ASSIGNMENT 2, STEP 3 – RESTATING THE FINANCIAL STATEMENTS

I actually finished these last weekend, but due to also having a major economics assignment due today, I haven’t had a chance to post them on my blog until now!

Compared to the mental strain of cutting 5000 words down to 1500 (economics) and writing up the KCQs for this subject, I actually found the task of restating my financial statements to be a welcome relief for my brain. The hardest part initially was determining whether items were operating or financial, and my tendency to overthink things was not to my advantage in completing this task!

The main one I had trouble getting my head around was the “Defined Pension Benefit Scheme”. From what I could understand, superannuation must be different in the UK to what it is here in Australia, and employers must have to manage their employees own super. Martin helped me to see that it was operating, because paying super is essentially a legal obligation of having employees (like wages), however because they are then investing that money, I wasn’t sure whether to make some of it financial as well. RM PLC’s annual report didn’t help me work this out at all, as the footnotes had almost a full set of extra financial statements just for the pension scheme!

So, when Martin told me on facebook to keep things simple, that was definitely the best thing he could have said to me!

When I got to the deferred tax assets, I wasn’t sure what this was, however I had a read of this explanation on Investopedia: https://www.investopedia.com/terms/d/deferredtaxasset.asp
If I’ve understood correctly, it’s quite similar to an overpayment to the ATO, which would then be used to either reduce the current year’s tax payable, or be refunded.

Maria said in her video to always make tax assets “operating”… but I found myself thinking that this would not always be the case, as some of the tax payable could be for financial income as well… “Remember to keep it simple… remember to keep it simple” became my mental mantra as I finished off the rest of this task!

When it came to the actual restating itself and rearranging of items, I quite enjoyed this part. After days of monopolies and oligopolies swimming around in my head, it was nice to just play with the spreadsheet, and not worry about the “right answer” – I knew that as long as it all balanced in the end, I had done okay.

I was also excited to finally learn how to link a spreadsheet to a cell in another spreadsheet – I knew this was something you could do, but had never been able to figure out how! In my work training session yesterday, we were discussing spreadsheets and I excitedly told everyone that I had learnt how to do this and proceeded to explain how – they all kind of looked at me though, like “Um, duh! We already knew that!” Oh well, it’s still something new to me! 😊

Maria’s videos were really helpful, and I found that by watching her videos, then pausing it and doing mine a little bit at a time, it was quite straightforward. Prior to completing my own spreadsheets, I also took a look at two other student’s spreadsheets when they had had trouble with getting theirs’ to balance. I found that helping them also really helped me when it was time to complete my own work. By seeing mistakes that others had made, I was more careful to not make the same mistakes myself. I also was aware (from seeing it on someone else’s) that because my liabilities and expenses had brackets around them, I would need to change my formulas to have a plus sign instead of minus.

Regarding my company itself, it was interesting to be able to see the difference between their operating and financial activities. I could see that the majority of RM PLC’s income came from operating activities – their income statement only showed a relatively small amount of finance costs and investment income, with no financial comprehensive income.

It was also interesting to see how the operating and financial activities influenced eachother, especially looking at the balance sheet. In 2016, there was £38.3m of cash in the financial assets section; however by 2017 this had dropped to nil. I then also noticed that borrowings increased from nil in 2016 to £13.1m in 2017.

However, a look at the 2016 and 2017 operating assets showed an increase of approximately £60m. The main areas that increased were inventory (approx. £4m), other intangible assets (approx. £19m) and goodwill (approx. £30m). I’m still not sure what other intangible assets means, but I did learn recently that goodwill can only increase through the acquisition of another company. I also read in the annual report about RM PLC’s recent acquisition of Consortium.

Separating the operating and financial activities then made it a lot more clear as to how the acquisition was paid for, that is, from their cash on hand as well as borrowings.

It’s remarkable how much more insight you can get about a firm just by rearranging a few cells in a spreadsheet!

3 thoughts on “ASSIGNMENT 2, STEP 3 – RESTATING THE FINANCIAL STATEMENTS

  1. Nice work. Pension funds very different in the UK, especially with company schemes. The company puts money away in a fund that the employees access later. Or in the case of unscrupulous employers, ravage and leave nothing for the workers. I had to cash out my Guinness company pension into an Australian Super 15 years ago. Now they’ve changed the rules and you can’t move a UK pension to Australia unless there are very specific circumstances. So my Carlsberg Company Pension is now sitting in a static fund (not making, not losing money) for the next 20 years until it can be accessed. The point of this is that if a line in the sheets involved people it’s most likely operations. Enjoyed reading your insights, thank you

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  2. I know you pain with Economics, I studied it last year and I’m glad I’m done with it!! You are not alone only knowing how to copy cells after this assignment, it is something I learnt too! Love reading your blog as I can relate to a lot of it.

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