Accounting for Bonds With Accrued Interest in Conformity With Brokers' Valuation Formulas

1999 ◽  
Vol 14 (2) ◽  
pp. 233-253 ◽  
Author(s):  
Mark Rusbarsky ◽  
David B. Vicknair
Keyword(s):  
Balance Sheet ◽  
Fair Value ◽  
Simple Approach ◽  
Present Value ◽  
Valuation Methods ◽  
Interest Payments ◽  
Actual Price ◽  
Spreadsheet Application

This article explains how to apply brokers' valuation methods to accounting for bonds when interest payments do not coincide with settlement or balance sheet dates. We show how to calculate a bond's present value on these dates using a simple approach that conforms with the method used by brokerage institutions to compute the bond's “actual price.” We then clarify how a broker subtracts accrued interest from this actual price to arrive at the quoted price, and how this quoted price relates to the bond's carrying amount and “fair value” (per SFAS Nos. 107, 115 and 124). We also precisely compute the change in a bond's carrying amount over fractional periods after settlement and around balance sheet dates. Finally, we demonstrate how to integrate these refinements into intermediate textbook illustrations. Throughout, we provide instructions for computing bond valuations using spreadsheet application functions.

Intangible assets in Germany

2014 ◽  
Vol 15 (2) ◽  
pp. 235-248 ◽  
Author(s):  
Hannes Frey ◽  
Andreas Oehler
Keyword(s):  
Intangible Assets ◽  
Balance Sheet ◽  
Fair Value ◽  
Company Performance ◽  
Stock Market Index ◽  
Value Drivers ◽  
Content Type ◽  
Valuation Methods ◽  
German Stock ◽  
High Level

Purpose – Intangible assets are regarded as the future value drivers of company performance. However, hardly anything is known about the actual importance and influence of intangible assets. The purpose of this paper is to fill this gap, so the authors analyse the German stock market index DAX and accomplish a survey among the German Certified Public Accountants (CPAs) concerning intangible assets. Design/methodology/approach – In a first step, the authors analyse the balance sheet data and the corresponding notes of the companies with regard to reported values of intangible assets and applied valuation methods. The sample period covers the years from 2005 to 2008. In a second step, the authors analyse the statements of the German CPAs with regard to intangible assets. The authors sent a standardised questionnaire to all 180 offices of the top ten German auditing firms. Findings – The results indicate that intangible assets have gained in importance, while information on valuation methods is still scarce. According to the German CPAs, the current influence of intangible assets on company performance is on a high level and even will increase during the next few years. The mostly used valuation approach for the fair value measurement of patented technologies is the income approach. Furthermore, the accounting standards leave room for accounting policy – a result which casts doubt on the reliability of financial statements. Originality/value – For the first time not only annual balance sheet data but also corresponding notes regarding intangible assets are analysed. The findings are connected with a survey of an expert group for the valuation of intangibles.

scholarly journals The Influence Of Long-Term Tangıble Asset’s Valuatıon On Fınancıal Indıcators: The Attıtude Of Shareholders And Credıtors

2016 ◽  
Vol 12 (4) ◽  
pp. 367
Author(s):  
Lina Paliuliene
Keyword(s):  
Fair Value ◽  
Total Asset ◽  
Financial Indicators ◽  
Historical Cost ◽  
Valuation Methods ◽  
Financial Condition ◽  
Valuation Method

In the article the long-term tangible asset’s valuation methods by the historical cost and the fair value are generalized, indicators that are analyzed by shareholders and creditors when assessing the company's financial condition are identified. For the research eight Lithuanian companies which apply different long-term tangible asset’s valuation methods were selected from two industries. The influence of long-term tangible asset’s valuation was explored by five relative indicators. It was determined that valuation method is associated with long-term tangible asset’s part in the total company's asset. When long-term tangible asset’s part in the total company’s asset constitutes less than 50 percent, the asset’s valuation method has no influence on the analyzed indicators. When long-term tangible asset’s part in the total asset constitutes more than 50 percent, the asset’s valuation method affects solvency and investment indicators. Long-term tangible asset’s valuation method does not affect profitability indicators, independent of long-term tangible asset’s part in the total asset.

scholarly journals Valuing An Emerging International Technology Company

2011 ◽  
Vol 7 (1) ◽  
Author(s):  
John Zimmerman
Keyword(s):  
Balance Sheet ◽  
Cumulative Effect ◽  
Fair Value ◽  
Financial Accounting ◽  
Publicly Traded ◽  
Accounting Standard ◽  
Financial Valuation ◽  
Accounting Principle ◽  
Fair Valuation ◽  
Interim Period

The requirements of Financial Accounting Standard Board (FASB) 142 provide an excellent opportunity to examine various financial valuation methods used to determine a company’s value.  Under FASB 142, goodwill and intangible assets with indefinite useful lives are no longer amortized, but instead tested for impairment at least annually in accordance with the provisions. Any impairment loss has to be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in an organization’s first interim period. The impairment test requires an accurate and fair valuation of the asset in question.  This case is based upon the valuation dilemma faced by Integrated Silicon Solution (NASDAQ: ISSI), a publicly traded international technology company, in late 2008. ISSI had made several acquisitions and carried substantial goodwill. Since ISSI was publicly traded, a public market value was available but the financial crisis of 2008 caused the company to consider other methods, as is allowed under FASB 142. The case uses both the income and comparable market approaches to arrive at a fair value, and this value is used to determine if impairment for the goodwill the company carried on its balance sheet existed.

Fair Value Accounting and Earnings Persistence: Evidence from International Banks

2017 ◽  
Vol 17 (1) ◽  
pp. 47-68 ◽  
Author(s):  
Daifei (Troy) Yao ◽  
Majella Percy ◽  
Jenny Stewart ◽  
Fang Hu
Keyword(s):  
Strong Association ◽  
Balance Sheet ◽  
Fair Value ◽  
Institutional Factors ◽  
Earnings Persistence ◽  
Legal Enforcement ◽  
International Banks ◽  
Level 3 ◽  
Fair Value Measurements ◽  
Level 2

ABSTRACT Using hand-collected data from a sample of 210 international banks during the period 2009 to 2013, we investigate whether fair value exposure, the proportion of financial assets measured at fair values, is associated with earnings persistence and whether the reliability of fair value measurements influences earnings persistence. We also examine whether the association between fair value measurements and earnings persistence is a function of institutional factors such as legal enforcement, the audit environment, and country-level auditor industry expertise. Results suggest that the use of fair values for balance sheet financial instruments enhances earnings persistence. Also, we find that the nondiscretionary fair value Level 1 assets (measured with observable inputs) are positively associated with earnings persistence, whereas the Level 2 assets (measured with indirectly observable inputs) and Level 3 assets (measured using unobservable inputs) are not associated with earnings persistence. We provide further evidence that there is a strong association between factors reflecting countrywide institutional structures and the predictive power of fair values based on discretionary measurement inputs (Level 2 and Level 3 assets) and we find that the moderating effect from these institutional factors is greater for Level 3 assets than for Level 2 assets. Additional tests suggest that the association between fair value estimates and earnings persistence is moderated by the classification of fair value assets (that is, through profit and loss versus other comprehensive income) and the reliability of fair value estimates.

The Effect of Accounting Manipulation on the Business Performances

2020 ◽  
pp. 168-177
Author(s):  
Ionica Oncioiu ◽  
Cristina Maria Ștefan ◽  
Valentin Radu ◽  
Georgiana Burlacu
Keyword(s):  
Balance Sheet ◽  
Financial Statements ◽  
Fair Value ◽  
Economic Environment ◽  
International Level ◽  
Anglo Saxon ◽  
Accounting Systems ◽  
Dual Nature ◽  
Creative Accounting ◽  
New System

The dual nature of creative accounting has been intensely debated since its emergence in the Anglo-Saxon economies. The lack of a common accounting language, different accounting systems at international level, applied in different languages, international legislation harmonized more or less correctly, amidst a turbulent economic environment, left room for multiple interpretations and meanings. This chapter presents the advantages of fair value in manipulating business performances by creative accounting, but there are voices that are challenging this concept because of its volatility and tendency to subjectivism, and also manipulating the models used to evaluate balance-sheet structures or profit and loss account. The results show that fair value was introduced by accounting norms in response to the deterioration of confidence in the financial statements and targets a new system for assessing the entity's assets and liabilities.

Currency Swaps: An Instrument of International Finance

1996 ◽  
Vol 21 (2) ◽  
pp. 3-14
Author(s):  
Sivaprakasam Sivakumar ◽  
Anita Mathew
Keyword(s):  
International Finance ◽  
Balance Sheet ◽  
Practical Applications ◽  
Interest Payments

A currency swap involves exchange of principal and interest payments in two different currencies between two parties. Swaps are off balance sheet transactions and have grown at a phenomenal rate. This article by Sivaprakasam Sivakumar and Anita Mathew focuses on the development of the swap market, presents an overview of currency swaps, and analyses the participants. It also discusses the basic types of swaps, assesses the risks and regulatory means of minimizing the risks, focuses on the practical applications, and evaluates the relevance of swaps to India.

The future of the UCL’s internet services department

2016 ◽  
Vol 6 (2) ◽  
pp. 1-16
Author(s):  
Ellinami J. Minja
Keyword(s):  
Learning Outcomes ◽  
Joint Venture ◽  
Balance Sheet ◽  
Cash Flows ◽  
The Internet ◽  
Internet Services ◽  
Content Type ◽  
Business Valuation ◽  
Valuation Methods ◽  
The Future

Subject area Finance, General Business Management. Study level/applicability Postgraduate/MBA Second Year. Case overview The university-owned Universal Computing Limited (UCL) was contemplating on the future of its internet services business. Internally, the internet services department had put up a proposal on how to revamp the business. Concurrently, UCL received a joint venture proposition from a foreign telecommunication entity with which it had some business relation. The proposal was for UCL to cede its internet services department and the associated licence to the venture while the partner will finance the venture. Professor Ben Msomi, the UCL’s Managing Director knew that he had to make one of the two proposals a good sell to the board of directors’ meeting in two-weeks’ time probably before suggesting UCL to exit the internet services business. Expected learning outcomes Overall, the case aims at gaining an understanding of the sources of value of business and valuation of business. Specifically students are expected to learn how to: evaluate of the effect of various courses of action on the value of a business; apply different valuation methods – balance sheet, discounted cash-flows and market multiples in different context; establish appropriate rate for capitalization in business valuation; and handle assumptions and risks in business valuation, Expected learning outcomes Overall, the case aims at gaining an understanding of the sources of value of business and valuation of business. Specifically students are expected to learn how to: evaluate of the effect of various courses of action on the value of a business; apply different valuation methods – balance sheet, discounted cash-flows and market multiples in different context; establish appropriate rate for capitalization in business valuation; and handle assumptions and risks in business valuation, Supplementary materials Teaching notes are available for educators only. Please contact your library to gain login details or email [email protected] to request teaching notes. Subject code CSS 1: Accounting and Finance

scholarly journals The FASBs Concepts Statement On Cash Flows And Present Value

2011 ◽  
Vol 19 (4) ◽  
Author(s):  
Stanley Martens ◽  
Thomas Berry
Keyword(s):  
Cash Flow ◽  
Accounting Standards ◽  
Fair Value ◽  
Cash Flows ◽  
Financial Accounting ◽  
Financial Accounting Standards Board ◽  
Present Value ◽  
Numerical Examples ◽  
Flow Information

In February 2000, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Concepts No. 7, Using Cash Flow Information and Present Value in Accounting Measurements.  In this document the FASB asserts without proof that a present value computation along its lines will provide a good estimate of the fair value of an asset or liability.  Using numerical examples provided by the FASB, we attempt to construct arguments in support of the FASB’s claim.  We find that such arguments require strong and not at all obvious assumptions about players in hypothetical markets.

scholarly journals Interest Rate Swaps: Risk Exposure And Financial Disclosure

2011 ◽  
Vol 6 (1) ◽  
pp. 8
Author(s):  
William B. Riley ◽  
G. Stevenson Smith
Keyword(s):  
Interest Rate ◽  
Balance Sheet ◽  
Financial Information ◽  
Financial Disclosure ◽  
Risk Exposure ◽  
Interest Rate Swaps ◽  
Financial Disclosures ◽  
Changes In Risk ◽  
Swap Agreement ◽  
Interest Payments

In recent years, the trading of interest payments on debt obligations has become a major form of off-balance sheet financing. As swaps have increased in dollar volume, the amount of financial disclosure about these instruments has remained nonexistent or minimal. Yet, even with a lack of financial information available to evaluate swaps, previous analyses of swaps have always focused on their positive aspects. Our analysis finds there are negative aspects to swaps that need to be considered. The issues of lack of financial disclosure, unfavorable changes in risk exposure as well as questions about risk evaluations of firms involved in swaps are all related to the negative aspects of swaps. These issues are considered here. It is concluded that although there are advantages to swaps, these advantages are intrinsic to the instrument itself rather than to the alleged arbitrage profits. Furthermore, an example is used to illustrate how a firms risk exposure can be altered by a swap agreement. The ability of the market to evaluate the change in this risk may be hampered by lack of financial disclosures.

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