Account Statement Analysis - Desklib

This article provides solutions to various questions related to account statement analysis. It covers topics such as the impact of non-recurring items, working capital, and foreign currency translations on financial statements. The article also includes examples and explanations to help readers understand the concepts better. The subject is finance and accounting, and the course code is not mentioned. The article is relevant for students and professionals in the field of finance and accounting. The university is not mentioned.

Running head: ACCOUNT STATEMENT ANALYSIS
Account statement analysis
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1ACCOUNT STATEMENT ANALYSIS
Table of Contents
Answer 1....................................................................................................................................2
Answer 2....................................................................................................................................2
Answer 3....................................................................................................................................2
Answer 4....................................................................................................................................2
Answer 5....................................................................................................................................2
Answer 6....................................................................................................................................3
Answer 7....................................................................................................................................3
Answer 8....................................................................................................................................3
Answer 9....................................................................................................................................3
Answer 10..................................................................................................................................4
Answer 11..................................................................................................................................4
Answer 12..................................................................................................................................4
Answer 13..................................................................................................................................4
Answer 14..................................................................................................................................5
Answer 15..................................................................................................................................5
Answer 16..................................................................................................................................5
Answer 17..................................................................................................................................6
Answer 18..................................................................................................................................7

2ACCOUNT STATEMENT ANALYSIS
Answer 1
c. The higher book depreciation $ 100 million will lower pre-tax book income by $ 100
million. It will lower deferred tax expenses by $ 35 million but will not affect current taxes.
Thus, the net income will be lower by $ 65 million less net income but the higher
depreciation of $ 100 million will be added back and there will be a smaller add back of
deferred taxes of $ 35. This will leave the operating cash flow unchanged.
Answer 2
b. The impairment losses are added back because they lower net income but do not result in
any operating payments.
Answer 3
a.Cemex books its share of equity accounted investees when they report profits. However,
Cemex does not receive cash at that time. It receives cash when dividends are received.
Therefore, it subtracts the equity income, net of any dividends received on the indirect format
because it is income that is not received in cash.
Answer 4
b. It is a gain included in net income that is not an operating inflow. Instead, it is included in
investing inflow as part of proceeds from sale.
Answer 5
c. The company added back financial expenses in one line of the operating cash flows and
then subtracted the related payments in a separate line item in the operating section of the
cash flow statement.

3ACCOUNT STATEMENT ANALYSIS
Answer 6
c. The company added back tax expenses in one line of the operating cash flows and then
subtracted the related payments in a separate line item in the operating section of the cash
flow statement.
Answer 7
b. Cemex decreased the need for working capital over the year.
Answer 8
Adjustment for the receivable that is listed under “changes in working capital, excluding
income taxes” is negative for the year 2016. The explanation for this is that the increase in
accounts receivable at the end of the year indicates that the company could collect lower
amount of money from its customers as compared to sales recorded during the year under the
income statement. It will have negative impact on working capital as well as on the cash flow
statement.
Answer 9
Adjustment for the trade payable that is listed under “changes in working capital, excluding
income taxes” is positive for the year 2016. The explanation for this is that the decrease in
accounts payable at the end of the year indicates that the company paid higher amount of
money to its creditors as compared to purchases recorded during the year under the income
statement. It will have positive impact on working capital as well as on the cash flow
statement.

4ACCOUNT STATEMENT ANALYSIS
Answer 10
This will definitely help the entity to be sustained going forward as decreases in accounts
payable will improve the liquidity position of the company. Strong liquidity position will
make it sustainable for long time as the company will have more short term asset to meet its
short term obligation. In case of increase in interest rates higher working capital will help the
company to obtain competitive advantage through having the available cash in need. In
normal scenario increase in interest rate will – (i) increase the finance cost (ii) reduce the net
profit (iii) reduce the cash flow from financing activities
Answer 11
Non-recurring items –
11.1 Impairment losses for long-lived assets – 2,516 Mexican Pesos
11.2 Results from assets disposal – 1,741 Mexican Pesos
11.3 Restructuring costs – 778 Mexican Pesos
Answer 12
C. Both cost of sales and operating expenses
Answer 13
Non-recurring item –
 Impairment losses and re-measurement of assets held for sale = 2,516
 Restructuring cost = 778
 Charitable contribution = 93
 Results from the sale of assets and others, net (gain) = 1741

5ACCOUNT STATEMENT ANALYSIS
Depreciation and amortization included in operating expenses = 1848
Operating earnings as given = 33,618
EBITDA after removing the effect of non-recurring items are calculated as follows –
Operating earnings as given + Depreciation and amortization included in operating expenses
+ Impairment losses and re-measurement of assets held for sale + Restructuring cost +
Charitable contribution - Results from the sale of assets and others, net
= 33,618 + 1848 + 2,516 + 778 + 93 – 1,848
= 37,005 Mexican Peso
Answer 14
a. Cost of sales
b. Distribution expenses
c. Cost of sales
Answer 15
Discontinued operations – Impact of discontinued pertains are not considerable on current
and past revenues. Further, the statements of the operation were reclassified to the single line
item known as discontinued operations.
Other disposable items – for disposal of foreign investment, earnings are reversed. Further,
investment is recognised as item available for the purpose of sale at fair values and alterations
in valuations are transacted under other comprehensive loss till the time of disposal.
Answer 16
16.1 Cemex will receive PS 7500

6ACCOUNT STATEMENT ANALYSIS
Calculation –
Value of surrendered control = PS 10,000
Reserve = PS 2000
Remaining = PS 8000
Less: Discount = PS 500
Receivables = PS 7500
16.2 Journal entries
Particular Debit Credit
Cash a/c Dr PS 8,000
To Factored invoiced sold PS 8,000
Cash a/c Dr (2000 – 500) PS 1,500
Fee a/c Dr PS 500
Factored invoice sold PS 8000
To Amount receivable PS 10,000
Factored invoice sold a/c Dr PS 8,000
Fee a/c Dr PS 500
To Factored invoice reserves PS 8,500
Answer 17
Large amount of foreign currency translation are representing the following –

7ACCOUNT STATEMENT ANALYSIS
 Results from the translation of financial statements for foreign subsidiaries
 Amount is generated from the foreign exchange fluctuations on the notional amount
of debt
 Fluctuations in foreign exchange that generates from balances with related parties in
foreign currencies of long term investment
Answer 18
Large adjustment amount will reduce profit shown in income statement, will reduce income
in comprehensive income, will increase liabilities shown in balance sheet and will increase
amount from financing activities shown in cash flow statement.