Financial Accounting Department of Accounting - Peder Fredslund Møller ”Agenda” Presentation/repetition of the exam. Presentation of the course, syllabus, books, and home page. Overview of the Danish accounting structure. Understanding of financial accounts, who are the users?, and what are accounts used for? Understanding of financial accounting concepts General understanding of company activities Understanding of Danish requirements to annual accounts Tutorials

Financial Accounting Department of Accounting - Peder Fredslund Møller The exam: 2-hour written exam in May/June (No supplementary aids!) Co-weighted with grade from Management Accounting exam Possible re-exam in August if: you have taken the ordinary exam in Management Accounting and Financial Accounting, respectively and the co-weighted grade is < 6 or if you have the grade 00 in one of the exams (obligated to take the exam again)

Financial Accounting Department of Accounting - Peder Fredslund Møller 30 lectures during the course 11 chapters of Stickney & Weil The compendium on consolidated accounts Notes etc. Please note: We start out fairly slowly, BUT the pace will pick up

Financial Accounting Department of Accounting - Peder Fredslund Møller 14 tutorials during the course The first exercises will be from the text book. The exercises concerning group accounts, equity-accounts and flow accounts are big (they are not representatives of current exams as they were made during another exam system of longer exams (3-hour or 6-hour exams). In other words other types of assignments will be used in exams, like for instance ”explain....” questions. The assignments are dealt with by the tutors. The assignments make up a significant part of the combined course package – and they are relevant for the exam.

Financial Accounting Department of Accounting - Peder Fredslund Møller Central issues of the course: Problems concerning calculation of income and size and periodical adjustment of Expenses. Valuation of inventory and liabilities. Other essential items in an informative income and balance sheet statements. including: revenue recognition criteria, conventions, depreciation, leasing, debt, taxes, cash flow accounts, and group accounts.

Financial Accounting Department of Accounting - Peder Fredslund Møller Possible exam issues: Cash flow statements Group accounts Equity method for subsidiaries Deferred taxes Treatment of construction contracts Inventories Leasing Warranty costs Loss on debtors + Questions of understanding Multiple choice has been used earlier, but will not be used in future

Financial Accounting Department of Accounting - Peder Fredslund Møller Purpose of the lectures: The purpose of the lectures is twofold: 1. To enable the students to understand and apply fundamental accounting concepts, accounting methods, and accounting conventions. I.e. focus is on methods for recognising and measuring accounting items in the balance sheet and income statement 2. To enable the students to understand the required ways of recognising and measuring items in the balance sheet and income statement according to the Danish Company Accounts Act and the Danish Financial Accounting Standards.

Financial Accounting Department of Accounting - Peder Fredslund Møller SOURCES to determine how to deal with items ADDITIONAL LITERATURE IAS DANISH ACC. STANDARDS DCAA

Financial Accounting Department of Accounting - Peder Fredslund Møller Annual Accounts: = Published information from the company to external users which contain input relevant for decision- making

Financial Accounting Department of Accounting - Peder Fredslund Møller the company is an entity, i.e. its financial activities are separate from other entities and its owners. In this course we deal with companies that are subject to the Danish Company Accounts Act. The company

Financial Accounting Department of Accounting - Peder Fredslund Møller The company Where does the Danish Company Accounts Act apply? In general to all companies, cf. DCAA §1 In reality to all companies with limited responsibility (public companies, private companies, corporate funds, limited liability cooperatives etc.) - especially to those that are not quite small companies (exceed 2 of 3 criteria: balance sum > 4 millions, net turnover> 10 millions, full time employees > 10)

Financial Accounting Department of Accounting - Peder Fredslund Møller External users = persons/institutions typically without internal knowledge of the company and generally without lack of authority to demand special information from the company and that will have to use published accounts to acquire financial information about the company to make decisions about their relation to the company. External users

Financial Accounting Department of Accounting - Peder Fredslund Møller External users Examples of external users? Whose information needs are most comprehensive?

Financial Accounting Department of Accounting - Peder Fredslund Møller WARNING!!!!! REMEMBER THAT ANNUAL ACCOUNTS ARE NOT TAX ACCOUNTS. TAXES ARE DETERMINED BY THE TAX ACCOUNTS, AND THE ANNUAL ACCOUNTS ONLY REFLECT THE CONSEQUENSES OF TAXATION - THE ANNUAL ACCOUNTS DO NOT AFFECT TAXATION

Financial Accounting Department of Accounting - Peder Fredslund Møller The purpose of accounts To give a true and fair view of performed financial activities of a company to the external users => relevant information to the financial decisions of the users.

Financial Accounting Department of Accounting - Peder Fredslund Møller The basic idea behind accounts To comprise consequences of all earlier transactions of a company with the outside world and production actions etc. with regard to 1) The value of company resources and commitments at the end of the reporting year – in the BALANCE SHEET 2) The company net resources created/lost during the reporting year – in the INCOME STATEMENT ( 3) Company payments made/received during the reporting year – in the CASH FLOW STATEMENT)

Financial Accounting Department of Accounting - Peder Fredslund Møller The basic idea behind accounts Value recognition involves assessment = subjective estimates But estimates are based on objective relations - the individual transactions/production actions The over-all assessment becomes a bottom-up assessment The assessment must be accepted by an independent auditor, who declare that the accounts are legal and give a true and fair view.

Financial Accounting Department of Accounting - Peder Fredslund Møller Goals and Strategies Goals and Strategies InvestingFinancing Operating Current  Cash  Accounts Receivable  Inventories  Marketable Securities Noncurrent  Land, Buildings, and Equipment  Patents  Investments in Securities Noncurrent  Bonds Payable  Common Stock  Retained Earnings Current  Notes Payable  Accounts Payable  Salaries Payable  Income Taxes Payable  Sales Revenue  Cost of Goods Sold  Selling Expense  Administrative Expense  Interest Expense  Income Tax Expense Assets (Balance Sheet) Net Income (Income Statement) Liabilities and Shareholders’ Equity (Balance Sheet) Copyright  2000 by Harcourt, Inc. All rights reserved. Fig Relationship between Business Activities and Balance Sheet and Income Statement

Financial Accounting Department of Accounting - Peder Fredslund Møller What are the elements of annual accounts? The Danish Company Accounts Act § 2: The income statement The balance sheet Notes - including information about applied accounting policies Annual report Cash flow statement? : Answer: Yes, for medium-seized and large companies Auditors’ report

Financial Accounting Department of Accounting - Peder Fredslund Møller The Balance sheet A “snapshot” of investing and financing activities Balance sheet equation: Assets = Liabilities + Shareholders’ equity which corresponds to Investing = Financing Resources = Sources of resources Resources = Claims of resources

Financial Accounting Department of Accounting - Peder Fredslund Møller The income statement The result of a company’s operating activities for a specific period of time Net income = Revenue - Expenses Shareholders’ equity is increased/reduced by the net income minus dividend (cf. the balance sheet)

Financial Accounting Department of Accounting - Peder Fredslund Møller The cash flow statement Reports the company’s net cash flows and their sources Cash flows are divided into three ”categories of sources": * Operating activities, * Investing activities and * Financing activities

Financial Accounting Department of Accounting - Peder Fredslund Møller recommended assignments: 1.14a for years 8 and a for year a for year 9 (it it necessary to calculate transferred profit in year 8 too)