The Rant: Accounting: The Language of Business - Vol. 2 (Intermediate: Part 88)

Monday, July 24, 2023

Accounting: The Language of Business - Vol. 2 (Intermediate: Part 88)

There is no company - no corporation on earth that engages in accounting fraud to the extent the Imperial Federal Government of the United Sates does. Not many congressmen are willing to come forward with the details.

Neal Boortz

Accounting and the Time Value of Money (Part A)

Charles Lamson

Introduction

To determine the value of money you have in the bank today, you simply check the account balance. Yet how would you determine the amount of money you need to save each year in order to purchase a new car in the future? You first need to determine when you want to buy the car. Then, you have to decide when you will start saving. You will also have to estimate how much interest your savings will earn based on the interest rate on your savings account. After you make these estimates, mathematical techniques involving the time value of money enable you to compute the total amount you must save to purchase the car.

Companies use time value of money techniques in a variety of areas---from capital budgeting to assessing financing needs to determining pension obligations. Consider Adidas, the German sports footwear, apparel, and accessories company. In its 2016 annual report, Adidas stated that it used present value techniques to evaluate returns on planned capital expenditures. In its footnotes to the financial statements, Adidas disclosed that it used present values in accounting for receivables, leases, pensions, and asset impairments. For example, Adidas reports its receivables and other financial assets at fair value, estimating the fair value as the present value of future cash flows. In financial reporting, time value of money concepts are critical to understanding these areas and others such as long-term liabilities and the valuation of certain types of financial instruments.

The next several parts of this analysis discuss the fundamental concepts needed to work with the time value of money throughout the remainder of this analysis. We begin with the basics of the time value of money, including simple and compound interest. We then illustrate several problems involving the future and present values of a single sum. Next, we convert problems involving the future and present values of ordinary annuities and annuities due. Finally, we discuss more complex areas such as deferred annuities before a highlighting of the time value of money.

Time Value of Money Basic Concepts

The time value of money concept means that a dollar received today is worth more than a dollar received at some time in the future. This statement is true because a dollar received today can be invested to provide a return. For example, if you invest $1,000 in a savings account and the savings account is 2% annually, then you will have $1,020 one year from today. The $20 earned on the initial investment is your interest, the return on money over time.

Time Value of Money in Accounting

The time value of money concept is critical in several areas of accounting, particularly when valuing many of the assets and liabilities reported in the financial statements. For example, measuring assets and liabilities at fair value may require time value of money computations. Time value of money concepts determine the asset's value today based on the future cash flows it will generate. To illustrate, consider a company that leases equipment to a customer. In return, the customer pays the company periodic cash payments in the future for the use of the leased equipment. The value of the net investment in the lease today can be measured using the future cash flows the company will receive and time value of money concepts.

The same approach applies to determining the fair value of a liability. For example, a pension liability today can be measured using time value of money concepts and the future cash outflows a company promises to make to its employees when they retire. The future cash flows depend on many estimates and assumptions, such as when the employee will retire, how long the employee employee will live after retirement, and the inflation rate.

The measurements of many financial statement items such as leases, pensions, and bonds payable are based on estimates of future cash flows and time value of money computations. Exhibit 7.1 illustrates several financial statement items and the type of future cash flows used to measure them.

EXHIBIT 7.1 Examples of Financial Statement Items Measured at the Present Value of Future Cash Flows

We begin our discussion of the time value of money in Part 89 by distinguishing between two types of Interest---simple and compound.

*GORDON, RAEDY, SANNELLA, 2019, INTERMEDIATE ACCOUNTING, 2ND ED., PP. 315-317*

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The kingdom of God is among you

Luke 17:20-25 Asked by the Pharisees when the kingdom of God was to come, Jesus gave them this answer, ‘The coming of the kingdom of God does not admit of observation and there will be no one to say, “Look here! Look there!” For, you must know, the kingdom of God is among you.’ He said to the disciples, ‘A time will come when you will long to see one of the days of the Son of Man and will not see it. They will say to you, “Look there!” or, “Look here!” Make no move; do not set off in pursuit; for as the lightning flashing from one part of heaven lights up the other, so will be the Son of Man when his day comes. But first he must suffer grievously and be rejected by this generation.’

Live Adoration Feeds from U.S.A., U.K., and Poland

Adoration, also known as Eucharistic Adoration, is a Catholic prayer in front of the Blessed Sacrament. It is a sign of devotion and worship to Jesus Christ, who is believed to be present in the consecrated host. During adoration, Catholics pray to Jesus Christ before the Eucharist at their local parish. The Eucharist is typically kept in a tabernacle at the parish church, and may be presented in front of a closed tabernacle or in front of the exposed host in a monstrance. A monstrance is a vessel used in Roman Catholic, Anglican, High Church Lutheran, and Old Catholic churches. It is a stand made of precious metal that holds the Blessed Sacrament during adoration. The word "monstrance" comes from Latin and means "to show".

Love

1 Corinthians 13:4-7: Love is always patient and kind; it is never jealous; love is never boastful or conceited; it is never rude or selfish; it does not take offence, and is not resentful. Love takes no pleasure in other people’s sins but delights in the truth; it is always ready to excuse, to trust, to hope, and to endure whatever comes. 1 Corinthians 13:8-9,13: Love does not come to an end. But if there are gifts of prophecy, the time will come when they must fail; or the gift of languages, it will not continue for ever; and knowledge – for this, too, the time will come when it must fail. For our knowledge is imperfect and our prophesying is imperfect. In short, there are three things that last: faith, hope and love; and the greatest of these is love. Colossians 3:14-15: Over all these clothes, to keep them together and complete them, put on love. And may the peace of Christ reign in your hearts, because it is for this that you were called together as parts of one body. Always be thankful.

It is not peace I have come to bring, but a sword

Jesus instructed the Twelve as follows: ‘Do not suppose that I have come to bring peace to the earth: it is not peace I have come to bring, but a sword. For I have come to set a man against his father, a daughter against her mother, a daughter-in-law against her mother-in-law. A man’s enemies will be those of his own household. ‘Anyone who prefers father or mother to me is not worthy of me. Anyone who prefers son or daughter to me is not worthy of me. Anyone who does not take his cross and follow in my footsteps is not worthy of me. Anyone who finds his life will lose it; anyone who loses his life for my sake will find it. ‘Anyone who welcomes you welcomes me; and those who welcome me welcome the one who sent me. ‘Anyone who welcomes a prophet will have a prophet’s reward; and anyone who welcomes a holy man will have a holy man’s reward. ‘If anyone gives so much as a cup of cold water to one of these little ones because he is a disciple, then I tell you solemnly, he will most certainly not lose his reward.’ When Jesus had finished instructing his twelve disciples he moved on from there to teach and preach in their towns.

The beheading of John the Baptist

Matthew 14:1-12 Herod the tetrarch heard about the reputation of Jesus, and said to his court, ‘This is John the Baptist himself; he has risen from the dead, and that is why miraculous powers are at work in him.’ Now it was Herod who had arrested John, chained him up and put him in prison because of Herodias, his brother Philip’s wife. For John had told him, ‘It is against the Law for you to have her.’ He had wanted to kill him but was afraid of the people, who regarded John as a prophet. Then, during the celebrations for Herod’s birthday, the daughter of Herodias danced before the company, and so delighted Herod that he promised on oath to give her anything she asked. Prompted by her mother she said, ‘Give me John the Baptist’s head, here, on a dish.’ The king was distressed but, thinking of the oaths he had sworn and of his guests, he ordered it to be given her, and sent and had John beheaded in the prison. The head was brought in on a dish and given to the girl, who took it to her mother. John’s disciples came and took the body and buried it; then they went off to tell Jesus.

Psalms 9:16

The LORD is known by the judgment which he executeth: the wicked is snared in the work of his own hands. Higgaion. Selah - Question: What does Higgaion and Selah mean? Answer: Both Higgaion and Selah are used numerous times in the Old Testament. They occur together in Psalm 9:16. The meanings of these words are uncertain. We observe Higgaion in such passages as Psalm 9:16; 19:14; 42:3; Lamentations 3:63. In Arabic, the root gives a deep vibrating sound, like the murmering sound of a harp (Psa. 92:3). The International Standard Bible Encyclopedia states that it may be derived from the Greek versions of Psalm 9:16 and takes it to mean an instrumental interlude. It may also mean a soliloquy or meditation such as concerning the judgment of God (Psa. 9:16), the words and work of God (Psa. 19:14), and the loving kindness and faithfulness of God (Psa. 92:2-3). In the Septuagint, Selah is translated as daplasma (meaning a division). It occurs in Habakkuk 3:3, 9, 13 and 71 times in the Psalms. It is used in 39 of our 150 psalms. Of those 39 psalms, 31 they are ones handed over to "the chief Musician." So, pause and meditation may be the predominate idea. In addition, it may mean to lift up (Hebrew, salal) or, in some definitions, a repetition, end of a strophe, or a recurring symphony. In his sermon named "HIGGAION!" about Psalm 9:16, Archibald G. Brown, on August 17, 1873, at the East London Tabernacle said this: "When the psalmist wrote this verse, and reached the words 'The wicked shall be snared in the work of his own hands', he seemed to be overpowered at the terror of the thought, and so put a full stop and wrote in the word 'Higgaion!' As much as to say, 'O my soul, meditate on the tremendous truth my hand has penned, and let all who read the same meditate.' And then after 'Higgaion' he puts 'Selah'. He would have there to be a solemn pause. Oh, I would that there could be just one moment's solemn pause in our meeting tonight. Would that there could be a Selah, a Higgaion! Friends, shall there be? I put it to you. 'The Lord is known by the judgment which he executes; and the wicked shall be snared in the work of his own hands!" Now let us just for a moment meditate on that. Let there be a solemn Higgaion, and let every heart ask itself the question, 'How do I stand in reference to this tremendous truth?' *Answer by Dr. Joseph R. Nally, Jr. (https://thirdmill.org/answers/answer.asp/file/47892)*

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Monday, July 24, 2023

Accounting: The Language of Business - Vol. 2 (Intermediate: Part 88)

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Accounting: The Language of Business - Vol. 2 (Intermediate: Part 145)

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