FRA : Reading 23. Understanding Income Statements

STUDY SESSION 7

Reading 23. Understanding Income Statements

a. describe the components of the income statement and alternative presentation formats of that statement. (page 28)

Components of IS

1. Revenues = Sales

2. Expenses :

- grouped by nature : 각각 하나하나 특성에 따른 분류 

- grouped by function : 비슷한 기능을 하는 비용을 하나로 묶음 ex. COGS

3. Gain and losses : not result from ordinary buiness activities

 

Presentation formats 

Revenues(Sales)

COGS

 Gross profit

SG&A

Depreciation expense

lease expense

 Operating profit(EBIT)

Interest expense

 Income before tax (EBT)

provision for income taxes

 Income from continuing operations

Earnings(losses) from discontinued operations, net of tax

 Net income = earnings , bottom line

 

b. describe general principles of revenue recognition and accrual accounting, specific revenue recognition applications (including accounting for long-term contracts, installment sales, barter transactions, gross and net reporting of revenue), and implications of revenue recognition principles for financial analysis. (page 30) 

c. calculate revenue given information that might influence the choice of revenue recognition method. (page 30)

 

수익인식 및 발생주의 회계의 일반적 원칙

- revenue is recognized when earend, expense는 when incurred

- reliably measured, probable flow 일 때 인식

 

특정한 수익 인식의 적용

Long-Term Contracts 장기계약

1. percentage-of-completion method

- outcome이 확실한 경우

- 진행률(누적)로 수익인식

 

2. completed-contract method

- outcome이 불확실한 경우

- IFRS : Cost만큼만 수익인식

	X1	X2	X3
Rev	400,000	500,000	1,100,000
Cost	400,000	500,000	900,000
profit	0	0	200,000

- US GAAP : 모든 제품 인도, 서비스제공 완료시 수익인식

	X1	X2	X3
Rev	0	0	2,000,000
Cost	0	0	1,800,000
profit	0	0	200,000

 

Installment Sales 할부판매, 분할납부 

Collectibility 회수가능성

1. Certain

- 즉시 인식(at the time of sale)

	X1	X2	X3	Total
Rev	1000			1000
Cost	800			800
profit	200			200

 

2. cannot be reasonably estimated

- Installment method

Cost와 Sales로 마진율을 구하고 각 년도에 적용

	X1	X2	X3	Total
Rev	400	400	200	1000
Cost	320(400*80%)	320	160	800
profit	80	80	40	200

 

3. highly uncertain

- cost recovery method

Total Cost를 다 지울때까지, revenue가 들어올 때마다 비용처리

	X1	X2	X3	Total
Rev	400	400	200	1000
Cost	400	400	0	800
profit	0	0	200	200

 

Barter Transactions 물물교환 

US GAAP - revenue는 fair value로 인식, fair value 없으면 carrying value(book)

IFRS - revenue는 fair value로 인식

 

Gross and Net Reporting of Revenue 총수익, 순수익

동일 거래에 대해서,

Gross reporting - revenue 10000, expense 9000, profit 1000

Net reporting - revenue 1000, expense 0, profit 1000

 

d. describe key aspects of the converged accounting standards for revenue recognition issued by the International Accounting Standards Board and Financial Accounting Standards Board in May 2014. (page 35)

Key aspects of the converged accounting standards

- principles-based approach (수익인식에 대해 적용)

converged standards, five-step process for recognizing revenue

1. Identify Contract

2. Identify performance obligation

3. Determine transaction price

4. Allocate transaction price

5. Recognize revenue

 

e. describe general principles of expense recognition, specific expense recognition applications, and implications of expense recognition choices for financial analysis. (page 38)

- matching principles

- 모든 수익이 비용과 대응되는 것은 아닌데, 이러한 비용을 period costs라고 함(ex. administrative costs)

 

Inventory Expense Recognition

- FIFO

- LIFO

- Weighted Avg

 

Depreciation Expense Recognition

- straight-line depreciation 정액법

- accelerated depreciation method = declining balance method(DB) 정률법, DDB(Double Declining Balance method)사용

* residual value를 넣지 않는다. 마지막에 조정해줌

 

Amortization Expense Recognition

- Intangible asset에 대한 감가상각

- indefinite lives 내용연수 알 수 없는 경우 not amortized

- at least annually 로 impairment 여부 test해야함

Bad Debt Expense and Warranty Expense Recognition

- 대손, 보장비용 인식

 

f. describe the financial reporting treatment and analysis of non-recurring items (including discontinued operations, unusual or infrequent items) and changes in accounting policies. (page 41)

Non-Recurring Items

- Discontinued operations

- Unusual or infrequent items (impairments, write-offs, write-down ...) : 계속사업이익에 해당

 

Changes in accounting policies

- retrospective application

Change from an incorrect accounting method

- retrospective application = prior-period adjustment

Changes in accounting estimate(새로운 정보로 managements's judgment가 바뀐 경우)

- prospectively application

 

g. distinguish between the operating and non-operating components of the income statement. (page 43)

h. describe how earnings per share is calculated and calculate and interpret a company's earnings per share (both basic and diluted earnings per share) for both simple and complex capital structures. (page 45)

I. distinguish between dilutive and antidilutive securities and describe the implications of each for the earnings per share calculation. (page 45)

 

EPS(Earnings Per Share) : profitability performance measure 

1. simple capital structure

- no potentially dilutive securities

- basic EPS만 공시

 

2. complex capital structure

- potentially dilutive securities (ex. option, warrants, CB)

- complex captial structure 기업은 반드시 basic EPS, diluted EPS 둘 다 공시해야함

 

basic EPS

= (NI - preffered dividends) / weighted avg # of common shares

 

weighted average number of common shares : 보통주의 가중평균수량

예시)

1/1 10,000 shares outstanding

4/1 issues 4,000 new shares

7/1 10% stock dividend

9/1 repurchases 3,000 shares

1/1	4/1	7/1	9/1	W avg shares
11,000 *(12/12)	4,400 * (9/12)	div 10%	-3,000 * (4/12)	13,300

- stock dividend : 주식배당

- stock split : 주식분할

- 100개 주식에 대해, 2-for-1 split(1개를 2개로 split) =>150개

- 주식배당과 주식분할은 applied to all shares outstanding prior to split or dividend

 

Diluted EPS : 희석 주당순이익 

Dilutive

- stock option, warrants, CB 등 주식으로 전환시 basic EPS보다 작아짐

Antidilutive

- stock option, warrants, CB 등 주식으로 전환시 basic EPS보다 커짐

- * 반영안함 (Dilutive EPS = Basic EPS)

= {(NI - pref.div) + (전환 pref.div) + (전환 debt interest)*(1-t)} / 가중평균common shares + 전환수량

* convertible bond의 경우 (1-t)를 곱해줘야함

* 전환해서 diluted EPS를 구했는데 Antidilutive한 경우 반영 안함!

 

stock option & warrants

- exercise prices 와 *average market price 비교(not ending price)

- treasury stock method 사용(행사가격x전환주식수 만큼 자금 inflow된 것을 시장평균가격으로 재매입 한다고 가정, 이렇게 되면 재매입한 수량보다 전환한 주식수량이 더 많은데 순증가한 만큼만 가중평균주식수에 포함시키는 개념) 

ex. 100,000 stock option, 15$ exercise price, 20$ mkt avg price

100,000 - 75,000(재매입) = 25,000 만큼만 순증가

75,000 = 1,500,000/20$

 

j. convert income statements to common-size income statements. (page 53)

(vertical) common-size income statement

- percentage of revenue

- 비율로 나타내서 eliminate the effects of size

- 일반적으로 적절하지만, income tax expense에 대해서는 부적절, revenue에 대한 비율이 아니라 pretax income을 기준으로 해야함(이렇게 계산된 tax rate = effective tax rate)

 

k. evaluate a company's financial performance using common-size income statements and financial ratios based on the income statement. (page 54)

gross profit margin = gross profit/revenue

net profit margin = net income/revenue

 

l. describe, calculate, and interpret comprehensive income. (page 54)

m. describe other comprehensive income and identify major types of items included in it. (page 54)

Comprehensive income = net income + other comprehensive income

- 영업외의 활동에서 벌어들이는 소득을 포함하는 개념

 

other comprehensive income

- unrealized gains and losses

- Foreign currency translation gains and losses