EXERCISE 1

Analysis of the Accounting Impacts of Transactions on the

Balance Sheet and Income Statement of Industrie SA

1. Purchase of Goods on Credit (January 1st)

 Balance Sheet:
o 📈 Inventory (+$10,500,000)
o 📈 Accounts Payable (+$10,500,000)
 Income Statement: No immediate impact.

2. Sale of Goods for Cash (January 10th)

 Balance Sheet:
o 📈 Cash & Cash Equivalents (+$15,000,000)
o 📉 Inventory (-$7,000,000)
o 📈 Equity (Net Income) (+$8,000,000)
 Income Statement:
o 📈 Revenue (+$15,000,000)
o 📉 Cost of Goods Sold (COGS) (-$7,000,000)
o 📈 Gross Profit (+$8,000,000)

3. Purchase of ABC Inc Shares for Cash (January 25th)

 Balance Sheet:
o 📉 Cash & Cash Equivalents (-$500,000 × 1,000 = -$500,000,000)
o 📈 Financial Investments (Short/Long-term Securities) (+$500,000,000)
 Income Statement: No immediate impact.

4. Payment of Half of the Supplier Debt (February 15th)

 Balance Sheet:
o 📉 Cash & Cash Equivalents (-$5,250,000)
o 📉 Accounts Payable (-$5,250,000)
 Income Statement: No impact.

5. Sale of Goods on Credit (March 30th)

 Balance Sheet:
 o 📈 Cash & Cash Equivalents (+$3,500,000)
o 📈 Accounts Receivable (Mr. Robert) (+$4,000,000)
o 📉 Inventory (-$2,500,000)
o 📈 Equity (Net Income) (+$5,000,000)
 Income Statement:
o 📈 Revenue (+$7,500,000)
o 📉 Cost of Goods Sold (COGS) (-$2,500,000)
o 📈 Gross Profit (+$5,000,000)

6. Bond Issuance (June 30th)

 Balance Sheet:
o 📈 Cash & Cash Equivalents (+$50,000,000)
o 📈 Bond Payable (Long-Term Debt) (+$50,000,000)
 Income Statement: No immediate impact. Interest expenses (2.5%) will start affecting the
following fiscal year.

7. Purchase of an Industrial Machine (June 30th)

 Balance Sheet:
o 📉 Cash & Cash Equivalents (-$40,000,000)
o 📈 Fixed Assets (Machinery) (+$40,000,000)
 Income Statement:
o 📉 Depreciation Expense (-$2,000,000 per year, calculated as $40,000,000 ÷ 20 years)

8. Provision for Doubtful Accounts (December 31st)

 Balance Sheet:
o 📉 Accounts Receivable (Mr. Robert) (-50% × $4,000,000 × 80% = -$1,600,000)
o 📈 Provision for Doubtful Accounts (+$1,600,000)
 Income Statement:
o 📉 Bad Debt Expense (-$1,600,000)

Summary of Overall Impacts

 Balance Sheet:
o 📈 Increase in inventory and receivables
o 📉 Decrease in cash (due to purchases, debt repayment)
o 📈 Increase in fixed assets and long-term debt
o 📉 Increase in provisions for doubtful accounts

 Income Statement:
o 📈 Increase in revenue (+$22,500,000)
o 📉 Cost of goods sold (-$9,500,000)
o 📉 Depreciation expense (-$2,000,000)
 o 📉 Provision for doubtful accounts (-$1,600,000)
o 📈 Net income remains positive but is affected by financial charges.

Let me know if you need further details on any transaction! 😊

1️⃣ BALANCE SHEET OF INDUSTRIE SA (AS OF

DECEMBER 31, 2023)
ASSETS Amount ($) LIABILITIES & EQUITY Amount ($)
Current Assets Current Liabilities
Cash & Cash Equivalents 17,250,000 Accounts Payable 5,250,000
Accounts Receivable 2,400,000
Inventory 1,000,000 Non-Current Liabilities
Total Current Assets 20,650,000 Bond Payable (5 years) 50,000,000
Non-Current Assets Total Liabilities 55,250,000
Fixed Assets (Machinery) 40,000,000 Equity
Financial Investments (ABC
500,000,000 Retained Earnings 9,400,000
Shares)
Total Non-Current Assets 540,000,000 Total Equity 9,400,000
TOTAL LIABILITIES &
TOTAL ASSETS 560,650,000 560,650,000
EQUITY

2️⃣ INCOME STATEMENT (FOR THE YEAR 2023)

INCOME STATEMENT ELEMENTS Amount ($)
Revenue
Sales Revenue 22,500,000
Total Revenue 22,500,000
Expenses
Cost of Goods Sold (COGS) (9,500,000)
Depreciation Expense (2,000,000)
Provision for Doubtful Accounts (1,600,000)
Total Expenses (13,100,000)
Net Income 9,400,000

🔍 Quick Analysis
 The company has a positive net income of $9.4 million, which indicates good
profitability.
  The purchase of ABC shares ($500 million) is a major investment, making up the
majority of assets.
 The long-term financing (bond payable of $50 million) could lead to future interest
expenses.
 A provision for doubtful accounts was recorded to anticipate a potential loss from
customer Mr. Robert.

EXERCISE 2

Here is the table showing the effects of each transaction on Glouglou’s accounts:

Effect Amount (in

Transaction Affected Account
(+ / -) thousands of $)
a) Purchase of a trademark
Cash - 400
(intangible asset)
Intangible assets + 400
b) Sale of equipment at
Cash + 20
acquisition cost
Property, plant, and equipment - 20
c) Purchase of goods on
Inventory + 980
credit
Accounts payable and accrued
+ 980
liabilities
d) Issuance of shares for
Cash + 520
cash
Share capital + 520
e) Acquisition of fixed assets
(cash payment and Property, plant, and equipment + 1,000
mortgage assumption)
Cash - 200
Long-term debt + 800
f) Payment of dividends Cash - 300
Retained earnings - 300
No immediate impact (the order
g) Order of containers (not does not generate an accounting
- 0
yet delivered) obligation until the goods are
received)

👉 Important Note:

 Transaction (g) has no immediate impact on the accounts because the order of
containers has not yet been delivered. An accounting obligation arises only when the
goods are received.
 Only executed transactions impact the financial statements.
EXERCISE 3

Here is the analysis of the effects of each transaction on the balance sheet accounts and the
income statement:

Date Description Assets Liabilities Equity Revenues Expenses

Purchase of office +1,500
April +1,500
supplies on credit (Accounts - - -
2 (Supplies)
(1,500$) Payable)
+13,950
April Invoice to Bélair +13,950
(Accounts - +13,950 -
5 (13,950$) (Revenue)
Receivable)
-1,250
April Payment to
-1,250 (Cash) (Accounts - - -
7 supplier (1,250$)
Payable)
Purchase of
April +600
advertising (600$) -600 (Cash) - - -
8 (Advertising)
paid in cash
Purchase of
April +2,300
computer (2,300$) - - - -
9 (Equipment)
paid in cash
Payment of
employee salaries -1,200
April -7,000 +7,000
(8,200$) including -8,200 (Cash) (Salaries -
10 (Equity) (Salaries)
1,200$ from Payable)
previous period
Receipt of partial -10,000
April +10,000
payment from (Accounts - - -
11 (Cash)
Bélair (10,000$) Receivable)
Purchase of land
(100,000$), +80,000
April +100,000 -20,000
20,000$ down (Note - -
12 (Land) (Cash)
payment, 80,000$ Payable)
note payable
Issuance of 2,000 +80,000
April +80,000
shares at 40$ each - (Share - -
13 (Cash)
(80,000$) Capital)
Invoice to +12,000
April +12,000
Services Famille (Accounts - +12,000 -
14 (Revenue)
(12,000$) Receivable)
+1,245
April Receipt of phone +1,245 (Phone
- (Accounts - -
15 bill (1,245$) Expense)
Payable)

This table shows the impact of each transaction on the balance sheet accounts (assets,
liabilities, equity) and the income statement (revenues, expenses).
1. The financial statements according to IFRS standards include:
o The balance sheet (or statement of financial position)
o The income statement (or statement of profit or loss)
o The cash flow statement
o The statement of changes in equity
o The notes to the financial statements
2. Mechanisms for ensuring the reliability of financial statements include:
o External audit: An independent auditor verifies the compliance of the
financial statements with accounting standards.
o Internal controls: Processes and procedures within the organization to ensure
the accuracy of financial information.
o Audit committee: A committee responsible for overseeing the integrity of the
financial statements.
o Management control: Ensures that the information produced is reliable and
facilitates proper resource management.
3. Assets in a company's balance sheet represent the economic resources controlled by
the company, which are expected to generate future economic benefits. These are
classified into current and non-current assets.
4. The main sources of financing for a company are:
o Equity: Shareholder contributions, retained earnings, reserves.
o Debt: Short-term and long-term loans, trade payables.
o External financing: Bank loans, credits.
5. The sources of financing for the company are found in:
o The balance sheet, specifically in the "Equity" and "Liabilities" sections
(liabilities).
6. The main characteristics of fixed assets are:
o They are long-term and used for the company's operations.
o They have significant value and are either depreciable or non-depreciable.
o They are not held for resale.
7. The categories of fixed assets found in the financial statements include:
o Tangible fixed assets: Land, buildings, machinery, equipment.
o Intangible assets: Patents, licenses, goodwill.
o Financial assets: Investments in other companies, loans.
8. Depreciation of a fixed asset represents the allocation of its cost over its useful life to
reflect the reduction in value due to wear and tear or obsolescence.
9. The recognition of depreciation on a fixed asset does not result in a cash movement.
Depreciation is a non-cash accounting expense that reduces the net income but does
not involve an actual cash outflow.
10. Elements involved in determining the value of assets:
o For a fixed asset: The acquisition cost (purchase price, installation costs, etc.)
and accumulated depreciation.
o For a receivable: Its nominal value, any provisions for doubtful debts, and
payment terms.