586

1)The value of stock at the end of the year has been deducted to arrive at this figure;

2)Bank interest on the overdraft;

3)Dividends from investments in shares with voting rights in other companies;

4)Net invoiced amounts for sales;

5)This year’s profits which will not be paid out to investors;

6)The delivery drivers’ wages;

7)Money received for rent on buildings which have been let for a short time as they are not being used;

8)This money will probably be paid out to shareholders;

9)Telephone, stationery and legal fees;

10)An overprovision for corporation tax from last year.

15. Match the words in the box with the correct definitions and give Russian equiva-

lents.

1)A statement showing the financial position of a business at a certain date, usu. the end of the financial year — _____________________________

2)Stocks held by a business for sale to its customers — __________________________

3)The capital value of an intangible asset, that is the right to receive the extra profits which an established business may be expected to earn, over and above the normal earnings for a similar business — ____________________________

4)A sum of money due to be received from a customer in the ordinary course of trade but not yet paid — ______________________________

5)A taxpayer’s total income that remains after paying direct taxes and social security contributions

— ______________________________

6)A contract by which the owner of land borrows money, giving the lender an interest in the land as security for the loan — ____________________________

7)Any securities that can be bought or sold on a stock exchange, esp. those that can easily and quickly be sold — ___________________________

8)An invoice that has yet to be paid, and therefore represents money owed by the business to somebody else — ___________________________

9)The gradual loss of value of fixed assets such as buildings, plant and machinery because they wear out or decay or are replaced by more modern and efficient things —

___________________________

10)A formal acknowledgement that money due has been paid or that goods have been received —

_____________________________

16.Make a free translation of the following text into English and make a presentation on the purpose of the Profit and Loss Account. Give your explanation of the equation:

Profit (loss) for the period = Total revenue for the period less

Total expenses incurred in generating the revenue

Отчет о прибылях и убытках

Компания существует, прежде всего, для того, чтобы приносить прибыль, поэтому многих пользователей финансовой отчетности интересует в первую очередь именно прибыль, генерированная компанией в течение того или иного периода. Конечно, больше всего величина этой прибыли интересует ее владельцев, но и других пользователей информации, например управляющих, служащих

и поставщиков, интересует, способна ли компания приносить прибыль. Цель составления отчета о прибылях и убытках — оценить, сколько прибыли (материальных ценностей) компания получила за период, и информировать об этом пользователей финансовой отчетности.

Оценка прибыли требует выявления всех доходов компании, полученных ею за тот или иной период. Доход компании — это показатель роста активов в результате осуществленных торговых операций (например, денежных средств или сумм, причитающихся компании от дебиторов) или уменьшения обязательств. У разных компаний разные формы доходов. Например, производственные компании обычно получают выручку от продажи товаров, юридические фирмы — плату за услуги, компании, инвестиционные фонды — проценты.

Необходимо определить и общие расходы за каждый отчетный период. Расходы — это уменьшение активов (или рост обязательств). Виды расходов компании также зависят от ее профиля. Обычно компании несут следующие расходы:

затраты на покупку продукции для последующей перепродажи, которые называют себестоимостью реализованной продукции (cost of sales);

заработная плата и оклады;

арендные платежи;

расходы на содержание и эксплуатацию автотранспорта;

страховые расходы;

типографские и канцелярские расходы;

расходы на отопление и освещение;

почтовые расходы, расходы на телефон и т.д.

Отчет о прибылях и убытках за данный период показывает все доходы, генерированные за этот период, уменьшенные на все понесенные при этом расходы. Разница между всеми доходами и всеми расходами представляет собой либо прибыль (если доходы превысили расходы), либо убытки (если доходы оказались ниже расходов).

SUPPLEMENTARY READING PRACTICE

1. Scan the text and:

(a)answer the following question:

What type of depreciation are the following items subject to: computers, combines, farm buildings?

(b)give the title to each paragraph;

Depreciation of Assets

In accounting, the process of allocating in а systematic and rational manner the cost of certain items of the assets (these are mainly capital assets) over the period of its useful life is known as depreciation. There are three main types of depreciation causing the decrease in value of an asset: 1) physical depreciation, 2) moral depreciation, 3) deterioration.

In the process of production the capital assets gradually wear out, thus after а definite period of time they have to be replaced. This is known as their physical depreciation.

However, capital assets are also subject to moral depreciation, that is after serving for some period of time, they may become obsolete before they are physically worn out and have to be replaced by more up-to-date means of production. Such obsolescence of the assets is caused by technological changes and by the introduction of new and better machinery and methods of production. Obsolescence can also be caused by the commodity produced by the asset, for example, if it goes out of fashion. In the latter case, the degree of obsolescence will depend on the specific nature of the asset. Sometimes assets can be easily adapted to alternative uses while others may have only one application.

Deterioration means а change in value of an asset because of the effects of nature, for example, for machinery this might be rust, for buildings it is connected with decadence, for farmlands it is caused by erosion.

In accounting, it is important to know depreciation of the capital assets as it increases the company’s expenses, so two main methods are used by accountants in calculating periodic depreciation. The most widely used is the straight-line method, in which the rate of depreciation is constant for the entire working life of the capital assets. According to the second method known as accelerated depreciation method, the depreciation rate in the first years of asset use is greater than in the later years.

Words you may need:

deterioration (n) — порча, повреждение, износ

obsolete (adj) — устаревший

obsolescence (n) — изношенность

rust (n) — ржавчина

decadence (n) — ухудшение

(c)finish the following sentences using the information from the text.

1)Most capital assets have а limited life due to…

2)Depreciation results from such causes as…

3)In the case of machinery one should take into account …

4)Obsolescence can be caused either …

5)The effects of nature decrease the value of capital assets because …

6)The choice of depreciation method is particularly important …

7)In practice we often use the following methods of calculating depreciation …

(d)match the nouns with the verbs below to make word combinations. Use some of them to complete the sentences.

costs / fixed assets / market value / profits / value / purchase price

1)Because we ____________ the ___________ ___________, we don’t have worry about the market value of fixed assets.

2)To depreciate __________ __________, we ___________ part of their _________ from profits each year.

3)Because land usually appreciates, companies do not generally __________ its ____________ on the balance sheet.

(e)there are several methods that accountants use to write fixed assets off. Read the following definitions and match them with the methods of depreciation.

hours of use unit of production straight line

declining balance sum-of-the-year’-digits

1)___________________: The asset is depreciated by a constant amount every year. The depreciation expense for each year is calculated by subtracting the salvage value from the acquisition cost, and then dividing the difference by the useful life of the asset.

2)__________________: The depreciation expense is calculated by first subtracting the salvage value from the acquisition cost. The difference is multiplied by a fractional amount, where the denominator and numerator are based on the addition of the figures in the asset's useful life.

3)__________________: The depreciation is «accelerated» by this method, so that the expense is greater in the first years. The salvage value is ignored in the calculation, but the asset will not be depreciated below this value.

4)__________________: The expected usage of the asset is taken into account in determining the rate of depreciation.

5)__________________: The expected output of the asset is taken into account in determining the rate of depreciation.

What are depreciation methods that are commonly used by Russian companies?

(f) study the scheme and give your comments.

C ost (fair value)

less

R esidual value

equals

D ep reciable am ount

A sset life (N um ber of years)

2. Read the text and give the title of it. Single out the main facts and present them in a short review. Give your viewpoint.

From an international perspective, it is important to remember that while based on similar principles, Russian accounting does not fully meet international accounting standards (IAS). The main differences are as follows:

•Sales. Sales are usually recorded on a cash basis. The cost of goods/services delivered but not yet paid for remains on the balance sheet until payment is received. Most Russian taxes are sales-based. As a result, companies try to minimize sales in their accounts. When sales are recorded on a cash basis, allowances are not made for bad debt, in spite of the fact that bad debts may represent a considerable share of accounts receivable. Sales figures for Russian companies tend to be understated compared with the accrual sales of Western companies.

•Cost of goods sold. Russian companies report the full cost of goods sold, which includes production costs, transportation, depreciation, marketing, and financial expenses. No cost items are disclosed separately. Social costs are not included in the cost of goods sold.

•Depreciation. Only a straight-line depreciation method is allowed. The depreciation rates are fixed by the government and are as a rule significantly lower than in the West. Accelerated straight-line depreciation has been permitted since January 1, 1995 but is still rarely used.

•Fixed assets. Fixed assets pose the most serious problem. Fixed assets are accounted for at historical cost and cover property, plant and equipment. Land is not treated as a fixed asset and does not appear on the balance sheet at all. Even if depreciation rates are lower than in the West, fixed assets are generally undervalued compared with Western practice.

•Accounts receivable. Since most Russian companies record sales when they receive payment, the sales margin is not accrued until that time. Therefore accounts receivable are understated given that the sales margin is not reflected. Overdue accounts receivable are not disclosed separately.

•Consolidation of accounts. Russian companies, including holding companies, are not required to submit consolidated reports. No consolidation standards have been established yet. Some of the holding companies prepare aggregated reports, summing up 100 % of all subsidiaries and associates without accounting for intragroup transactions and minorities.

•Consequently, the reported results of Russian holding companies are usually significantly overstated.

All other aspects of Russian accounting are basically in line with IAS. The Russian government is taking measures to eliminate the most serious divergences.

Words you may need: bad debts — безнадежные долги

accounts receivable — дебиторская задолженность

straight-line depreciation method — метод равномерного начисления износа accelerated straight-line depreciation method — метод ускоренного начисления sales margin — доход от продаж

overdue (adj) — просроченный

consolidation of accounts — консолидация счетов

IAS — International Accounting Standards divergence (n) — отклонение

3. Study the standard layout of the cash flow statement. Read the explanation of the terms and give key ideas.

C ash flow s from operating activities

plus or m inus

C ash flow s from investing activities

plus or m inus

C ash flow s from financing activities

equals

N et increase (or decrease) in cash and cash equivalents over the period

Cash flows from operating activities

This is the net inflow or outflow from trading operations, after tax and financing costs. It is equal to the sum of cash receipts from trade receivables, and cash receipts from cash sales where relevant, less the sums paid to buy inventories, to pay rent, to pay wages and so on. From this are also deducted payments for interest on the business's borrowings, corporation tax and dividends paid.

The tax and dividend payments that appear in the cash flow statement are those made in the period of the statement. Companies normally pay tax on their profits in four equal installments. Two of these are during the year concerned, and the other two are during the following year. Thus by the end of each accounting year, one half of the tax will have been paid and the remainder will be a current liability at the end of the year, to be paid off during the following year. During any particular year, therefore, the tax payment would normally equal 50 per cent of the previous year's tax charge and 50 per cent of that of the current year.

The net figure for this section is intended to indicate the net cash flows for the period that arose from normal day-to-day trading activities after taking account of the tax that has to be paid on them and the cost of servicing the finance (equity and loans) needed to support them.

Cash flows from investing activities

This section of the statement is concerned with cash payments made to acquire additional non-current assets and with cash receipts from the disposal of non-current assets. These non-current assets will tend to be the usual non-current assets such as buildings, machinery and so on. They might also be loans made by the business or shares in another business bought by the business.

This section also includes receipts from investments (loans and equity investments) made outside the business. These receipts are interest on loans made by the business and dividends from shares in other businesses that are owned by the business.

This section shows the net cash flows from making new investments and/or disposing of existing ones.

Cash flows from financing activities

This part of the statement is concerned with the long-term financing of the business. So we are considering borrowings (other than very short term) and finance from share issues. This category is concerned with repayment/redemption of finance as well as with the raising of it.

This section shows the net cash flows from raising and/or paying back long-term finance.

Net increase or decrease in cash and cash equivalents

The total of the statement must, of course, be the net increase or decrease in cash and cash equivalents over the period covered by the statement.

The effect on a business's cash and cash equivalents of its various activities is shown below. The arrows in the figure show the normal direction of cash flow for the typical healthy, profitable business in a typical year.

Financing

activities

Normally 'operating activities' provide positive cash flows: that is, they help to increase the business's cash resources. Cash generated from day-to-day trading, even after deducting tax, interest and dividends, is overwhelmingly the most important source of new finance for most businesses in most time periods.

Investing activities typically cause net negative cash flows. This is because most types of noncurrent assets wear out, and because businesses tend to seek to expand their asset base. When a business sells some non-current assets, this will give rise to positive cash flows, but in net terms the cash flows are normally negative with cash spent on new assets outweighing that received from disposal of old ones.

Financing can go in either direction, depending on the financing strategy at the time. Since businesses seek to expand, there is a general tendency for this area to lead to cash coming into the business rather than leaving it.

(a)Study the cash flow statement below and interpret it. Think of possible future management actions.

The published, summarised cash flow statement for the British transportation company Forth Ports PLC for the year 2006 shows the cash flows of the business under each of the headings described above.

Summarised cash flow statement for the year ended 31 December 2006

(b) Complete the text with words: financing / investing / operations. You will need to use each word more than once.

1) ______________ means making money by selling goods and services. (2)_____________ is spending cash, for the business's future growth, including cash acquired by selling assets. (3)

_____________ involves raising money by issuing stocks and bonds (and also paying dividends and interest and repaying bonds). It is better for the company if it can pay for future growth out of money from (4) ______________, without having to use (5) ______________ So a 'healthy' cash flow means that the amount of cash provided by (6) _____________ is greater than the cash used for (7)

_______________.

4.Read the text and:

(a)define advantages and disadvantages of the methods used for recognizing bad

debts;

(b)describe each method for recognizing bad debts;

Recognizing Bad Debts

Goods and services may be sold by a business organization for cash or on credit. Most organizations, if given a choice, would probably prefer to sell their products or services for cash. Because of competition and other factors, however, many businesses have to offer their products or services to customers on credit.

When sales are made without the immediate receipt of cash, a small portion of the outstanding accounts receivable may prove to be uncollectible regardless of a credit department's efforts or the credit service used. When this happens, provision must be made to match expenses and revenue by recognizing a bad debt. A bad debt is an expense that was caused by a customer's failure to pay an obligation arising out of a prior credit sale. The recognition of this uncollectible account receivable is handled in different ways depending on the nature of the business.

Three methods are used to recognize customer obligations that have proved to be uncollectible:

1.Direct write-off method;

2.Net sales method;

3.Aging of accounts receivable method.

The direct write-off method is used by businesses when it is possible to determine that an account will prove to be uncollectible within the same accounting period as the original sale took place. When a business sells most of its products or services for cash, the direct write-off method may be appropriate, since the amount of credit sales will be very low. Since the credit period offered by the seller is

probably rather short, any uncollectible accounts can be ascertained quickly, probably within the same accounting period.

Although the direct write-off method is an accurate means of writing off uncollectibles, it is less desirable than other methods because of its failure to match expenses and revenue within the same accounting period. Also, it does not accrue or show the net realizable value of accounts receivable.

For the direct write-off method to be effective, the volume of credit sales should be small and the write-off should take place during the same accounting period as the original sale. Since these requirements cannot be met by most businesses, the net sales method is more appropriate for them. We have stated that a bad debts expense results from credit sales to customers who later fail to pay their obligations. Since the accountant's primary concern is to match costs and revenue within an accounting period, an adjusting entry is made to recognize the anticipated uncollectible accounts. At the end of the accounting period, the net sales method is used to estimate the amount of net sales that will become uncollectible in subsequent accounting periods. This estimate is usually expressed as a percentage of net sales.

The net sales method is simple to use and provides a good means for charging bad debts expense to the period in which the related sales were made.

Although the net sales method is certainly superior to the direct write-off method, it too has some limitations. If there is a credit balance in the allowance for bad debts each year before the adjusting entry is made, the balance in the account will continuously increase. No provision is usually made for this situation with the result that the bad debts expense recognized each year will tend to be overstated. To remedy this situation, another method can be used that provides a greater degree of control over the recognition of the bad debts expense, as well as providing for the proper amount to appear in the allowance for bad debts at the beginning of a new accounting period. The aging of accounts receivable method provides for a more realistic presentation of the bad debts expense and the allowance for bad debts account.

This method involves analyzing the accounts found in the accounts receivable ledger. Customer accounts are recorded in an analysis chart according to the due date of the receivables. Past-due accounts are listed according to the number of days they are past due, such as 1–30 days, 31–60 days, and 61– 90 days. A percentage based on past experience is then applied to the balance not due as well as the balances past due. As the number of days past due increases, so does the percentage of uncollectibles. The amount of the estimated uncollectibles is then determined and used as a basis for the adjusting entry. The adjusting entry is the same as that for the net sales method, except that the balance in the allowance for bad debts account is considered in arriving at the adjusting entry. The recovery entry is identical for the net sales and aging of accounts methods.

(c)discuss the following question.

What methods are commonly used by large companies in Russia? Give an example.

5.Make a free translation of the text below. Interpret the main ideas!

Концепция развития бухгалтерского учета и отчетности

в Российской Федерации на среднесрочную перспективу

Опубликовано 20 июля 2004 г.

Вконце 1990-х – начале 2000-х гг. в области бухгалтерского учета и отчетности

вРоссийской Федерации произошли значительные изменения, во многом предопределенные Программой реформирования бухгалтерского учета в соответствии с Международными стандартами финансовой отчетности, утвержденной постановлением Правительства Российской Федерации.

Изменения в системе бухгалтерского учета и отчетности были направлены на обеспечение формирования информации о финансовом положении и финансовых результатах деятельности хозяйствующих субъектов, полезной заинтересованным

пользователям. В качестве основного инструмента реформирования бухгалтерского учета и отчетности были приняты Международные стандарты финансовой отчетности (МСФО).

Хозяйствующие субъекты используют в бухгалтерском учете и отчетности способы оценки активов и обязательств, ориентированные на условия рыночной экономики. Крупнейшие хозяйствующие субъекты (нефтяной, газовой, электроэнергетической, металлургической, автомобилестроительной, химической промышленности, банковского сектора) подготавливают консолидированную финансовую отчетность по МСФО или иным международно признаваемым стандартам. Получил развитие рынок аудиторских услуг. Возрос престиж бухгалтерской профессии, возникла аудиторская профессия. Появился ряд профессиональных общественных объединений, отдельные из которых стали членами Международной федераций бухгалтеров.

Современный бухгалтерский учет представляет собой информационную базу, на основе которой хозяйствующие субъекты подготавливают бухгалтерскую отчетность и консолидированную финансовую отчетность. Кроме того, информация, формируемая в бухгалтерском учете, используется для составления управленческой, налоговой, статистической отчетности, отчетности перед надзорными органами. При необходимости на основе данной информации должны составляться также другие виды отчетности.

ASSIGNMENT

1.How will each of the following events ultimately affect the amount of cash?

(a)An increase in the level of inventories.

(b)A bonus issue of ordinary shares.

(c)Writing off part of the value of some inventories.

(d)The disposal of a large number of the business’s shares by a major shareholder.

(e)Depreciating a non-current asset.

2.The following is a list of business / accounting events. In each case, state the effect (increase, decrease or no effect) on both cash and profit.

1.Repayment of a loan

2.Making a sale on credit

3.Buying a non-current asset for cash

4.Receiving cash from a debtor

5.Depreciating a non-current asset

6.Buying some inventories for cash

7.Making a share issue for cash

The following information will help you to define the effect:

1)Repaying the loan requires that cash be paid to the lender. Thus two figures in the balance sheet will be affected, but not the income statement.