Costs Included in Inventories and Costs Recognised as Expenses

Introduction The amounts reported as ‘inventories’ and ‘cost of goods sold’ are two significant items that can appear on a company’s financial statements, especially manufacturing and merchandising companies. Some costs are included in the asset ‘inventories’, while others are recognized…

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Calculate and Interpret Liquidity and Solvency Ratios

Introduction Ratio analysis can assist with the conduct of time-series and cross-sectional analysis of a company’s financial position. Balance sheet ratios are those ratios which involve balance sheet items only and include (i) liquidity ratios, which measure a company’s ability…

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Convert Balance Sheets to Common-size Balance Sheets

Introduction Converting a company’s balance sheet into a common-size balance sheet is a very useful tool for providing insight into the company’s liquidity as well as its solvency. Common-sizing the balance sheet can assist with time-series analysis by comparing the…

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Components of Shareholders’ Equity

Introduction Shareholders’ equity represents the owners’ residual claim on an entity’s assets after deducting its liabilities. This includes all funds that were directly invested in an entity by its owners, earnings that have been reinvested over time, and unrealized gains…

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Measurement Bases – Assets and Liabilities

Introduction Financial assets are measured and reported at either fair value or amortized cost. IFRS defines fair value as the amount at which an asset could be exchanged or a liability settled in an arm’s length transaction between knowledgeable and…

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Current and Non-current Assets – Liabilities

Introduction The classified balance sheet distinguishes between current and non-current assets and between current and non-current liabilities and classifies them separately. Current Assets vs. Non-current Assets Current assets are assets which are primarily held for trading or which are expected…

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Alternative Formats of Balance Sheet Presentation

Introduction Some entities prepare their financial statements in accordance with International Financial Reporting Standards (IFRS), while others prepare their financial statements in accordance with the United States Generally Accepted Accounting Principles (US GAAP). The choice of standards/principles is usually a…

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Uses and Limitations of the Balance Sheet

Introduction The balance sheet can provide very useful information to users of financial statements. It, however, has several limitations to its use. Uses of the Balance Sheet The balance sheet gives insight into a company’s financial condition at a particular…

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Assets, Liabilities, and Equity

Introduction The balance sheet aka the statement of financial position or statement of financial condition is a financial statement which gives a snapshot of a company’s resources or assets, and its sources of capital i.e. liabilities and shareholder’s equity, at…

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Key Differences between US GAAP and IFRS

Introduction There are many similarities with respect to income tax accounting under IFRS and US GAAP. There are however also many notable differences. For example, although both IFRS and US GAAP require a provision for deferred taxes, there are differences…

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