AFM363 Lecture Notes - Lecture 9: Capital Loss

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OC2146671

3 Jun 2020

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM363

Professor

Dan Rogozynski

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Document Summary

Recovery of capital outlays, usually use declining balance method, must reconcile with book depreciation on schedule 1, creates temporary difference and deferred taxes. Pooling of assets: ucc of the class reflects all assets. Individual assets usually do not have an identifiable ucc: dispositions. Individual assets have an identifiable cost compared to proceeds. Lower of cost and proceeds: losses are reflected in the future cca or a terminal loss, capital loss on depreciable property. Half-year rule: assets acquired net of disposals in the year, 50% of net additions to the class in the year are subject to the rule, reduces the pool balances for purposes of the cca calculation in the year. Suspended until 2023 and replaced with 150% rule: cca allowed at 150% of normal rate for net additions in year. In short years, normal cca is prorated for number of days in the year/365. Disposal of assets: can have a capital gain but no capital loss.

Related Questions

NIKE:

Need the following ratios to be calculated using the financial sheets copied at the bottom. Each ratio needs to be calculated using the information from 2016. Each ratio also needs to be broken down and illustrated by the step by step process. Finally, please include any and all observations for each ratio and analysis.

1) Common Size analysis

2) Common size vertical analysis & graph

3) Current Ratio

4) Quick Ratio

5) Cash Ratio

6) Inventory Turnover

7) Receivables Turnover

8) Total Asset Turnover

9) Fixed Asset Turnover

10) Gross profit margin

11) Operating Profit margin

12) Net profit margin

13) Return on total assets

14) return on equity

15) basic earning power

16) Deb/net worth ratio

17) debt ratio

18) DuPont System

19) Times-interest-earned

Balance Sheet:

Consolidated Balance Sheets - USD ($) $ in Millions	May 31, 2017	May 31, 2016
Current assets:
Cash and equivalents	$ 3,808	$ 3,138
Short-term investments	2,371	2,319
Accounts receivable, net	3,677	3,241
Inventories	5,055	4,838
Prepaid expenses and other current assets	1,150	1,489
Total current assets	16,061	15,025
Property, plant and equipment, net	3,989	3,520
Identifiable intangible assets, net	283	281
Goodwill	139	131
Deferred income taxes and other assets	2,787	2,422
TOTAL ASSETS	23,259	21,379
Current liabilities:
Current portion of long-term debt	6	44
Notes payable	325	1
Accounts payable	2,048	2,191
Accrued liabilities	3,011	3,037
Income taxes payable	84	85
Total current liabilities	5,474	5,358
Long-term debt	3,471	1,993
Deferred income taxes and other liabilities	1,907	1,770
Commitments and contingencies
Redeemable preferred stock	0	0
Shareholdersâ equity:
Capital in excess of stated value	8,638	7,786
Accumulated other comprehensive (loss) income	(213)	318
Retained earnings	3,979	4,151
Total shareholdersâ equity	12,407	12,258
TOTAL LIABILITIES AND SHAREHOLDERSâ EQUITY	23,259	21,379
Class A Convertible Common Stock
Shareholdersâ equity:
Common stock at stated value	0	0
Class B Common Stock
Shareholdersâ equity:
Common stock at stated value	$ 3	$ 3

Income Statement:

Consolidated Statements of Income - USD ($) $ in Millions	12 Months Ended
Consolidated Statements of Income - USD ($) $ in Millions	May 31, 2017	May 31, 2016	May 31, 2015
Income Statement [Abstract]
Revenues	$ 34,350	$ 32,376	$ 30,601
Cost of sales	19,038	17,405	16,534
Gross profit	15,312	14,971	14,067
Demand creation expense	3,341	3,278	3,213
Operating overhead expense	7,222	7,191	6,679
Total selling and administrative expense	10,563	10,469	9,892
Interest expense (income), net	59	19	28
Other (income) expense, net	(196)	(140)	(58)
Income before income taxes	4,886	4,623	4,205
Income tax expense	646	863	932
NET INCOME	$ 4,240	$ 3,760	$ 3,273
Earnings per common share:
Basic (in dollars per share)	$ 2.56	$ 2.21	$ 1.90
Diluted (in dollars per share)	2.51	2.16	1.85
Dividends declared per common share (in dollars per share)	$ 0.70	$ 0.62	$ 0.54

Cash Flow Sheet

Consolidated Statements of Cash Flows - USD ($) $ in Millions	12 Months Ended
	May 31, 2017	May 31, 2016	May 31, 2015
Cash provided by operations:
Net income	$ 4,240	$ 3,760	$ 3,273
Income charges (credits) not affecting cash:
Depreciation	706	649	606
Deferred income taxes	(273)	(80)	(113)
Stock-based compensation	215	236	191
Amortization and other	10	13	43
Net foreign currency adjustments	(117)	98	424
Changes in certain working capital components and other assets and liabilities:
(Increase) decrease in accounts receivable	(426)	60	(216)
(Increase) in inventories	(231)	(590)	(621)
(Increase) in prepaid expenses and other current assets	(120)	(161)	(144)
(Decrease) increase in accounts payable, accrued liabilities and income taxes payable	(364)	(889)	1,237
Cash provided by operations	3,640	3,096	4,680
Cash used by investing activities:
Purchases of short-term investments	(5,928)	(5,367)	(4,936)
Maturities of short-term investments	3,623	2,924	3,655
Sales of short-term investments	2,423	2,386	2,216
Investments in reverse repurchase agreements	0	150	(150)
Additions to property, plant and equipment	(1,105)	(1,143)	(963)
Disposals of property, plant and equipment	13	10	3
Other investing activities	(34)	6	0
Cash used by investing activities	(1,008)	(1,034)	(175)
Cash used by financing activities:
Net proceeds from long-term debt issuance	1,482	981	0
Long-term debt payments, including current portion	(44)	(106)	(7)
Increase (decrease) in notes payable	327	(67)	(63)
Payments on capital lease and other financing obligations	(17)	(7)	(19)
Proceeds from exercise of stock options and other stock issuances	489	507	514
Excess tax benefits from share-based payment arrangements	177	281	218
Repurchase of common stock	(3,223)	(3,238)	(2,534)
Dividends â common and preferred	(1,133)	(1,022)	(899)
Cash used by financing activities	(1,942)	(2,671)	(2,790)
Effect of exchange rate changes on cash and equivalents	(20)	(105)	(83)
Net increase (decrease) in cash and equivalents	670	(714)	1,632
Cash and equivalents, beginning of year	3,138	3,852	2,220
CASH AND EQUIVALENTS, END OF YEAR	3,808	3,138	3,852
Cash paid during the year for:
Interest, net of capitalized interest	98	70	53
Income taxes	703	748	1,262
Non-cash additions to property, plant and equipment	266	252	206
Dividends declared and not paid	$ 300	$ 271	$ 240

AFM363 Lecture Notes - Lecture 9: Capital Loss

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