The Analysis of Financial Statement of Procter&Gamble example

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The Analysis of Financial Statement of Procter&Gamble

P&G’s revenue recognition policies and the impact of trade promotion on a financial statement. P&G recognizes revenue directly after the sale, ie when the revenue is actually earned. Important point in their revenue recognition policy is that the recognition is possible only when title to the product, ownership, and risk of loss are transferred to the customer. There are two basic models of recognition: on the date of shipment and on the date of receipt. The costs for delivery and handling are already included in the price of the product. It is worth to note the fact that the reserve for discounts and product return are recorded as a reduction of revenue at the time of its recognition, since most sales also registered at the time of implementation and are recorded net of trade promotion expenses.

Concerning trade promotion, I have to add that it include merchandising funds, coupons, pricing allowance and other that is implemented through different special offers and programs. On financial statement, it is recorded in the Consolidate Balance Shit as accrued and other liabilities (P&G 56). b) Examples of using historical cost and fair value on the financial statement. The brightest example of using historical costs on a financial statement is the income statement, in other words, revenue and expenses statement so this sort of information is reported on Consolidate Balance Sheet. The fixed assets of the company are also estimated in historical costs. It is cheaper to count these assets on historical costs basis because of the depreciation and amortization. Here we can also count taxes, transfer costs and handling expenses.

Fair value is used mostly for displaying data of non-current assets. These assets include intangible assets, goodwill, and acquisitions. One of the reasons for fair value usage is the fact that intangible assets and goodwill are not amortized. There are some examples, given in the P&G’s Annual Report; among them is the Male Grooming and Appliance businesses, in particular, brand Gillette. In this case, fair value sensibly exceeds recorded value. Other examples that are estimated in fair value are the short-term and long-term debt, investment securities, hedges, interest rate and other.c) Determination of P&G’s accounting principles on a basis consistent with those of last years. Audit of Procter & Gamble is held by Delloyt.

Delloyt is the company of Big Four auditors and always applies the accounting principles that are based not only on the appropriate accounting policies of the certain country but also international standards of accounting. In addition in this Annual Report of P&G in the Summery of Significant Accounting Policies and Estimates it is clearly stated that the financial statements, used in P&G is conducted in accordance with policy of US GAAP (P&G 48). Concerning the fact that accounting is made in compare with previous years, we can determine that P&G’s accounting principles are prepared on a basis consistent with those of last years.d) P&G’s …

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