The Key Aspects of Advanced Financial Accounting - Case Study Example

STUDENT’S NAME NAME OF THE INSTITUTION UNI NAME LECTURE’S NAME FACULTY ADVANCED FINANCIAL ACCOUNTING Bloomberg System: Barnes and Noble Inc Ltd Barnes & Noble Inc ltd is an inventory bookseller company that retails content, digital media among other educational products across the United States of America. It has around 640 operating retail stores operating through the series of chain stores and on its e-commerce website. As an inventory company with chain stores, this company uses the last in first out (LIFO) accounting method where the last item of the inventory purchased is the first to be sold. ("Merchandise Inventories For Barnes_&_Noble (BKS)"). The education industry is highly dynamic. As a result, there are various setbacks that book retailers are exposed to. Besides, there is increased innovation that is providing accessibility to new opportunities in hardware, software and creation of content. This factors have forced Barnes & Noble Inc to make use of its retail strength to bolster its leadership in the market setup. With due respect to the dynamism in the industry, the company must have experienced the underlying consequences. To measure the most current status of the company, the books of accounts are a necessity. However following the enormous size of the company, finding such information can be a really demanding task. But, there exists a system where companies deliberate their financial statements. This is the Bloomberg system. This system enables financial professionals access real time financial information. Barnes and Noble is one of those companies that have subscriptions on the system. In order, therefore, to access any latest information of the company, then from Miller and Laurence’s (2000, p96) impression, Bloomberg is the best. To find the information from Bloomberg, a comprehensive guide is necessary and a good use of both their web guide (http://www.bloomberg.com/professional/documentation/) and investopedia guide is helpful (http://www.investopedia.com/university/how-to-use-bloomberg-terminal-computer-system/). Below is the latest information that was obtained for the financial analysis of the Barnes and Noble Inc Ltd. BARNES & NOBLE INC LTD CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 2ND, MAY 2015 BARNES & NOBLE INC LTD CONSOLIDATED BALANCE SHEET FOR THE YEAR ENDED 2ND, MAY 2015 BARNES & NOBLE INC LTD CONSOLIDATED CASH FLOWS STATEMENT FOR THE YEAR ENDED 2ND, MAY 2015 NOTES TO THE FINANCIAL STATEMENT The Summary of the Significant Accounting Policies Consolidation The consolidation financial report lacks significant intercompany accounts and transactions. However, the consolidated financial report includes the accounts of Barnes & Noble Inc as well as wholly and majority owned subsidiaries. Most of the significant intercompany accounts and transactions have been eliminated from the consolidation report. Cash & Cash Equivalents Consideration has been taken regarding all the short term, highly liquid instruments procured with an initial maturity of three months or less as cash equivalents Merchandise Inventories The inventories are stated at different market costs. Those which are majorly comprised of finished goods are stated at the lower cost or market. There are two determinants of the cost; the retail inventory method under last in, First out (LIFO) basis and sometimes first in, First out (FIFO) basis as well. The Barnes & Noble Inc College’s textbook and book trade inventories are normally valued using the LIFO method, whereby the related reserve is not material to the recorded figure of the firm’s inventories as at 2nd May, 2015. Likewise, there were no last in, First out adjustments in fiscal period of 2015 as compared to the favorable adjustment of $7,692 in the fiscal period of 2014 respectively The determination was based on the estimated net realizable value which is ideally the selling price. Besides this, the reserves for the non-returnable inventory were based on the firm’s history of liquidating non-returnable inventory The firm also estimated and accrued shortage for the period between the last physical count of inventory and the balance sheet as at the end of the fiscal period of 2015.The shortage rates were estimated and accrued on the basis of the historical rates though are believed to be implicated by the changes in the merchandise mix as well as changes in the actual shortage trends. The Property & Equipment and other long-term Assets The property and Equipment were carried at cost less the accumulated depreciation and amortization. For the purpose of financial reporting, the depreciation was computed using the straight-line method over the estimated useful lives. For the tax purposes, different methods are used. The maintenance and repairs were expensed as incurred while major maintenance and remodeling costs are capitalized whenever they extend the useful life of the asset. The leasehold improvements were amortized over the shorter of their estimated useful lives or a period of 10 years. The capitalized lease acquisition costs were amortized over the lease terms of the underlying leases. The system costs were capitalized and incorporated in property and equipment. These costs are normally depreciated over their estimated useful lives from the date the systems become operational. The company had $449,292 and $490,713 of property and equipment net of accumulated depreciation as at 2nd May, 2015 and 3rd May, 2014 respectively and $179,462 and $198,972 of depreciation expenses for fiscal period 2015 and 2014 respectively. Goodwill and Unamortizable Intangible Assets The costs in excess of net assets of businesses acquired are carried as goodwill in the accompanying consolidated balance sheets. The goodwill and other intangible assets, requires that goodwill and other unamortizable intangible assets no longer be amortized but instead be tested for impairment at least annually or earlier whenever there are impairment indicators. The company completed its annual goodwill impairment test as at first day of the third quarter of the fiscal period 2015. In performance of the valuations, the firms used cash flows that reflected the management’s forecasts and discount rates that included risk adjustments consistent with the conditions in the market. THE FINANCIAL STATEMENT UNDER THE RULE OF IFRS Barnes & Noble Inc Statement of Comprehensive Income For the year ended 2nd May, 2015 2015 2014 $ $ Revenue 6,069,497 6,381,357 Cost of Goods Sold (4,196,998) (4.523, 422) Operating Income 1,872,499 1,857,935 Expenses Selling & Administrative expenses (1,545,152) (1,606,936) EBITDA 327,347 250,999 Depreciation & Amortization Expenses (194,174) (216,807) EBIT 133,173 34,192 Interest expenses & deferred fees (17,890) (29,507) EBT 115,283 4,685 Income taxes (Benefits) (78,687) (51,953) Net Income/Loss 36,596 (47,268) Barnes & Noble Inc Statement of Financial Position As at 2nd May, 2015 2015 2014 $ $ ASSETS Current Assets Cash & Cash equivalents 74,360 340,171 Account Receivables, Net 98,576 143,981 Merchandise Inventories, Net 1,293,164 1,234,635 Textbook rental Inventories 55,075 50,341 Prepaid expenses & other current assets 65,331 66,580 Short-term deferred tax assets 142,809 144,730 Total 1,729,315 1,980,438 Fixed Assets Property & Equipment Land & Land Improvements 2,541 2, 541 Building & leasehold improvements 1,207,039 1,224,083 Fixtures & Equipment 1,866,719 1,938,555 Accumulated Depreciation & Amortization (2,627,007) (2,674,466) 449,292 490,713 Goodwill 489,267 493,189 Intangible Assets, Net 513,842 528,576 Other fixed assets 47,789 44,533 Total 1,500,190 1,557,011 TOTAL ASSETS 3,229,505 3,537,449 LIABILITIES & SHAREHOLDES’ EQUITY Current Liabilities Account Payables 655,064 735,112 Accrued Liabilities 434,049 502,583 Gift Card Liabilities 358,146 356,700 Short-term note payable - 127,250 Total 1,447,259 1,721,645 Long-term Liabilities Long-term deferred taxes 200,257 211,925 Other long-term liabilities 196,302 366,989 396,559 578,914 Shareholders’ Equity Redeemable Preferred shares 196,059 194,797 Preferred Membership Interests - 383,397 Common Stock 98 94 Additional paid-in capital 1,927,997 1,395,463 Accumulated other comprehensive loses (16,533) (11,773) Retained earnings 357,512 344,021 Treasury Stock (1,079,716) (1,069,109) Total 1,189,358 658,696 TOTAL LIABILITIES & SHAREHOLDES’ EQUITY 3,229,505 3,537,449 Barnes & Noble Inc Statement of Cash Flows For the year ended 2nd May, 2015 2015 2014 $ $ OPERATING ACTIVITIES Net Income/Loss 36,596 (47,268) Cash Received Depreciation & amortization 199,652 222,764 Inventory compensation expense 19,989 12,171 Non-cash Impairment charges 373 32,390 Gain/loss on disposal of fixed assets 4,843 (572) Pension reclassification 7,317 - Cash Paid Deferred taxes (12,578) 43,225 Increase/Decrease in other long term assets (30,532) (10,382) Changes in operating assets & Liabilities (169,752) 67,628 Net cash from operating activities 55,908 319,956 INVESTING ACTIVITIES Purchases of property & equipment (143,257) (134,981) Increase/Decrease in other fixed assets (5,712) 6,482 Other investing activities, net (3,000) - Net cash from Investing activities (151,969) (128,499) FINANCING ACTIVITIES Cash Received Net proceeds from Microsoft Commercial 57,161 84,675 Proceeds from credit facility 349,400 734,000 Proceeds from exercise of common stock 1,282 1,031 Tax benefit 1,865 560 Cash Paid Payments on credit facility (349,400) (811,000) Purchase of treasury stock (10,607) (5,254) Dividends paid to shareholders (16,026) (15,768) Payment of Junior Seller note (127,250) - Acquisition of preferred members’ interests (76,175) - Net cash flows from financing activities (169,750) (11,756) Net Inc/Dec in Cash & Cash equivalents (265,811) 179,701 Cash & cash equivalents at beginning year 340,171 160,470 Cash & cash equivalents at end year 74,360 340,171 SIMILARITIES BETWEEN US GAAP& INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) Both methods are recognized financial reporting standard in many countries. In both techniques, the financial position and income statement of a given company at the end of its financial position is reported. Bothe techniques utilize the use of the First-in, first out (FIFO) in determining the estimated value of inventories at their disposal DIFFERENCES BETWEEN US GENERALLY ACCEPTED ACCOUNTING PRINCIPLE (GAAP) & INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) The IFRS therefore tend to represent and capture the economies of transactions better than the US GAAP .this is because it is used in more than 110 countries in which is considered to be more of a “principles based”. On the other hand, the GAAP technique is mostly used in United States therefore it is more of “rules based.” The method vary in recognition of intangible assets. The US GAAP recognizes the assets at fair value unlike the IFRS where they are only recognized if the asset will have a future economic benefit and has measured reliability The US GAAP allows both the Last in, First out (LIFO) and First in, First Out (FIFO) accounting methods whereas In IFRS, the Last in, First out (LIFO) method for accounting inventory is not allowed Definition of US GAAP The US GAAP is the Generally Accepted Accounting Principles adopted by the United States Securities and Exchange Commission (SEC). Principles of US GAAP Revenue Recognition Principle; it states that firms should record revenue whenever earned and not when received. Historical Costs; it requires firms to be accounting and reporting assets and liabilities acquisition costs rather than the fair market value Disadvantage of US GAAP The method offers less promise for accuracy, timelines and comprehensive cover of financial statement information which is relevant and consisted to the financial standards. EARNINGS PER SHARE (EPS) 2015 EPS= (Net Income-Preferred Dividend)/Weighted Average Common Shares Outstanding = (36,596-12,776.82)/60,872 = 0.21 2014 (-47,268-18,779.52)/58,971 =1.12 Definition of IFRS These are International Financial Reporting Standards acceptable in over 110 countries globally. This technique offers an advantage in that due to the standardization and harmonization of reporting standards under IFRS, the investors do not necessarily incur extra costs for processing and adjusting financial statements so as to understand them. Disadvantage of IFRS The technique is costly for firms to implement. This is because companies have to change their entire internal system to become compatible with the new reporting standards and training costs. THE MOST APPROPRIATE REPORTING METHOD Regarding the analysis and explanation in this paper. The IFRS is the most preferable reporting method. 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