account for that late in November the parent issued stock for a cash so we're going to look at the stock typically when you look at the stock you need to look at common stock in addition you must include additional piding Capital so you look at them together because stock is going to be issued at fair market value it's helpful to also note that the subsidiary paid
• 15:00 - 15:30 dividend of 10,000 so we know that the sub paid 80,000 8,000 of that in this 110 the parent already included their 8,000 however 2,000 was paid to Outsiders both the parent and subsidiary paid dividends in the same year as declared they would like for you to prepare a Consolidated cash
• 15:30 - 16:00 flow so coming back to the overall summary of consolidation we're dealing with this situation here common stock acquisition of common stock p+s they have given us this consolidation and we're using this to prepare the combined cash flow now what if it was a statutory
• 16:00 - 16:30 consolidation or merger we would have done this entry and this entry we would then come up with a combined statement and do the same thing we would have not had to do workpapers a simple journal entry in the correct set of books would get us to the point where we could then produce the combined cash flow as we said the difference between the two methods lies in the operation
• 16:30 - 17:00 section if we find investing and financing it's not a sweat you can copy that right over to your direct method interesting to note that while the direct method is the method that the fast B encourages the general public corporation love to use the indirect method and for good reasons because they already have combined net
• 17:00 - 17:30 income we all all we need to do is go to the statement and pick it up here it is so we have the combined income call that item one we know that this was given to us it was in the income statement item two so we subtract that from net income when it was non-cash We'll add it back G gains on sale we had
• 17:30 - 18:00 added but that was part of the purchase price already so we're not going to adjust it two times so we're going to neutralize that transaction we'll subtract it we're going to assess the change in receivable the changing inventory the change in payable and we're going to account for all of them let's assume the numbers are correct 20 150 and uh 50 let's assume that there was a decrease in receivable
• 18:00 - 18:30 what that means is money came in they paid you so you reduce receivables there was an increase in inventory what that means is that you sold it went out the door you used it in Goods consumed you decrease payable that means money went out you paid off your bills so we know clearly where all of these items coming from let's backtrack and see here is that 120 item two item three
• 18:30 - 19:00 was the 30,000 of gains then we went to the current assets and current liabilities on the balance sheet so let's see let's go back to the retain earnings we know that we accounted for net income already beginning doesn't matter because that plus net income along with the dividends falls into retain earnings retain earnings falls into the balance sheet and we know we are going to account for all of that by pieces so we already accounted for the
• 19:00 - 19:30 period change which is net income we're going to account for dividends later and that will take care of this whole statement slide down to the current assets the difference between cash was 90,000 so we know once this is completed it must add up to 90,000 and here these three pieces gets us to 90 so like I said cash flows are easy you always have your answers well before addressing the
• 19:30 - 20:00 question so receivable Changed by it went down here's the 20 decrease the inventory increased by 150 so we used money to purchase uh we have uh the payable current that decreased that means we paid it off and so those are the current items and those
• 20:00 - 20:30 impacts operations so those are the items we accounted for fully now let's go to investing and we said this is uh pretty much productive assets and when there's sale of productive assets we need to account for it when we look at productive assets you see that we did sell for cash 70,000 and in the 70,000 includes that gain this is why we adjusted our operations for it so we'll come back and adjust
• 20:30 - 21:00 now the 70,000 here we were we also were told that the subsidiary bought 205 so we're going to account for that so here we go cash from operation is 160 cash from investing is 135 financing we're going to take a look financing is we got bonds was 110 and we issued
• 21:00 - 21:30 Securities for 67 and I said you need to look at those together so if you were to slide back here you would see here is the 110 and here's the 67 how about the dividends we paid dividends why is it 112 well 110 as I said previously was paid by the parent and 2,000 was paid by the subsidiary to outside third parties so
• 21:30 - 22:00 that's 10,000 that they had paid times 20% parents own 80 so that gives you 2,000 plus the 110 and so cash used to pay dividends is 112 112 So cash flow there there you go not that difficult two methods all covered
• 22:00 - 22:30 on the F 95 combine cash flow is prepared after you have the combined balance sheet and income statement it's a derivative of those two statements so let's turn our attention now to another interesting subject Branch accounting Branch accounting is also included in Consolidated
• 22:30 - 23:00 results it will be concerning to me if you go out there in the Working World and have no idea what branch accounting is all about so let's examine what is Branch accounting so Branch accounting is a bookkeeping system in which separate accounts are maintained for each branch or operating location of an organization but the term usually refer to Branch account accounting their on books and then later
• 23:00 - 23:30 send that info to the head office to combined with the Consolidated results typically either aign a business or a subsidiary now what are some striking differences when we look at Branch accounting as compare to consolidation let's take a look why Branch accounting to begin with first of all Branch accounting allows a
• 23:30 - 24:00 subsidiary or a corporation to go into a foreign country not knowing the law not knowing how whether they can trust folks not damaging their exposing their brand or exposing their name they can quietly enter into a country set up office sell their product with certain basic approval by the the local government so in comparison to consolidation your
• 24:00 - 24:30 owning is subsidiary which require uh compliance so this this is very little compliance now in terms of benefit you could be testing the market join Ventures you could enter the market for a profit uh you can be doing a number of things using Branch accounting so lots of companies use Branch accounting it's very informal as compared to consolidation is a very
• 24:30 - 25:00 formal process this is not subject to F 142 as consolidation is subject to F 142 where subsidiaries are involved and premium and discounts fair market value adjustment and Goodwill and so forth Branch accounting has none of that subsidiary accounting has sub parent and so that involves all the eliminations surrounding sub parent in in terms
• 25:00 - 25:30 of unrealized gains loss in terms of Branch accounting home office and branch office do have some eliminations we must eliminate transfers of goods and we'll take a closer look at that so in a fact Branch accounting is what we call home office verses branch office consolidation is in is investment in subsidiary account
• 25:30 - 26:00 versus the subsidiary so investment in branch is the account we will use here in terms of issues we know consolidation has numerous issues Branch accounting is are limited it's really the reciprocal accounts Branch versus head office we need to reconcile those accounts and they must balance when we sell Goods you will see we sell Goods at a profit to the branch that will be
• 26:00 - 26:30 placed in an overvaluation account so the account is used to handle the sale above cost and sometimes freight costs picked up by the head office on the behalf of the branch charges the branch with expenses incurred by the home office if the home office incur certain expenses we will have the issue of charging that back to the branch uh we do have uh issues and transactions that
• 26:30 - 27:00 might go back and forth with between the branch and head office those are one time in nature that maybe need some sort of special interest or addressing at the end of the period the oldfashioned closing entry has to take place we may even dispose of the branch after testing the marketplace and realizing we don't want to continue uh operating there here here's the interesting fact though you may start out with a branch discontinue
• 27:00 - 27:30 it or start out with a branch and then end up with a subsid because you would love to do business there one of the major item in Branch accounting that needs addressing all the time are the inventory that have been s sent from the head office to the branch office they're called items in transit that typically is addressed by via the reciprocal account the closing
• 27:30 - 28:00 entry we the thing that we need to pay attention to is the branch office operation is closed into what we call an income summary account and then subsequently that summary income account is closed and then posted to the home office account so typically what happens here let's say if we're going to start out the branch in Taiwan we're going to we're the home office in the United States are we going to send certain things to that Branch some cash some Onex uh uh Insurance some
• 28:00 - 28:30 office supplies some equipment property plant equipment along with the depreciation what the home office is going to do is show their investment in the branch if it's total 472 they total it and that's what they're going to send they're going to debit and credit all the various items debit the accumulated to show the transfer credit cash and all the items up to assets on the flip side the branch office is going want to do the reverse they got the cash the
• 28:30 - 29:00 insurance the supply the equipment they debit it the accumulated appreciation the credit and the reciprocal account will be credited if you notice in the home office you will have the branch account and in the branch office you will have the home office account let's take a look at a real illustration here below our condensed trial balances for the home office and Southern branch
• 29:00 - 29:30 of Ivans Corporation here are the trial balance accounts home office branch office let's take a look here the branch acquires all of its merchandise from home office at a bill price equal to 25% over cost Freight is negligible meaning that the home office May cover the freight cost for the branch office but they don't account for for it towards the branch they suck it up so
• 29:30 - 30:00 there's no need to count for it at the end they were inventory of 880,000 and 30,000 they want us to prepare the accounting for the branch office so let's go ahead the first thing we're going to do is take a look at the branch Office Accounts relative to the home office accounts they both have has beginning inventory here's that overvaluation account now you know what's sitting in here profits 29,000
• 30:00 - 30:30 represents Goods home office sent to the branch office and this is the markup there could be some additional quirky items in there but for now just think of it as all markup on inventory transfer to the branch they have some other uh assets here's the investment in Branch note it equals to the home office balance they have some liabilities each of them obviously the branch office will not have common stock but the home office do
• 30:30 - 31:00 so and retain earnings as well we know the branch Office Accounting closes into the retain earnings via the summary account as we noted earlier they are going to obviously have sales just like we do in the home office here's the shipment to the branch we know all the goods have been set to us all the goods that the branch office receive came directly from the home office is at a 20 5% margin so we know 100,000 will ship
• 31:00 - 31:30 the branch office is going to receive that with the markup 125 some purchases we know there's going to be zero because all of it came via transfer shipment from home office shipment to Branch expenses trial balance Works no issues we're going to go ahead and do the branch Office Accounting
• 31:30 - 32:00 first we need to reverse all these accounts and Via their closing entries come up with the income post it to income summary once the income has been posted the income summary we're going to show that the home our account went up by 13,000 because we had sent money to the to the home office and we're going to close close that income summary account to the
• 32:00 - 32:30 home office account the flow on the other side the home office is going to increase the investment so that these two accounts are in Balance investment in branch in the home office account Credit Income because that's income to the home office we will have to adjust the overvaluation for the realization of the sales that was made During the period and then we'll go ahead and process the home office accounts so here
• 32:30 - 33:00 we go the the ending inventory is debited the beginning is credited the sales is the purchases that we had is 125 it was a debit we will credit it the sales was a credit we will debit it then we had some expenses so we closed this account this account this account they're all closed already and we Clos this account the difference is are profit we're going to clear this account and post post it to the home office account
• 33:00 - 33:30 then we going to start the home office accounting we're going to increase the investment clear the account to income we need to do some calculations here this 29,000 needs to be adjusted how we know that in what is left in ending inventory is 30,000 so that can help us realize how much should be
• 33:30 - 34:00 realized if that's one 30,000 represent 125% cost is 24 so the gains sitting in the 30 is 6,000 Branch Office Inventory that means that 23,000 of this 29 is going to make it to income so we're going to go ahead and debit over valuation and realize the income we're going to go ahead to the home
• 34:00 - 34:30 office and do the same thing reverse it turns out they have 50,000 of income now we're going to do is we're going to add up this income and close it to the parents in summary so that's 36,000 we're going to debit income from Branch credit invent uh income summary that income summary together will be closed in the home office books 886 Branch accounting is very sweet not
• 34:30 - 35:00 that difficult the only part that may appear to be somewhat a little difficult are the eliminations but even so the elimination surrounds the inventory and the unrealized gain sitting in that inventory so let's take a stab at it and see how that works the inventory that we're going to remove it's going to be first what's
• 35:00 - 35:30 sitting on the books 80 plus 30 110 has to do with business between branch and home office so we're going to debit the ending and we're going to reverse it out income statement balance sheet debit the balance sheet credit the income statement overvaluation account we're going to take a look what's sitting on the sub on not not subsidiary but the branches book is
• 35:30 - 36:00 30,000 um so how we're going to uh adjust this is first we want to realize the beginning inventory we have had that discussion it's just like a subsidiary realization where we're saying that the beginning is going to become part of the cost of good Soul so we're going to realized it so this the same assumption here we're going to realize it so we know if this this is sale price divide it by 125 subtract it and
• 36:00 - 36:30 the difference is the piece of realization so we're going to debit valuation and credit inventory for the 4,000 that in effect causes the realization of gains we're going to then remove the gain sitting in the ending inventory we know that this is unrealized we've calculated it before so what we're going to do is reduce the inventory sitting on the balance sheet for 6,000 and we're
• 36:30 - 37:00 going to debit the ending inventory thereby reducing that income the goods that was Shi from home office we're going to take care of that as well reversing it out and then on du the markup of 25,000 that will bring us if we've done all of these current period debits and credits it will bring the home office account back to the beginning balance we are going to then and simply reverse those two we're going to credit the investment in branch and debit the
• 37:00 - 37:30 home office account beautiful Branch accounting there we [Music] go
• 37:30 - 38:00 [Music]
• 38:00 - 38:30 for a number of sessions now I have been explaining to you how to combine companies for external reporting
• 38:30 - 39:00 purposes however management cannot use thisinformation to run an organization in fact management instead of Consolidated results or aggregated results aggregation of financial information consolidation they separate it out disaggregate the information by segment for internal reporting purposes rather than Consolidated
• 39:00 - 39:30 results this is referred to as segment reporting interim reporting we will deal with a little later what is segment information or reporting and how do you consider something a segment for reporting all of this or this kind of guidance is found under Faz b14 later
• 39:30 - 40:00 amended by Faz 131 companies or entities like Walt Disney Apple Boeing each is required to report their different business information by segment according to fby accounting standard codification ASC topic 280 segment reporting the objective of segment reporting is to provide information about the different business activities in which an Enterprise engage
• 40:00 - 40:30 in the different economic environments in which to operate to help users of the financial to better understand the entity performance better assess its prospects for future cash flows or making firm judgments about the entity as a whole what is better than to look at an actual company let us turn our attention to Apple Inc so I can make this point as to how
• 40:30 - 41:00 important this key reporting requirement is if we were to look at Apple's 10K to the SSE let's see in the real world the point is in the real world management uses segment information which is synonymous with line of business information along with Consolidated
• 41:00 - 41:30 result to run an organization we're going to visit Apple Inc now and take a look at how this information is presented we're going to pay attention to item 16 item 8 and item 7 let's first go to the 10K you're familiar with some of these items we have spoken about them obviously the cues are the quarterly information which
• 41:30 - 42:00 are the interim financial information which we will talk about later and the Ks are the annual Financial reports we will later observe how interim financial information is different than the 10K which is the annual financial reporting for the SSE we did discuss a bunch of these items the 8ks is as you can see there are many as I summed it to you 8ks
• 42:00 - 42:30 are for significant events so where do we report segment information segment information is reported as part of the Consolidated financial statement notes so when an investor looks at the financial statement they will be seeing the
• 42:30 - 43:00 Consolidated result or aggregated information and if they look in the notes for Apple computer Apple Inc it is Note 10 they can see the Consolidated information as compared to the segment information and under F 14 and 131 the segment information must be reconciled to the consolid ated information so in essence what you have is a beautiful
• 43:00 - 43:30 reconciliation of line of businesses or segments tying in back to all of them combined as part of the Consolidated report that kind of information is very powerful in addition to the financial statements segment information is also reported as part as the mdna management discussion and Analysis of financial condition and results of operation make
• 43:30 - 44:00 sense if this information is given you can make better judgment as to how a company is doing if we take a look here you would see that the identifiable identifiable reportable segment is America Europe greater China Japan and rest of Asia so it clearly looks like geographic location is how Apple Inc has segmented its business and then by product iPhone iPad
• 44:00 - 44:30 the mac and other products these are the segments that they have included in their footnotes let's go back to the Consolidated financial statement of Apple Inc and see if we can make some sense of this so here is the Consolidated statement of operations here's the income that should be part of the balance sheet retained earnings here's the EPs and so
• 44:30 - 45:00 forth here is the combined comprehensive income we once we're done with the operating income we plop it into the comprehensive report adjust it for unrealized gains and if you notice here a subject matter that we are going to be discussing soon our final subject matter foreign currency that is part of comprehensive
• 45:00 - 45:30 income then it's our Consolidated balance sheet our Consolidated statement of shareholders Equity Consolidated statement of cash flows and then if we look at Note 10 I believe Note 10 here it is let's read it says the company reports segment information based on Management's
• 45:30 - 46:00 approach the management approach designates the internal uh reporting used by management used by management for making decisions and assessing performance as the source of company's reportable segments so clearly they're using this information to manage the business it's a lot of great stuff to read here but let's go to the reporting itself here are the segments that we have
• 46:00 - 46:30 identified via the mdna and here are net sales here's the segment again and now we have the operating income net sales then we have long live assets then we have it list again by products Note 10 to the Consolidated statement so you have a live view of what this actually
• 46:30 - 47:00 looks like in the real world so when your boss ask you to help with the footnotes on segment information now you know what they're talking about so that was a great examination of a real life company Apple Inc let's examine a little bit more and learn a little bit more about segment information on Apple Inc why did they
• 47:00 - 47:30 report or disclose certain items what are those items how do you know what they are and so forth so how is a segment uh reporting helpful to the user of the financial statement understandability as we made clear earlier it is useful when Consolidated rep results and segment information is used together in reviewing a company example is Consolidated sales alone is
• 47:30 - 48:00 meaningless because it's combining clothing with airplanes and cars and boats and give you total sales what does that mean however if you look at total sales along with the segments you can make more sense of the sales numbers reportable segments can be viewed as disaggregating of financial information so the bottom line is the
• 48:00 - 48:30 fact that we're reporting a segment we're taking the Consolidated data now and disaggregated into the way we manage the business by its segments that we care mostly about meaning internal management so you're separate separating out the legal entity Consolidated results because when we Consolidated the entities that's legal we are now separating it out which is not legal but
• 48:30 - 49:00 in the way that the management finds more useful to manage the business so typically it has to be large enough to be separated out the opposite is non-reportable segments which is segments that are not identified and will not be reported that means the information will be Blended with other segments that did not get identified as separate
• 49:00 - 49:30 reportable segments any segment that is not going to be reported will be added up with all other segments that is not that are not going to be reported so this can be viewed as the aggregated financial information putting them back together like in consolidation the only difference is this this information is too small to have an impact to the organization so it's not even worth
• 49:30 - 50:00 focusing so let me give you a real life understanding how this process work how does it work in the real world not textbook but real world here's how I have done it in the past I've given you Apple computers or Apple Inc if we were to take Apple Inc Financial statement this is exactly I've rolled it up into higher values so one
• 50:00 - 50:30 line for for asset one line for uh liabilities and equity and so forth uh but it still makes the point the numbers are exactly the same numbers as in apple Inc 2018 results these are their Consolidated this is their individual parent company in California here is the US Apple company the EU company the China Company their adjustments P plus S Plus their
• 50:30 - 51:00 adjustment gives you consolidation this is their actual results and it works now how do we get to from Consolidated results to segment information which is synonymous with line of business first what you must understand a couple of things this is done in what we call an Enterprise Suite system yes there's a consolidation module and
• 51:00 - 51:30 attached to that module is a line of business reporting which is more like a mini mini mall for information apple as we have seen in its actual results line of businesses were I iOS iCloud China iPhones and Mac Computing the way cons line a business
• 51:30 - 52:00 or segment uh results are derived is the Consolidated report must be completed First Once the Consolidated reports are completed then the process for Segment reporting begins it's a simple process and this is why once the Consolidated returns are done and the L of business reports or results are obtained you can reconcile
• 52:00 - 52:30 them because they are product of each other what typically happens is subsidiaries may fall exactly into a line of business and so for Apple Inc this is the case Apple USA Falls right into the line of business Apple USA Apple EU Falls right into the line of business EU and China Apple China is split
• 52:30 - 53:00 between two lines of business 50% for iPhone and 50% for Mech so the whole idea is once the Consolidated results are completed it's a simple process hit the switch and that con that consolidate data is then fold into lines of BU business so now management has the line of business results along with the
• 53:00 - 53:30 Consolidated results for them to manage the organization now there are sometimes some minor intra activities that needs to be eliminated when you have to split an entity into two so how does an Enterprise determine what operating segment is going to be portable and which operating segment are significant enough large enough to be
• 53:30 - 54:00 considered a separate disclosure or separate for disclosure there are three basic tests all you need to do is to qualify for one so what is a segment what segment is reportable has a lot to do with these three tests 10% of Revenue 10% of p&l 10% of of assets what you have to be really careful with is 10% of revenues means
• 54:00 - 54:30 Affiliated and Ona Affiliated revenues that means all revenues internal and external 10% p&l you have to be careful because this thes is 10% of not all profit and loss but absolute Lo uh profits meaning separate out your profit versus your losses take 10% the greater would be the threshold 10% of assets
• 54:30 - 55:00 means all segment assets that means all the assets that are reportable segments you will combine them take 10% of it and that will be the threshold in reality it's all of Consolidated assets once you've completed the 10% test F 14 and 131 has a 75% materiality test it is an assurance test to make
• 55:00 - 55:30 sure that enough segments are disclosed so that the sales to third party is greater than or equal to 75% of the total combined third party external sales external so this 75% test is really just assuring that the reportable segments that you're separating out this agregate and report is material to the overall
• 55:30 - 56:00 operations at least 75% which will make sense because the large segments are the ones the ons that of size warrant separate disclosures what are the advantages of segment reporting a typical manager will argue against consolidation that's that's in a sense an advantage hey we segment information because Consolidated data is not useful
• 56:00 - 56:30 it is lost when you combine things combining data creates allocation problems joint cost as you know allocate allocating joint cost logically based on level of activity or line of business these are items that who presents issues and sometimes it's not fair in the way it
• 56:30 - 57:00 was allocated so the measurement will be impacted other arguments are that if we report by product it offers better information if we tell you our management knows more about our product our customer the geographical location in which we operate that is far better or Superior information than to just combine everything and look at it
• 57:00 - 57:30 combined so what are the what are some key points here key points to take away is that the consolidation results is the starting point for a line of business or segment reporting it is important to understand the sum of all Affiliated single entities legal the it's it's what we call the legal entity view line of
• 57:30 - 58:00 business may also filter out Affiliated entity transactions segment information is not legal entity information although it's derived from the legal entity consolidation in the real world as in apple Inc legal entity did data is automatically linked to the segment information as I have made clear to you
• 58:00 - 58:30 here it's a module and this module is linked to this module and so sometimes it's even in the same module of the Enterprise site system and so it is automatically completed and then subsequently some adjustments are made to it for INT transactions and you're there so hours after the consolidation is done the line of business reports can be completed the management approach as have have as I read the Apple in is the
• 58:30 - 59:00 approach that Apple uses and it's the approach that Faz 131 requests and 14 that we use management approach is used to run and Report complex business with many lines of businesses the businesses are evaluated by reporting different lines of Business by either customer product and er Geographic lines it is important to note that Faz
• 59:00 - 59:30 131 made amendments to F 14 one major change was to drop the requirement for disclosure of exter uh export sales previously required by F 14 when conducting the revenue test how many segment are too many 10 is what the fastp says is the maximum that you should report so 10 segments is more than
• 59:30 - 60:00 enough for any complex organization what is the management approach an operating segment is a component of an Enterprise we can agree on that that engages the business activity from which it earns revenue and incur expenses we can also agree with that who whose operating results are regularly reviewed by the chief operating decision maker to assess the performance and make
• 60:00 - 60:30 resource allocation decisions for which discrete financial information is available discret synonymous with segmented information or segment disaggregated information the management approach determining segments management must consider consider these aggregation criteria to
• 60:30 - 61:00 determine which or whether to combine operating segments should we report it separately or should we keep them together the nature of the product or service provided by each operating segment the nature of the production process the type or class of customer the distribution methods and the nature of regulatory environment according to 14 And1 31 fby these are the important elements that should be
• 61:00 - 61:30 consider when reporting a certain segment as we discussed earlier a segment is considered reportable if it's satisfy only one of these tests the revenue profit or loss or asset tests is that as discussed earlier how is this applicable how does it work let's illustrate Atkins company is a business
• 61:30 - 62:00 with the following six segments Automotive Furniture textbook Motion Picture Appliance Finance combined operating revenues is 97.8 how do we report in the footnotes for a set of combined reports or financial statements the segment information based on the test there are three
• 62:00 - 62:30 segments that will be reportable here how do we know this because we're going to take 10% of this is 9.78 mind you it is revenue so we take we don't care whether it's Affiliated or Affiliated because we take both 97.8 * 10 9.78 any segment that is greater than 9.78 will be reportable automobile
• 62:30 - 63:00 motion picture and finance 5.3 6.8 9 doesn't make it let's continue down the path of these three tests profit and loss tests same segments now remember I said to you the profit and loss the weight works is we will separate profit from loss absolute num so no
• 63:00 - 63:30 negatives then we will take 10% of both compare them the higher one will be the threshold so any entity any line of business that is greater than 1.65 is a reportable segment in this case it doesn't matter whether is loss or profit absolute numbers once it's greater than 1.65 is a reportable
• 63:30 - 64:00 segment what it means it's material large enough to be reported separately so clearly Automotive is identified uh Furniture is identified textbook failed motion picture made it a loss of 2.7 appliances failed but Finance made it so we have four segments identified under the p&l test absolute
• 64:00 - 64:30 test the reportable segment test as it relates to asset the total assets here for all SE all lines of business is 44.3 which one are going to be identified as reportable will have to be greater than 4.43 in this case all Automotive makes it motion picture makes it Finance makes it three reportable segments now we need
• 64:30 - 65:00 to line them all up to see which segments will be reported and which will not be clearly we can see that automobile pass all of them Furniture just one motion picture all Finance all what's the issue here here textbook didn't make any and appliances didn't make any well we only have two four six of
• 65:00 - 65:30 which four segments are identified for separate reporting and two is not going to be reported separately in fact they're going to be aggregated we will add them together and report them as aggregated this is why we said at the beginning that Opera segments or disaggregation of information and those segments that does not meet the criteria for operating
• 65:30 - 66:00 reportable segments are consider aggregate because we will combine them since we're less than 10 just four for two we're good to go so operating segments has some guidelines that we must follow as noted to you earlier the combined sales
• 66:00 - 66:30 revenue of disclosed segments must be at least 75% equal to or greater than total company sales excluding any intra entity sales so now when we do the 75% test we want only the Bonafide arms length sales so we will take total sales and remove and uh intra entity sales
• 66:30 - 67:00 basically we just need combined sales Consolidated sales already remove the intra entity all we need to do is take Consolidated sales time 75% go back take a look segments must be added up on 75% of this test is met so we will go back and take a look at those segments that we have have ensure that the total sales for each of those segments adds up to
• 67:00 - 67:30 75% or more and if it does we're good if not we will have to continue qualifying segments that fail the test until we hit 75 the idea here is to report enough segments separately that is material materiality for the test is 75 % of combined sales Consolidated sales again on the ASC 28-10 518
• 67:30 - 68:00 paragraph 18 not more than 10 here is the semise chart of all of that I've have discussed what is how do you report a segment separately and I made the point that if you don't meet the 75% test you're going to have to go back and look at the test that failed the lease so let's go back
• 68:00 - 68:30 here and let's say after we have looked at all of these qualified and we taken a look at their total sales and based on what that comes the total comes up to if it's less than 75% of all the sales then we're going to go back and take a look at the two that failed the one that failed the least meaning that they have better numbers we will report them separately then we will
• 68:30 - 69:00 rerun the test for revenues if we hit 75 we're okay to go if not then we have to report another segment until we hit 75 hopefully you get the point of 75% tests but this is a summary as to all that we have just discussed a flowchart what are the basic disclosure requirement for Segment
• 69:00 - 69:30 reporting let's run through these quickly if you look in Apple Inc you would see a bunch of things paragraphs after paragraphs basically there were the required disclosure information segments company information is required to be disclosed for each operating segment general information about each operating segments such as the factor you use to identify the reportable segments the types of product or service
• 69:30 - 70:00 from which each operating segment reports deres its Revenue so those are important information the segment p&l you had seen on Apple link revenues from external customers meaning foreign transactions revenue from other operating segments those are the com combined segments of the the segments that didn't make it separately interest will be have
• 70:00 - 70:30 will have to be laid out separately depreciation equity in net income for investe that is the segment has Equity Investments and therefore has income from those Investments as you've seen it from subsidiary just happen to be that the subsidiary is part of a line of business segment of noncash and on usual items will be disclosed along with income tax or income tax expense and
• 70:30 - 71:00 benefits reconciliation as I said to you line of business must reconcile to the Consolidated they need to evidence that the total revenue has reconciled profit and loss if we took all the along with segment assets if we took all the segments and along with other segments add them up it should equal to the consolidation remember the process started with consolidation and then
• 71:00 - 71:30 ended up into line of business disaggregated uh uh segmented segment information the company must also explain the measurement of segments p&l its assets including if there are any differences with Consolidated net income Consolidated assets explain what they are typically they're going to be inter segment transaction if
• 71:30 - 72:00 one line of business sells to another line of business you're going to have to remove that just like if a parent had sold to a subsidiary or a subsidiary had sold to a parent you have to Ono those transactions where you have line doing business with lines you will remove those transactions so what type of information must be disclosed for particular types of required
• 72:00 - 72:30 fastb segments such as Geographic areas information about geographic areas if that's one of your segment if you're going to report by Geographic areas the fast B ones for companies with International activities two items revenues Long Live assets for each forign country in which material amount of Revenue is derived or assets are held if the company has only one
• 72:30 - 73:00 operating segment and does not provide segment information it must report that geographic area at least one so applying the Criterion for determining when disclosure of a major customer is required how does that work when do we disclose a major customer according to ASC 280 we will report a major customer
• 73:00 - 73:30 separately as part of the footnotes of a Consolidated set of reports ASC 280 requires one final but important disclosure a reporting entity must indicate its Reliance on any major external customers whenever 10% or more of a company's consult solated revenue is derived from one single external customer there you go you must report them separately the existence of all
• 73:30 - 74:00 major customer must be disclosed along with the related amount of revenues and identify uh identify of the operating segment generating the revenues will also be clearly stated so how does the IFRS differs from Gap reporting that we have just discussed in detail by the way IFRS standard number 8 talks about operating segments so this is the equivalent to FB
• 74:00 - 74:30 1 uh 14 and 131 actually they are pretty much the same except Gap is very silent about liabilities IFRS is not IFRS includes intangible assets as As Long Live assets the US Gap does not define what
• 74:30 - 75:00 to include in Long Live assets so right there we have some differences yes generally speaking they mostly agree but liability is a difference long-term assets definition for disclosure is difference in a company with a matric form of organization IFRS permits operating segments to be based on Geographic graic area as opposed to product and services so the IFRS weighs a little bit more on geographic area instead of reporting
• 75:00 - 75:30 segments by product the G Gap does not permit geographical area so important to understand some of the complexity on what we call matric form organization first of all what is it a matric form organization structure is a company structure in which reporting relationships are set up as a grid or a matric rather than in traditional
• 75:30 - 76:00 hierarchy in order words employees have dual reporting relationship between two lines of businesses generally both functioning manager and a production manager for instance in 1970 Phillips a Dutch multinational electronic company set up a matric management with its manager reporting to both geographical manager and and product division manager many of firms such as cap uh cat cat Caterpillar tractor uh uses aircraft Texas
• 76:00 - 76:30 instrument and so forth use this kind of matric form of organization that brings us to the infamous topic interim reporting this topic you are all familiar with already it's just that you might have not placed that much attention to it stepping back to the S reporting 10 q and
• 76:30 - 77:00 10K most of us tend to focus on the annual report the 10K forgetting that there are what we call quarterly reporting quarter 1 through 4 if I were to put it this way much is written on interim reporting and one might think that some principles are applicable to annual
• 77:00 - 77:30 financial statements are also applicable to the preparation of monthly quarterly financial and I would say if that's how you're thinking you're 90 98% correct that what I do for yearend reports is what I will do for quarterly reporting referred to as interim reporting interim reporting does however require some Focus because there are
• 77:30 - 78:00 differences and there are clear accounting principles at work when considering how do we report quarterly reporting or how do we complete quarterly reporting first understand and applying procedure used in interim Financial reports to treat an interim period as an integral part of an annual period so the
• 78:00 - 78:30 idea is each quarter must be viewed as part of the whole thing each part is an integral part of the annual report the whole thing the S require publicly trade companies in the United States to provide on AIT audited Financial on audited financial statements on a quarterly basis Faz ASC topic 270 talks about
• 78:30 - 79:00 interim reporting specifically provi and it provides guidance on as to how to prepare interim financial statements it offers two possible approach one discret two integral integral is is pretty much what we used in the past ASC has confirmed integral is a way of
• 79:00 - 79:30 reporting what is what are these two ways under ASC 270 discrete simply means the accounting period stands by itself has nothing to do quarter one has nothing to do with two or three or four or year end for that matter integral is the opposite it treats the accounting period as I said earlier years part of the longer period the full year 270 to be clear requires company to
• 79:30 - 80:00 use the integral approach we should note that it's ap28 that said previously that interim reporting must be treated as an integral part of annual report not a discrete period ASC adopt op APB 28 so interim reporting revenues there are a couple of key
• 80:00 - 80:30 things to know here revenues should be recognized in the interim period the same way revenues are recognized in the annual beautiful to know that that would have been messy if it is not true revenues from long-term contract should be recognized using the same methodology as used on an annual basis a company should recognize project Ed loss and long-term contract to their full extent in the interim period in which it becomes apparent that a loss Will
• 80:30 - 81:00 arise so what are we saying here that a company should recognize projected losses on long-term contract to their to the extent so we want you to realize the loss in the quarter fully in that interim period inventory of LCM lower cost of Market under integral method so we must report L LCM using the approach of integral method the whole lifo application is examined if
• 81:00 - 81:30 you had gone through the chapter in more depth chapter eight that is interim reporting some other items here we must disclose the income tax reach interim period and it should be computed based on what we call S estimated annual effective tax rate the discontinued op should be reported in income on a net tax
• 81:30 - 82:00 basis in the interim period which the business component is discontinued or classified as held what is the issue there if you discontinue part of the business it would be net of tax current guidelines but the net of tax rate at that time that the quarter current guidelines required Retros retrospective application of a new accounting principle to Prior period financial statements so if you're in the third
• 82:00 - 82:30 quarter and a new principle makes it on in the third quarter you're going to go back to quarter 1 and quarter 2 and you're going to retrospectively change them as though in quarter 1 and quarter 2 you were using what you're using in third quarter on the as C250 the change in accounting principle have very specific way quarter
• 82:30 - 83:00 to quarter as to how it should be treated accumulated effect of change on a prior period must be reflected in the carrying amount of the assets and liabilities of the beginning of the first period presented so coming back to that third quarter change you're going to go back to second and first and make it the same accounting principle if the principle changed in quarter three any
• 83:00 - 83:30 offsetting adjustment is made in the opening retained earnings so if you're in third quarter and there changes that impacts retain earnings from changes in accounting principles you will go back to the beginning of the period and change retain earnings these are very specific they are not treated the way year end results are typically treated so you must memorize how this works financial statement for each prior
• 83:30 - 84:00 period are adjusted to reflect the period specific effects so change in accounting period is retrospective and also have in the period of where the change occurs it will be made effective for that period let's examine assum verel company estimates its effective annual tax rate of 42% in
• 84:00 - 84:30 the first quarter of 2019 to illustrate pre-tax income for the first quarter is 500,000 by the second quarter of 2019 company expects his effective tax rate will go from 42% to 40% because of planned usage of some foreign tax effects I know the tax rate is now 15% but assume it was 42% and we are going to get it in the
• 84:30 - 85:00 second quarter we're going to get some credits which will make that effective tax rate down to 40% pre-tax income for second quarter is also 500,000 first quarter 5 second quarter 5 no items required net of tax presentation in either quarter the income expense recognition in quarter for the first and second quarter of 2019 is going to be determined as follow we know in first quarter we don't know what's going to happen in second we're in first right so
• 85:00 - 85:30 while we are in first quarter we'll take 500,000 that income times 42% and the income tax expense seems to be 210 we're going to go ahead and use that number for estimated payments then in second quarter here's the income come along what we're going to do is tax affect this so we're going to take first quarter income second quarter income Total 1 million the new tax rate the effective rate of the
• 85:30 - 86:00 quarter 40% that means we should pay 400 in essence we already paid 210 so we only need to catch up a provision of 190,000 I hope you get the point that quarterly reporting does have its subtle difference here is one case in point what are some disclosure item for interim reporting if we can go over these quickly the US Gap that is says
• 86:00 - 86:30 this about interim reporting disclosure items Gap requires interim disclosure for each reportable operating segment so we're going back to operating segments so let's understand here what we're talking about is every quarter just as in year end in the Consolidated report we have to report segment information for those sizable segments that qualifies or were identified based on
• 86:30 - 87:00 Fast 14 and 131 tests we do the same for quarterly reporting so interim reporting also will disclose reportable segments within each quarter but the level of information on us Gap is somewhat less as compare to the year end reporting hopefully that is C Crystal Clear revenues for external customer is what we're going to have internal segment revenues is going to be reported
• 87:00 - 87:30 pnl will also total assets Revenue p&l total assets the same for yearn inter segment revenues it's part of the reconciliation here in the quarterly report we're going to have to to to spell it out in clear terms we also have and make sure we also have to make sure that reconcile but p&l profits the profit and loss to the total so an Enterprise must reconcile
• 87:30 - 88:00 segment p&l to the company's total income tax before or total income before tax if I could get the straight there are no interim disclosure about major customer or geographic location those are yearend items so the minimum interim reporting items that will be reported first segment reporting is sales income tax EPS seasonal revenues
• 88:00 - 88:30 and expenses change in estimates disposal of unusual infrequent contingency change in accounting principles significant change in financial positions companies are encouraged but not required to publish balance sheet and cash flow information in interim reports so pretty pretty interesting they're in they're the companies are encouraged but not required
• 88:30 - 89:00 to how does IFRS differs under this particular subject matter quarterly reporting you can find under IAS 34 it requires minimum component in the the interim report as well well it does require condens financial position statement means you don't need to give me every line it requires comprehensive condensed statement
• 89:00 - 89:30 condensed statement for Equity condensed for cash flow and it needs selected notes to be fully reported the point is folks in real life quarterly reporting kind of looks like you're in reporting we don't do all these condens unless we have to we go ahead and report all the lines it helps us to be prepared for a year end
• 89:30 - 90:00 so the quarterly reporting while both IFRS and US Gap is asking for limited information we still go ahead and report an abundance of information equivalent to irn some additional items required an interim period to be treated as discret period in determining the amount to be recognized in interim reporting expenses are incurred in one quarter are recognized in full in that quarter even though the
• 90:00 - 90:30 expenditure benefits the entire year so there's no no uh acral process here no acral of expenses in earlier quarters for expenses is expected to incur in the later quarter so under IFRS they are putting some control around a crewing between
• 90:30 - 91:00 quarters accountants I hope you got it I know you do in summary I have given you a good push in life here I feel you're getting closer and closer to the CPA please place a comment about this subject matter for credit in the dedicated Blackboard be safe keep healthy and stay awesome
• 91:00 - 91:30 [Music] [Music] guys [Music]
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