Financial Accounting for Decision Makers

7 Recognising and reporting assets and liabilities 
238
Introduction
 
238
Learning outcomes
 
238
Provisions, contingent liabilities and contingent assets 
239
Provisions 
239
Contingent liabilities 
242
Contingent assets 
245
Internally-generated intangible assets 
246
Leases 
250
Borrowing costs 
256
Self-assessment question 
258
Summary
259
Key terms
261
Further reading
261
Critical review questions
261
Exercises
262
Appendix: Time value of money 
265
8 Analysing and interpreting financial statements (1) 
268
Introduction
 
268
Learning outcomes
 
268
Financial ratios 
269
Financial ratio classifications 
270
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CONTENTS
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CONTENTS 
xi
The need for comparison 
271
Calculating the ratios 
273
A brief overview 
275
Profitability 
276
Efficiency 
283
Relationship between profitability and efficiency 
289
Liquidity 
291
Operating cash cycle 
295
Financial gearing 
298
Self-assessment question 
302
Summary
304
Key terms
304
Further reading
305
Critical review questions
305
Exercises
306
9 Analysing and interpreting financial statements (2) 
313
Introduction
 
313
Learning outcomes
 
313
Investment ratios 
314
Financial ratios and the problem of overtrading 
323
Key performance indicators 
324
Common-size financial statements 
325
Trend analysis 
329
Using ratios to predict financial failure 
330
Limitations of ratio analysis 
335
Self-assessment question 
338
Summary
339
Key terms
340
References
340
Further reading
340
Critical review questions
340
Exercises
341
 10 Reporting the financial results of groups of companies 
348
Introduction
 
348
Learning outcomes
 
348
What is a group of companies? 
349
How do groups arise? 
350
Types of group relationship 
357
Preparing a group statement of financial position 
359
Inter-company assets and claims 
380
Goodwill arising on consolidation and asset carrying amounts 
381
Preparing a group income statement 
388
The statement of comprehensive income 
390
Inter-company trading 
390
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CONTENTS
Group statement of cash flows 
390
Accounting for less than a controlling interest – associate companies 
391
The argument against consolidation 
394
Self-assessment question 
394
Summary
396
Key terms
397
Further reading
398
Critical review questions
398
Exercises
398
 11 Increasing the scope of financial reporting 
406
Introduction
 
406
Learning outcomes
 
407
The development of financial reporting 
407
From stewardship to decision making 
408
Segmental financial reports 
409
Summary financial statements 
413
Interim financial statements 
416
The value added statement 
420
Inflation accounting and reporting 
428
Self-assessment question 
437
Summary
438
Key terms
439
References
439
Further reading
439
Critical review questions
440
Exercises
440