BAB 6 Analyzing Operating Activities 081016

ANALYZING
OPERATING ACTIVITIES
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Aspek yang dianalisis
ACCOUNTING INCOME income yang diperoleh / diukur /
dicatat berdasarkan standar akuntansi - accrual basis.
Mencakup:
Net income (dipengaruhi oleh Revenue, Expense, Gain,
dan Loss)
Other Comprehensive Income (OCI)
digabungkan menjadi Comprehensive Income (CI) (proxi
akuntan terhadap economic income)
Terdapat pelaporan bagian (porsi) untuk non controlling

(minority) interest in equity serta EPS (basic & diluted EPS)
Perhatikan !!!
Income is not equal to the amount of cash generated
from the successful operation of the business.
Income is a return over and above the investment.
It is the amount that an entity could return to its investors

and still leave the entity as well-off at the end of the
period as it was at the beginning.
Revenue/Gain Recognition
Revenue is important for
Company valuation
Accounting-based contractual agreements
Management pressure to achieve income expectations
Management compensation linked to income
Valuation of stock options
Analysis must assess whether revenue reflects business reality

Assess risk of transactions
Assess risk of collectibility
Circumstances fueling questions about revenue recognition include:

Sale of assets or operations not producing cash flows to fund
interest or dividends
Lack of equity capital
Existence of contingent liabilities
Revenue recognition (recording on the book) does not necessarily
occur when cash is received ( ACCRUAL BASIS).
Revenues and gains are recognized when: (GAAP criteria)

1. they are realized or realizable, and
2. they have been earned through substantial completion of the
activities involved in the earnings process (and no significant
added effort is necessary)
Risk of ownership is effectively passed to the buyer
Revenue, and related expense, are measured or estimated with

accuracy
Revenue recognized normally yields an increase in cash,

receivables (claims to cash), or securities (from the exchange of
inventory or other assets)
Revenue transactions are at arms length with independent parties

Transaction is not subject to revocation (dibatalkan / ditarik)
Those criteria generally are met at point of sale (full accrual)

and expenses charge against revenue at time of sale or rendering
of service
Revenue is not recognized prior to the point of sale because either:

A valid promise of payment has not been received from the
customer.
The company has not provided the product or service.
Exceptions to these rules:

The customer provides a valid promise of payment.
Conditions exist that contractually guarantee the sale.
point of completed production
(for mining & agricultural products)
AICPA Statement of Position 97-2 gives companies more
guidance through a checklist of 4 factors that amplify the 2 criteria:
1) Persuasive evidence of an arrangement exists.
2) Delivery has occurred.
3) The vendors fee is fixed or determinable.
4) Collectibility is probable.
The FASB is engaged in a revenue recognition project in

conjunction with the IASB (as of June 2010) conjunction GAAP
with IFRS
The FASB has tentatively decided to move away from the

realization and substantial completion criteria and to instead
emphasize the measurement of a sellers satisfaction of
performance obligations created through contracts with customers.
Key objective: Recognize revenue to depict (menggambarkan)
the transfer of goods or services to customers in an amount that
reflects the consideration that the company receives, or expects to
receive, in exchange for these goods or services
5 steps process for revenue recognition:

1. Identify the contract with customers
2. Identify the separate performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the separate performance
obligations
5. Recognize revenue when each performance obligation is
satisfied
Principle: Recognize revenue in the accounting period when the

performance obligation is satisfied
Step 1: Identify the contract with customers
A contract is an agreement that creates enforceable rights or

obligations
Revenue from a contract with a customer cannot be recognized until

a contract exists
A company does not recognize contract assets or liabilities until one

or both parties to the contract perform. Until the performance occurs,
no net assets or net liability occurs
A company applies the revenue guidance to contracts with

customers and must determine if new performance obligations are
created by a contract modification (change the contract terms while
it is ongoing)
When a contract modifications occurs, companies determine

whether a new contract (and performance obligation) results or
whether it is modification of the existing contract
Additional products are not a separate performance obligation if the new

products are not priced at the proper standalone selling price, or they are
not distinct, so companies generally account for the modification using a
prospective approach company should account for the effect of the
change in the period of change as well as future periods if the change
affects both, and should not change previously reported results
A company accounts for a new contract modification as a new contract

(separate performance obligation) if both of the following conditions are
satisfied:
1. The promised goods or services are distinct (i.e., the company sells
them separately and they are not interdependent with other goods &
services), and
2. The company has the right to receive an amount of consideration
that reflects the standalone selling price of the promised goods or
services
NOTE: whether a modification is treated as a separate performance obligation or

prospectively, the same amount of revenue is recognized before and after
the modification
Apply revenue guidance to contract if Disregard revenue

. guidance to contract if .
The contract has commercial The contract is wholly
substance unperformed, and
The parties to the contract have Each party can internally
approved the contract & are committed terminate the contract
to perform their respective obligation without compensation
The company can identify each partys
rights regarding the goods or services
to be transferred, and
The company can identify the payment
terms for the goods and services to be
transferred
It is probable that the company will
collect the consideration to which it will
be entitled
Step 2: Identify the separate performance obligations in the contract
Revenue Recognition Classified by Nature of Transaction
Type of Sale of asset

Sale of product Rendering a Permitting use
Transaction other than
from inventory service of an asset
inventory
Description Revenue from Revenue from Gain or loss on

Revenue from
of Revenue fees or services interest, rents, disposition
sales
and royalties
Timing of Date of sale Services As time passes

Date of sale or
Revenue (date of performed and or assets are
trade-in
Recognition delivery) billable used
LO 1 Apply the revenue recognition principle.

Step 2: Identify the separate performance obligations in the contract
A performance obligation is a promise in a contract to provide a product

or service to a customer. A performance obligation exists if the customer
can benefit from the good or service on its own or together with other
readily available resources
The company must provide a distinct product or service before recognize

revenue because a contract may be comprised of multiple
performance obligations
To determine whether a company has to account for multiple

performance obligations, it evaluates whether the product is distinct
within the contract.
If the performance obligation is not highly dependent on, or
interrelated with, other promises in the contract, then each
performance obligation should be accounted for separately.
Conversely, if each of these services is interdependent and
interrelated, these services are combined and reported as one
performance obligation
Step 3: Determine the transaction price
Transaction price is the amount of consideration that a company

expects to receive from a customer in exchange for transferring
goods or services
The transaction price in a contract is often easily determined

because the customer agrees to pay a fixed amount to the
company over a short period of time.
In other contract, companies must consider the following factors:

a. Variable considerations
b. Time value of money
c. Non-cash consideration
d. Consideration paid or payable to customers
Variable considerations
This factor was considered if the price of goods or services is

dependent on future events (discounts, rebates, credits,
performance bonuses, or royalties), so the company estimates
the amount of variable consideration it will receive from the
contract to determine the amount of revenue to recognized
Company uses either the expected value, which is a

probability-weighted amount, or the most likely amount in a
range of possible amounts to estimate variable consideration
Companies select among these two methods based on which

approach better predicts the amount of consideration to which
a company is entitled
A company only allocates variable consideration if it is

reasonably assured that it will be entitled to that amount.
EXPECTED VALUE MOST LIKELY AMOUNT

May be appropriate if a company has a May be appropriate if
large number of contracts with similar the contract has only
characteristics two possible outcomes
Can be based on a limited number of
discrete outcomes & probabilities
Companies therefore may only recognize variable consideration

if:
(1) they have experience with similar contract and are able to
estimate the cumulative amount of revenue, and
(2) based on experience, it is highly probable that there will not
be a significant reversal of revenue previously recognized
If those criteria are not met, revenue recognition is constrained
Conditions such as one of the following would indicate that the

revenue is constrained (not recognized):
(1) The amount of consideration is highly susceptible to factors
outside the companys influence (volatility in a market, the
judgment of third parties, weather conditions, and a high
risk of obsolescence of the promised good or service)
(2) The uncertainty about the amount of consideration is not
expected to be resolved for a long period of time
(3) The companys experience (or other evidence) with similar
types of performance obligations is limited
(4) The contract has a large number and broad range of
possible consideration amounts
Time Value of Money (TVM) extended payment terms
Companies account for TVM if the contract (sales transaction)

involves a significant financing component (i.e., interest is
accrued on consideration to be paid over time), so the fair value
is determined either by measuring the consideration received or
by discounting the payment using an imputed interest rate
The imputed interest rate is the more clearly determinable of

either:
(1) the prevailing rate for a similar instrument of an issuer with a
similar credit rating
(2) a rate of interest that discounts the nominal amount of the
instrument to the current sales price of the goods or
services
The company reports the effects of the financing either as

interest expense or interest revenue
Non-cash considerations
Companies generally recognize revenue on the basis of the fair

value of what (consideration) is received
If company cannot determine this amount, then it should

estimate the selling price of the service performed and
recognize this amount as revenue
Consideration paid or payable to customers
Considerations paid or payable to customers (discounts, volume

rebates, coupons, free products, or services as part of a
revenue arrangement) reduce the consideration received and
the revenue to be recognized
Step 4: Allocating the transaction price to Separate Performance
Obligations
The transaction price allocated to the various performance

obligations is based on their relative fair values (FV). The best
measure of FV is what the company could sell the good or service
for on a standalone basis, referred to as the standalone selling price.
If this information is not available, companies should use their best

estimate of what good or service might sell for a standalone unit (
with allocation approach)
When a company sells a bundle of goods or services, the selling

price of bundle is often less than the sum of the individual
standalone prices, so the company should allocate the discount to
the product(s) that is causing the discount and not to the entire
bundle
Step 4: Allocating the transaction price to Separate Performance
Obligations
Allocation approach Implementation

Adjusted market Evaluate the market in which it sells goods or services and
assessment approach estimate the price that customers in that market are willing to
pay for those goods or services. That approach also might
include referring to prices from the companys competitors
for similar goods or services and adjusting those prices as
necessary to reflect the companys costs & margins
Expected cost plus a Forecast expected costs of satisfying a performance

margin approach obligation and then add an appropriate margin for that good
or service
Residual approach If the standalone selling price of a good or service is highly

variable or uncertain, then a company may estimate the
standalone selling price by reference to the total transaction
price less the sum of the observable standalone selling prices
of other goods or services promised in the contract
Step 5: Recognize revenue when each performance obligation is
satisfied
A company satisfies its performance obligation when the customer
obtains control of the good or service
1. The company has a right to payment for the asset
2. The company has transferred legal title to the asset
3. The company has transferred physical possession of the asset
4. The customer has significant risks and rewards of ownership
(the customer has the ability to direct the use of and obtain
substantially all the remaining benefits from the asset or
service, and has the ability to prevent other companies from
directing the use of, or receiving the benefits, from the asset
or service)
5. The customer has accepted the asset
Companies satisfy performance obligations either at a point in time or

over a period of time.
Companies recognize revenue over a period of time if:
(1) the customer controls the asset as it is created, or
(2) the company does not have an alternative use for the asset
Other revenue recognition issues / Special revenue recognition situations:
Issue Description & implementation

Right of return Return of product by customer (e.g., due to dissatisfaction with the
product) in exchange for refunds (full or partial), a credit against
amounts owed or that will be owed, and/or another product in
exchange
Seller may recognize (a) an adjustment to revenue for the products

expected to be returned, (b) a refund liability, and (c) an asset for
the right to recover the product (and corresponding adjustment to
COGS)
Repurchase Seller has an obligation or right to repurchase the asset at a later

agreement date
Generally, if the company has an obligation or right to repurchase

the asset for an amount greater than its selling price, then the
transaction is a financing (borrowing) transaction

Bill and hold Result when the buyer is not yet ready to take delivery but does
take title and accept billing, because of (1) lack of available space
for the product, (2) delays in its production schedule, or (3) more
than sufficient inventory in its distribution channel
Revenue is recognized depending on when the customer obtains

control of that product
Principal agent Arrangement in which the principals performance obligation is to

relationship provide goods or perform services for a customer. The agents
performance obligation is to arrange for the principal to provide
these goods or services to a customer
Amounts collected on behalf of the principal are not revenue of

the agent. Instead, revenue for the agent is the amount of the
commission it receives. The principal recognizes revenue when
the goods or services are sold to a third-party customer

Consignments A principal-agents relationship in which the consignor
(manufacturer or wholesaler) ships merchandise to the consignee
(dealer), who is to act as an agent for the consignor in selling the
merchandise
The consignor recognizes revenue only after receiving notification

of the sale and the cash remittance from the consignee (consignor
carries the merchandise as inventory throughout the
consignment). The consignee records commission revenue (usually
some % of the selling price)
Warranties Warranties can be assurance-type (product meets agreed-upon
specification) or service-type (provides additional service beyond
the assurance type warranty)
A separate performance obligation is not recorded for assurance-

type warranties (considered part of the product). Service-type
warranties are recorded as a separate performance obligation.
Companies should allocate a portion of the transaction price to
service-type warranties, when present.

Non refundable Upfront payment generally relate to initiation, activation, or
upfront fees setup activities for a good or service to be delivered in the future
The upfront payment should be allocated over the periods

benefited
Installment sales It is used most commonly in cases of real estate sales where
method contracts may involve little or no down payment, payments are
spread over 10 to 30 to 40 years, a high probability of default in
the early years exists because of a small investment by the buyer,
and the market prices of the property often are unstable.
Revenue and/or income recognized at collection of cash. Usually

a portion of the cash payment is recognized as income
Expenses defer to be matched against a part of each cash

collection. Usually done by deferring the estimated profit

Cost-recovery This method is used only when the circumstances surrounding a
(zero profit) sale are so uncertain that earlier recognition is impossible.
method for long
term Revenue and/or income recognized at collection of cash, but only
(construction & after all costs are recovered (no income is recognized on a sale
service) contract until the cost of the item sold it recovered through cash receipts).
Expenses defer to be matched against total cash collected.
Loss on an unprofitable contract company must recognize the

entire expected contract loss in the current period
Cash (collection) This method is used if the probability of recovering product or
method service costs is remote. Seldom would this method be applicable
for sales of merchandise or real estate because the right of
repossession would leave considerable value to the seller.
Revenue and/or income recognized at collection of cash.
Expenses was recognized as incurred


Percentage of Company must have some basis for measuring the progress toward
completion completion at particular interim dates. One of the most popular
method for long input measures used to determine the progress toward completion
term is the cost to cost basis.
construction
contract Using the cost to cost basis, a company measures the % of
completion by comparing cost incurred to date with the most
recent estimate of the total costs to complete the contract.
Engineers are often called in to help provide estimates
The company applies the % to the total revenue or the estimated

total gross profit on the contract, to arrive at the amount of
revenue or gross profit to be recognized to date.
Loss in current period on a profitable contract the estimated

cost increase requires a current-period adjustment of excess gross
profit recognized on the project in prior period
Loss on an unprofitable contract company must recognize the

entire expected contract loss in the current period

Percentage of A company satisfies a performance obligation and recognizes
completion revenue over time if at least one of the following criteria is met:
method for long 1. The companys performance creates or enhances an asset (e.g.,
term work in process) that the customer controls as the asset is
construction created or enhanced.
contract 2. The companys performance does not create an asset with an
(continued)
alternative use, for example, the asset cannot be used by
another customer. In addition to this alternative-use element,
at least one of the following criteria is met:
a) The customer simultaneously receives & consumes the
benefits of the entitys performance as the entity performs
b) Another company would not need to substantially re-
perform the work the company has completed to date if
that other company were to fulfill the remaining obligation
to the customer
c) The company has a right to payment for its performance
completed to date, and it expects to fulfill the contract as
promised

Completed- This method should be used only when an entity has primarily
contract short term contracts, when the conditions of using percentage of
method completion method accounting are not met, or when there are
inherent uncertainties in the contract.
This method is also used when more than one act must be
performed and when the final act is so significant to the entire
transaction taken as a whole that performance cannot be
considered to have taken place until the performance of that final
act occurs.
The company waits until the production or service period

(contract) is complete to recognize revenue & gross profit (as the
point of sale). All income from the contract is related to the year of
completion.
Specific This method is used when performance consists of the execution
performance of a single act, so revenue is recognized at the time the act takes
method place

Proportional This method is used when performance consists of a number of
performance identical or similar acts.
method (for a) If the service transactions involves a specified number of identical
long term or similar act, an equal amount of revenues is recorded for each act
service contract) performed
b) If the service transactions involves a specified number of defined
but not identical or similar act, the revenue recognized for each act
is based on the formula:
(direct cost of individual act / total estimated direct costs of the
transaction) x total revenues from complete transactions
c) If the service transactions involves an unspecified number of
defined over a fixed time period for performance, revenue is
recognized over the period during which the acts will be performed
by using the straight line method unless a better method of relating
revenue and performance is appropriate
Most service contracts involve three different types of costs:

a) Initial direct costs related to obtaining and performing initial
services on the contract
b) Direct costs related to performing the various service acts
c) Indirect costs related to maintaining the organization to service the
contract

Layaway sales This is agreement in which seller reserves an item for a customer
until the consumer completed all the payments necessary to pay for
that item. Because there is little risk involved to the seller, this sales
can be readily offered to those with bad credit.
If the transaction is not completed, the item is returned to stock, the

customers money may be returned in whole, returned less a fee, or
forfeited entirely.
No interest is charged, the price is fixed, availability is guaranteed by

reserving the item in stock, and an item being purchased as a gift
can be kept secret. Consumers may also gain a sense of living within
their means
Partial cash payment for goods was recognized as initial layaway

payment (deposit received from customers). Receipt of the final
cash payment and the delivery of goods to customers requires two
entries (record the sale, and removing the item from inventory and
recording its COGS).

Franchises In a franchise arrangement, the franchisor satisfies its performance
revenue obligation for a franchise license when control of the franchise
rights is transferred, generally when the franchisee begins
operations of the franchise.
In situations where the franchisor provides access to the rights

rather than transferring control of the franchise rights, the franchise
rights revenue is recognized over time rather than at point in time.
Franchisors recognize continuing franchise fees as uncertainty

related to the variable consideration is resolved, that is over time
Customer This is agreement in which the sale is not complete until the
Acceptance product item is installed at the customers place of business.
Provisions
Full cash payment for goods was recognized as advance payments
received from customers
When customer had accepted the installed product item, seller

record the sales revenue, and removing the item from inventory
and recording its COGS.

Contract assets Contract assets :
& liabilities 1. unconditional rights to receive consideration because the
(asset liability company has satisfied its performance obligation with a
approach) customer (reported as receivable), and
2. Conditional rights to receive consideration because the
company has satisfied one performance obligation but must
satisfy another performance obligation in the contract before
it can bill the customer (reported as contract assets)
Contract liability is a companys obligation to transfer goods or

services to a customer for which the company has received
consideration from the customer (reported as unearned revenue).
Expense / Loss Recognition
1. Direct matching (matching expense to specific revenue)
Product cost (COGM), COGS, & selling expense (shipping costs
and sales commissions) related to sales revenue
2. Systematic & rational allocation

Depreciation, amortization, depletion, & insurance expense
(spread cost of assets that benefit more than one period across the
periods of expected benefit)
3. Immediate recognition (not related to specific revenues but are

incurred to obtain goods & services that indirectly help to generate
revenues; recognized in the period in which they are incurred)
Period cost, administrative expense, & loss
Unsur pembentuk net income - Income statement
Revenue from sales
Cost of goods sold (COGS)
Gross profit
Selling & administrative expense
Other income & gain / other expense & loss (*)
Income from operation (operating income)
Interest expense (financing cost)
Income before income tax
Income tax expense (perhatikan: deferred tax assets / liabilities)
Income from continuing operation
Net income
Gain / loss on discontinued operation (net of tax)
Operating income/loss from discontinued operations until the
measurement date
Gain/loss on disposal
Net income
Unsur pembentuk net income - Income statement
Other income & gain / other expense & loss

a) Gain / loss on sales / write offs / write downs / abandonment / impairment
of investment, intangible assets, inventory (obsolescence), plant assets,
receivables, deferred R/D cost, productive asset
b) Gain/loss on disposal of part of division (business segment)
c) Dividend & interest revenue
d) Rent revenue / expense
e) Investment income (net income from companies accounted for by equity
method)
f) Loss from a major casualty / strike (flood, fire, earthquake, hurricane,
tornado, etc.) (including those against competitors and major suppliers)
g) Loss from expropriation (pengambilalihan)
h) Insurance gain on fire / damage loss
i) Gain / loss on litigation settlement
j) Gain / loss from early retirement of debt
k) Refund on litigation with government
l) Gain / loss on restructuring (restructuring charges)
m) Adjustments of accruals on long term contracts
Unsur pembentuk OCI- Statement of CI
Net income
OCI:
o Unrealized holding gain/loss on non trading (held for collection /
available for sale) equity / marketable securities (changes in FV)
(net of tax)
o Translation gain/loss (adjustment / remeasurement) on foreign
currency (exchange differences) (net of tax)
o Gain/loss on changes in revaluation surplus (revaluation of office
building) (net of tax)
o Actuarial gain/loss (adjustment) in pension plan & other post
retirement benefits (net of tax)
o Unrealized gain/loss on hedging transaction & derivative
instruments (net of tax)
Unsur pembentuk R/E- Statement of R/E
Retained earnings (R/E)
Prior period adjustment for R/E (efek accounting changes & errors yang
bersifat retroaktif / retrospektif)
Net income
Dividend
Capital stock
Preferred Stock (P/S)
Ordinary / Common Stock (C/S)
Treasury stock (T/S)
Paid in capital in excess of par (P/S, C/S, T/S)
R/E
OCI
Analyzing accounting changes
Are cosmetic and yield no cash flows
Can better reflect economic reality
Can reflect earnings management (or even manipulation)
Impact comparative analysis (apples-to-apples)
Affect both economic and permanent income
For permanent income, use the new method and ignore the cumulative
effect
For economic income, evaluate the change to assess whether it reflects
reality
Analyzing asset impairment / write off
Special Items (unusual or infrequent transaction / event)
Challenges for analysis

a) Often little GAAP guidance
b) Economic implications are complex
c) Discretionary nature serves earnings management aims
Asset Impairment when asset FV is below carrying (book) value

a) Decline in demand for asset output
b) Technological obsolescence
c) Changes in company strategy
Accounting for impairments

Report at the lower of market or cost
No disclosure about determination of amount
No disclosure about probable impairments
Flexibility in determining when and how much to write-off
No plan required for asset disposal
Conservative presentation of assets
Analyzing restructuring charges
Special Items (unusual or infrequent transaction / event)
Challenges for analysis

a) Often little GAAP guidance
b) Economic implications are complex
c) Discretionary nature serves earnings management aims
Restructuring Charges costs usually related to major changes in

company business
Extensive reorganization
Divesting business units
Terminating contracts and joint ventures
Discontinuing product lines
Worker retrenchment
Management turnover
Write-offs combined with investments in assets, technology, or
manpower
Accounting for estimated costs of restructuring program

Establish a provision (liability) for estimated costs
Charge estimated costs to current income
Actual costs involve adjustments against the provision when incurred
Analyzing special items
Earnings Management with Special Charges
1. Special charges often garner less investor attention under an

assumption they are non-recurring and do not persist
2. Managers motivated to re-classify operating charges as special

one-time charges
3. When analysts ignore such re-classified charges it leads to low

operating expense estimates and overestimates of company value
Income Statement Adjustments
1. Permanent income reflect profitability of a company under normal

circumstances
Most special charges constitute operating expenses that need
to be reflected in permanent income
Special charges often reflect either understatements of past
expenses or investments for future profitability
2. Economic income reflects the effects on equity of all events that
occur in the period
Entire amount of special charges is included
Balance Sheet Adjustments
Balance sheets after special charges often better reflect
business reality by reporting assets closer to net realizable
values
Two points of attention

1. Retain provision or net against equity?
If a going-concern analysis, then retain
If a liquidating value analysis, then offset against equity
2. Asset write-offs conservatively distort asset and liability values
Analyzing Deferred Charges
Deferred charges costs incurred but deferred because they are
expected to benefit future periods
4 categories of deferred costs
Research and development (R & D) costs
Computer software costs
Costs in extractive industries
Miscellaneous (Other) costs
Accounting for R & D cost is problematic due to :*)
High uncertainty of any potential benefits
Time period between R&D activities & determination of success
Intangible nature of most R&D activities
Difficulty in estimating future benefit periods
*) These accounting problems are similar to those encountered with

employee training programs, product promotions, advertising
Hence:
U.S. accounting requires expensing R & D when incurred
Only costs of materials, equipment, and facilities with alternative
future uses are capitalized as tangible assets
Intangibles purchased from others for R & D activities with
alternative future uses are capitalized
Computer Software Costs :

Accounting for costs of computer software to be sold, leased, or
otherwise marketed identifies a point referred to as technological
feasibility]
Prior to technological feasibility, costs are expensed when
incurred
After technological feasibility, costs are capitalized as an
intangible asset
Search and development costs for natural resources is important
to extractive industries including oil, gas, metals, coal, nonmetallic
minerals 2 basic accounting viewpoints:
Full-cost view all costs, productive and nonproductive,
incurred in the search for resources are capitalized and
amortized to income as resources are produced and sold
Successful efforts view all costs that do not result directly
in discovery of resources have no future benefit and should be
expensed as incurred. Prescribed for oil and gas producing
companies
Analyzing employee benefits
Employee benefits Increase in employee benefits

supplementary to salaries and wages
Some supplementary benefits are not accorded (diijinkan) full
or timely recognition:
Compensated absences
Deferred compensation contracts
Stock appreciation rights (SARs)
Junior stock plans
Employee Stock Options (ESOs)
ESOs (a popular form of incentive compensation)

Reasons:
Enhanced employee performance
Align employee and company incentives
Viewed as means to riches
Tool to attract talented and enterprising workers
Do not have direct cash flow effects
Do not require the recording of costs
Option Facts
Option to purchase shares at specific price on/after future date
Exercise price (the price a holder has the right to purchase
shares at). Exercise price often set equal to stock price on grant
date
Vesting date (the earliest date the employee can exercise option)
In-the-Money (when stock price is higher than exercise price)
Out-of-the-Money (when stock price is less than exercise price)
Two main accounting issues

Determining dilution of earnings per share (EPS)
ESOs in-the-money are dilutive securities and affect
diluted EPS
ESOs out-of-the-money are antidilutive securities and
do not affect diluted EPS
Determining compensation expense
Determine cost of ESOs granted
Amortize cost over vesting period
Analyzing interest expense
Interest (1) compensation for use of money

(2) excess cash paid beyond the money (principal) borrowed
Interest rate determined by risk characteristics of borrower
Interest expense/revenue determined by interest rate, principal, and
time
Interest on convertible debt is controversial by ignoring the cost of
conversion privilege
Diluted earnings per share uses number of shares issuable in event
of conversion of convertible debt
Analysts view interest as a period costnot capitalizable
Changes in a company borrowing rate, not explained by market
trends, reveal changes in risk
Analyzing income tax expense
Permanent difference >< Temporary differences
Temporary income tax differences (taxable income F/S income)

differences that are temporary in nature
expected to reverse in the future
mainly in the nature of timing differences between tax and
accounting standard (IFRS)
accounted for using deferred tax adjustments
Income Tax Accounting

Identify types and amounts of temporary differences and the
nature and amount of each type of operating loss and tax credit
carry forward
Measure total deferred tax liability for taxable temporary
differences
Compute total deferred tax asset for deductible temporary
differences and operating loss carry forwards
Analyzing income tax expense
Income Tax Accounting
Measure deferred tax assets for each type of tax credit carry
forward
Reduce deferred tax assets by a valuation allowance
Income Tax Analysis

Financial Statement Adjustments
Present Valuing Deferred Tax Assets and Liabilities
Forecasting Future Income and Cash Flows
Analyzing Permanent and Temporary Differences
Earnings Management and Earnings Quality
Aspek lain yang penting untuk dianalisis
Fixed cost, variable cost, & semi variable/fixed cost atas product
costs (Direct Material, Direct Labor, FOH) serta expense / period cost
(selling & administrative expenses)
Job Order Costing & Process Costing
Just In Time & Back flush Costing
Perlakuan atas produk yang hilang & rusak
Main Product & By Product
Cost of Goods Manufactured (COGM)
Cost of Goods Sold (COGS)
Alokasi service cost ke product cost (direct, step, & simultaneous
method)
Contribution margin (CM), gross profit, & net income
Margin of safety & iron (safety) stock
Economic Order Quantity (EOQ)
Break even point (BEP)
Varians (selisih antara anggaran dan realisasinya)
Relevant Cost / Differential Cost
Transfer price
Price
Referensi
Kieso, Donald E., Jerry J. Weygandt, and Terry D. Garfield, Intermediate
Accounting: IFRS edition, edisi 2, Wiley, 2014
Stice, James D., Earl K. Stice, and K. Fred Skousen, Intermediate

Accounting, edisi 16, International Student Edition, Thomson South
Western, 2007
Stice, James D. and Earl K. Stice, and K. Fred Skousen, Intermediate

Financial Accounting, edisi 18, 2012
Subramaniam, K R and John J. Wild, Financial Statement Analysis, edisi 10,

McGraw Hill Irwin, 2009

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ANALYZING

Terdapat pelaporan bagian (porsi) untuk non controlling

Income is a return over and above the investment.

It is the amount that an entity could return to its investors

Analysis must assess whether revenue reflects business reality

Circumstances fueling questions about revenue recognition include:

Revenues and gains are recognized when: (GAAP criteria)

Risk of ownership is effectively passed to the buyer

Revenue, and related expense, are measured or estimated with

Revenue recognized normally yields an increase in cash,

Revenue transactions are at arms length with independent parties

Those criteria generally are met at point of sale (full accrual)

Revenue is not recognized prior to the point of sale because either:

Exceptions to these rules:

The FASB is engaged in a revenue recognition project in

The FASB has tentatively decided to move away from the

5 steps process for revenue recognition:

Principle: Recognize revenue in the accounting period when the

A contract is an agreement that creates enforceable rights or

Revenue from a contract with a customer cannot be recognized until

A company does not recognize contract assets or liabilities until one

A company applies the revenue guidance to contracts with

When a contract modifications occurs, companies determine

Additional products are not a separate performance obligation if the new

A company accounts for a new contract modification as a new contract

NOTE: whether a modification is treated as a separate performance obligation or

Apply revenue guidance to contract if Disregard revenue

Revenue Recognition Classified by Nature of Transaction

Type of Sale of asset

Description Revenue from Revenue from Gain or loss on

Timing of Date of sale Services As time passes

LO 1 Apply the revenue recognition principle.

A performance obligation is a promise in a contract to provide a product

The company must provide a distinct product or service before recognize

To determine whether a company has to account for multiple

Transaction price is the amount of consideration that a company

The transaction price in a contract is often easily determined

In other contract, companies must consider the following factors:

This factor was considered if the price of goods or services is

Company uses either the expected value, which is a

Companies select among these two methods based on which

A company only allocates variable consideration if it is

EXPECTED VALUE MOST LIKELY AMOUNT

Companies therefore may only recognize variable consideration

If those criteria are not met, revenue recognition is constrained

Conditions such as one of the following would indicate that the

Time Value of Money (TVM) extended payment terms

Companies account for TVM if the contract (sales transaction)

The imputed interest rate is the more clearly determinable of

The company reports the effects of the financing either as

Companies generally recognize revenue on the basis of the fair

If company cannot determine this amount, then it should

Consideration paid or payable to customers

Considerations paid or payable to customers (discounts, volume

The transaction price allocated to the various performance

If this information is not available, companies should use their best

When a company sells a bundle of goods or services, the selling

Allocation approach Implementation

Expected cost plus a Forecast expected costs of satisfying a performance

Residual approach If the standalone selling price of a good or service is highly

Companies satisfy performance obligations either at a point in time or

Issue Description & implementation

Seller may recognize (a) an adjustment to revenue for the products

Repurchase Seller has an obligation or right to repurchase the asset at a later