¶ … Balance Sheet Items
Off-Balance Sheet Items
This paper examines off-balance sheet items and their treatment in financial systems analysis. Balance sheets consist of information about a company's assets, liabilities, and owner's equity. Off-balance sheet information is described as any activity a company can engage in but not report on its balance sheet. Frequently these activities relate to liabilities incurred by companies. In some cases companies that attempt to keep information off-balance sheet may do so illegally, intending to present a stronger financial position (Thomason, 2011).
Off-Balance Sheet Accounting
Off-balance sheet accounting is a form of accounting for assets, debts or other financing activities that are not included on a company's main balance sheet. A company's financial wealth is typically determined by the total assets minus total liabilities listed on the balance sheet; if this number is positive, then the company has created financial wealth (Vitez, 2010).
Generally accepted accounting principles (GAAP) give companies the option of maintaining separate legal entities for accounting and tax purposes. Companies use off balance sheet accounting rules to transfer risk from the parent company to its subsidiaries, thereby protecting its investors, lenders, or other business interests. Subsidiary companies are also used to create new financing for business operations, while at the same time keeping the liability off the parent company's financial statement (Vitez, 2010).
Off-Balance Sheet Financing
Though minimal levels of off-balance sheet activity were acceptable in the past, the growing number of transactions became more of a concern during the 2008 financial crisis. Banks and other financial institutions carried excessive amounts of off-balance sheet financing that hid the risks that these institutions incurred (Thomason, 2011).
Off-balance sheet financing is accomplished by any form of funding that avoids placing owners' equity, liabilities or assets on a firm's balance sheet. Generally speaking, off-balance sheet financing is accomplished by placing those items on some other entity's balance sheet. A standard approach to doing this is for a company to form a special purpose vehicle (SPV) and place assets and liabilities on its balance sheet. An SPV is also called a special purpose entity (SPE), and is a firm or legal entity established to perform some narrowly defined or temporary purpose. The sponsoring firm accomplishes that...
Apple and Philips Balance Sheet Analysis This text examines the balance sheets of both Apple and Philips in greater detail. Amongst other things, the paper will identify a number of differences between IFRS and U.S. GAAP as far as valuation approaches are concerned. Further, in addition to discussing a number of balance sheet items, the paper will also highlight the main differences between the balance sheets of the two companies. Valuation Differences:
Balance Sheet Activities Off-sheet balance activities are of particular interest to investors as well as the Financial Accounting Standards Board (FASB) because these accounts can be difficult to identify and track and, in some cases, can even represent hidden liabilities. The definition of an off-balance sheet item is simply one that is an asset or debt that does not appear directly on a company's financial statements (Investopedia, N.d.). One of
balance sheet would be recognized at historical cost? The balance sheet presents a list of the firms' long- and short-term assets and liabilities. The historical cost convention sees assets measured at their historical price; the price that was paid for them when they were purchased, rather than estimating the current value. Where historical cost is used, the assets are assessed based on their historical value, and then deprecated over their
Nike 10-K The author of this report has been asked to review and assess the recent 10-K filing that Nike put forth to their investors, the SEC and the public at large as part of their burden as a public company. The items and factors that will be assessed when it comes to the Nike and their 10-K will include the format of their balance sheet, whether the author of this
Financial Reports Balance Sheet Merck discloses on its balance sheet the following components of stockholders' equity: capital stock, retained earnings, additional paid-in capital, treasury stock and accrued gains/losses. Novartis reports retained earnings, additional paid-in capital and treasury stock only. Neither of these companies has any preferred shares outstanding. Both companies report treasury shares. Merck notes in its annual report that the Board "approved the purchase of up to $5.0 billion of Merck's common
Financial Analysis The balance sheet shows that most line items have a change that is greater that is 5%. This report will attempt to explain the wild fluctuations in the numbers from one year to the next. With respect to the current assets, the decline in the cash position can probably be explained by the increase in the inventories and the accounts receivable. They are having problems collecting from their customers, apparently,
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