Balance Sheet Case Study Example

Published: 2021-07-11 01:30:05
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Category: Taxes, Internet, Finance, Investment, Apple, Steve Jobs, Wealth, Balance Sheet

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US GAAP permits LIFO in valuing inventory while IFRS does not permit LIFO in valuing inventory. Secondly, US GAAP recommends two-step impairment of assets while IFRS recommends one -step impairment of assets. Lastly, in US GAAP, assets are not allowed be revalued upwards whereas in IFRS upward revaluation is allowed.
An expense in financial accounting is a monetary equivalent of an asset or resource that has already been consumed in a given financial period for the purposes of generating revenues for that entity. Examples include; salaries, rent, financing costs, and repairing and maintenance costs. On the other hand, an asset refers to a resource that is present in an entity and is controlled by the entity as a consequence of a past event that has probable future economic benefits to the entity. Examples of assets include; building, inventory, equipment, cash, goodwill, royalties, land among others. It should be noted that expenses are recorded in the Income statement whereas assets are recorded in the balance sheets. In addition, prepaid expenses are regarded as assets because future economic benefits are expected to flow to the organization when the services that were already paid for will be rendered.
A current asset is an asset whose future economic benefit is expected to flow in a period of less than one financial year. A financial year is usually the reporting period of an entity which is normally a period of 12 months. A current asset forms part of an entity’s operating cycle or it is held for the purposes of trading. Examples of current assets include; cash in hand, account receivables, inventory, prepaid expenses and cash at bank. A long term current asset is an asset whose future economic benefit is expected to flow in a period of more than one financial year. A financial year is usually the reporting period of an entity which is normally a period of 12 months. A long term current asset can either be tangible or non-tangible. Examples of long term current assets that are tangible include; equipment, land, buildings and machinery. Examples of long term current assets that are intangible include; copyrights, goodwill, royalties and patents.
A current liability is a claim on an entity by outsiders that is expected to be settled within a given financial year which is normally a period of 12 months. A current liability forms part of an entity’s operating cycle. Examples of current liabilities include; accrued expenses, accounts payable and bank overdraft. A long term liability is a claim on an entity by outsiders that is expected to be settled in more than one financial year which is normally a period of 12 months. Long term liabilities are usually settled gradually over time. The part of a long term asset that is to be settled within a given financial year is normally recorded as part of the current liabilities.
Examples of current assets in Apple Inc. balance sheet include; inventories and cash and cash equivalents. Examples of long term assets in Apple Inc. balance sheet include; goodwill, property, plant and equipment. Examples of current liabilities in Apple Inc. balance sheet include; deferred revenue, accounts payable and accrued expenses. Examples of long term liabilities in Apple Inc. balance sheet include; deferred revenue and long term loans.
Retained earnings are that part of net income that is attributable to shareholders which are not paid out to shareholders as dividends. The amount is usually reinvested or used in settling debt instead of being paid out to shareholders. Retained earnings are obtained by adding income or loss to the opening retained earnings and subtracting the dividends paid. Therefore, the net income increases retained earnings while dividends paid reduces retained earnings. Retained earnings of Apple Inc. increased from $ 62,841 million in 2011 to $ 101,289 million in 2012. The change is attributable to a net income of $ 41,733 million and dividend payment $ 2,523 million in the financial year that ended on 31 October 2012.
The balance sheet of Apple Inc. only records the net book values of non-current assets. A detail of how the figure was arrived at is recorded in the notes section. On the contrary, the balance sheet of Philips expressly records the cost, accumulated depreciation and the resulting net book value within the balance sheet. Secondly, the balance sheet of Apple Inc. begins by recording current assets before recording long term assets while that of Apple. Inc begins by recording long term assets before recording current assets. Lastly, the figures in the balance sheet of Apple Inc. are recorded in millions of U.S dollars while that of Philips is recorded in millions of Euros.
The total liabilities of Apple Inc. stand at $ 57,854 million. The total liabilities of Philips stand at 9,784 million which is equivalent to approximately $ 12,746 million. Therefore, Apple Inc. has more debt than Philips.
Apple Inc. is bigger than Philips. This is because Apple Inc. has a higher value of total assets compared to Philips. This implies that Apple Inc. has a larger resource base than Philips.
References
Apple Inc. (2012, October 31). Form 10-K: Apple Inc. Retrieved April 28, 2013, from http://investor.apple.com: http://files.shareholder.com/downloads/AAPL/2447945756x0xS1193125-12-444068/320193/filing.pdf
Gibson, C. (2010). Financial Reporting and Analysis: Using Financial Accounting Information. New York: Cengage Learning.
Philips. (2012, December 31). Annual Report 2012. Retrieved April 28, 2013, from http://www.philips.com: http://www.philips.com/shared/assets/Investor_relations/pdf/Annual_Report_English_2012.pdf

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