1. Fantasy Meets Reality Strategic Planning and Budgeting Capital vs Expense Presented by: Jarmila Pencikova Manager, Accounting Osler, Hoskin & Harcourt LLP

2. Fantasy or Reality?

3. Budgeting *Analysis *Terminology *Operating Budget *Capital Budget *Budgeting for Projects *Reporting Osler, Hoskin & Harcourt LLP

4. IT Spending Analysis - by type of expenditure (capital, operating) - by category (salaries, consulting, etc) - per partner - per lawyer - staff member - % to revenue Osler, Hoskin & Harcourt LLP

6. Capital vs Expense Capital Expenditures/Assets are the tangible or intangible properties that meet certain criteria. Tangible properties:land, building, equipment Intangible properties:software Osler, Hoskin & Harcourt LLP

7. Capital Expenditures/Assets Criteria -held for use in the provision of services, for admin purposes, etc. -acquired to be used on a continuing basis -not intended for sale in the ordinary course of operations -have a value and useful life (normally more than 1 year) Osler, Hoskin & Harcourt LLP

8. Capital Expenditures/Assets Categories -Hardware -Software -Equipment -Furniture -Leaseholds Improvements -etc. Osler, Hoskin & Harcourt LLP

9. Prepaid Expenses Expenses over a certain limit (set by the Firm) that cover period of more than 1 month are usually expensed over the period they cover. Examples:Equipment Maintenance Software Maintenance& Licenses Insurance Osler, Hoskin & Harcourt LLP

10. Budget Summary of the expected financial consequences of the organization/units short-term operating activities. Focus on 2 types of Budgets: - Operating - Capital Osler, Hoskin & Harcourt LLP

11. Operating Budget Find out how many people will be hired in the new year throughout the Firm impact on your operating expenses (computer leases, number of IT people required to support it, etc.) Osler, Hoskin & Harcourt LLP

12. Operating Budget Find out what the Firms business plan is (expansion, merger plans, office relocation) impact on your operating expenses (computer leases, number of IT people required to support it, etc.) Osler, Hoskin & Harcourt LLP

13. Operating Budget *For known expenses (amount & timing), budget the amount in appropriate month. *For general expenses budget 1/12 of the annual amount in each month. Osler, Hoskin & Harcourt LLP

14. Operating Budget You can prepare budget based on: -events (involves more than 1 account) -individual accounts Osler, Hoskin & Harcourt LLP

15. Visit to another office -How many days? -How will I travel there? -Whats the purpose of the trip? Types of expenses: * Accommodation * Travel (incl. airfare, train, mileage, parking & taxi) * Meals * Long Distance Calls Osler, Hoskin & Harcourt LLP

16. Attending a Conference Conference Attendance -Registration -Airfare/Train/Bus -Meals -Hotel -Taxi -Car Rental -Other (parking, long distance calls, gas, etc.) Osler, Hoskin & Harcourt LLP

17. Attending a Conference Example:Conference @ end of August Registration & AirfareMay/June Meals, Hotel & otherAug/Sept Tip:Dont forget to convert foreign currency amounts into your local currency! Osler, Hoskin & Harcourt LLP

18. Maintenance Contracts Equipment/Software Maintenance & Licenses Annual Contract where cost < Prepaid Limit -budget full amount in the appropriate month Annual Contract where cost > Prepaid Limit -budget 1/12 of the annual cost for each month of the year Osler, Hoskin & Harcourt LLP

19. Equipment Maintenance Example:Existing contract @ $60,000/year for period July 2002 to June 2003. This cost will go up to $90,000/year for period July 2003 to June 2004. Budget for 2003: $30,000 for Jan to June 2003 ($5,000/month) $45,000 for July to Dec 2003 ($7,500/month) $75,000 total for 2003 Payment in 2003 - $90,000 in July Osler, Hoskin & Harcourt LLP

20. Capital Budget You can prepare budget based on: -Asset category -Project Osler, Hoskin & Harcourt LLP

21. Budgeting by Asset Category List individual categories and budget within each category: *Specific amounts for specific items *General amount for unknown items Osler, Hoskin & Harcourt LLP

22. Capital Project *One or more capital expenditures with or without related operating expenses. *Budget is prepared for each Project. *Each Project will have its own Capital Project number. Osler, Hoskin & Harcourt LLP

23. Budgeting for Capital Projects *Show the cost for the entire life of the Project (if more than 1 year) broken down by each fiscal year. *Budget by Asset Category within each Capital Project. Osler, Hoskin & Harcourt LLP

24. Budgeting for Capital Project Each Project may have 2 types of expenditures: * Capital(Hardware, Software, Equipment, Furniture) * Operating(Consultants fees, Travel, Training cost, etc.) Osler, Hoskin & Harcourt LLP

25. Budgeting for Capital Project How and where do you enter the budget numbers? - in Excel - in your accounting software How do you report on your variances? Osler, Hoskin & Harcourt LLP

26. Budgeting for Capital Project Set up each Project as a department in your accounting software and record every expenditure (capital or operating) under this department. Advantages: - easy to record - easy to keep track of - easy to report on Osler, Hoskin & Harcourt LLP

27. Reporting *Listing of all Projects *Statement per Project summarized by expense category Osler, Hoskin & Harcourt LLP

30. Suggested Reading or Talking? Osler, Hoskin & Harcourt LLP Speak to your CFO/Controller

31. Contact Information Jarmila Pencikova Manager, Accounting jpencikova@osler.com 416.862.5891 Osler, Hoskin & Harcourt LLP First Canadian Place, P.O. Box 50 Toronto, Ontario M5X 1B8 Canada

32. Questions Osler, Hoskin & Harcourt LLP