Question

answer the following five questions

wing informa- (note that "result' is 8. Gamma Holding NV, a Dutch textile company, provided the follow tion in its consolidated income statement for the year 2009 (note that s infora 2009 2008 (45.8) 34.1) (50.4) (342) equivalent to "income"): x 1,000,000 Group result before taxation .. Income tax Net group result from continuing operations (4.6) Notes to the financial statements provided the following information provisions recognized in 2008 and 2009: related to x 1,000,000 19 Other provisions The composition and changes were as follows: Balance at 31-12-2007 Changes in 2008 Additions charged to the income statement... Release credited to the income statement . . . . . . … . . . . . Payments Transfer to liabilities directly related to discontinued operations.......... Exchange rate differences Balance at 31-12-2008. . Restructuring Other Total 6.4 17 1.7 287 (2.6) (139 11.5 27.0 (0.4) (0.4 25.7 5.1 30 Analysls of Foreign Financial Statements 529 Changes in 2009 Additions charged to the income statement. Release credited to the income statement. Payments Tansfer from (to) liabilities directly related to discontinued operations. 17 137 (0 4) (14) 283) (0 1) (0.1 06 12.0 (0.4) (26.9) 0.6 10.4 5.9 163 Balance at 31-12-2009 Required: a. Determine the percentage growth in income (loss) before tax (group result before taxation) from 2008 to 2009, b. What impact do provisions have on income before tax? c. What can cause the ending balance in provisions to change from one year to the next? d. Determine what income (loss) before tax would have been in 2008 and 2009 if there had been no change in the ending balance of "other provisions." What would the percentage growth in income (loss) before tax have been in this case? e. Is there any additional information you might like to have with respect to provisions for the time period presented earlier? 9. Gamma Holding NV, a Dutch textile company, presented the following calcula tion of operating profit in its 2009 consolidated income statement:

Answer 1

a) Percentage Growth in income:

As there are provisions provided we need to adjust that to the Group results before taxation.

Therefore for the period 2008= Group Results before taxation + Balance at 31.12.2008. So 34.1+ 30.8= 64.9

For the Period 2009= 45.8+ 16.3= 62.1.

Formula for percentage growth in income= Group Results after adjustment in 2009 - Group results after adjustments in 2008/ Group results after adjustments in 2008* 100

Therefore= 62.1-64.9/64.9*100

= (2.8)/64.9*100

= (0.043143297)*100

Growth percentage income =(4.3143297)%

NOTE- ()DENOTES NEGATIVE.

Since the growth percentage income is negative therefore there has been a decline in growth rate in income before taxation from 2008- 2009.

b) Impact of provisions on income:

Provision means a certain amount that is set aside for the future. It is an uncertain economic conditions of an entity. It is mostly done to cover a future liability. Provisions help in making a current year's balance more accurate. When a provision is actually accrued then it has an impact on income. In accounting an expense or an income is said to have taken place only when the amount is actually payed or received. So when the provision that is set aside actually accrued the amount will hamper the income of the entity. Incase of expenses the income will be lowered and in cases the provision is received then the income will increase. Making a proper disclosure of provisions helps in showing an accurate financial position of the company.

c) Ending balance of provisions can change due to realisation of the provisions that was set aside. For example when an provision for insurance kept aside actually takes place for that particular year there will be change in the provision balance for the insurance.

d) The income before tax for 2008 incase there was no change in the ending balance of provison would be 34.1 and for 2009 it would have been 45.8.

In case there was no change in the ending balance of provisions then the percentage of growth in income would be calculated as below:

Percentage growth in income= group results for the year 2009 before taxation - group results for the year 2008 before taxation/ group results for the year 2008 before taxation* 100

= 45.8-34.1/34.1*100

=11.7/34.1*100

=0.3431085044*100

= 34.31%

Therefore the percentage growth in income without changes in the ending balance in provisions would have been 34.31% which is a positive growth.

e) No there is no additional information required to have with respect to provisions for the time period presented earlier.