Group Case Study
Financial Accounting for Companies: Assessment 3
Name: Ali Sarhan
ID: 201101119
Class: 01
Tutor: Sana Alamri
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Table of Contents
1.0 Partnership ................................................................................................................................ 3
1.1 Table of information .............................................................................................................. 3
1.2 Capital Balances..................................................................................................................... 3
1.2.1 Share of Each Partner in Capital ..................................................................................... 6
1.3 Statement of Financial Position of the New Company (2B) .................................................. 6
1.4 Division of income ................................................................................................................. 8
2.0 Evaluation of Statement of Cash Flow .................................................................................... 12
2.1 Evaluation of Three Companies........................................................................................... 12
2.2 Evaluation of IAS 7 Compliance ........................................................................................... 13
2.3 Recommendations............................................................................................................... 14
3.1 Consolidated of Financial Statements ..................................................................................... 15
3.1.1 Calculations Needed for Statement of Financial Position ................................................ 15
3.1.1.1 Goodwill Arising from Consolidation......................................................................... 15
3.1.1.2 Other Calculations Needed for Statement of Financial Position Items..................... 16
3.1.2 Calculations Needed for Statement of Gain and Loss Items ............................................ 19
3.1.2.1 Revenues and Cost of Goods Sold (COGS)................................................................. 19
3.1.2.2 Net Gain Attributable to Owners and NCI ................................................................. 20
3.1.3 Consolidated Statements ................................................................................................. 20
3.1.3.1 Statement of Gain and Loss....................................................................................... 21
3.1.3.2 Statement of Financial Position................................................................................. 21
3.1.3.3 Notes to Financial Statements .................................................................................. 23
3.2 Bahrain Duty Free Investments ............................................................................................... 28
4.0 Ratios Analysis ......................................................................................................................... 31
4.1 Ability to Pay Current Liabilities .......................................................................................... 31
4.2 Profitability .......................................................................................................................... 32
4.3 Analyzing Share Investment ................................................................................................ 35
4.4 Recommendations............................................................................................................... 37
5.0 References ............................................................................................................................... 39
6.0 Appendices .............................................................................................................................. 43
6.1 Appendix 1 ........................................................................................................................... 43
6.2 Appendix 2 ........................................................................................................................... 46
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6.3 Appendix 3 ........................................................................................................................... 54
6.4 Appendix 4 ........................................................................................................................... 54
6.5 Appendix 5 ........................................................................................................................... 55
6.6 Appendix 6 ........................................................................................................................... 56
6.7 Appendix 7 ........................................................................................................................... 58
6.8 Appendix 8 ........................................................................................................................... 61
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1.0 Partnership
This section of the report is concerned with situation of us (Ali) with Yousif where an agreement to make a new
partnership company, named 2B, was made. All formulae and process used are taken from Accounting : AS level
and A level (Randall, 2005) and from chapter 12 accounting for partnership from accounting principles for
Weyagant, Kieso and Kimmal (Weyagant, Kieso & Kimmal, 2010).
1.1 Table of information
The following table shows the information about the two companies’ accounts; which will be used to form the
partnership. Figures of the two company’s assets, liabilities were given at their book and fair (in case of the
assets) values.
Book Value (BHD)
Accounts
Fair Value (BHD)
Ali
Yousif
Ali
Yousif
Cash
12,000
16,000
12,000
16,000
Trade Receivable
7,600
15,400
7,600
15,400
Allowance for Doubtful Debt
(1,500)
(3,000)
(2,000)
(5,500)
Inventory
19,500
27,500
18,000
26,000
PPE
34,000
45,000
30,000
40,000
Accumulated Depreciation – PPE
(4,000)
(4,500)
(800)
(2,000)
(2,000)
(5,000)
Trade Payable
Short-term Note Payable
1.2 Capital Balances
To find the capital balances for each partner, the total assets brought to the partnership are subtracted by the
total liabilities they brought with them. By going back and rearranging the basic accounting equation the
equity can be found by:
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 = 𝐴𝑠𝑠𝑒𝑡𝑠 – 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Assets are taken by the fair value as the numbers should be realistic and show the real value to be transferred
to the business and to see if there is any goodwill. However, it should be taken in consideration that some assets
are already written as fair value, e.g. cash. Some assets such as accounts receivable their value remains
unchanged because sellers cannot change the amount to charge customer with after agreements based on
market conditions. Moreover, some Contra assets will not be counted in the calculations, mainly the
deprecation, as the PPE will be taken as the fair market value; thus no need to depreciate it. All liabilities are
used on their book value, because the amount of the company obligation do no usually increase or decrease
based on market conditions. (Weyagant, Kieso & Kimmal, 2010).
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The following are the journal entries that are used to show the accounts and amounts of investment of each
partner:
Investment Transferred by Yousif (BHD)
Account
Dr
Cash
16,000
Trade receivable
15,400
Inventory
26,000
PPE
40,000
Cr
Allowance for doubtful debt
5,500
Trade payable
2,000
Short term note payable
5,000
Yousif, Capital
84,900
Investment Transferred by Ali (BHD)
Account
Dr
Cash
Cr
12,000
Trade receivable
7,600
Inventory
18,000
PPE
30,000
Allowance for doubtful debt
Trade payable
2,000
800
Short term note payable
2,000
Ali Capital
62,800
As noted; both parties assets will be added to the new company therefore they will be debited using their fair value;
except for the contra account (allowance for doubtful debt) that decreases Trade Receivable by nature, which will
be credited. As known, the normal balance for liabilities is credit so they will also be credited. Finally, since we are
using a double accounting system; the Debit must always equal the credit; and by subtracting them, the value of
the capital will be found that will make them balanced. Therefore, as shown; Yusuf capital in 2B will be BHD 84,900
while Ali capital will be BHD 62,800.
Another way to find the capital is to take the total liabilities of the company from the total assets as explained.
Thus,
Yousif Capital

Calculating the Assets of Yousif to be transferred to 2B:
𝐴𝑠𝑠𝑒𝑡𝑠 = 𝐶𝑎𝑠ℎ + 𝑇𝑟𝑎𝑑𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 + 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 + 𝑃𝑃𝐸 − 𝐴𝑙𝑙𝑜𝑤𝑎𝑛𝑐𝑒 𝑓𝑜𝑟 𝑑𝑜𝑢𝑏𝑡𝑓𝑢𝑙 𝑑𝑒𝑏𝑡𝑠
𝐴𝑠𝑠𝑒𝑡𝑠 = 16,000 + 15,400 + 26,000 + 40,000 − 5,500
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𝑌𝑜𝑢𝑠𝑖𝑓 𝐴𝑠𝑠𝑒𝑡𝑠 = 𝑩𝑯𝑫 𝟗𝟏, 𝟗𝟎𝟎

Calculating the Liabilities of Yousif to be transferred to 2B
𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = 𝑇𝑟𝑎𝑑𝑒 𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠 + 𝑆ℎ𝑜𝑟𝑡 𝑡𝑒𝑟𝑚 𝑛𝑜𝑡𝑒 𝑝𝑎𝑦𝑎𝑏𝑙𝑒
𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = 2,000 + 5,000
𝑌𝑜𝑢𝑠𝑖𝑓 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = 𝑩𝑯𝑫 𝟕, 𝟎𝟎𝟎

Therefore, Yousif’s Capital is:
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 = 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑙𝑡𝑖𝑒𝑠 = 91,900 – 7,000
𝑌𝑜𝑢𝑠𝑖𝑓 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 = 𝑩𝑫 𝟖𝟒, 𝟗𝟎𝟎
Ali Capital

Calculating our total assets to be transferred to 2B
𝐴𝑠𝑠𝑒𝑡𝑠 = 𝐶𝑎𝑠ℎ + 𝑇𝑟𝑎𝑑𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 + 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 + 𝑃𝑃𝐸 – 𝐴𝑙𝑙𝑜𝑤𝑎𝑛𝑐𝑒 𝑓𝑜𝑟 𝑑𝑜𝑢𝑏𝑡𝑓𝑢𝑙 𝑑𝑒𝑏𝑡𝑠
𝐴𝑠𝑠𝑒𝑡𝑠 = 12,000 + 7,600 + 18,000 + 30,000 − 2,000
𝑂𝑢𝑟 𝐴𝑠𝑠𝑒𝑡𝑠 = 𝑩𝑯𝑫 𝟔𝟓, 𝟔𝟎𝟎

Calculating the liabilities of Ali to be transferred to 2B
𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = 𝑇𝑟𝑎𝑑𝑒 𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠 + 𝑆ℎ𝑜𝑟𝑡 𝑡𝑒𝑟𝑚 𝑛𝑜𝑡𝑒 𝑝𝑎𝑦𝑎𝑏𝑙𝑒
𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = 800 + 2,000
𝑂𝑢𝑟 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = 𝑩𝑯𝑫 𝟐, 𝟖𝟎𝟎

Therefore, Ali Capital is:
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 = 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑙𝑡𝑖𝑒𝑠 = 65,600 – 2,800
𝑂𝑢𝑟 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 = 𝑩𝑯𝑫 𝟔𝟐, 𝟖𝟎𝟎
As seen; the total results of both capitals remain the same; thus proving that the calculations are accurate.
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1.2.1 Share of Each Partner in Capital
It is fundamental to calculate the percentage that each owner is entitled for a share in the total capital of the new
company, 2B which becomes significant figures when dividing the income or liquidations. (Weyagant, Kieso &
Kimmal, 2010). The calculations are straight forward and can be found out by dividing each partner capital amount
(was calculated above) on the total capital of the company and multiplying it by 100, therefore,
𝑃𝑎𝑟𝑡𝑛𝑒𝑟 𝑆ℎ𝑎𝑟𝑒 𝑖𝑛 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 =
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐼𝑛𝑣𝑒𝑠𝑡𝑒𝑑
× 100
𝑇𝑜𝑡𝑎𝑙 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
𝑇𝑜𝑡𝑎𝑙 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 = 𝑇𝑜𝑡𝑎𝑙 𝐴𝑚𝑜𝑢𝑛𝑡 𝐼𝑛𝑣𝑒𝑠𝑡𝑒𝑑 𝑏𝑦 𝐵𝑜𝑡ℎ 𝑃𝑎𝑟𝑡𝑛𝑒𝑟 = 84,900 + 62,800 = 𝐁𝐇𝐃 𝟏𝟒𝟕, 𝟕𝟎𝟎
𝑌𝑜𝑢𝑠𝑖𝑓 𝑆ℎ𝑎𝑟𝑒 𝑖𝑛 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 =
𝑂𝑢𝑟 𝑆ℎ𝑎𝑟𝑒 𝑖𝑛 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 =
84,900
× 100 = 𝟓𝟕. 𝟒𝟖%
147,700
62,800
× 100 = 𝟒𝟐. 𝟓𝟐%
147,700
Note: these percentages are rounded to two decimal places.
1.3 Statement of Financial Position of the New Company (2B)
Before creating the statement, it is required to find out the totals needed for each item. The calculations are of
the figures of each Asset and Liabilities of each company are added together to find the amount to be reported in
2B statement of financial position; as shown below:
Assets (BHD)
Account
Yousif
Ali
Total Balance
Cash
16,000
12,000
28,000
Trade receivable
15,400
7,600
23,000
Allowance for doubtful debt
(5,500)
(2,000)
(7,500)
Inventory
26,000
18,000
44,000
PPE
40,000
30,000
70,000
Total
91,900
65,600
157,500
As shown, all assets are added using their Fair value and subtracted the Allowance for Doubtful debt as it is contra
assets account to the trade receivable.
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Liabilities (BHD)
Account
Trade payable
Short term note payable
Total
Yousif
2,000
5,000
7,000
Ali
800
2,000
2,800
Total Balance
2,800
7,000
9,800
The liabilities are straight forward as shown above, and as mentioned above; the total equity BHD 147,700
2B Company
Statement of Financial Position
As At 31st Dec 2012
(Expressed in Bahrain Dinars)
Assets
Non-Current Assets
PPE
Current Assets
Trade Receivable
23,000
Allowance for Doubtful Debt
(7,500)
Inventory
Cash
70,000
15,500
44,000
28,000
Total Current Assets
87,500
Total Assets
Liabilities and Equity
Current Liabilities
Trade Payable
Short term Note Payable
157,500
2,800
7,000
Total Liabilities
9,800
Equity
Yousif, Capital
Ali, Capital
84,900
62,800
Total Equity
147,700
Total Liabilities and Equity
157,500
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1.4 Division of income
Partners must share the gain or loss of the company as long as the partnership remains. The income can be divided
based on many agreements including on a fix percentage, depending on partners initial investments, salary
allowances and interest allowances. Sometimes, these agreements can be mixed together as in this case. For 2B,
the income is forecasted to be BHD 12,000. The followings are the division of this income between Yousif and Ali
based on different possible scenario.

Division equally between partners.
Here, the partners will share the total based on a fix percentage (1/2) or 50%. Therefore,
𝑇ℎ𝑒 𝑠ℎ𝑎𝑟𝑒 𝑜𝑓 𝑒𝑎𝑐ℎ 𝑝𝑎𝑟𝑡𝑛𝑒𝑟 𝑜𝑛 𝑡ℎ𝑒 𝑖𝑛𝑐𝑜𝑚𝑒 = 12,000 × 50% = 𝑩𝑯𝑫 𝟔, 𝟎𝟎𝟎
2B Company
Division of net income
For the year ended 31st Dec 2012
Net income = BD 12,000
Yousif - Share of income
Ali - Share of income
Total division of net income
Yousif (BHD)
6,000
6,000
Ali (BHD)
6,000
6,000
Total (BHD)
6,000
6,000
12,000
 Division Income based on Ratios of the Initial Investment.
With this agreement, the total net income will be divided to the partners based on their contribution to the total
capital of the company. As stated; ali owns 42.52% of the capital while Yousif own 57.48%. Therefore;
𝑂𝑢𝑟 𝑠ℎ𝑎𝑟𝑒 𝑖𝑛 𝑖𝑛𝑐𝑜𝑚𝑒 = 42.52% × 12,000 = 𝑩𝑯𝑫 𝟓, 𝟏𝟎𝟐. 𝟒
𝑌𝑜𝑢𝑠𝑖𝑓 𝑠ℎ𝑎𝑟𝑒 𝑖𝑛 𝑖𝑛𝑐𝑜𝑚𝑒 = 57.48% × 12,000 = 𝑩𝑯𝑫 𝟔, 𝟖𝟗𝟕. 𝟔
Of course when adding the two amounts (5,102.4 + 6,897.6) the answer will be BHD 12,000; thus all income will
be shared.
2B Company
Division of net income
For the year ended 31st Dec 2012
Net income = BD12,000
Yousif - Share of income
Ali - Share of income
Total division of net income
Yousif (BHD)
6,897.6
6,897.6
Page 8 of 63
Ali (BHD)
5,102.4
5,102.4
Total (BHD)
6,897.6
5,102.4
12,000

Salary interest given to the partners and the remaining shared equally.
In this agreement; each partner will be given a salary based on the agreement with each other, in this case Ali is
getting BHD 700 and BHD 800 for Yusuf. Then if there is any amount remaining; it will be shared between the
partners.
𝑇ℎ𝑒𝑟𝑒𝑓𝑜𝑟𝑒; 𝑡ℎ𝑒 𝑇𝑜𝑡𝑎𝑙 𝑆𝑎𝑙𝑎𝑟𝑦 𝐴𝑙𝑙𝑜𝑤𝑎𝑛𝑐𝑒 𝑃𝑎𝑖𝑑 = 700 + 800 = 𝑩𝑯𝑫 𝟏, 𝟓𝟎𝟎
The remaining of the net income not paid is
𝑅𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔 𝐴𝑚𝑜𝑢𝑛𝑡 𝑓𝑟𝑜𝑚 𝑡ℎ𝑒 𝐼𝑛𝑐𝑜𝑚𝑒 = 12,000 − 1,500 = 𝑩𝑯𝑫 𝟏𝟎, 𝟓𝟎𝟎
This amount will be divided equally on both Yousif and us, thus:
𝐼𝑛𝑐𝑜𝑚𝑒 𝐷𝑖𝑣𝑖𝑠𝑖𝑜𝑛 = 10,500 × 50% = 𝐁𝐇𝐃 𝟓, 𝟐𝟓𝟎
Thus, the amount we will be receive is = 700 + 5,250 = 𝑩𝑯𝑫 𝟓, 𝟗𝟓𝟎
While Yousif will receive = 800 + 5,250 = 𝑩𝑯𝑫 𝟔𝟎𝟓𝟎
The table below shows a summary for this method
2B Company
Division of net income
For the year ended 31st Dec 2012
Net income= BD12,000
Yousif (BHD)
Salary Allowance
800
Remaining Income = BD 10,500 (BD12,000 - BD1,500)
Yousif - (BD 10,500 x 50%)
5,250
Ali - (BD 10,500 x 50%)
Total Remainder
Total Division of Net Income
6,050
Page 9 of 63
Ali (BHD)
Total (BHD)
700
1,500
5,250
5,950
10,500
12,000
 Share balance equally after distributing interest allowance on partner's capital.
In this agreement; each partner will receive an interest based on his equity with any remaining or deficiencies being
distributed to the partners equally. To find the interest allowance the percentage (10%) must be taken from the
amount each partner invested. Thus:
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑙𝑙𝑜𝑤𝑎𝑛𝑐𝑒 𝑓𝑜𝑟 𝑌𝑢𝑠𝑖𝑓 = 10% × 𝐵𝐷84,900 = 𝑩𝑯𝑫 𝟖, 𝟒𝟗𝟎
𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑙𝑙𝑜𝑤𝑎𝑛𝑐𝑒 𝑓𝑜𝑟 𝐴𝑙𝑖 = 10% × 62,800 = 𝑩𝑯𝑫 𝟔, 𝟐𝟖𝟎
𝑇ℎ𝑒 𝑡𝑜𝑡𝑎𝑙 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑙𝑙𝑜𝑤𝑎𝑛𝑐𝑒 = 8,490 + 6,280 = 𝑩𝑯𝑫 𝟏𝟒, 𝟕𝟕𝟎
This amount however, is bigger than the net income to be distributed (BHD 12,000); which created a deficiency of
BHD 2,770. Thus, the remaining deficiency then is divided on the partners equally each.
𝑆ℎ𝑎𝑟𝑒 𝑜𝑓 𝑒𝑎𝑐ℎ 𝑝𝑎𝑟𝑡𝑛𝑒𝑟 𝑜𝑛 𝑑𝑒𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 = 2,270 × 50% = 𝑩𝑯𝑫 𝟏, 𝟑𝟖𝟓 𝑑𝑒𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦
This amount will be decreased from the receiving's of the partner because they cannot be given to him as this
amount is not available in the business for distribution of income. Thus;
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐴𝑙𝑙𝑜𝑤𝑎𝑛𝑐𝑒 𝑓𝑜𝑟 𝐸𝑎𝑐ℎ 𝑃𝑎𝑟𝑡𝑛𝑒𝑟
= 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐴𝑙𝑙𝑜𝑤𝑎𝑛𝑐𝑒 𝑜𝑛 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 + 𝑅𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐼𝑛𝑐𝑜𝑚𝑒 − 𝐷𝑒𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦
And this is done in order to give each partner a fair share due to the lack of sufficient income in the business.
Yusuf interest allowance = 𝐵𝐻𝐷 8,490 + 0 − 𝐵𝐻𝐷 1,385 = 𝑩𝑯𝑫 𝟕, 𝟏𝟎𝟓
Our interest allowance= 𝐵𝐻𝐷6,280 + 0 − 𝐵𝐻𝐷 1,385 = 𝑩𝑯𝑫 𝟒, 𝟖𝟗𝟓
Of course, as it is noted, by adding the two amounts together the deficiency will be removed and all income (BHD
12,000) will be distributed to the partner. The table below summarize this process.
2B Company
Division of net income
For the year ended 31st Dec 2012
Net income = BD12,000
Yousif (BHD)
Interest allowance on partner's capital
Yousif - (BD 84,900 x 10%)
8,490
Ali - (BD 62,800 x 10%)
Total Interest Allowance
Remaining deficiency = (BD 2,770) (BD 12,000 – BD 14,770)
Yousif - (BD 2,770 x 50%)
(1,385)
Ali - (BD 2,770x50%)
Total Remainder
Total Division of Net Income
7,105
Page 10 of 63
Ali (BHD)
6,280
Total (BHD)
8,490
6,280
14,770
(1,385)
4,895
(2,770)
12,000
The table below show what each partner will receive in each method of income distribution
Division of 12,000 Income
First method (Sharing equally)
Second method (Percentage in capital)
Yusuf
BHD 6,000
Ali
BHD 6,000
BHD 6,897.60
BHD 5,102.40
Third method (Salary allowance and then sharing equally)
BHD 6,050
BHD 5,950
Fourth method (Interest allowance and then sharing equally)
BHD 7,105
BHD 4,895
It is recommended to agree with Yousif to divide the Income based on the Third method. While the first method
(shared equally) would be better for Ali; Yousif might not agree on that since it represents the lower portion he can
get from the division of income. It is notable that Yousif had invested a relatively larger amount than us, making it
fair for him to gain such an advantage. Even though we would be getting a reasonably lower amount, this method
would be the fairest amongst the rest when dividing the income. Therefore, Yosuif is likely to agree on it and Ali will
be gaining a reasonable portion of the income. However, method 4 should be avoided in all scenarios as it is giving
Ali the least portion of income.
Unofficial Partner
As known, Partnerships are agreements between two individuals or company to form a new company. However,
while all parties must agree on this partnership it is not necessary to include the name of partners and the start of
new partnership does not need legal documented work. This is because Partnerships are unincorporated; as no paper
work with partners, names are needed to be submitted, as partnerships are simply formed by two people starting a
business together (Laurence, n.d.). This is also the case with the Bahrain companies law and the requirement of the
ministry of commerce ( Hassan, 2014). Regarding the situation with Khalid, it is obvious that Khalid would like to share
the economic benefits of the partnership yet does not want to be an official registered partner of the company. This
situation is acceptable under the IFRS. Nonetheless, it should be noted that Khalid will still be considered a legal partner
even if his name is not included and must share all loss and profit as long as the partnership is withstanding because
he is going to invest cash (assets). Thus, if Khalid is to be admit to the partnership, our partnership with Yousif must be
dissolve and a new one between Yousif, Khalid and us must be formed as per with the rules of accounting for
partnerships (Admission of a partner, n.d) and IAS 31 (Ias-plus-A) and IFRS 11, the new partnership will adopt the joint
arrangement. The process of dissolving the partnership will include distributing the assets (since partnerships are
characterized with co-ownership of property) (Catty, 2011), and this will be on the basis of a dissolution agreements
between ali and khalid on how to share the assets. Of course the new partnership will be formed using the same steps
used when only Ali and Khalid where the partners as all assets will be recorded at fair value and each partner will have
his share in capital computed (Ernst & Young, 2011). Moreover, it should be noted, that if ali would have decide to
purchase If partners’ interest he will increase his capital by that amount and decrease the partner he purchased from
and no need to dislove the partnerships; however this is not the case here (Deloitte, 2008).
Page 11 of 63
2.0 Evaluation of Statement of Cash Flow
2.1 Evaluation of Three Companies
In this section, three statements of cash flows are evaluated as requested by Bahrain Duty Free. These statements belong
to 3 different companies chosen from 3 different industries. The following companies were chosen: Bahrain Flour Mills, AlAhlia Insurance and Bahrain Development Bank (BDB). Three methods of evaluation were used, Horizontal Analysis, Cash
Flow Ratios and recent news, to compare between the companies and identify the strength and healthiness of their financial
position. The following is the result of the analyses:
Account
Bahrain Flour Mills (BFM)
Al-Ahlia Insurance
Bahrain Development
Bank (BDB)
Horizontal Analysis (Refer to Appendix: 1)
Rate
Rate
Rate
-3.75%
-59.27%
-1450.88%
-25.43%
-18.61%
-61.52%
-412.78%
-196.42%
-366.75%
-20.47%
-96.81%
563.52%
133.19%
5.68%
-80.24%
104.08%
-71.82%
374.61%
Profit of the year
Cash flows from
Operating Activities (OA)
Cash flows from
Investing Activities (IA)
Cash flows from
Financing Activities (FA)
Cash & cash equivalents at the
beginning of the year
Cash & cash equivalents at the
end of the year
Ratios Analysis (Refer to Appendix: 2)
2012
2011
2012
2011
2012
2011
Free Cash Flow Ratio
-8,285,992
-10,997,480
-483,786
-602,493
-163,000
-4,186,000
Operating CF to Sales Ratio
-147.65%
-206.88%
-4.42%
-5.46%
-110.75%
-192.22%
Free Cash Flow to Operating CF
Ratio
98.95%
97.93%
97.79%
99.12%
8.28%
81.84%
Cash Flow Coverage Ratio
-9148.81%
-14399.89%
-428.33%
-543.75%
-10.01%
-37.09%
Cash Flow Return on Investment
3.97%
2.05%
9.07%
36.54%
5.72%
Ratio
Note: Green slots indicate the best figure among the companies, while the Orange slots show the worst.
1.51%
The public news also clarified some of the recent activities of these companies. BFM, for example, planned to expand the
company by investing BD 10 million to increase production by investing in the infrastructure and machinery of the company.
This plan will meet the 10% annual increase in demand by providing about 600 tons (Trade Arabia, 2011). This investment
is obvious in their Statement of Cash Flow through the Investing section as the amount for acquiring PPE in 2011 is much
bigger than 2012. Meanwhile in Al-Ahlia Insurance, the company had improved massively in 2013 as they reported a net
profit of BD 2,155,646 in the first six months, comparing to BD 319,999 only in 2012, a 574% increase (Daily Tribune, 2013).
As for BDB, they have been extremely beneficial to the Bahraini Economy, especially after earning BD 70 million of hard
currency from its projects (Rafique, 2011). Overall, the companies are on the right track this year as they continue to earn
profit with no major concerns regarding their performances. These activities, along with others, helped BFM and BDB
Page 12 of 63
increase their ending cash balance over the years, while Al-Ahlia seems to be recovering from its decline in 2012 in the
ending cash balance in the Annual Report.
When using the Horizontal Analysis, it is obvious that BFM has the best figures comparing with other companies. As for the
Ratio Analysis, Al-Ahlia Insurance seems to have an advantage over BFM and BDB while the public news in favor them
ahead of Al-Ahlia. These analyses provide essential information that clarifies the financial health of these companies. The
Horizontal Analysis focuses on the results and financial position of the company over time which shows the consistency
of company’s cash performance. The Ratios Analysis also concentrates on the financial condition of the company, but it
further concentrates on its operations and specifically indicates whether a company is worthy of investing in or not
(Jennrennbitz, June 2011). The publically available news, though, are concerned with the current activities of the company.
However, the issue with Ratios Analysis is that the companies in this situation are different, and from different industries,
meaning that the information is aggregated differently according to the basis that the company follows. The Horizontal
Analysis provides a more accurate comparison metric between companies as it evaluates the change rate of the same
section in different companies. The news also provide helpful details regarding the recent activities of the companies.
Therefore, Bahrain Flour Mills (BFM) is the best out of these three companies as it has been growing. Bahrain Development
Bank (BDB) is seen to be the worst due to their very low rates in the Horizontal Analysis, while Al-Ahlia Insurance falls in
the middle due to its ability to recover and develop after the decline in 2012.
2.2 Evaluation of IAS 7 Compliance
Presentation of Statement of Cash Flow: BFM presents its cash flows as required by Paragraph 10 of IAS 7 as it classifies
them by Operating, Investing and Financing. Even though the Operating section of cash flows in IAS 7 Paragraph 13 suggests
that the company should add information about the historical operating cash flow as it would be useful to forecast the cash
flows of the future, BFM are not applying it in their annual report. Also, as obligated by Paragraph 14 of IAS 7, BFM records
the transactions that are revenue-producing in this section of the statement, such as the adjustments done to the
provisions/impairments related to inventory. BFM also adjusts the gain on its sale of Plant, Property and Equipment in its
Operating Activities section, while the last part of Paragraph 14 suggests that it should be in Investing Activities. Paragraph
15 says that if the company is holding investments for trading purposes, it should be recorded under Operating Activities.
BFM does not follow that as they recorded the proceeds from sale of their investment in the Investing Activities section.
BFM also follows Paragraph 16 and 17 of IAS 7 as it provides all the correct components of the Investing and Financing
activities, such as the purchase of Property, Plant & Equipment in Investing, and payment of Dividends for Financing.
Reporting Cash Flows from Operating Activities: BFM uses the Indirect Method of classifying the Operating Activities as
they show the net profit, and then adjust it based on other transactions, like change in inventory or non-cash items
(Paragraph 18.B & 20). A possible justification for the use of Indirect Method in the Operating Activities could be to easily
analyze the change in the Statement of Financial Position. This method enables the users of the financial statements to
clearly see if, for example, the total negative amount of Operating Activities was caused by a massive change in Inventory.
Reporting Cash Flows from Investing and Financing Activities: BFM reports the total cash received and paid in Investing
and Financing Activities (Paragraph 21). Also, as suggested by Paragraph 21 and according to Paragraph 22 & 24, BFM does
not include any cash flows resulted from 1) Receiving/Paying cash on behalf of customer, 2) Receiving/Paying cash with
quick turnover, 3) Receiving/Paying cash for acceptance or repayments with a fixed date, 4) Placement/Withdrawal of
deposits from financial institutions, 5) Cash loans and advance made to customers or repayment of them.
Foreign Currency Cash Flows: Paragraph 25 of IAS 7 state that BFM must be converting all the foreign currencies earned
from its cash flow transactions. BFM clarifies in the Notes of Financial Statements, Significant Accounting Policies section
specifically, that all foreign currencies were converted at the date of the transaction (Appendix 3). It is notable that,
according to Paragraph 28, unrealized gains or losses occurring from such currency exchange transactions are not actual
Page 13 of 63
cash flows, though they are reported separately from the Operating, Investing and Financing sections in this statement. The
main purpose of it is to reconcile the cash and cash equivalent.
Interest & Dividends: IAS7 allows recording the payment or receipt of dividends in any of the cash flow sections, each for
a specific purpose. BFM follows Paragraph 31&33 by classifying its only Dividends in the Statement of Cash Flow under
Financing Activities, meaning that they are paid to the shareholders as in Note25 of the Annual Report (Appendix 4).
Taxes on Income: Bahrain does not force Income Tax on companies, which allows BFM not to follow Paragraph 35 & 36
(Nasr, 2013).
Investments in Subsidiaries, Associates, & Joint Ventures: BFM does not have any of these investments.
Changes in Ownership Interests in Subsidiaries & Other Businesses: BFM does not have these investments.
Non-Cash Transactions: BFM applies Paragraph 43 & 44 as they state that the company shall not record any non-cash
transactions in Investing or Financing Activities, such as the conversion of debt to equity.
Components of Cash & Cash Equivalents: BFM presents in the Notes of Financial Statements, Significant Accounting Policies
specifically, the components of Cash & Cash Equivalent as required by Paragraph 45. The components include the cash on
hand, account balances in banks and net bank overdrafts.
Other Disclosures: BFM does not include any section to clarify that the company has cash that is held unavailable for use
as required by Paragraph 48. This might be due to not having such an account at all. Paragraph 51 suggests that companies
should disclose any increase in the total operating capacity as this information will help the users determine whether the
entity is investing sufficiently or not. Paragraph 52 states that the cash flows must be divided into segments, which will
make the statement more understandable. BFM does that when it puts its cash flow sections provide specific details of
what they include, such as Investing Section being divided into a segment for total purchases of Property, Plant and
Equipment, alongside other segments.
2.3 Recommendations



Historical Operating Cash Flow: It is recommended that BFM adds a section in the Notes of Financial Statements that
clarify the Operating Cash Flow over different periods, as suggested by Paragraph 13 of IAS 7. Adding this would make
it easier for all the users of these financial statements to forecast the future Operating Cash Flows that the company is
going to provide or use. Prospective shareholders specifically, out of all users of the financial statements, might find this
information useful as well as help the company analyze the consistency of their cash health and make informed decisions
in that regards.
Direct Method of Operating Activities: It is recommended for BFM to shift from applying the Indirect Method of
recording the Operating Activities to the Direct Method. This method, as encouraged by Paragraph 19, provides more
useful information that would help the users of the Financial Statements estimate the future cash flows and make any
necessary precautions. This advantage is not provided by the Indirect Method. This change in the Statement of Cash
Flow will, again, give the prospective shareholders specific details that assist them in making the investment decision in
BFM as they will be viewed as a trustworthy company with nothing to hide.
Free Cash Flow Analysis: It is recommended that BFM includes a note related to the Statement of Cash Flow that explains
the Free Cash Flow ratio and whether the company generates high FCF or not. This ratio will show whether the company
is in a good financial health or not, through clarifying the free cash left to use in other activities. It will be helpful for the
company as they will be able to identify their position whilst the investors perceive the company as a trustworthy and
honest company to invest in.
Page 14 of 63
3.1 Consolidated of Financial Statements
Bahrain Duty Free has invested in 4u Co. by purchasing 70% of their shares. Therefore, the two companies are required
to create consolidated financial statements, since the investment percentage is higher than 50% (Bahrain Polytechnic,
2014-B).
3.1.1 Calculations Needed for Statement of Financial Position
Before preparing the statements, some calculations are needed first as shown below. For the statement of financial
position, or statement of gain and loss, items that their calculations are not shown under this sections, means that it can
be found by simply adding the two amounts of the same item from the statements of the two companies.
3.1.1.1 Goodwill Arising from Consolidation.
Goodwill will arise from the consolidation because Bahrain Duty Free bought 4u Co. with a price (BHD 191,990) higher
than its fair value since duty free did not acquire 4u Co. at the date of their incorporation. Incorporation (Bahrain
Polytechnic, 2014-C). Goodwill here is basically the fair value of the company added with all assets trasfred and
subtracting the liabilities transferred. The basic formula to calculate this figure is:
𝑮𝒐𝒐𝒅𝒘𝒊𝒍𝒍 = 𝐹𝑎𝑖𝑟 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐶𝑜𝑛𝑠𝑖𝑑𝑒𝑟𝑎𝑡𝑖𝑜𝑛 𝑇𝑟𝑎𝑛𝑠𝑓𝑒𝑟𝑟𝑒𝑑
+ 𝐹𝑎𝑖𝑟 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑁𝑜𝑛 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑙𝑖𝑛𝑔 𝑃𝑎𝑟𝑡𝑖𝑒𝑠 𝑎𝑡 𝑡ℎ𝑒 𝐷𝑎𝑡𝑒 𝑜𝑓 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛
− 𝐹𝑎𝑖𝑟 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑁𝑒𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 𝑎𝑡 𝑡ℎ𝑒 𝐷𝑎𝑡𝑒 𝑜𝑓 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛
Fair value of consideration is the amount Bahrain Duty Free paid for the 70% of 4u Co. shares, given in Bahrain Duty
Free’ statement of financial position sheet at BHD 191,990. Furthermore, the fair value of the non-controlling parties at
the date of acquisition is given at BHD 45,000. Finally, to calculate the fair value of net assets at the date of acquisition,
this formula must be used:
𝑭𝒂𝒊𝒓 𝑽𝒂𝒍𝒖𝒆 𝒐𝒇 𝑵𝒆𝒕 𝑨𝒔𝒔𝒆𝒕𝒔 𝒂𝒕 𝒕𝒉𝒆 𝑫𝒂𝒕𝒆 𝒐𝒇 𝑨𝒄𝒒𝒖𝒊𝒔𝒊𝒕𝒊𝒐𝒏
= 𝑆ℎ𝑎𝑟𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑜𝑓 𝑡ℎ𝑒 𝑆𝑢𝑏𝑠𝑖𝑑𝑖𝑎𝑟𝑦 + 𝑃𝑟𝑒 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛 𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑜𝑓 𝑡ℎ𝑒 𝑆𝑢𝑏𝑠𝑖𝑑𝑖𝑎𝑟𝑦
4u Co. share capital was given at BHD 100,000 and their pre- acquisition retained earnings are given at BHD 2,000. Thus:
𝑇ℎ𝑒 𝑓𝑎𝑖𝑟 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑛𝑒𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 𝑎𝑡 𝑡ℎ𝑒 𝑑𝑎𝑡𝑒 𝑜𝑓 𝑎𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛 = 100,000 + 2,000 = 𝑩𝑯𝑫 𝟏𝟎𝟐, 𝟎𝟎𝟎
By substituting all three figures in the formula above:
𝐺𝑜𝑜𝑑𝑤𝑖𝑙𝑙 𝐴𝑟𝑖𝑠𝑖𝑛𝑔 𝐹𝑟𝑜𝑚 𝑡ℎ𝑒 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛 𝐹𝑜𝑟𝑚𝑢𝑙𝑎 = 191,900 + 45,000 − 102,000 = 𝑩𝑯𝑫 𝟏𝟑𝟒, 𝟗𝟗𝟎
Therefore, Bahrain Duty Free gained goodwill of BHD 134,990 from consolidation with 4u Co.
Page 15 of 63
3.1.1.2 Other Calculations Needed for Statement of Financial Position Items
Intra-Group Transactions

Unrealized Profit from Unsold Inventory
Bahrain Duty Free has sold inventories to 4u Co., and a part of these inventories still remained unsold in 4u Co. position.
The group statements must not show any transactions between the two companies as it will lead to overstating some
accounts. Thus, any inventory not sold to an outside party must be eliminated the In order to eliminate the intracompanies transactions related to inventory, the unrealized profit must be deducted from the revenue of the seller
company (Bahrain Duty Free) and from the inventory of the buyer company (4u Co.) (Bahrain Polytechnic, 2014-C)
To calculate the unrealized profit, this formula must be used:
𝑼𝒏𝒓𝒆𝒂𝒍𝒊𝒛𝒆𝒅 𝒑𝒓𝒐𝒇𝒊𝒕 𝒇𝒓𝒐𝒎 𝒖𝒏𝒔𝒐𝒍𝒅 𝒊𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚
= 𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑓𝑖𝑡 × 𝑅𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔 𝑖𝑛𝑣𝑒𝑡𝑟𝑜𝑦 𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒
𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑓𝑖𝑡 = 𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 − 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡
4u Co. is selling the inventory with 35% over the cost to make a 35% profit. Thus:
𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 𝐶𝑜𝑠𝑡 + (𝐶𝑜𝑠𝑡 × 35%) = 𝐶𝑜𝑠𝑡 × 1.35
= 12,000 × 1.35 = 𝐵𝐻𝐷 16,200
Therefore,
𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑓𝑖𝑡 = 16,200 − 12,000 = 𝐵𝐻𝐷 4,200
Since 4u Co. still owns 30% of inventory remaining unsold, thus, they have 30% of the total profit remaining unearned.
𝑈𝑛𝑟𝑒𝑎𝑙𝑖𝑧𝑒𝑑 𝑃𝑟𝑜𝑓𝑖𝑡 𝑓𝑟𝑜𝑚 𝑈𝑛𝑠𝑜𝑙𝑑 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 4,200 × 30% = 𝐵𝐻𝐷 1,260
This amount must be subtracted from the total inventory as well as from the retained earnings in order to not avoid
showing the effect of intra-group transactions in the statements.

Inventories
Usually, the group inventory is found by adding the inventory amounts of the two groups; however, because of the
unrealized profit of the remaining inventory, the inventory balance to be shown in the consolidated statement of
financial position using this formula in order to not count the effect of the intra-group transaction that created the
unrealized profit.
= 𝐵𝑎ℎ𝑟𝑎𝑖𝑛 𝐷𝑢𝑡𝑦 𝐹𝑟𝑒𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 + 4𝑈 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 − 𝑈𝑛𝑟𝑒𝑎𝑙𝑖𝑧𝑒𝑑 𝑃𝑟𝑜𝑓𝑖𝑡 𝐹𝑟𝑜𝑚 𝑈𝑛𝑠𝑜𝑙𝑑 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦.
Page 16 of 63
Thus,
𝑇𝑜𝑡𝑎𝑙 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 2,076,625 + 35,000 − 𝟏, 𝟐𝟔𝟎 = 𝑩𝑯𝑫 𝟐, 𝟏𝟏𝟎, 𝟑𝟔𝟓

Receivables and Payables
Because of the inventory transactions between the companies, 4u Co. still owes Bahrain Duty Free BHD 8,500 that exists
in 4u Co. account payables and Bahrain Duty Free accounts receivables. The group statement must only show what the
company owes and who owes to the group form outside the group in terms of payables and receivables and not what
the subsidiary and parent owes to each other. Thus, the remaining amount must be subtracted from
the totals
receivables and payables
𝐺𝑟𝑜𝑢𝑝 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠
= 𝐵𝑎ℎ𝑟𝑎𝑖𝑛 𝐷𝑢𝑡𝑦 𝐹𝑟𝑒𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 − 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 𝑓𝑟𝑜𝑚 4𝑢 𝐶𝑜 𝑡𝑜 𝐵𝑎ℎ𝑟𝑎𝑖𝑛 𝐷𝑢𝑡𝑦 𝐹𝑟𝑒𝑒
+ 4𝑢 𝐶𝑜 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠
𝑮𝒓𝒐𝒖𝒑 𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑹𝒆𝒄𝒆𝒊𝒗𝒂𝒃𝒍𝒆𝒔 = 1,750,411 − 8,500 + 9,000 = 𝑩𝑯𝑫𝟏, 𝟕𝟓𝟎, 𝟗𝟗𝟏
𝐺𝑟𝑜𝑢𝑝 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 = 𝐵𝑎ℎ𝑟𝑎𝑖𝑛 𝐷𝑢𝑡𝑦 𝐹𝑟𝑒𝑒 𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠 + 4𝑢 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 −
𝑃𝑎𝑦𝑏𝑙𝑒 𝑜𝑓 4𝑢 𝑂𝑤𝑛𝑒𝑑 𝑡𝑜 𝐵𝑎ℎ𝑟𝑎𝑖𝑛 𝐷𝑢𝑡𝑦 𝐹𝑟𝑒𝑒
𝑮𝒓𝒐𝒖𝒑 𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑷𝒂𝒚𝒂𝒃𝒍𝒆 = 3,728,409 + 41,720 − 8,500 = 𝑩𝑯𝑫𝟑, 𝟕𝟔𝟏, 𝟔𝟐𝟗
Non-Controlling Interests
As Bahrain Duty Free only owns 70% of 4u Co. shares, a non-controlling interest of 30% exists and to be added to the
equity section. This is fundamental because it signifies that Bahrain Duty Free does not own all the assets and liabilities
of 4u Co. instead 4u.co does have claim of the group assets and liabilities. (Bahrain Polytechnic, 2014-D) The calculations
are as follow:
𝑵𝒐𝒏𝒄𝒐𝒏𝒕𝒓𝒐𝒍𝒍𝒊𝒏𝒈 𝒊𝒏𝒕𝒆𝒓𝒆𝒔𝒕
= 𝐹𝑎𝑖𝑟 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑁𝑜𝑛 − 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑙𝑖𝑛𝑔 𝑃𝑎𝑟𝑡𝑖𝑒𝑠 𝑎𝑡 𝑡ℎ𝑒 𝐷𝑎𝑡𝑒 𝑜𝑓 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛
+ 𝑁𝐶𝐼 𝑆ℎ𝑎𝑟𝑒𝑠 𝑜𝑛 𝑃𝑜𝑠𝑡 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛 𝑃𝑟𝑜𝑓𝑖𝑡.
As said the fair value of 4u Co. at the date of acquisition is given at BHD 45,000. In order to calculate 4u Co. shares on
post -acquisition profit, this formula is required:
𝑵𝑪𝑰 𝑺𝒉𝒂𝒓𝒆𝒔 𝒐𝒏 𝑷𝒐𝒔𝒕 𝑨𝒄𝒒𝒖𝒊𝒔𝒊𝒕𝒊𝒐𝒏 𝑷𝒓𝒐𝒇𝒊𝑡
= 𝑁𝐶𝐼 𝑅𝑎𝑡𝑒 × (4𝑢 𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝑅𝑎𝑟𝑛𝑖𝑛𝑔𝑠 − 𝑃𝑟𝑒 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛 𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠)
The rate is 30% while the retained earnings are given at BHD 10280 and the pre-acquisition retained earnings are given
at BHD 2,000. Therefore:
Page 17 of 63
4𝑢. 𝑐𝑜 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑓 𝑝𝑜𝑠𝑡 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛 𝑃𝑟𝑜𝑓𝑖𝑡𝑠 = 30% × ( 10,280 − 2000) = 0.3 ( 8280) = 𝑩𝑯𝑫𝟐, 𝟒𝟖𝟒
Thus, by substituting the amounts in the original formula:
4𝑢 𝑆ℎ𝑎𝑟𝑒 𝑜𝑓 𝐺𝑜𝑜𝑑𝑤𝑖𝑙𝑙 𝐴𝑟𝑖𝑠𝑖𝑛𝑔 = 45,000 + 2484 = 𝑩𝑯𝑫𝟒𝟕, 𝟒𝟖𝟒
Alternative Method
There are many other methods to find the NCI figure. One detailed method is related to the NCI good will arising from
the acquisition (Bahrain Polytechnic, 2014-C). 4u Co., as the non-controlling interest also has shares in the goodwill
arising. To calculate this share, the following formula must be used:
𝑮𝒐𝒐𝒅𝒘𝒊𝒍𝒍 𝑨𝒕𝒕𝒓𝒊𝒃𝒖𝒕𝒂𝒃𝒍𝒆 𝒕𝒐 𝑵𝒐𝒏𝑪𝒐𝒏𝒕𝒓𝒐𝒍𝒍𝒊𝒏𝒈 𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 = 𝐹𝑎𝑖𝑟 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑁𝐶𝐼 𝑎𝑡 𝐷𝑎𝑡𝑒 𝑜𝑓 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛 −
𝑁𝐶𝐼 𝑖𝑛 𝑁𝑒𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 𝑎𝑡 𝐷𝑎𝑡𝑒 𝑜𝑓 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛
The fair value of 4u Co. as stated is BHD 45,000. The Non-controlling interest in net assets at the date of acquisition can
be found my multiplying the non-controlling interest percentage (30%) with 4u Co. pre-acquisition (BHD 2,000) and their
share capital (100,000) as follows.
𝑵𝑪𝑰 𝒊𝒏 𝑵𝒆𝒕 𝑨𝒔𝒔𝒆𝒕𝒔 𝒂𝒕 𝒕𝒉𝒆 𝑫𝒂𝒕𝒆 𝒐𝒇 𝑨𝒄𝒒𝒖𝒊𝒔𝒊𝒕𝒊𝒐𝒏 = (2,000 × 0.3) + (100,000 × 0.3)
= 300 + 30,000 = 𝑩𝑯𝑫 𝟑𝟎, 𝟑𝟎𝟎
Therefore,
𝐺𝑜𝑜𝑑𝑤𝑖𝑙𝑙 𝐴𝑡𝑡𝑟𝑖𝑏𝑢𝑡𝑎𝑏𝑙𝑒 𝑡𝑜 𝑁𝐶𝐼 (4𝑢) = 45,000 − 30,300 = 𝑩𝑯𝑫 𝟏𝟒, 𝟒𝟎𝟎
Total Non-Controlling Interest at October 31st, 2012 can be found with:
𝑵𝒆𝒕 𝑵𝑪𝑰 = ( 𝑆ℎ𝑎𝑟𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 × 𝑁𝐶𝐼 𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒) + (𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 × 𝑁𝐶𝐼)
+ 𝐺𝑜𝑜𝑑𝑤𝑖𝑙𝑙 𝐴𝑡𝑡𝑟𝑖𝑏𝑢𝑡𝑎𝑏𝑙𝑒 𝑡𝑜 𝑁𝐶𝐼
4u Co. share capital is given at BHD 100,000, their retained earnings totaled BHD 10,280 and the goodwill attributable
to them, which was found above, at BHD 11,961. Therefore;
𝑁𝑒𝑡 𝑁𝐶𝐼 = (100,000 𝑋 0.3) + ( 10,280 𝑋 0.3) + 11, 916
= 30,000 + 3,048 + 14,400 = 𝑩𝑯𝑫 𝟒𝟕, 𝟒𝟖𝟒
Retained Earnings
In order to calculate the retained earnings to be shown in the consolidated statement of financial position the following
formula must be used which is basically the Retained earnings of the parent with what is entitled for from the subsidiary
Page 18 of 63
retained earnings. Bahrain Duty free does not own the entire retained earnings of 4u Co since 4u had pre acquisition
retained earnings of their own and fact that Bahrain Duty free can only claim 70% of 4u Co not the whole 100% of their
Retained earnings (Bahrain Polytechnic, 2014-C).
𝑮𝒓𝒐𝒖𝒑 𝑹𝒆𝒕𝒂𝒊𝒏𝒆𝒅 𝑬𝒂𝒓𝒏𝒊𝒏𝒈𝒔
= 𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑜𝑓 𝐵𝑎ℎ𝑟𝑎𝑖𝑛 𝐷𝑢𝑡𝑦 𝐹𝑟𝑒𝑒
+ 𝐵𝑎ℎ𝑟𝑎𝑖𝑛 𝐷𝑢𝑡𝑦 𝐹𝑟𝑒𝑒 𝑆ℎ𝑎𝑟𝑒𝑠 𝑜𝑓 𝑃𝑜𝑠𝑡 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛 𝑃𝑟𝑜𝑓𝑖𝑡
As stated, the unrealized profit from the unsold inventory must be taken out from the seller company, thus:
𝐵𝑎ℎ𝑟𝑎𝑖𝑛 𝐷𝑢𝑡𝑦 𝐹𝑟𝑒𝑒 𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 = 17,525,126 − 1,260 = 𝑩𝑯𝑫 𝟏𝟕, 𝟓𝟐𝟑, 𝟖𝟔𝟔
Moreover, in order to find the Bahrain Duty Free shares of post-acquisition profit, this formula must be used:
𝐵𝑎ℎ𝑟𝑎𝑖𝑛 𝐷𝑢𝑡𝑦 𝐹𝑟𝑒𝑒 𝑆ℎ𝑎𝑟𝑒𝑠 𝑜𝑓 𝑃𝑜𝑠𝑡 𝑎𝑐𝑞𝑢𝑠𝑖𝑡𝑖𝑜𝑛 𝑃𝑟𝑜𝑓𝑖𝑡
= 𝑃𝑎𝑟𝑒𝑛𝑡 𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 × (𝑆𝑢𝑏𝑠𝑖𝑑𝑖𝑎𝑟𝑦 𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠
− 𝑃𝑟𝑒 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛 𝑃𝑟𝑜𝑓𝑖𝑡 )
The retained earnings of 4u Co. is given at BHD 10,280 with the pre-acquisition profit being BHD 2,000 and the
percentage is 70%. Thus:
𝑺𝒉𝒂𝒓𝒆𝒔 𝒐𝒇 𝑷𝒐𝒔𝒕 𝑨𝒄𝒒𝒖𝒊𝒔𝒊𝒕𝒊𝒐𝒏 𝑷𝒓𝒐𝒇𝒊𝒕 = 0.7 × ( 10,280 − 2000)
= 0.7 × ( 8280) = 𝑩𝑯𝑫 𝟓𝟕𝟗𝟔
As for the Retained earnings, by substituting in the formula mentioned above:
𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 = 17,524,193 + 5,796 = 𝑩𝑯𝑫 𝟏𝟕, 𝟓𝟐𝟗, 𝟔𝟔𝟐
3.1.2 Calculations Needed for Statement of Gain and Loss Items
3.1.2.1 Revenues and Cost of Goods Sold (COGS)
As stated above, there have been inventory sales transactions between the two company and 30% of these inventories
remains in 4u Co. books unsold. Thus, adjustments must be done to cancel this intra-group transaction. To do that the
revenue of the intra group inventory transaction must be subtracted from both cost of goods sold and revenue, then
any intra group transaction but also be taken out from the revenue; which is done by adding it to the Cost of goods sold
to reduce the gross income. The following formula will make this possible (Polytechnic, 2014-D).
𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑟𝑜𝑚 𝐵𝑎ℎ𝑟𝑎𝑖𝑛 𝐷𝑢𝑡𝑦 𝐹𝑟𝑒𝑒 + 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑟𝑜𝑚 4𝑢 – 𝐼𝑛𝑡𝑟𝑎𝐺𝑟𝑜𝑢𝑝 𝑇𝑟𝑎𝑛𝑠𝑎𝑐𝑡𝑖𝑜𝑛 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
𝐶𝑂𝐺𝑆 = 𝐶𝑂𝐺𝑆 𝑓𝑟𝑜𝑚 𝐵𝑎ℎ𝑟𝑎𝑖𝑛 𝐷𝑢𝑡𝑦 𝐹𝑟𝑒𝑒 + 𝐶𝑂𝐺𝑆 𝑓𝑟𝑜𝑚 4𝑢 – 𝐼𝑛𝑡𝑟𝑎𝐺𝑟𝑜𝑢𝑝 𝑇𝑟𝑎𝑛𝑠𝑎𝑐𝑡𝑖𝑜𝑛 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
+ 𝑈𝑛𝑟𝑒𝑎𝑙𝑖𝑧𝑒𝑑 𝑃𝑟𝑜𝑓𝑖𝑡
Page 19 of 63
The amount of this intra-group transaction is given at BHD 12,000. Note that it is not only the unrealized profit, but
rather the total amount. This is done to make the revenue and cost of goods sold show only transactions related to
outsiders, and removes the revenue that the seller gained from transaction with 4u Co. Furthermore, because not all
the amount of inventory was sold by 4u Co. to customers, there will be unrealized profit that was already calculated at
BHD 1,260 and must be subtracted from the revenue by adding it to the COGS. The revenues of the two companies are
BHD 27,517,130 and 95,000; while their COGS are BHD 15,339,861 and BHD 52,000 for Bahrain Duty Free and 4u Co.
respectively. By applying the above formulae:
𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 27,517,139 + 95,000– 16,200 = 𝑩𝑯𝑫 𝟐𝟕, 𝟓𝟗𝟓, 𝟗𝟑𝟎
𝐶𝑂𝐺𝑆 = 15,339,861 + 52,000 − 16,200 + 1,260 = 𝑩𝑯𝑫 𝟏𝟓, 𝟑𝟕𝟔, 𝟗𝟐𝟏
3.1.2.2 Net Gain Attributable to Owners and NCI
The net gain must be shown as to what is attributable to the owners of the parent and what is attributable to the NCI
(Polytechnic, 2014-D).. 4u Co. net gain for the year was given at, BHD 26000 while the NCI percentage” is 30% Thus, The
NCI can be found by:
𝑁𝐶𝐼 = 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑠𝑢𝑏𝑠𝑖𝑑𝑎𝑟𝑦 × 𝑁𝐶𝐼 𝑅𝑎𝑡𝑒
= (26,000) × 30% = 𝑩𝑯𝑫 𝟕, 𝟖𝟎𝟎
To calculate attributable net gain to the parent company (Bahrain Duty Free), this formula must be used:
𝑁𝑒𝑡 𝐺𝑎𝑖𝑛 𝐴𝑡𝑡𝑟𝑖𝑏𝑢𝑡𝑎𝑏𝑙𝑒 𝑡𝑜 𝑡ℎ𝑒 𝑂𝑤𝑛𝑒𝑟𝑠 = 𝑁𝑒𝑡 𝐶𝑜𝑛𝑠𝑜𝑙𝑖𝑑𝑎𝑡𝑒𝑑 𝐺𝑎𝑖𝑛 − 𝐴𝑡𝑡𝑟𝑖𝑏𝑢𝑡𝑎𝑏𝑙𝑒 𝑡𝑜 𝑁𝐶𝐼
= 2,709,023 − 7,800 = 𝑩𝑯𝑫 𝟐, 𝟕𝟎𝟏, 𝟐𝟐𝟑
Alternative method
The net gain attributable to the owners is constructed from the parent (Bahrain Duty Free) net gain for the period, given
at BHD 2,687,216, after deducting any unrealized profit (BHD 1,260) to nullify the intra group transaction effects.
However, Bahrain Duty Free is also entitled of a share (70%) in 4u Co. net gain given at BHD26000. Thus,
𝑵𝒆𝒕 𝑮𝒂𝒊𝒏 𝑨𝒕𝒕𝒓𝒊𝒃𝒖𝒕𝒂𝒃𝒍𝒆 𝒕𝒐 𝑶𝒘𝒏𝒆𝒓𝒔 𝒐𝒇 𝒕𝒉𝒆 𝑷𝒂𝒓𝒆𝒏𝒕
= 𝑃𝑎𝑟𝑒𝑛𝑡 𝑁𝑒𝑡 𝐺𝑎𝑖𝑛 − 𝑈𝑛𝑟𝑒𝑎𝑙𝑖𝑧𝑒𝑑 𝑃𝑟𝑜𝑓𝑖𝑡 + ( 70% × 4𝑢 𝑁𝑒𝑡 𝐺𝑎𝑖𝑛)
= ( 2,684,283 − 1,260) + 70% (26,000) = 𝑩𝑯𝑫 𝟐, 𝟕𝟎𝟏, 𝟐𝟐𝟑
3.1.3 Consolidated Statements
This section will show the final consolidated statements of gain and loss and statements of financial position of
Bahrain Duty Free at the end of August 31st, 2012.
Page 20 of 63
3.1.3.1 Statement of Gain and Loss (Bahrain Polytechnic, 2014-D)
Consolidated Statement of Gain and Loss
Bahrain Duty Free
For the period ended 31 October, 2012
(Expressed in Bahraini Dinars)
Notes
Revenues
2
27,595,930
Cost of Sales
3
(15,376,921)
Gross Profit
12,219,009
Expenses
Administrative Expenses
Royalty
Other Operating Expenses
Selling Expenses
Impairment of Investments
4
(4,495,839)
(2,922,150)
(1,152,379)
(523,792)
(415,826)
Total Expenses
(9,509,986)
Profit of Year
2,709,023
Attributable to
5
Owners of Bahrain Duty Free
2,701,223
Attributable to the non-controlling interest
7,800
2,709,023
3.1.3.2 Statement of Financial Position (Bahrain Polytechnic, 2014-B) (Bahrain Polytechnic, 2014-C)
Page 21 of 63
Consolidated Statement of Financial Position
Bahrain Duty Free
As At 31 October, 2012
(Expressed in Bahraini Dinars)
Notes
Assets
Non-Current Assets
Goodwill
6
134,990
Property and Equipment
7
2,671,931
Investment
7
Investment In Property
2,533,091
Available-For-Sale Investments
18,310,625
Total Non-Current Assets
23,650,637
Current Assets
Inventories
Trade Receivables
Cash and Cash Equivalents
8
9
7
2,110,365
1,750,911
17,247,876
Total Current Assets
21,109,152
Total Assets
44,759,789
Equity & Liabilities
Equity
Share Capital
Statutory Reserve
Investments Fair Value Reserve
Property Revaluation Reserve
Retained Earnings
Non-Controlling Interest- 4u Co.
10
11
11
11
12
13
9,717,365
6,279,076
3,681,750
399117
17,529,662
47484
Total Equity
37,654,454
Liabilities
Non-Current Liabilities
Provision For Employees’ Leaving Indemnities
14
561,814
Total Non-Current Liabilities
561,814
Current Liabilities
Trade Payables
Royalty Payable
Management Fees
15
14
14
Total Current Liabilities
Total Liabilities
3,761,629
2,728,149
53,743
6,543,521
7,105,335
Total Equity & Liabilities
44,759,789
Page 22 of 63
3.1.3.3 Notes to Financial Statements
This section will contain notes to the consolidated financial statements and some brief commentary on some
items. All figures are expressed in Bahraini Dinars
1) Unrealized profit
There is an intra-group transaction manifested of inventory purchase between the two companies. In
addition, these inventory in 4u Co. position where not completely sold, which created unrealized profit
from remaining inventory. This figure is vital in determining the value of many accounts.
Unrealized profit from remaining inventory in 4u position
Cost Plus Profit
35%
Total Inventory Cost
BHD 12,000
Total Revenue
BHD 16,200
Total Profit
BHD 4,200
Remaining Inventory Percentage
Unrealized profit from remaining inventory
30%
BHD 1,260
2) Revenue
The table below shows how to calculate the revenue of the group and how the intra-group transactions
of 28,000 must be deducted here.
Revenue
Bahrain Duty Free Revenue
BHD 27,517,130
4u Revenue
BHD 95,000
Intra-Group Transaction
Total Revenue
BHD 16,200
BHD 27,595,930
3) Cost of goods sold.
This table shows the COGS for the consolidated statement of gain and loss. The intra-group
transactions will be deducted; however to avoid having unearned profit being counted in the net, the
COSG must be added with the unrealized profit from unsold inventory.
COSG
Bahrain Duty Free COGS
BHD 15,339,861
4u Co. COSG
BHD 52,000
Intra-Group Transaction
BHD 16,200
Unrealized Profit
Total COGS
BHD 1,260
BHD 15,376,921
Page 23 of 63
4) Expenses
This table shows the expenses balances to be shown in the consolidated.
Expenses
(Expressed in Bahraini Dinars)
Expense
Bahrain Duty Free
4u Co.
Group Balance
Administrative Expenses
BHD (4,492,839)
BHD (3,000)
BHD (4,495,839)
Royalty
BHD (2,920,150)
BHD (2,000)
BHD (2,922,150)
Other Operating Expenses
BHD (1,145,379)
BHD (7,000)
BHD (1,152,379)
Selling Expenses
BHD (518,792)
BHD (5,000)
BHD (523,792)
Impairment of Investments
BHD (415,826)
0
BHD (415,826)
Total
(9,509,986)
5) Net gain Attributable to Parent and NCI
Since 4u Co. is not fully owned by Bahrain Duty Free, they are entitled to percentage of the end of
period net income as the non-controlling party. This table shows the amount of net gain attributable
to NCI and to the Parent company.
Attributable Net Income
Total Net Income
NCI
NCI (4u Co.) Net Gain for the Period
Profit Attributable to NCI
Profit Attributable to Owners
BHD 2,709,023
30%
BHD 26,000
BHD 7,800
BHD 2,701,223
6) Goodwill
Since Bahrain Duty Free did not acquire 100% of 4u Co.; there will goodwill arising from the acquisition.
The table shows how this figure; that will be presented in the non-current assets, is calculated:
Goodwill
Fair Value of Consideration Transferred
BHD 191,990
Plus: Fair Value of the Non-Controlling Interest at the Date of Acquisition
BHD 45,000
BHD 236,990
Less: Fair Value of Net Assets of the Date of Acquisition
Share Capital of Subsidiary
BHD 100,000
Pre-Acquisition Retained Earnings of Subsidiary
Goodwill arising from acquisition
BHD 2,000
BHD 102,000
BHD 134,990
7) Assets account
This section shows the assets items that do not complex calculations to be shown in the consolidated
statements and are found by simply adding the two figures of the account from Bahrain Duty Free and
4u Co.
Page 24 of 63
8) Inventory
This table shows how to find the net inventory to be presented in the statement of financial position.
Inventory
Bahrain Duty Free Inventories
BHD 2,076,625
4u Co. inventory
BHD 35,000
Less: Unrealized Profit from Remaining Inventory
BHD 1,260
Net inventory
BHD 2,110,365
9) Receivable
This table was created to show the figure of receivables to be presented in the statement.
Receivables
Bahrain Duty Free
BHD 1,750,411
4u Co.
BHD 9,000
Less: Intra-Group Receivables
BHD 8,500
Total
BHD 1,750,911
10) Share Capital
In accordance to IFRS 10 - Consolidation of Financial Statements; the share capital of the group is equal
to the net share capital of the parent company without adding the share capital of the subsidiary in
the amount. Thus, the group share capital is the same as the share capital of Bahrain Duty Free which
is BHD 9,717,365.
11) Other Capital accounts.
This section shows the assets items that do not complex calculations to be shown in the consolidated
statements and are found by simply adding the two figures of the account from Bahrain Duty Free
and 4u Co.
Item
Statutory Reserve
Investments Fair Value Reserve
Property Revaluation Reserve
Bahrain Free Duty
BHD 6,279,076
BHD 3,681,750
BHD 399,117
Page 25 of 63
4u Co.
0
0
0
Group
BHD 6,279,076
BHD 3,681,750
BHD 399,117
12) Retained Earnings
Retained earnings figure is complex to calculate due to Bahrain Duty Free not acquiring all of 4u Co.
shares, and 4u Co. having pre-acquisition retained earnings that Bahrain Duty Free is not entitled to.
To calculate this figure, the following must be done:
Retained Earnings
Bahrain Duty Free Retrained Earnings before Consolidation
Less: Unrealized Profit
Bahrain Duty Free Retrained Earnings after consolidation
4u Co. Retained Earnings
Pre- Acquisition Retained Earnings
4u Co. Post Shares Retained Earnings
Bahrain Duty Free shares in 4u Co. Post-Acquisition Retained
Earnings
Total
BHD 17,525,126
BHD 1,260
BHD 17,523,866
BHD 10,280
BHD 2,000
BHD 8,280
70%
BHD 5,796
BHD 17,529,662
13) Non-Controlling Interest
Since 30% is of 4u Co. shares is still owned by them and the fact the consolidated statements are for
both companies; a NCI figure must be presented in the equity section. To find it, first the goodwill
arising for the non-controlling interest must be found.
Goodwill for NCI- 4u Co.
fair value at the date of acquisition
BHD 45,000
NCI in net assets at the date of acquisition
NCI Percentage
30%
4u Co. capital
BHD 100,000
NCI Capital
BHD 30000
4u Co. reserves (pre-acquisition retained earnings)
BHD 2,000
BHD 600
BHD 30,600
NCI reserves
Goodwill for NCI
BHD 14,400
Then, the NCI figure can be found
Net NCI
NCI Percentage
30%
4u Co. capital
BHD 100,000
NCI Capital
BHD 30,000
4u Co. Retained earnings
BHD 10,280
NCI in Retained earnings
BHD 3,084
Goodwill for NCI
BHD 14,400
Net NCI
BHD 47,484
Page 26 of 63
14) Liabilities account
This section shows the assets items that do not complex calculations to be shown in the consolidated
statements and are found by simply adding the two figures of the account from Bahrain Duty Free and
4u Co.
Item
Provision for employees’ leaving indemnities
Royalty payable
Management fees
Bahrain free duty
BHD 561,814
BHD 2,728,149
BHD 53,743
4u Co.
0
0
0
Group amount
BHD 561,814
BHD 2,728,149
BHD 53,743
15) Payables
This table was created to show the figure of receivables to be presented in the statement
Payables
Bahrain Duty Free
BHD 3,728,409
4u Co.
BHD 41720
less: intra-group Payables
BHD 8500
Total
BHD 3,761,629
Page 27 of 63
3.2 Bahrain Duty Free Investments
This part is to show how to record investment transactions of Bahrain Duty Free (Investor) in Alba and GFH
(Investee) in a general journal. In addition, Bahrain Duty Free acquired shares in Alba for available for sale
investment and 26.5% of GFH shares considering the equity method (Principles of Accounting, n.d.). Moreover,
post the transactions in a T-account and how to report long-term investments in the statement of financial
position according to the appropriate accounting treatments (Bahrain Polytechnic, 2014-E) (Bahrain Polytechnic,
2014-F).
General Journal Entries
In this part, the investment transactions that were completed by Bahrain Duty Free will be posted as a journal
entries based on the dates of transactions. At the beginning (8th January), the company acquired 1,200 shares (at
BD14 for each) in Alba as available for sale investment as the intention of BAHRAIN DUTY FREE to sell them seems
to be above their accounting period. In 15th March, BAHRAIN DUTY FREE acquired 26.5% of GFH on a non-current
investment for BD 45,000. Moreover, the company desired to have an impact on GFH operating decisions as they
acquired more than 20%, thus, GFH are tend to be BAHRAIN DUTY FREE's associates. In 6th April, BAHRAIN DUTY
FREE received their income from the 1,200 shares acquired in Alba for BD1.7 each and a total of BD 2,040. In 4th
May, BAHRAIN DUTY FREE received BD 25,000 as cash dividends. In 23th October, GFH reported a net income for
the year of BD 350,000, thus, BAHRAIN DUTY FREE received an income of BD 92,750 as they are associated with
GFH by 26.5% (Equity ownership). In 31st December, BAHRAIN DUTY FREE had to make adjustments of the
available for sales in Alba by BD 14,600 (Unrealized profit) as their fair market value amounted to BD 31,400. Only
the investment in Alba needs to be adjusted as available for sales investment must be recorded in fair value and,
thus, adjustments are needed unlike equity method as they are shown in the initial amount of investment.
All calculations related to the following transactions will be shown in the table in Appendix (5).
Date
Jan-08
Mar-15
Apr-06
May-04
Oct-23
Oct-31
Accounts
Long-term Investment - Alba
Cash
Purchase of 1,200 shares of Alba BD 14 each
Long-term Investment - GFH
Cash
Purchase of GFH shares that worth BD 45,000
Cash
Dividends Income - Alba
Received cash dividends of BD 1.7 per share on Alba investment
Cash
Long-term Investment -GFH
Received cash dividends of BD 25,000 from GFH
Long-term Investment - GFH
Income from Associates
Received income as an associate for GFH investment
Market Value Adjustment
Unrealized Gain on Investment - Alba
End of year adjustment on Alba investment in the end of their
financial year (October 31st)
Page 28 of 63
Dr
BD 16,800
Cr
BD 16,800
BD 45,000
BD 45,000
BD 2,040
BD 2,040
BD 25,000
BD 25,000
BD 92,750
BD 92,750
BD 14,600
BD 14,600
T-account (BAHRAIN DUTY FREE investment in GFH)
This part will illustrate and outline the accounts that led BAHRAIN DUTY FREE to the closing balance in relation to
their 26.5% equity based long-term investment in GFH. The T-account will determine the closing balance at the
end as a result of the original cost being added with dividends income and share gain or subtracted with the loss.
Firstly, the original cost is debited by BD 45,000. Then, the dividends income recorded for BD 25,000 as BAHRAIN
DUTY FREE received this amount outstand from their shares in GFH. At last, the share gain is recorded at BD 92,750
resulted from the portion of 26.5% of the associates (GFH) income, amounted BD 350,000. In addition, the closing
balance determined after subtracting the dividends income from the sum of the original cost and share gain
(income from associates) (Bahrain Polytechnic, 2014-F).
Refer Appendix (5) for the closing balance calculation and refer to the general journal for the other accounts.
Long-term Investment - GFH
Date
Mar-15
Dr
BD 45,000
Oct-23
BD 92,750
Balance
Oct-31
Closing Balance
BD 137,750
Date
Cr
May-04
BD 25,000
BD 25,000
BD 112,750
Report of the available for sale investment (Alba) and long-term investment in associates (GFH) in the
statement of financial position
This part will show how to report the investment accounts in Alba and GFH in the statement of financial position
of BAHRAIN DUTY FREE. The investments are recorded as non-current assets as BAHRAIN DUTY FREE have
acquired the shares in them in order to gain from them on a long-term basis. Moreover, investment in Alba is
recorded as "Available for sale investment" because the acquirement was on that basis. Furthermore, the amount
recorded is the fair market value of the shares as the shares price may vary at any time during the period; which
as stated demand adjustments in the amount shown in statement of financial positions; this time it equalled BHD
31,400. In addition, the investment in GFH is recorded as "long-term investment in associates" because BAHRAIN
DUTY FREE acquired more than 20% (specifically 26.5%) in GFH, thus, this makes them as associates of GFH on
the basis of equity ownership. The amount recorded is the closing balance after going through the dividends
income and the share gain in relation to the original cost of the acquirement.
Bahrain Duty Free, Co.
Statement of Financial position
As at 31st of December, 2013
(Expressed in Bahraini Dinars)
Assets
Non-current Assets:
Available for sale investment - Alba
long-term investment in associates - GFH
Page 29 of 63
BD31,400
BD112,750
The appropriate accounting treatment for the investments in Alba and in GFH
The treatment differs for the investment in Alba and GFH as BAHRAIN DUTY FREE considered the market fair value
of the shares in the investment made in Alba which makes them as available for sale investment. In the investment
in GFH, the equity method was considered as BAHRAIN DUTY FREE acquired 26.5% of the shares seeking to have
a substantial influence over GFH operating decisions. (Principles of Accounting, n.d.).
The IFRS 9 and IAS 28 applies on the GFH investment (Equity method), and accordingly, they investment is
recorded based on initial cost, and then will be adjusted and decreased by receiving dividends from the associates
while it will increase with receiving income from associates; thus no need for the end of year adjustment. (IAS
Plus-B, n.d.). In addition, IAS 39 is applying on the Alba investment (Available for sale) as the value will be on the
fair value of the investment without including any changes in profit or loss values as they will be included in the
statement of (comprehensive income) ( IAS plue- C, n.d).
Page 30 of 63
4.0 Ratios Analysis
This part is to show how efficient are the companies in terms of operations, profit making and share investment
through liquidity, profitability and share investment ratios. The information will be derived from the financial
statements of two companies listed in the Bahrain Stock Exchange (TRAFCO and Gulf Hotel. (Asma, n.d.)
4.1 Ability to Pay Current Liabilities (Refer to Appendix 6)
This category includes the ratios that indicate how the company can cover their current liabilities by their current
assets.
4.1.1 Current ratio (Investopedia 1, n.d.)
Current Ratio =
Current Assets
Current Liabilities
This ratio is an aspect of the liquidity ratios and it shows the company's ability to attain its current obligations.
Moreover, if the company has its current assets more than its current liabilities, it will result a higher ratio and
the greater the ratio, the better will be the company's condition (Megginson, Smart, Graham, 2009).
TRAFCO
Current Ratio =
18,245,808
= 𝟏. 𝟑𝟗: 𝟏
13,098,408
This ratio is fair indication of the TRAFCO's condition as it shows current liability can be covered 1.39 times by
the current assets. This is important for the management as this shows how efficient they are in terms of
operations. Furthermore, this can be good sign of operating the inventory of the company to generate profit.
Gulf Hotel
Current Ratio =
32,771,040
= 𝟓. 𝟔𝟕: 𝟏
5,774,710
This ratio is excellent indication of the company's condition as it shows that current liability can be paid 5.67
times by the current assets. Besides of this is a good sign of the Gulf hotel's operations, this ratio also indicates
that the company is using their current assets efficiently as they have a high inventory turnover and this can be
seen from the sales of the company. (CCD Consultants, n.d.)
4.1.2 Acid ratio (Investopedia 2, n.d.)
Acid ratio =
Cash + Short term investment + Net current receivables
Current Liabilities
This ratio is one of the most important aspects of the liquidity ratios as it shows how the company can cover
their current obligations by their current assets excluding inventory. Moreover, the greater the ratio, the shorter
will be the period in liquidation of the current assets excluding inventory. In addition, this ratio is more accurate
than the current ratio as it eliminates the slow-conversion into cash account (inventory).
TRAFCO
Page 31 of 63
Acid ratio =
997,541 + 0 + 9,794,349
= 𝟎. 𝟖𝟐: 𝟏
13,098,408
This ratio is not good indication for TRAFCO as it shows that the company cannot cover their current liabilities.
In accordance to this ratio, the Management should worry as it is obviously that they rely vastly on the
inventories and this is a signal of inefficiency in using their current assets.
Gulf Hotel
Acid ratio =
25,875,842 + 1,137,570 + 2,817,679
= 𝟓. 𝟏𝟕: 𝟏
5,774,710
This ratio is a very good indication of the Gulf hotel's ability to pay their current liability as they can cover it by
5.17 times with their current assets and can survive recessions easily in terms of liquidation. Moreover, another
good signal of this high ratio can be that it is not facing any problems in the payments of the debtors. (Accounting
Management, n.d.)
4.1.3 Working Capital (Investopedia 3, n.d)
Working Capital = Current Assets − Current Liabilities
This ratio is a part of the liquidity ratios and it signifies how the company establishes its business operations in
terms of the amount of the liquid assets. The amount can be either positive or negative; the companies with
high working capital will be at good financial health whereas companies with low working capital will face
obstacles in relation to growth and prosper.
TRAFCO
Working Capital = 18,245,808 − 13,098,408 = 𝟓, 𝟏𝟒𝟕, 𝟒𝟎𝟎
This amount is a satisfactory amount for TRAFCO, despite of paying all the current liabilities and still an amount
remains of current assets but the amount paid is huge as it is 71.8% of the current assets. Although the remaining
amount is not huge, the ratio is still sufficient as it 1.39. Despite the company is on the safe side, they should
analyse their amounts and review ratios regularly as the ratio maybe decline from one period to another and
this can be due problems in sales.
Gulf Hotel
Working Capital = 32,771,040 − 5,774,710 = 𝟐𝟔, 𝟗𝟗𝟔, 𝟑𝟑𝟎
This amount is very good indication of the Gulf hotel's financial condition. Even though the company pays all its
current liabilities still it has 82.4% of its current assets. However, this ratio may not attract the investors as it can
show that the company does not use its over-amounted assets or they are not operating well.
4.2 Profitability (Refer to Appendix 7)
Page 32 of 63
This category is one of the most used categories to analyse the companies' conditions as it shows how the
companies can earn in relation to their costs over a specific period.
4.2.1 Rate of return on sales (Investopedia 4,n.d.)
Rate of return on sales =
Net Income
× 100
Net Sales
This aspect of profitability ratios shows how the company is profitable in terms of their sales. Moreover, the
higher the rate, the better the companies condition in relation to their return.
TRAFCO
Rate of return on sales =
1,301,114
× 100 = 𝟑. 𝟐𝟗%
39,603,740
This proportion shows that TRAFCO's rate of return on sales is low as every BHD1 profit made, 96.71% goes away
to cause it. According to this proportion, the management should worry as it can be a signal of financial troubles
in the upcoming periods.
Gulf Hotel
Rate of return on sales =
10,106,406
× 100 = 𝟑𝟏. 𝟎𝟕%
32,525,977
This proportion is nearly good as it clearly shows that the Gulf hotel will have 31.07% of each BHD1 made as
profit. Moreover, this shows that the company is prospering in terms of efficiency.
4.2.2 Rate of return on total assets (Investopedia 5,n.d.)
Rate of return on total assets =
Net Income + Interest Expense
× 100
Average Total Assets
This ratio is all about outlining how effective the companies use their assets effectively to generate their income.
Moreover, the higher the rate, the more the effectiveness will be.
TRAFCO
Rate of return on total assets =
1,301,114 + 0
× 100 = 𝟑. 𝟑𝟒%
( 37,549,073 + 40,337,710)
(
)
2
This proportion is bad indicator as it shows that TRAFCO's rate of return on total assets is low (3.34%) and every
BHD1 of the assets is used to make only 3.34% of the net income. Moreover, the Management have to give
concern over rate as this shows that the company does not use its assets properly in the output of the profits
and another thing is that there was a high purchase of fixed assets.
Gulf hotel
Page 33 of 63
Rate of return on total assets =
10,106,406 + 0
× 100 = 𝟏𝟓. 𝟗%
(66,515,641 + 60,401,811)
(
)
2
This proportion is satisfactory indicator for the Gulf Hotel as every BHD1 of the assets is used to make only 15.9%
of the net income. Moreover, the management should review this rate to avoid its decrease as this will make
the management more efficient and effective. Furthermore, this satisfied rate may come from a slow fetch on
account receivables.
4.2.3 Rate of return on ordinary shareholders’ equity (Investopedia 6,n.d.)
Rate of return on ordinary shareholders′ equity =
Net income − Preference dividends
× 100
Average ordinary shareholders′ equity
This ratio is the amount of income return over the shareholders' equity. It signifies how much the companies
gain upon the shareholders' investment. Moreover, the higher the rate, the more profitable the company will
be.
TRAFCO
Rate of return on ordinary shareholders′ equity =
1,301,114 − 0
× 100 = 𝟏𝟔. 𝟏𝟑%
8,067,505
The proportion is low (16.13%) compared to the amount invested by the shareholders as every BHD1 of the
equity is used to produce only 16.13% of the net income. This proportion cannot be necessarily bad indicator
because TRAFCO may not have competitors in their industry but this rate is not favoured by the investors.
Gulf hotel
Rate of return on ordinary shareholders′ equity =
10,106,406 − 0
× 100 = 𝟔𝟏. 𝟏𝟑%
16,533,851
The proportion is relatively good (61.13%) compared to the amount invested by the shareholders as every BHD1
of the equity is used to produce 61.13% of the net income. Moreover, this rate can be attract many investors
but this rate maybe a sign of hard competition in this industry. Thus, the investors may risk in investing in the
Gulf hotel because of the competitive atmosphere. (CCD Consultants 2,n.d.)
4.2.4 Earnings per share of ordinary shares (Investopedia 7,n.d.)
Earnings per share =
Net income − Preference dividends
Weighted average number of ordinary shares outstanding
It is the part of the company's gain to each ordinary share. It shows how much earning the company will gain
from the net income per outstanding share.
* In the Weighted average number of ordinary shares outstanding, the treasury shares won't be considered.
Page 34 of 63
TRAFCO
Earnings per share =
1,444,285 − 0
= 𝐁𝐇𝐃 𝟎. 𝟎𝟏𝟖
78,158,923
The earnings/share amount (BHD0.018) is relatively low as this show that TRAFCO is not using the capital
efficiently to generate the gains. Moreover, the investors may not get attention to invest due to this small
amount of earnings per share and the company won't be dependable to ensure of high earnings. In addition,
the stockholders also may try to get rid of their shares because the low earnings will affect on the dividends per
share they get.
Gulf hotel
Earnings per share =
10,106,406 − 0
= 𝐁𝐇𝐃 𝟎. 𝟎𝟔𝟏
165,338,510
The earnings/share is good (BHD0.061) since it occupies more than 50% of the each share as this shows that
Gulf hotel is providing its capital properly to generate the income. The investors will be attracted to this figure
as this is a sign of how healthy the company is and even the stockholders will try to buy more shares and
contribute as they can ensure of considerable amount of dividends per share. (Accounting for Management 2,
n.d.)
4.3 Analyzing Share Investment (Refer to Appendix 8)
This category is to dissect and valuate investment made by shares. Moreover, it includes the Price/earnings,
Dividend yield and book value per shares ratios.
4.3.1 Price /Earnings Ratio (Investopedia 8, n.d.)
Price per earnings ratio =
Market price per share of ordinary share
Earnings per share
This ratio is how much will be the share based on the market over the earnings of that share. It shows how the
price allocated by the company to the share based on its earnings. Moreover, the lower the ratio, the better
more attractive will be the share for the investor.
Links for Market price:
TRAFCO - http://www.asmainfo.com/bahrain/en/stock/chartsB.aspx?id=407
Gulf Hotel - http://www.asmainfo.com/bahrain/en/stock/chartsB.aspx?id=602
TRAFCO
Price per earnings ratio =
0.250
= 𝟏𝟑. 𝟗 ∶ 𝟏
0.018
This ratio can be a fair indication for TRAFCO as it shows that the market will value the price of the share by 13.9
times for each BHD 1 earnings. As a prospective investor, there may be higher expectations for the share to gain
earnings in the future, thus, the investor will acquire the shares. However, the investors will expect more
Page 35 of 63
earnings and this will make the company under pressure as if the earnings did not attain the investor's
expectations, the investor will turn-down his will to be a stockholder. Furthermore, high Price/earnings ratios
are not always good as they can be risky.
Gulf hotel
Price per earnings ratio =
0.760
= 𝟏𝟐. 𝟓 ∶ 𝟏
0.061
This ratio is a fair indication for the Gulf hotel as it shows that the market will value the price of the share by
only 12.5 times for each BHD 1 earnings. The price for the share is high as this may lead to investment avoidance.
If any investor decided to invest in this company, the company will be under great pressure as the investor is
expecting high amount of earnings. (Ready Ratios,n.d.)
4.3.2 Dividend yield (Investopedia 9, n.d.)
Dividend yield =
Dividends per share of ordinary shares
× 100
Market price per share of ordinary share
It is the rate of how much a company will pay to its shareholders' in the form of dividends per share upon the
market price of the share. It signifies how much will be the dividend rate per share for each shareholder.
TRAFCO
Dividend yield =
0.018
× 100 = 𝟕. 𝟐%
0.250
Gulf hotel
Dividend yield =
0.035
× 100 = 𝟒. 𝟔%
0.760
The proportions found are stating that the return on the dividend is low in both companies. Moreover, this is
maybe due to high market price in respect to the industry of those companies. The investors may not get the
attention of the shares due to this yield as the income from the dividend is low.
However, both companies will remove any doubts of being "tricky company" with high dividends income as the
market price per share may be low due to vast financial problems, thus, the investors will have more supportive
point to make the decision of investing in although the yields are not high. (Accounting for Management.org
3,n.d.)
4.3.3 Book value per ordinary share (Investopedia 10,n.d.)
Book value =
Total sharholders ′ equity − Preference equity
Number of ordinary shares outstanding
It is simply the price of each share after all the obligations settled. The owners in any company consider this
ratio as it is a good measure of safety.
Page 36 of 63
TRAFCO
Book value =
21,235,470−0
80,675,052
= 𝐁𝐇𝐃 𝟎. 𝟐𝟔
Gulf hotel
Book value =
58,966,239 − 0
= 𝐁𝐇𝐃 𝟎. 𝟑𝟓
165,338,510
Both values are a satisfactory situation for the companies as they show that only BHD 0.26 & BHD 0.35 (TRAFCO
& Gulf hotel respectively) of each share will be remaining after liquidation of assets and the payment of the
debts. The "Value" investors may not get attracted as both book values are greater than the market price per
share (BHD 0.100 same for both companies). Moreover, maybe the reasons for both companies to allocate
higher book value per share than market price is that they want to get more return on the invested ordinary
equity. (Money-Zine,n.d.)
Table of ratios
Ratios
TRAFCO
Gulf Hotel
Current Ratio
1.39 times
5.67 times
Acid-Test Ratio
0.82 times
5.17 times
Working Capital
1.39 times
5.67 times
Rate of Return on Sales
3.29%
31.07%
Rate of Return on Total Assets
3.34%
15.9%
Rate of Return on Ordinary Shareholders’ Equity
16.13%
61.13%
BHD 0.018
BHD 0.061
13.9 times
12.5 times
7.2%
4.6%
BHD 0.26
BHD 0.35
Ability to Pay Current Liabilities:
Profitability Ratios:
Earnings per Share of Ordinary Shares
Analyzing Share Investment:
Price/Earnings ratio
Dividend Yield
Book value per Ordinary Share
Note: The Green Slots represent the best ratio between the companies.
4.4 Recommendations
After the calculation and interpretation, it is recommended for Bahrain Duty Free to invest in the Gulf Hotel
rather than TRAFCO for several reasons and they are as follow:

Gulf Hotel's ability to pay their liabilities is stronger and more guaranteed than TRAFCO as evidence from the
liquidity ratios. The current ratio shows that the Gulf Hotel can cover their liabilities by 5.67 times compared to
Trafco with 1.39 times. Moreover, it can be seen from the acid test ratio that Gulf Hotel can cover their current
liabilities 5.17 times without selling their inventory compared to Trafco that have very bad ratio (0.82) as they
Page 37 of 63


cannot cover their liabilities without selling the inventories. In addition, Gulf Hotel have a great working capital
as even if they pay all the current liabilities still 82.4% of the current assets remains whereas Trafco pays 71.8%
of their current assets to settle their current liabilities. It is better for BAHRAIN DUTY FREE to invest in Gulf Hotel
as from the results found, it shows that they are effective in using their assets and comfortable in covering their
current liabilities.
Gulf Hotel has greater proportion (31.07%) on return on sales than TRAFCO with (3.29%) as evidence from the
profitability ratios. This indicates that Gulf Hotel produces better profit upon their sales compared to Trafco.
Despite of both companies having low rate of return on total assets, Gulf Hotel (15.9%) is much better than
Trafco (3.34%) as they uses their assets more effectively than Trafco. In addition, Gulf Hotel produces their profit
vastly better than Trafco as they uses 61.13% of the capital rather than only 16.13%. At last, Gulf Hotel is more
profitable besides it uses the capital more properly to generate the income than Trafco as the EPS occupies more
than 50% of the share compared to Trafco with less than 20%. Again, the Gulf Hotel will be better to invest in as
they have shown how profitable and efficient in generating their income.
Gulf Hotel's price for the share is more expensive than TRAFCO despite of its low earnings as evidence of the
share investment analysis. However, it is 12.5 times to the earnings itself whereas TRAFCO is 13.9 times and
this makes Gulf Hotel less risky to invest in as the expectations are lower. Another aspect states that Gulf Hotel
will not be a recommended company to invest in at this result; the Dividend yield shows that the return on the
dividend is lower than TRAFCO as TRAFCO has their return 2.6% (7.2% - 4.6%) more than Gulf Hotel but the
difference is not much difference. Finally, the book value ratio shows that Trafco is not safe to invest in as if we
consider that both companies goes bankrupt(Gulf hotel and Trafco), only 0.26 of the shares will remain after
liquidation for Trafco whereas Gulf Hotel will have a better proportion by 0.35. Thus, this indicates that Gulf
Hotel is safer to invest in than Trafco. The investors will get attracted to Gulf Hotel as they will not care for the
dividend yield when the investment will be less risky, secure and safer.
In conclusion, upon the above recommendations Gulf Hotel will be the better company to invest in relation to
the comfort in settling the liabilities, the return or profit and the shares' returns besides the safety invest
despite of the share expensiveness and dividend yield.
Page 38 of 63
5.0 References

Accounting Coach. (n.d.) Financial Ratios: Statement of Cash Flows. Retrieved from
http://www.accountingcoach.com/financial-ratios/explanation/4

Accounting for Management.org 2. (n.d.). Earnings per Share ratio. Retrieved from
http://www.accountingformanagement.org/earnings-per-share-eps-ratio/

Accounting for Management.org 3. (n.d.). Dividend yield ratio. Retrieved from
http://www.accountingformanagement.org/dividend-yield-ratio/

Accounting for Management.org. (n.d.). Quick ratio or acid test ratio. Retrieved from
http://www.accountingformanagement.org/quick-ratio-or-acid-test-ratio/

Admission of a partner. (n.d). accounting explained. Retrieved from:
http://accountingexplained.com/financial/partnerships/admission-of-a-partner

Al-Ahlia Insurance. (2013) Annual Report 2012. Retrieved from
http://www.alahlia.com/MediaHandler/GenericHandler/documents/fin2012.pdf

Asma. (n.d.). Listed companies in stock exchange. Retrieved from
http://www.asmainfo.com/bahrain/en/list/companylist.aspx

Bahrain Development Bank. (2013) Annual Report 2012. Retrieved from http://www.bdbbh.com/results/34_34_BDB%20AR%202012%20-%20English.pdf

Bahrain Flour Mills. (2013) Annual Report 2013. Retrieved from http://www.bfm.bh/wpcontent/uploads/2013/05/BFMCO-2012smallpdf.com_.pdf

Bahrain Polytechnic. (2014-A). Week 8: Investing and Financing Activities [Power Point Presentation]. Isa
Town, Bahrain: Bahrain Polytechnic.

Bahrain Polytechnic. (2014-B). Week 11: Consolidated financial statement – statement of financial
position 1 [Power Point Presentation]. Isa Town, Bahrain: Bahrain Polytechnic.

Bahrain Polytechnic. (2014-C). Week 11: Consolidated financial statement – statement of financial
position 2 [Power Point Presentation]. Isa Town, Bahrain: Bahrain Polytechnic.

Bahrain Polytechnic. (2014-D). Week 12: Consolidated Income statement [Power Point Presentation].
Isa Town, Bahrain: Bahrain Polytechnic.

Bahrain Polytechnic. (2014-E). Week 11: Long term investment [Power Point Presentation]. Isa Town,
Bahrain: Bahrain Polytechnic.

Bahrain Polytechnic. (2014-F). Week 11: Long-term investment Equity method [Power Point
Presentation]. Isa Town, Bahrain: Bahrain Polytechnic.

Bahrain Polytechnic. (2014-G). Week 8: Financial Analysis[Power Point Presentation]. Isa Town, Bahrain:
Bahrain Polytechnic.
Page 39 of 63

Catty, J. (2010). Partnership: Common law. Wiley Guide to Fair Value Under IFRS. John Wiley &
Son. Retrieved, from
http://books.google.com.bh/books?id=dc3TXikMHSYC&pg=PT466&lpg=PT466&dq=silent+partn
ership+under+IFRS&source=bl&ots=DyeyUKiwHQ&sig=bNN6Jye_Bqg1oQlWs18dxyGKqI&hl=en&sa=X&ei=dAZ9U_anL4it0QWx1YHQDw&ved=0CD0Q6AEwBA#v=onepage&q=silent
%20partnership%20under%20IFRS&f=false.

CCD Consultants 2. (n.d.). Return on Equity Interpretation. Retrieved from
http://www.ccdconsultants.com/documentation/financial-ratios/return-on-equity-interpretation.html

CCD Consultants. (n.d.). Current ratio interpretation. Retrieved from
http://www.ccdconsultants.com/documentation/financial-ratios/current-ratio-interpretation.html

Daily Tribune. (2013) AL AHLIA INSURANCE H1 PROFIT RISES 574PC. Retrieved from
http://search.proquest.com/docview/1425548212/2F1EEB46E26C4FCEPQ/11?accountid=62741

Deloitte. (2008). Business Combinations and Changes in ownership interests. Retrieved
from http://www.casplus.com/pubs/files/0807ifrs3guide.pdf

Ernst & Young.(September,2011). Challenges in adopting and applying IFRS 11. Retrieved
fromhttp://www.ey.com/Publication/vwLUAssets/Applying_IFRS_11/$FILE/Applying_IFRS_11.pdf

European Commission. (2010) International Accounting Standard 7: Statement of Cash Flow. Retrieved
from http://ec.europa.eu/internal_market/accounting/docs/consolidated/ias7_en.pdf

Hassan, M. (May, 2014). Telephone Interview.

IAS Plus. (n.d.-C) IFRS 29 – investing in associates and joint venture. Retrieved from
http://www.iasplus.com/en/standards/ias/ias28-2011

IAS Plus. (n.d-B.) IAS 31 – Interests in joint venture. Retrieved from
http://www.iasplus.com/en/standards/ias/ias31

IAS Plus. (n.d-B.) IAS 39 – Financial Instruments: Recognition and Measurement. Retrieved from
http://www.iasplus.com/en/standards/ias/ias39

Investopedia 1. (n.d.) Current ratio. Retrieved from
http://www.investopedia.com/terms/c/currentratio.asp

Investopedia 10. (n.d.). Book value per common share. Retrieved from
http://www.investopedia.com/terms/b/bookvaluepercommon.asp

Investopedia 2. (n.d.). Acid-test Ratio. Retrieved from
http://www.investopedia.com/terms/a/acidtest.asp

Investopedia 3. (n.d.). Working capital. Retrieved from
http://www.investopedia.com/terms/w/workingcapital.asp

Investopedia 4. (n.d.). Return on Sales. Retrieved from http://www.investopedia.com/terms/r/ros.asp
Page 40 of 63

Investopedia 5. (n.d.) Return on Total Assets. Retrieved from
http://www.investopedia.com/terms/r/return_on_total_assets.asp

Investopedia 6. (n.d.). Return on Equity. Retrieved from
http://www.investopedia.com/terms/r/returnonequity.asp

Investopedia 7. (n.d.). Earnings Per Share. Retrieved from
http://www.investopedia.com/terms/e/eps.asp

Investopedia 8. (n.d.). Price-Earnings ratio. Retrieved from
http://www.investopedia.com/terms/p/price-earningsratio.asp

Investopedia 9. (n.d.). Dividend yield. Retrieved from
http://www.investopedia.com/terms/d/dividendyield.asp

Investopedia. (n.d.) Capital Expenditure – (CAPEX). Retrieved from
http://www.investopedia.com/terms/c/capitalexpenditure.asp

Jennrennbitz. (June 2011) Ratio Vertical Horizontal Analysis. Retrieved from
http://www.studymode.com/essays/Ratio-Vertical-Horizontal-Analysis-723060.html

Laurence,B.(n.d.). Partnership Basics. Retrieved from http://www.nolo.com/legalencyclopedia/partnership-basics-30072.html

Loth, R. (n.d.) Cash Flow Indicator Ratios: Free Cash Flow/Operating Cash Flow Ratio. Retrieved from
http://www.investopedia.com/university/ratios/cash-flow-indicator/ratio2.asp

Loth, R. (n.d.) Cash Flow Indicator Ratios: Operating Cash Flow/Sales Ratio. Retrieved from
http://www.investopedia.com/university/ratios/cash-flow-indicator/ratio1.asp

Megginson, W., Smart, S., & Graham, J. (2009). Financial management. (3rd ed., pp. 24-65). USA:
Southern-Western Cengage Learning.

Money-Zine. (n.d.). Book Value per share. Retrieved from http://www.moneyzine.com/definitions/investing-dictionary/book-value-per-share/

Nasr, R. (2013) Deloitte: International Tax – Bahrain Highlights 2013. Retrieved from
http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-bahrainhighlights2013.pdf

Principles of Accounting. (n.d.) Chapter Nine: Long-Term Investments. Retrieved from
http://www.principlesofaccounting.com/chapter9/chapter9.html

Rafique, M. (2011) Bahrain Development Bank created 2000 jobs. Retrieved from
http://www.twentyfoursevennews.com/bahrain-news/bahrain-development-bank-created-2000-jobs/

Randall, H. (2005). Chapter 21-22: Partnership accounts- partnership changes: Page 125147. Accounting: AS Level and A Level -Presentation of financial statement. Cambridge: Cambridge
University Press.
Page 41 of 63

Ready Ratios. (n.d.) Cash Flow Coverage Ratio. Retrieved from
http://www.readyratios.com/reference/cashflow/cash_flow_coverage_ratio.html

Ready Ratios. (n.d.) Cash Flow Return on Investment (CFROI). Retrieved from
http://www.readyratios.com/reference/cashflow/cfroi.html

Ready Ratios. (n.d.). Price to earnings ratio. Retrieved from
http://www.readyratios.com/reference/market/price_to_earnings_ratio.html

Trade Arabia. (2011). Bahrain Flour Mills to spend $26m on expansion. Retrieved from
http://search.proquest.com/docview/859654079/citation/D4CDB05BD2C44A55PQ/4?accountid=62741

Weyagant, Kieso & Kimmal. (2010). Week 13: Accounting for Partnership 1 [Power Point Presentation].
Isa Town, Bahrain: Bahrain Polytechnic.
Page 42 of 63
6.0 Appendices
6.1 Appendix 1 (A) Calculations of the Horizontal Analysis (Bahrain Polytechnic-A, n.d.)
Bahrain Flour Mills
Account
2012
2011
Change
BHD
Profit of the
year
Cash flows
from
Operating
Activities
Cash flows
from Investing
Activities
Cash flows
from Financing
Activities
Cash & Cash
Equivalents at
the beginning
of the year
Cash & Cash
Equivalents at
the end of the
year
Al-Ahlia Insurance
Rate
2012
%
2011
Change
BHD
Bahrain Development Bank (BDB)
Rate
2012
%
2011
Change
BHD
Rate
%
788,388
819,112
-30,724
-3.75%
238,311
585,065
-346,754
-59.27%
-3,053,000
226,000
-3,279,000
-1450.88%
-8,373,905
-11,229,468
2,855,563
-25.43%
-494,704
-607,839
113,135
-18.61%
-1,968,000
-5,115,000
3,147,000
-61.52%
-283,799
90,734
-374,533
-412.78%
-2,731,600
2,833,013
-5,564,613
-196.42%
-3,566,000
-764,000
-2,802,000
366.75%
9,014,183
11,334,268
-2,320,085
-20.47%
-63,048
-1,979,059
1,916,011
-96.81%
9,621,000
1,450,000
8,171,000
563.52%
342,517
146,883
195,634
133.19%
4,579,804
4,333,689
246,115
5.68%
1,091,000
5,520,000
-4,429,000
-80.24%
698,996
342,517
356,479
104.08%
1,290,452
4,579,804
-3,289,352
-71.82%
5,178,000
1,091,000
4,087,000
374.61%
Page 43 of 63
(B) Figures: Refer to the Annual Report to view the full Statement of Cash Flow.
Bahrain Flour Mills:
Al-Ahlia Insurance:
Bahrain Development Bank:
Page 44 of 63
(C) Justification of Choice
Account
Profit of the year
Bahrain Flour Mills
(BFM)
Al-Ahlia Insurance
Bahrain Development
Bank (BDB)
Rate
Rate
Rate
-3.75%
-59.27%
-1450.88%
It is notable that the profits of all 3 companies had decreased in 2012, though (BFM) clearly has the least
change the rate, meaning that their profits are relatively consistent over the years. It Is obvious that BDB is
the worst as it is the lowest by far.
Cash flows from Operating
Activities (OA)
-25.43%
-18.61%
-61.52%
When comparing the amount of decrease in OA with Profit, it is obvious that the decrease in cash from OA
may have caused the decrease in Profits, meaning that BFM did manage to cut on almost 25% of operating
costs since last year and managed to keep their profits relatively consistent. BDB is again the lowest.
Cash flows from Investing
Activities (IA)
-412.78%
-196.42%
-366.75%
All 3 companies used cash for Investing more than 2011, though the amounts used in Al-Ahlia and BDB are
in millions, which are much bigger than the amount used in BFM. Also, when comparing them to the Profit
of the year, it shows that BFM can cover these costs, yet Al-Ahlia & BDB’s costs exceed it massively.
Cash flows from Financing
Activities (FA)
-20.47%
-96.81%
563.52%
Even though the increase in BDB’s FA was substantial, it is notable that it does not indicate any consistency
in the company. This huge amount of increase may put the company in huge debt. BFM is again the best out
of them as, even though their cash from Financing decreased, the total amount is still relatively consistent
which indicates a stronger financial health. Al-Ahila is the worst as they decreased by almost 200%.
Cash & Cash Equivalents at the
beginning of the year
133.19%
5.68%
-80.24%
Cash & Cash Equivalents at the
end of the year
104.08%
-71.82%
374.61%
By looking at the figures, it is obvious that BFM is in a better financial health when it comes to availability of
Cash in the end of years. BDB’s cash massively increased due to the increase in loans and debts in FA, while
Al-Ahlia’s decreased due to the huge amount of money used in IA. BFM’s cash level seems to be in a
consistent stable position over the years. BDB has the lowest beginning balance change rate while the
ending balance of Al-Ahlia is the lowest.
Page 45 of 63
6.2 Appendix 2 (A) Ratios Formulae
𝐹𝑟𝑒𝑒 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤 𝑅𝑎𝑡𝑖𝑜 = 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤 𝑃𝑟𝑜𝑣𝑖𝑑𝑒𝑑 𝑏𝑦 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐴𝑐𝑡𝑖𝑣𝑖𝑡𝑒𝑠 − 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒𝑠
It is called “Free” because it becomes available for the company to use for other activities. These cash flows are
important outflows of cash from the company as they maintain the company’s competitiveness and efficiency. The
higher the FCF rate, the stronger the company is financially (Accounting Coach, n.d.).
The Capital Expenditure is the sum of money used by the company to acquire new Property, Plant and Equipment
(Investopedia, n.d.).
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐶𝐹 𝑡𝑜 𝑆𝑎𝑙𝑒𝑠 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤 𝑃𝑟𝑜𝑣𝑖𝑑𝑒𝑑 𝑏𝑦 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐴𝑐𝑡𝑖𝑣𝑖𝑡𝑖𝑒𝑠
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 (𝑅𝑒𝑣𝑒𝑛𝑢𝑒)
It evaluates the company’s ability to turn Sales into Cash. There has to be a parallel grow between company’s sales
and its operating cash flow. This ratio does not have a standard identifying a good percentage from a bad one, though
the company’s ability to have consistent or improving ratio is a positive sign (Loth, n.d.).
𝐹𝑟𝑒𝑒 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤 𝑡𝑜 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐶𝐹 𝑅𝑎𝑡𝑖𝑜 =
𝐹𝑟𝑒𝑒 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤
This figure measures the relationship between the Free Cash Flow and the Cash Flow from Operating Activities. The
larger this percentage is the better for the company as it indicates the financial health of it (Loth, n.d.).
𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤 𝐶𝑜𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑎𝑡𝑖𝑜 =
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤
𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡
This is an indicator of the company’s ability to pay its debts when they are due. It tells the number of times these
debts are covered by the company’s earnings. It is also important as it shows the liquidity position of the company,
which banks often use to decide whether to give loan to the company or not. If the ratio is equal to one or is larger
than one, it means that the company is in good financial health and it can meet its obligations through cash
generated from operating activities. Though, if the ratio is below one, it indicates that the company may go
bankrupt within the next two years if it did not improve (Ready Ratios, n.d.).
𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 (𝐶𝐹𝑅𝑂𝐼) =
𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤
𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑
It is an indicator that evaluates the performance of an investment and influences the decision of managers regarding
the investment. A CFROI ratio determines the returns of the company’s investment. It can be compared to the Hurdle
Rate of the investment (Minimum rate of return on an investment required by management). This ratio should be
greater than the Cost of Capital to have a positive effect (Ready Ratios, n.d.).
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑 = 𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦 + 𝑁𝑜𝑛 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Page 46 of 63
(B) Calculations of Ratios Analysis
Bahrain Flour Mills
2012
Account
2011
Ratio
BHD
Free Cash
Flow Ratio
(BHD)
Operating
CF to Sales
Ratio (%)
FCF to
Operating
CF Ratio (%)
Cash Flow
Coverage
Ratio (%)
Cash Flow
Return on
Investment
Ratio (%)
Cash from Operating
Activities
-8,373,905
Capital Expenditure
-87,913
Cash from Operating
Activities
-8,373,905
Net Sales (Revenue)
5,671,598
Free Cash Flow
-8,285,992
Cash from Operating
Activities
Cash from Operating
Activities
Al-Ahlia Insurance
2012
Ratio
BHD
-10,997,480
98.95%
-11,229,468
-8,373,905
-494,704
-11,229,468
-9148.81%
-4186000
8.28%
-1,968,000
-607,839
-428.33%
-192.22%
2,661,000
-163,000
99.12%
-607,839
-494,704
-14399.89%
-5,115,000
-110.75%
1,777,000
-602493
97.79%
-4,186,000
-929,000
-1,968,000
-5.46%
11,129,762
-483786
97.93%
-5,115,000
-163,000
-1,805,000
-607,839
Ratio
BHD
-1,968,000
-5,346
11,195,626
Ratio
-602,493
-4.42%
2011
BHD
-607,839
-494,704
-206.88%
5,428,003
Ratio
-483,786
-10,918
-11,229,468
2012
BHD
-494,704
-231,988
-8,373,905
Ratio
-10,997,480
-147.65%
2011
BHD
-11,229,468
-8,285,992
Bahrain Development Bank (BDB)
-1,968,000
-543.75%
81.84%
-5,115,000
-5,115,000
-10.01%
-37.09%
Total Debt
91,530
77,983
115,495
111,787
19,661,000
13,790,000
Cash Flow
698,996
342,517
1,290,452
4,579,804
5,178,000
1,091,000
Market
Value of
Capital
Employed
Total
Equity
NonCurrent
Liabilities
17,534,396
91,530
3.97%
16,656,421
77,983
2.05%
14,107,275
115,495
Page 47 of 63
9.07%
12,422,126
111,787
36.54%
70,893,000
19,661,000
5.72%
58,667,000
13,790,000
1.51%
(C) Figures: Refer to the Annual Report to view the full Financial Statements used.
Free Cash Flow Ratio
Bahrain Flour Mills:
Al-Ahlia Insurance:
Bahrain Development Bank:
Page 48 of 63
Operating Cash Flow to Sales Ratio
Bahrain Flour Mills:
Al-Ahlia Insurance:
Bahrain Development Bank:
Page 49 of 63
Free Cash Flow to Operating Cash Flow Ratio
Note: The FCF Ratio is taken from the results of the calculation above.
Bahrain Flour Mills:
Al-Ahlia Insurance:
Bahrain Development Bank:
Page 50 of 63
Cash Flow Coverage Ratio
Bahrain Flour Mills:
Al-Ahlia Insurance:
Bahrain Development Bank:
Page 51 of 63
Cash Flow Return on Investment Ratio
Bahrain Flour Mills:
Al-Ahlia Insurance:
Bahrain Development Bank:
Page 52 of 63
(D) Justification of Choice
Account
Free Cash Flow Ratio
Bahrain Flour Mills (BFM)
Al-Ahlia Insurance
2012
2011
2012
2011
-8,285,992
-10,997,480
-483,786
-602,493
Bahrain Development
Bank (BDB)
2012
2011
-163,000
-4,186,000
Since the FCF in all 3 companies has been negative in both 2012 and 2011, this indicates that all of them do
not generate enough cash to support the business. Even though BDB seems to have the lowest negative
amount, Al-Ahlia’s figure is obviously more stable and is decreasing over the years which may indicate a
better financial health. BDB’s decrease in 2012 is resulted by the sharp decrease in the Cash from OA,
which may affect the business badly. It is also the least stable one.
Operating CF to Sales
Ratio
-147.65%
-206.88%
-4.42%
-5.46%
-110.75%
-192.22%
Al-Ahlia seem to have the most consistent percentage for this ratio over the years which indicates better
ability to turn sales into cash. Even though the percentages are in negative, it still has better ratios than
BFM and BDB. Though BFM seems to be in a worse position than BDB as the ratio is lower in both years.
Free Cash Flow to
Operating CF Ratio
98.95%
97.93%
97.79%
99.12%
8.28%
81.84%
BFM and Al-Ahlia have relatively similar ratios to each other, though it is notable that Al-Ahlia’s has
decreased in 2012. Both companies seem to be in a good financial health. BDB is obviously the worse as
2012 has decreased from about 82% to about 8%.
Cash Flow Coverage
Ratio
-9148.81%
-14399.89%
-428.33%
-543.75%
-10.01%
-37.09%
All the companies have ratios below 1, which means that all of them may have trouble paying their debts.
BDB has the closest figures to 1 making it the best in this ratio. It is notable that the lower the ratio is below
1, the more likely it is that the company will go bankrupt. BFM clearly have the lowest percentages, making
it the worst in this ratio.
Cash Flow Return on
Investment Ratio
3.97%
2.05%
9.07%
36.54%
5.72%
1.51%
The higher this rate, the better return the company is expecting to get from investment. Al-Ahlia had the
highest rate in 2011, and even though it decreased in 2012, it still has the highest rate. BFM and BDB have
the same ratio in 2011 and both increased in 2012, but BFM increased by a smaller amount.
Page 53 of 63
6.3 Appendix 3 Foreign Exchange Section of the Notes in BFM Annual Report:
6.4 Appendix 4 Dividends Note from the Annual Report of BFM
Page 54 of 63
6.5 Appendix 5 Calculations
The table below shows the required calculations for the transaction in the first section in Part 3 B about Bahrain
Duty Free Investments.
NOTE: The transactions in March 15 and May 04 were not recorded as they do not need to be calculated.
Date
Calculations
Jan-08
𝑇𝑜𝑡𝑎𝑙 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒 = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑆ℎ𝑎𝑟𝑒𝑠 (𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑖𝑛 𝐴𝑙𝑏𝑎) × 𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒
1,200 𝑠ℎ𝑎𝑟𝑒𝑠 × 𝐵𝐻𝐷 14/𝑠ℎ𝑎𝑟𝑒 = 𝐵𝐻𝐷 16,800
Apr-06
𝑇𝑜𝑡𝑎𝑙 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑆ℎ𝑎𝑟𝑒𝑠 (𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑖𝑛 𝐴𝑙𝑏𝑎) × 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒
1,200 𝑠ℎ𝑎𝑟𝑒𝑠 × 𝐵𝐷 1.7/𝑠ℎ𝑎𝑟𝑒 = 𝐵𝐻𝐷 2,040
Oct-23
𝐼𝑛𝑐𝑜𝑚𝑒 𝑓𝑟𝑜𝑚 𝐴𝑠𝑠𝑜𝑐𝑖𝑎𝑡𝑒𝑠 = 𝐼𝑛𝑐𝑜𝑚𝑒 𝑜𝑓 𝐴𝑠𝑠𝑜𝑐𝑖𝑎𝑡𝑒 (𝐺𝐹𝐻 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒) × 𝑃𝑜𝑟𝑡𝑖𝑜𝑛 𝑂𝑤𝑛𝑒𝑑 𝑏𝑦 𝐵𝐷𝐹(26.5%)
𝐵𝐻𝐷 350,000 × 26.5
= 𝐵𝐻𝐷 92,750
100
Oct-31
𝑈𝑛𝑟𝑒𝑎𝑙𝑖𝑧𝑒𝑑 𝑃𝑟𝑜𝑓𝑖𝑡 𝑜𝑛 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 = 𝐹𝑎𝑖𝑟 𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 (𝐴𝑙𝑏𝑎′ 𝑠ℎ𝑎𝑟𝑒𝑠) − 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒
𝐵𝐻𝐷 31,400 − 𝐵𝐻𝐷16,800 = 𝐵𝐻𝐷 14,600
T-Account (Closing balance calculation)
Oct-31
𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝐵𝑎𝑙𝑎𝑛𝑐𝑒 = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 (26.5% 𝑂𝐹 𝐺𝐹𝐻 𝑠ℎ𝑎𝑟𝑒𝑠) − 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 𝐼𝑛𝑐𝑜𝑚𝑒 + 𝐼𝑛𝑐𝑜𝑚𝑒 𝑓𝑟𝑜𝑚 𝐴𝑠𝑠𝑜𝑐𝑖𝑎𝑡𝑒𝑠
𝐵𝐻𝐷 45,000 − 𝐵𝐻𝐷 25,000 + 𝐵𝐻𝐷 92,750 = 𝐵𝐻𝐷 112,750
Page 55 of 63
6.6 Appendix 6 Current Ratio, Acid-Test Ratio and Working Capital
- Current Assets and Current Liabilities
- Cash, Short-term Investments and Account (Trade) Receivables
TRAFCO
Page 56 of 63
Gulf Hotel
Page 57 of 63
6.7 Appendix 7 Profitability Ratios
- Net Sales
- Net Income
2.1 Rate of Return on Sales
TRAFCO
Page 58 of 63
Gulf hotel
Rate of Return on Total Assets
Net Income shown above & no interest expense (both companies)
- Average Total Assets
TRAFCO
Gulf hotel
Page 59 of 63
2.3 Rate of Return on Ordinary Shareholders’ Equity
Net Income shown above and no Preference Dividends
- Average ordinary shareholders' equity
TRAFCO
Gulf Hotel
2.4 Earnings per Share of Ordinary Shares
No Preference Dividends
- Net income
- weighted number of ordinary shares outstanding
TRAFCO
Page 60 of 63
Gulf Hotel
Net Income shown above and no Preference Dividends
- weighted number of ordinary shares outstanding
6.8 Appendix 8 Analyzing share investment
3.1 Price / Earnings ratio
- Market price per ordinary share
- Earnings per share
TRAFCO
Gulf hotel
Page 61 of 63
3.2 Dividend yield
Market price per share of ordinary shares shown above
- Dividends per share of ordinary shares
TRAFCO
Gulf Hotel
3.3 Book value per ordinary share
No preference equity
- Total shareholders' equity
- Number of ordinary shares outstanding
TRAFCO
Page 62 of 63
Gulf Hotel
Page 63 of 63