Question

Power point presentation for

A Framework for Analyst Adjustments

Analyst Adjustments Related to Investments

Analyst Adjustments Related to Inventory

Analyst Adjustments Related to Property, Plant, and Equipment

Analyst Adjustments Related to Goodwill

Analyst Adjustments Related to Off- Balance- Sheet Financing

Answer 1

Analysis Adjustment – Investment – Analysis adjustment helpful to do meaningful comparison . Need to understand accounting treatment in case of “ Financial Assets measures at Fair value through Profit and Loss “ and Measure at Fair Value through OCI ( Other comprehensive Income ) . First case ( FV through PNL – unrealised gain /loss – reported to Income Statement and second case FVTOCI , unrealised gain /loss transfer to “ Equity’ account

Analysis Adjustment – Inventory- Value of Inventory always have two way impact – one – in Balance Sheet and other part valuation method under Cost of Goods sold

As per USGAAP , company used LIFO , FIFO method etc . In case company uses LIFO but disclose value under FIFO , in this scenario , company has to do adjustment analysis . Analyst has to do following adjustment :

1. Balance Sheet – LIFO reserve ADD with ending Inventory value of LIFO
2. Cost of goods sold – to be disclosed under FIFO basis LIFO reserve must be deducted from FIFO base “ cost of goods sold”

Need to adjust LIFO reserve in case of balance Sheet as well as Cost of goods sold

Analysis Adjustment – Property , Plant and Equipment

Under PPE model , Analyst used to noticed Gross value of asset disclosure in the Balance Sheet + Depreciation and accumulated depreciation charge into Income Statement and finally impact on cash flow – Capex + any profit/loss on sale of Asset

Normally Analyst used to see following points :

1. Useful life of the asset – at Initial Stage .
2. They check how much useful life has been over and how much has been left out
3. They need to check accumulated depreciation amount charges to PNL
4. Capex Investment , Asset utilization and life of asset . Also they need to check disposal of asset , any income /loss generated from disposal of assets etc .

Analysis Adjustment – Goodwill = Adjustment in case of difference in accounting values and Income in relates to acquired Intangible asset + Goodwill

Analysis Adjustment – Off balance Sheet Item – Off Balance Sheet Item mainly relates to Operating lease . Treatment lof lease under lessor an lessee books of account . As per lease accounting , need to notice following factor and disclosure in Financial

Risk of ownership in case of Operating lease

As per latest standard , IFRS 16 , Now lease accounting is not “ out fo the Balance Sheet” item. Earlier we never recorded Right to use of asset and corresponding lease liability in the Financia

Now as per new standard we need to disclose in the Financial + lease rental expenses disclose as depreciation and Financial Interest in Financial Statement . Earlier only rental expenses was disclosed into Financial

Disclose “ present value of Capitalized lease obligation . As mentioned above , earlier rent expense has been replaced by Interest expenses relates to amount owed and depreciation relates to Asset