Student: 201906919 6th Jan. 2020 Financial Accounting EXAM 2020 Student number: 201906919 Date: 6th Jan. 2020 Student: 201906919 6th Jan. 2020 Assignment 1 1.1 When preparing the consolidated financial statements of a company, one must account for amount of ownership in other companies. Depending on percentage ownership (or percentage of voting rights) how much of the income the parent company can write as its own changes. When consolidating, you combine the assets, liabilities, equity, income, expenses and cashflow from a parent company and its subsidiaries into one statement to get a financial overview of the whole group of companies. You combine statements from multiple entities into one entity when consolidating. 1.2 In the case of Big Money Holding, they own 100% of Wood & Timber A/S and 75% of Badmodul A/S. Since they own more then 50% of both companies the consolidated statement will combine all the elements mentioned above into a single consolidated statement for the whole group of companies. In some cases, you can own less than 50% of the shares and still consolidate the whole company if you own more than 50% of voting rights. This can happen because of different classes of shares for example. 1.3 This is prepared in Excel: 125 The elimination for cost of goods sold is calculated as such: − ( 1,4 ) ≈ −89,28571 to account for the 40% mark up. 1.4 The retained earnings is the net profit for the consolidated number to the right 325,7142857. In this case we book the whole net profit since the parent company owns more than 50% of the subsidiaries. Student: 201906919 6th Jan. 2020 Assignment 2 2.1 Made in excel 2.2 An increasing purchase price would increase the ending inventory value for FIFO and decrease it for LIFO. The opposite would then happen with a decreasing purchase price. This is because FIFO is based on the last purchase price which would be higher for an increasing price and LIFO is based on the first purchase price in the excel sheet up above. The average method wouldn’t really be affected as much since it is based on the average. 2.3 You would expense the lost inventory and it would affect the gross profit since it changes ending inventory value which changes COGS which is used to calculate gross profit. Student: 201906919 Assignment 3 3.1 3.2 All the depreciation models are done in excel. Straight line method: 6th Jan. 2020 Student: 201906919 6th Jan. 2020 Double-declining-balance method: Using double-declining-balance method where the depreciation expense is half of the book value for any given year, we end up with having depreciated it after 5 years instead of 8. Sum-of-years-digits method: 3.3 There are 2 major differences between the 3 methods. One is how it accounts for the residual value/scrap value when calculating depreciation expense and another is if the depreciation expense changes every year. Most companies use the straight-line method because it is the easiest and the depreciation is the same every year, so you don’t have a high expense the first year and a low one the last year or reverse. This is more consistent and stable for a company and you could argue that it is better for representing the performance of a company. You might want to take the bulk of the depreciation early for some reason and it that case the double-declining-balance method and S.Y.D. method are better, but I would still argue that S.Y.D. is better since it accounts for the residual value after depreciation so you don’t have to make an Student: 201906919 6th Jan. 2020 adjustment in the last year. Double-declining-balance method doesn’t use residual value to calculate depreciation expense which means that you will almost always have to make an adjustment in the last year. In our case double-declining-balance also finished depreciating after 5 years which doesn’t work with the planned 8-year depreciation period.
