BALANCE SHEET & CASH FLOW

Built to Fulfill One of the Tasks

Accounting Theory Course

By:

Group 4

Rifa Apipah Nur Fazriah 213403001

Silma Naurotu Salsabila 213403002

Salwa Aulia 213403011

Sebi Sebina 213403041

Zalfaa Nahdah Saajidah 213403139

ACCOUNTING STUDY PROGRAM

FACULTY OF ECONOMICS AND BUSINESS

SILIWANGI UNIVERSITY

2023
 FOREWORD

Praise be to the presence of Allah SWT who has given His grace and
guidance so that we can complete the assignment of a paper entitled ‘Balancesheet
and Cash Flow” is right on time.

This paper contains an evaluation of the Company's financial position,

cash flow statement, financial analysis of cash flow information, and balance
sheet and cash flow according to IAS.

The purpose of writing this paper is to fulfill the assignment of Mrs. Tiara
Pradani., MSAk., in the Accounting Theory course in the Accounting Department.
In addition, this paper also aims to add insight regarding the evaluation of the
Company's financial position, cash flow statement, financial analysis of cash flow
information, and balance sheet and cash flow according to IAS for readers and
also for us as the authors of this paper.

We would like to thank Mrs. Tiara Pradani, M.S.Ak., as a lecturer in

Accounting Theory in the Accounting Department who has given this assignment
so that we can add knowledge and insight according to the field of study we are
pursuing. We also thank all parties who have shared their knowledge so that we
can complete this paper.

We realize that the paper we are writing is still far from being perfect.
Therefore, we will look forward to constructive criticism and suggestions for the
perfection of this paper.

Tasikmalaya, 9 February 2023

Writer

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 LIST OF CONTENTS

FOREWORD...........................................................................................................ii
LIST OF CONTENTS............................................................................................iii
CHAPTER I INTRODUCTION..............................................................................1
1.1 Background of the problem.......................................................................1
1.2 Formulation of the problem.......................................................................2
1.3 Objective...................................................................................................2
CHAPTER II DISCUSSION...................................................................................3
2.1 Statement Of Financial Position................................................................3
2.2 Elements Of The Statement Of Financial Position...................................4
2.3 Evaluate the Company's Financial Position............................................11
2.4 Cash flow statement................................................................................19
2.4.1 Evolution of the Statement of Cash Flows..........................................19
2.4.2 Cash Flow Information........................................................................20
2.4.3 Purpose of Statement of Cash Flows...................................................21
2.5 Financial Analysis of Cash Flow Information........................................22
2.6 International Accounting Standards........................................................24
2.6.1 Framework for the preparation and presentation of financial
statements............................................................................................25
2.6.2 IAS NO. 1............................................................................................25
2.6.3 IAS NO. 7............................................................................................26
2.7 Case Study Of Cash Flow Statement Fraud............................................27
CHAPTER III CLOSING......................................................................................29
3.1 Conclusion...............................................................................................29
3.2 Suggestion...............................................................................................29
BIBLIOGRAPHY..................................................................................................30

iii
 CHAPTER I
INTRODUCTION

1.1 Background of The Problem

In general, financial statements consist of a balance sheet, profit and loss

statement and in addition to the company, a report on changes in capital is
prepared. Where the balance sheet describes the amount of debt and capital assets
of the company at a certain time. According to Munawir (2002: 27) a balance
sheet is a report that presents the economic resources of a company or its assets,
obligations or debts and rights of company owners embedded in the company or
owner's capital at a certain time. Therefore the balance sheet must be arranged
systematically so as to provide an overview of the company's financial position.
Meanwhile, the Cash Flow Report is a report that contains information
about cash in and out of a company in a certain accounting period. Reporting cash
flows is very important considering its purpose is to provide information to parties
related to the company's performance during a period. These parties are all parties,
both internal and external to the company. This cash flow statement can also be
used to assess company profits and management or investor decision making.
The International Accounting Standards Board (IASB) is an independent,
privately funded body responsible for establishing and improving international
accounting standards. This body replaced the [International Accounting Standards
Committee] (IASC) in 2001, which announced that its accounting standards
would be replaced with the [International Financial Reporting Standards] (IFRS).
The IASB certifies that all International Accounting Standards issued by the IASC
will continue to apply unless and until they are amended or withdrawn by a new
body. IAS is a set of international [accounting standards] and reporting that will
help harmonize company financial information, increase accounting transparency,
and ensure that investors receive more accurate and consistent reports.
Statement of financial position and measurement techniques currently used
to disclose assets, liabilities and equity which describes the disclosure of financial
statement elements in the statement of financial position, discusses how to
evaluate a company's financial position, describes the disclosure of cash flow

1
information in the Statement of Cash Flows, and discusses how investors use this
information to evaluate company performance.

1.2 Formulation of The Problem

1. How to evaluate the financial position of the company?

2. What is meant by a cash flow statement?

3. How to financial analysis of cash flow information?

4. What is the balance sheet and cash flow according to IAS?

1.3 Objective

1. Know the evaluation of the company's financial position.

2. Know the cash flow statement.

3. Knowing the financial analysis of cash flow information.

4. Know the balance sheet and cash flow according to IAS.

2
 CHAPTER II
DISCUSSION

2.1 Statement of Financial Position

The statement of financial position must disclose the company's wealth at

a particular point in time. Wealth is defined as the present value of all resources
minus the present value of all liabilities. Although the use of present value
measurement in accounting is increasing, this method is not widely used for all
assets and liabilities. As a result, many methods are currently in use. to measure
changes in each component which is an element of the statement of financial
position. This measurement can be summarized as historical-background oriented;
current-oriented replacement value; and future-oriented value estimates.

Accounting theorists have debated the merits of alternative accounting

measurement approaches. Those who support historical costs base their argument
on the premise that costs are objective and verifiable. Historical costs are not
based on subjective estimates; rather, it is the result of a value agreed upon by the
buyer and seller in an arm's-length transaction. Some accounting theorists even
suggest that historical cost actually represents the present value of expected future
cash flows at the time the exchange occurs. It could also be argued that
accountants have a stewardship role, and hence measures of the costs in actual
resources exchanged are relevant to readers of financial statements.

Zelf has documented the role of the Securities and Exchange Commission
(SEC) regarding the requirement to use historical cost. The SEC's position arose
from holding company investigations into public utilities which revealed that a
gimmicky asset writing policy had been used by the holding company during the
1920s. The SEC's advocacy of historical costs persisted until the mid-1970s, when
the United States was experiencing high inflation rates. In 1976, the SEC changed
its position on historical cost by requiring additional disclosure of replacement
cost information for about 1,000 of the largest non-financial institutions. Recently,

Accounting theorists prefer measuring current costs rather than historical

cost amounts with the argument that this value reflects current conditions and
therefore represents present value for the company. Opponents to this point point

3
out that present values may not be available for all elements. statement of
financial position and recording of present value in the statement of financial
position will result in recording unrealized gains and losses in the statement of
profit or loss and other comprehensive income. This last argument is less valid
because current unrealized gains and losses can be reported as a component of
other comprehensive income.

Those who support the disclosure of expected future value maintain the
argument that this valuation procedure is almost similar to the concept of
economic profit and is therefore the most relevant value for users of financial
statements. Critics of expected future value point out (as noted in Chapter 5) that
the future cash flows associated with the statement of financial position elements
are difficult to estimate, the timing of these cash flows is uncertain, and the
appropriate discount rate is difficult to determine. Confirmed

In the following paragraphs, we will take a closer look at the measurement

approach actually used to value the elements of the statement of financial position.
This review reveals that there is no single basis of measurement that is used for all
elements; in addition, a variety of measurement approaches can currently be used,
which a depends on the circumstances and the availability of information.

2.2 Elements of The Statement of Financial Position

FASB Statement of Concepts No. 6 defines the elements of the statement

of financial position as follows:

a. Asset

Assets are probable future economic benefits obtained or controlled by a

particular entity as a result of past transactions or events. Assets have three
important characteristics, namely: (1) embody the possibility of future benefits
by including the capacity, either independently or in combination with other
assets, to contribute directly or indirectly to ensure net cash inflows in the
future: (2 ) certain companies can benefit from and control other parties'
access to them; and (3) transactions or other events that give rise to the
company's rights or control over the benefits that have occurred.

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 b. Liability

Liabilities are probable future sacrifices of economic benefits arising from

present obligations of a particular entity to transfer assets or provide services
to other entities in the future as a result of past transactions or events.
Liabilities have three important characteristics, namely: (1) embody current
duties or responsibilities for one or more other entities that require settlement
by the possibility of transferring or using assets on a certain or specified date,
on the occurrence of certain events, or on demand in the future future: (2)
duties or responsibilities that a particular company requires, leaving it little or
no discretion to avoid future sacrifices, and (3) transactions or other events
that place a burden on the company have occurred.

c. Equity

Equity is the residual interest in the assets of the entity that remains after
deducting its liabilities. In a business enterprise, equity is the right of
ownership. Equity in a business enterprise is derived from ownership rights
(or equivalent). This involves the relationship between the company and its
owners as owners rather than as employees, suppliers, customers, lenders, or
in some other non-owner role.

These definitions form the basis for the FASB's asset-liability approach to
the measurement of inventories and flows that is common in many of its
standards. These definitions represent a departure from previous definitions which
view the statement of financial position as a statement of residual amounts whose
value is often obtained through the determination of profit.

In other words, deferred charges are assets because they are the result of
unexpired expenses that are not charged as expenses, while some liabilities are
created due to the need to record debits.

Despite its limitations, the APB's definition is believed to significantly

improve on previous definitions when it is finally released. Previously, assets
were defined as debit balances carried forward when the books were closed, and
liabilities were defined as credit balances carried forward, unless that component
represented owner's equity."

5
 The definition in SFAC No. 6 should be checked carefully. SFAC No. 6
states that assets are the company's economic resources and liabilities are the
company's economic obligations. These statements are likely to be within the
understanding of most users regarding the terms assets and liabilities. and
therefore, it is impossible for both to be misinterpreted/understood. However, in
order to properly understand the figures presented in the statement of financial
position, users must be aware of the recognition and measurement procedures
associated with Generally Accepted Accounting Principles (GAAP). These
procedures are a combination of past, present, and future measurement
approaches.

In addition, it is considered more informative to provide a sub-

classification for each of these elements of the statement of financial position.
This classification scheme makes information more accessible to various
interested user groups and allows for more rapid identification of certain types of
information for decision making.

ASSET

a. Current assets

Current assets are assets that can reasonably be expected to be realized in

cash, sold or consumed during the normal operating cycle of a business or one
year, whichever is longer. The operating cycle is defined as the average time
required to acquire raw materials, produce products, sell products, and collect
the results from customers." Current assets are presented on the statement of
financial position in order of liquidity and generally include cash, cash
equivalents, temporary investments, receivables, inventories and prepaid
expenses. However, special issues related to valuation procedures exist for
most of these components.

b. Investment

Investments can be grouped into three categories:

1. Securities acquired for specific purposes, such as using idle funds for
long periods of time or to influence the operations of other companies.

6
 2. Assets currently not in use by a business organization, such as land
held for a future development site.
3. Specific funds to be used for specific purposes in the future, such as
sinking funds.
c. Property, Plant and Equipment, and Intangible Assets

Although property, plant and equipment, and physically intangible assets

are different assets, the valuation procedure associated with them is the same.
With the exception of land, the cost of these assets is allocated over a number
of accounting periods that benefit from their use. In the case of property, plant
and equipment, the carrying amount is disclosed as the difference between the
acquisition cost and the accumulated depreciation. However, intangible assets
are generally disclosed at the net amount of cost less accumulated
amortization.

This valuation procedure is again a result of the emphasis placed on

reporting earnings. Various methods of depreciation and amortization are
available, but no attempt is made to disclose the present value of long-term
assets or the expected future cash flows associated with their holdings in the
financial statements. Instead, the emphasis is on the proper matching of
revenues and expenses, while asset valuation is on the residual impact of this
process.

d. Other Assets

The description of the previous asset category will usually allow the
disclosure of all assets, but some corporations include the last category,
namely other assets. Components, such as fixed assets held for resale or long-
term receivables can be included in this category. The valuation of these assets
is generally related to their carrying amount in the statement of financial
position when they were initially reported under another asset category.
Because the amounts associated with these components are usually
immaterial, it is unlikely that any of the alternative valuation procedures will
result in significantly different carrying amounts

e. Asset Valuation

7
 The previous discussion revealed that many different measurement
techniques are used when valuing assets on a typical statement of financial
position. In nearly every measurement scheme designed, it is common practice
to add and subtract only those components that are measured in the same way.
However, the measurement of assets on the statement of financial position
takes an unusual form when we consider total assets to be derived from the
sum of subclasses of assets where the basis of measurement may be very
different.

Consider the following measurement bases that are included in the

presentation of assets in the statement of financial position.

Asset Measurement Basis

Cash Present value

Account Receivable Future value expectations

Tradable securities Fair value or amortized cost

Supply Present value or past value

Investment Fair value, amortized cost, or the result of

using the equity method

Property, plant, and Past value adjusted for depreciation

equipment

Intangible assets Past value adjusted for amortization

LIABILITIES

a. Short-Term Liabilities

Short-term liabilities have been defined as liabilities whose liquidation is

expected to require the appropriate use of existing resources classified as
current assets or create other short-term liabilities. Examples of short-term
liabilities are short-term debt, the current portion of long-term debt maturing,
income tax payable, recoverable deposits, and accrued liabilities.

8
 Although the present value of a debt instrument is equal to the present
value of its future cash flow, short-term liabilities are usually measured and
reported at liquidation value because the period in which they exist is
relatively short and the fulfillment of this obligation generally involves cash
payments.

b. Long Term Liabilities and Other Liabilities

Long-term liabilities are obligations that will not require the use of current
assets within the current year or operating cycle. These liabilities include
bonds, notes, mortgages and capital lease obligations, which are initially
assessed at amounts acceptable to the entity that assumed the obligations. The
debt valuation result implies that the initial loan balance equals the present
value of the debt instrument's future cash flows discounted at the rate charged
by the lender (market or effective interest rate).

The long-term liabilities section may also include prepayments on long-

term contracts, deferred income taxes, and, in some cases, contingent
liabilities, each of which has an associated measurement issue. Deferred
income is measured at historical cost and remains at that amount until the
circumstances causing it to be recorded have reversed.

c. Liability Assessment

As well as assets, liabilities are measured by a number of different

procedures. Most measurements of short-term liabilities ignore the time value
of money. Its typical statement of financial position measurement equals the
amount of resources that will ultimately be required to satisfy the obligation.
This practice can be sustained with the concept of materiality. In contrast, the
initial measurement of most long-term liabilities is equivalent to the present
value of future payments discounted at the existing rate of return at the
issuance date.

EQUITY

State laws and corporate statutes make generalizing the equity section of
the statement of financial position somewhat difficult. However. certain practices

9
have become sufficiently developed to address some generally accepted reporting
standards.

a. Common stock

Common stock is measured at historical cost—the amount received from

investors when the shares were issued. Companies may also issue more than
one class of common stock. Additional categories, such as Class B common
stock, generally have fewer voting rights than Class A shares. For example,
one Class A share can be accompanied by five voting rights, while one Class
B share can be accompanied by only one vote.

b. Preferred Stock

Many companies also issue another class of stock known as preferred

stock. These shares generally have preferences regarding dividends, and the
amount of declared dividends must be paid to preferred stockholders before
those dividends can be paid to common stockholders. The measurement basis
of preferred stock is similar to that of common stock, with the amount divided
between the par value of the stock and additional paid-in capital. This the
reported value of the statement of financial position also represents historical
costs.

c. Treasury Stock

Corporations can reduce their shareholder equity by acquiring their shares

on the open market. These repurchased shares are known as treasury stock and
are usually reported at historical cost paid to repurchase them.

Retained Earnings and Other Comprehensive Income

Ownership rights in a corporation can be defined as the residual rights

over the company's assets after deducting the liabilities. The amount reported in
shareholders' equity as retained earnings and other accumulated comprehensive
income relates to the measurement method used to account for certain assets and
liabilities. However, this amount should not be confounded with any attempt to
measure the present value that belongs to the owners of the company.
Consequently, the measurement of retained earnings and the accumulation of

10
 other comprehensive income depends on the measurement of revenues and the
expiration of expenses over the life of the company.

The allocation of retained earnings is measured as the value of retained

earnings set aside for the stated purpose. It should be emphasized that the
allocation of retained earnings does not provide cash to finance these projects and
is only presented for managerial purposes. This intended purpose may easily be
expressed through footnotes.

2.3 Evaluate the Company's Financial Position

Hershey Company Penjualan Laba Bruto Laba Neto

7.421.76 3.336.16 846.
2014 8 6 912
7.146.07 3.280.84 820.
2013 9 8 470
6.644.25 2.859.88 660.
2012 2 2 931
6.080.78 2.531.89 628.
2011 8 2 962
5.671.00 2.415.20 509.
2010 9 8 799
Tootsie Roll Penjualan Laba Bruto Laba Neto
543.52 201.64 63.
2014 5 5 298
543.38 191.48 60.
2013 3 6 849
549.87 183.32 52.
2012 0 1 004
532.50 166.24 43.
2011 5 2 938
521.44 171.02 53.
2010 8 6 063
* Hershey and Tootsie Roll company financial statement information from 2010-2014
Untuk tahun yang berakhir pada tanggal 31 Desember 2017 2016
BISNIS
Operasi
Piutang usaha, perdagangan 945.678 541.375
Dikurangi penyisihan untuk piutang tak tertagih (23.642) (13.534)

11
Piutang usaha, neto 922.036 527.841
Persediaan 679.474 767.102
Iklan yang dibayar dimuka 80.000 75.000
Kontrak valuta asing-lindung nilai arus kas 6.552 3.150
Total aset jangka pendek 1.688.062 1.373.093
Properti, pabrik, dan peralatan 5.112.700 5.088.500
Dikurangi akumulasi penyusutan (2.267.620) (2.023.500)
Properti, pabrik, dan peralatan neto 2.845.080 3.065.000
Investasi di rekanan A 261.600 240.000
Goodwill 154.967 154.967
Aset tak berwujud lainnya 35.000 35.000
Total aset jangka panjang 3.296.647 3.494.967
Utang usaha, perdagangan (612.556) (505.000)
Utang muka dari pelanggan (182.000) (425.000)
Utang upah (173.000) (200.000)
Liabilitas remunerasi berbasis saham (39.586) (21.165)
Bagian lancar dari liabilitas sewa guna usaha (35.175) (33.500)
Utang bunga pada liabilitas sewa guna usaha (14.825) (16.500)
Total liabilitas jangka pendek (1.057.142) (1.201.165)
Liabilitas pensiun yang masih harus dibayar (293.250) (529.500)
Liabilitas sewa guna usaha (tidak termasuk bagian
lancar) (261.325) (296.500)
Liabilitas jangka panjang lainnya (33.488) (16.100)
Total liabilitas jangka panjang (588.063) (842.100)
Investasi Aset Operasi Neto 3.339.504 2.824.795
Aset keuangan yang tersedia untuk dijual (jangka
pendek) 473.600 485.000
Investasi di rekanan B (jangka panjang) 46.750 39.250
Total aset yang diinvestasikan 520.350 524.250
PENDANAAN ASET BISNIS NETO 3.859.854 3.349.045
Aset Pendanaan
Kas 1.174.102 861.941
Total aset pendanaan 1.174.102 861.941
Liabilitas pendanaan
Pinjaman jangka pendek (562.000) (400.000)

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Utang bunga (140.401) (112.563)
Utang dividen (20.000) (20.000)
Total liabilitas pendanaan jangka panjang (722.401) (532.563)
Pinjaman jangka panjang (2.050.000) (2.050.000)
Total liabilitas pendanaan (2.772.401) (2.582.563)
LIABILITS PENDANAAN NETO
OPERASI YANG DIHENTIKAN (1.598.299) (1.720.621)
Aset yang dimiliki untuk dijual 856.832 876.650
Liabilitas yang terkait dengan aset yang dimiliki untuk
dijual (400.000) (400.000)
ASET NETO YANG DIMILIKI UNTUK DIJUAL 456.832 476.650
PAJAK PENGHASILAN
Aset pajak tangguhan jangka pendek 4.426 8.907
Utang pajak penghasilan (72.514) (63.679)
Aset pajak tangguhan jangka panjang 39.833 80.160
ASET (LIABILITAS) PAJAK PENGHASILAN NETO (28.255) 25.388
ASET NETO 2.690.132 2.130.462
EKUITAS
Modal saham (1.427.240) 1.343.000
Saldo laba (1.100.358) 648.289
Akumulasi penghasilan komprehensif lainnya, neto (162.534) 139.173
TOTAL EKUITAS (2.690.132) 2.130.462
Total aset jangka pendek 4.197.021 3.605.591
Total aset jangka panjang 3.383.231 3.614.377
Total aset 7.580.252 7.219.968
Total liabilitas jangka pendek (2.252.057) 2.197.406
Total liabilitas jangka panjang (2.638.063) 2.892.100
Total liabilitas (4.890.120) 5.089.506
*Proposed Statement of Financial Position

Investors and security analysts monitor company performance using

financial ratios. Financial ratios evaluate the relationship among elements of
financial statements and are most useful when compared to previous years'
results, competitors' results, industry averages, or benchmarks. The return on

13
assets (ROA) ratio measures the percentage return on assets used by a
company and is calculated as follows:

Net Profit

ROA = Average Total

Assets

Hershey's ROA for the 2014 and 2013 fiscal years was calculated as follows
(all calculations are in thousands of dollars)

2014 2013

$846,912 = 15.4% $820,470 = 16.2%

($5,629,516+5,357,488)/2 ($888,409+846,737)/2

ROA The Tootsie Roll for the 2014 and 2013 fiscal years was calculated as
follows:

2014 2013

$63,298 $60,849
= 7.0% = 7.0%
($910,386+888,409) / 2 ($5,357,488 +4,754,839)/2

The five-year average ROA for the Candy and Other Food Products
industry in 2014 was 4.34 percent. These calculations show that both Hershey
and Tootsie Roll outperformed the industry during 2014. Hershey's
performance, as measured by ROA, decreased slightly from 2013 to 2014,
while Tootsie Roll remained the same. Hershey's 2014 ROA was 2.2 times
that of Tootsie Roll, but this multiple has decreased from 2.3 in 2013,
indicating a decline in relative ROA performance for Hershey.

In recent years, financial analysts have suggested that adjustments be

made to both the numerator and denominator of the ROA ratio to increase its
use in evaluating profitability. Recommended adjustments include the
following:

14
 1. Determine the amount of continuing profit by eliminating non-
recurring (temporary) components after tax from net profit (examples
of this type of component are asset impairment charges, discontinued
operations, and extraordinary components).

2. Eliminate after-tax interest expense to improve intercompany

comparability by eliminating the impact of capital structure on ratios."

3. Making adjustments that include funding effects outside of the

statement of financial position (discussed in Chapter 11).

The authors illustrate the effect of these adjustments on Hershey's and Tootsie
Roll's ROA results for 2014.

Hershey reported business rearrangement expenses of $45,621,000

which resulted in an increase in net profit after tax of $29,562,000 in 2014.
The impact of capital structure on Hershey's ROA is eliminated by adding up
the amount of interest expense after tax incurred of $87,598,000 or
$56,764,000 for net income for 2014. This results in adjusted net profit figures
of $933,238,000 and an ROA of 17.0 percent.

Tootsie Roll's 2014 Statement of Profit and Loss and Other

Comprehensive Income discloses no temporary component; therefore, the
only adjustment required was an interest expense of $99,000 in 2014. After-
tax interest expense was $68,000 in 2014, added to the quantifier for ROA,
resulting in an adjusted ROA of 7.0 percent in 2014.

This review of the adjusted ROA reveals that Hershey's 2014

performance was 2.4 times better than Tootsie Roll, in addition to the 2.2
number indicated by the unadjusted ROA measure. These results indicate that
Tootsie Roll needs to increase its ROA.

ROA can be grouped into two components: profit margin ratio (Profit
Margin Ratio-PMR) and asset turnover ratio (Asset Turnover Ratio-ATR).
Companies can increase their ROA ratio by increasing one of these two ratios.
The company's PMR is calculated:

15
 Net Profit
ROA =
Average Total Assets

Hershey's 2014 PMR after eliminating the impact of non-recurring

components and the capital structure for fiscal reports is calculated:

$933,238
= 12.6%
$7,421,768

This shows that each dollar of net sales adds about 13 cents to Hershey's
adjusted (bottom line) bottom line.

A company's ATR is evaluated by calculating its asset turnover ratio as

follows:

Net Sales
ATR =
Average Total Assets

Hershey's ATR for 2014 is calculated:

$7,421,768
= 1.35
($5,629,516+5,357,488)/2

Tootsie Roll's PMR after removing the impact of non-repeating components

and capital structure for 2014 is calculated:

$63,366
= 11.7 %
$543,525

The 2014 Tootsie Roll ATR is calculated as follows:

$543,525 = 0.60

($910,386+

16
 $888,409)/2

As previously stated, these two ratios (PMR and ATR) are actually
components of ROA, as shown below:

Net Profit Net Sales

X
Net Sales Average Total Assets

Eliminating net sales, both in the numerator and in the denominator,

results in:

Net Profit

Average Total
Assets

The following is a comparison of the adjusted ratios for the two

companies in 2014:

Hershey Tootsie Roll

Return on Assets-ROA 17.0% 7.0%

Profit Margin Ratio-PMR 12.6% 11.7%

Asset Turnover Ratio-ATR 1.35 0.60

These results indicate that Hershey's relatively higher ROA is caused

by a larger asset turnover ratio than Tootsie Roll. In addition, Hershey's profit
margin ratio is also higher than Tootsie Roll.

One of the last analysis methods can be used to compare the ROA
ratio with a predetermined benchmark. Investing in company stock carries
various levels of risk associated with the company. That is, the company may
turn out to be unprofitable and go out of business, resulting in the loss of the
amount originally invested. As a result, investors want to be compensated by

17
assuming risk. The yardstick for the risk-free rate of return is the return-yield
(or actual interest rate) on long-term government-owned securities. During
2014, the average interest rate for 10-year US Treasury bonds was around
2.25 percent. Hershey's ROA shows that during 2014, investors were given an
additional compensation of 14.

The risk of investing in a company's stock can be measured by

calculating its beta (β). Stocks with a β of 1.0 are considered to offer an
average amount of risk. During the 2014 fiscal year, Hershey's β was around
0.30, while Tootsie Roll's β was 0.85. During the year, the industry average is
around 0.50. As a result, investments in companies in the Candy and Other
Food Products industry are considered less risky than the average investment.
Hershey's β is slightly less than the industry average, while Tootsie Roll's ẞ is
slightly higher than the industry average, which is seen as a relatively risky
investment. At the end of 2014, Hershey stock was selling for about 26.6x
profit, while Tootsie Roll stock was selling for 29.2x profit. Overall, These
results indicate that during 2014, Hershey generated an ROA that was well
above the current risk-free rate, the risk associated with investing in the
company was low, and investors' perceptions regarding the future prospects
for the company were somewhat optimistic. For Tootsie Roll, the company's
2014 results show that ROA is above the industry average; The risk associated
with the firm, although moderate in comparison with the total market average,
is higher than the Hershey and industry averages. Nevertheless, investors'
perception of the future prospects for Tootsie Roll is positive. and investors'
perceptions regarding the future prospects for the company are somewhat
optimistic. For Tootsie Roll, the company's 2014 results show that ROA is
above the industry average; The risk associated with the firm, although
moderate in comparison with the total market average, is higher than the
Hershey and industry averages. Nevertheless, investors' perception of the
future prospects for Tootsie Roll is positive. and investors' perceptions
regarding the future prospects for the company are somewhat optimistic. For
Tootsie Roll, the company's 2014 results show that ROA is above the industry
average; The risk associated with the firm, although moderate in comparison

18
 with the total market average, is higher than the Hershey and industry
averages. Nevertheless, investors' perception of the future prospects for
Tootsie Roll is positive.

Determining the amount of income and expenses that must be reported

at the end of an accounting period can be difficult. This is because accountants
must know clearly what expenses and how much are borne by the company to
obtain revenue that can be recognized in a certain accounting period.
Therefore, accountants developed two principles as part of generally accepted
accounting principles, namely the principle of revenue recognition and the
principle of matching (matching concept).

2.4 Cash flow statement

2.4.1 Evolution of the Statement of Cash Flows

Prior to 1971, a statement of profit or loss and other comprehensive

income and a statement of financial position were the only two financial
statements required under GAAP. However, many large companies include
additional financial statements to disclose the relevant information needed to
make economic decisions. This disclosure is a response to investors, creditors
and other parties who express a desire to receive information regarding
funding and investment activities in business organizations. A number of
companies responded by issuing reports on sources and uses of funds (funds
statements). This report reports the available resources and the use of those
resources allocated during the reporting period.

Reports on sources and uses of funds were initially not prepared

uniformly. to which the method of reporting resources and use of resources
depends on the concept of funds referred to by the reporting entity. In general,
the concept of funds used can be categorized as cash, working capital, and all
financial resources. Other fund concepts, such as quick assets or net monetary
assets, may also have been invented.

The report using the cash fund concept summarizes all material
changes in the cash balance. As a result, reports of sources and uses of these

19
funds become statements of cash receipts and disbursements, and companies
report the effects of these receipts and disbursements in all other accounts.

Based on the definition of a working capital fund, all material

transactions that result in changes in working capital (current assets minus
current liabilities) are reported. Based on this concept, funds are defined as the
net amount of increases and/or decreases in cash, receivables, inventories,
payables and other current components.

Finally, if the all financial resources concept is used, the entity will
report the effects of all these transactions with outside parties. This fund
concept should be used in conjunction with other fund concepts (e.g., cash,
working capital) and includes all components that affect a company's
financing and investing activities. An example of a transaction of all financial
resources is the purchase of assets by issuing shares. In this case, investment
activities (asset purchases) are combined with activities. funding (issuance of
shares), but no activity affecting cash or working capital. The advantage of the
concept of all financial resources is the inclusion of all transactions which are
an important component in the financial administration of an entity.

2.4.2 Cash Flow Information

Cash flow in and cash flow out of the business is of the utmost
importance to investors and creditors. The presentation of cash flow
information by business enterprises should enable investors to (1) estimate the
amount of cash that may be distributed as dividends or interest in the future
and (2) evaluate the potential risk of a given investment.

The FASB has emphasized the importance of cash flow information in

its discussions. SFAC No. 1 states that effective financial reporting must
enable investors, creditors, and other users to (1) assess the prospects for cash
flows and (2) evaluate the liquidity, solvency, and flows of funds. Likewise,
SFAC No. 8 which indicates that information about the reporting entity's cash
flows helps users assess the entity's ability to generate future net cash inflows,
and cash flow-related information helps users understand the reporting entity's

20
operations, evaluate its financing and investing activities, assess its liquidity
or solvency, and interpret other information about financial performances.

Presentation of cash flow data is required to evaluate the company's

liquidity, solvency and financial flexibility. Liquidity is the company's ability
to convert assets into cash or pay short-term liabilities. This is referred to as
the "nearness to cash" of the economic resources and liabilities of the entity.
Liquidity information is important to users in evaluating the timing of future
cash flows, but it is also needed to evaluate solvency and financial flexibility.

Solvability refers to the company's ability to obtain cash for the

ongoing business operations. Specifically, it refers to a company's ability to
pay its debts as they fall due. Solvability is required so that the company can
be considered as a sustainable company (going concern). Bankruptcy can
result in liquidation and losses for owners and creditors. In addition, the threat
of bankruptcy can make the capital market react by increasing the cost of
capital in the future; that is, the amount of risk increases even more.

Financial flexibility is the company's ability to use its financial

resources to adapt to changes. It is a company's ability to take advantage of
new investment opportunities or to react quickly to a crisis. Financial
flexibility comes partly from quick access to a company's liquid assets.
However, liquidity is only one part of financial flexibility. Financial flexibility
also comes from a company's ability to generate cash from its operations,
make capital contributions, or sell economic resources without disrupting
ongoing operations.

The presentation of cash flow data is intended to enable investors to

make rational decisions by providing them with useful information. SFAC
No. 8 identify relevance and faithful representation as the main components
that make accounting information useful. The cash flow statement
undoubtedly enables the presentation of useful information to investors and
creditors because it enables users to predict the probability of future returns
and evaluate risks.

21
 In 1987, the FASB issued SFAS No. 95, “Statement of Cash Flows”
(see FASB ASC 230). This report sets out a number of standards for cash flow
reporting. It replaces APB Opinion No. 19, "Reporting Changes in Financial
Position." As a result, all business enterprises are now required to present cash
flow statements in lieu of a statement of changes in financial position and as
part of a complete set of financial statements.

2.4.3 Purpose of Statement of Cash Flows

The main objective of the cash flow statement is to provide relevant

information about the company's cash receipts and payments during a period.
These objectives are consistent with the objectives and concepts originally
described in SFAC No. 1 and 5 de later confirmed in SFAC No. 8.

SFAC No. I emphasized that financial reporting should provide

information to help current and potential investors assess the amount, timing,
and uncertainty of prospective cash receipts from interest, dividends, sales of
securities and proceeds from loans. This cash flow is considered important
because it can affect the company's liquidity and solvency. SFAC No. 5
indicates that a complete set of financial statements should show the cash
flows for the period. SFAC No. 5 also describes the use of cash flow reporting
in assessing an entity's liquidity, financial flexibility, profitability, and risk.
SFAC No. 8 states that information about cash flows helps users understand
the operations of a reporting entity, evaluate its financing and investing
activities, assess its liquidity or solvency,

The objectives and concepts described in SFAC No. 1 and 5, which

were later confirmed by SFAC No. 8 led the FASB to conclude that the
statement of cash flows should replace the statement of changes in financial
position as a required financial statement. The statement of cash flows is
intended to help investors, creditors and others assess future cash flows,
providing feedback on actual cash flows. Evaluate the availability of cash for
dividends and investments, and the company’s ability to fund growth from
internal sources, and identify reasons for the difference between net income
and net cash flow. An additional reason to focus on cash over working capital

22
 is the questionable usefulness of working capital in evaluating liquidity. That
is, a positive working capital balance does not always indicate liquidity, and a
negative working capital balance may not indicate a lack of liquidity. More
information is needed about accounts receivable and inventory financing to
evaluate the overall liquidity of a business enterprise.

2.5 Financial Analysis of Cash Flow Information

The main objective of accounting is to provide data that enables investors

and creditors to predict the amount of cash to be distributed in the form of
dividends and interest, as well as to enable risk evaluation. Net income is the
result of changes in assets and liabilities: some are current, and some are non-
current; consequently, net income cannot be equated with changes in cash. The
statement of cash flows discloses the effect of profit-making activities on cash
resources, how the assets were acquired, and how the assets were funded. A
company’s ability to generate cash from operations is an important indicator of its
financial health and the level of risk associated with investing in the company.

Investors and creditors of a company anticipate a return that is at least

equal to the market interest rate for investments with the same risk. Or, in other
words, the investor expects to receive a discounted present value of future cash
flows that is equal or greater than the initial investment. The past cash flows of a
company are the best available basis for estimating future cash flows.

The FASB emphasizes the importance of cash flows to investors when it

states: “Financial reporting must provide information that can assist investors,
creditors, and other parties in assessing the amount, timing, and uncertainty of
prospective cash flows to related companies.

The ability to predict returns to investors and creditors is complicated

because management may decide to use cash in a variety of ways, and use cash
interrelated. For example, available cash can be reinvested in assets or used to
expand facilities and markets, settle debt and equity, or pay dividends. Accounting
researchers are interested in determining the relationship between accounting
information and decision making. Empirical research shows that cash flow data
have additional informational content than accrual earnings data and that cash

23
flow data are superior to information. Changes in working capital. These findings
support the FASB's position on disclosing cash flow data because the Board
provides evidence that such information can lead to better decisions. They also
point out that even though there is uncertainty around alternative uses of available
cash by firms. Knowledge of past cash flow information enables investors and
creditors to make better predictions of future cash flows and risk assessments.

One method for analyzing a company’s cash flow statement is to

determine the amount of annual funding needed to maintain annual activities,
which is referred to as free cash flow. This metric is useful for measuring a
company’s cash flow beyond what it needs to grow at its current rate. That is,
companies must make capital expenditures to exist and grow, and free cash takes
into account these expenditures; consequently, the theoretically correct formula
for calculating free cash flow is as follows:

Cash flow from operations – The capital outlay required to sustain current
growth.

Unfortunately, the amount of capital expenditure required to sustain

current growth cannot be determined from a review of a company’s financial
statements. Accordingly, an estimate of this amount was developed using the
company’s current period capital expenditures, and the revised formula is as
follows:

Cash flow from operations – Current period capital expenditures

The resulting amount is a measure of a company’s financial flexibility as it

represents a company’s ability to take advantage of investment opportunities
beyond its current planned level of investment. A positive amount of free cash
flow is often the start of an increase in profits. A negative number indicates that
the company finds or will find it necessary to obtain funds from external sources
of financing to maintain operations or to grow.

2.6 International Accounting Standards

The International Accounting Standards Board (IASB) has carried out:

24
1. Discussion of the Statement of Financial Position and the various
measurement bases used in financial statements and has defined assets,
liabilities and equity in the “Framework for the Preparation and
Presentation of Financial Statements”.

2. Discussion regarding the information to be disclosed in the statement of

financial position and statement of cash flows in IAS No. 1 which was
revised. “Presentation of Financial Statements”.

3. Discussion regarding the presentation of cash flow statements in IAS No.

7, “Statement of Cash Flows.”

4. Discussion regarding the presentation of fair value measurements in IFRS

No. “Fair Value Measurement.”

2.6.1 Framework For The Preparation and Presentation of Financial

Statements

When discussing the statement of financial position in “Preparation

and Presentation of Financial Statements,” the IASB points out that the
economic decisions made by users of financial statements require an
evaluation of a company’s ability to generate cash. Consequently, the
financial position of a company is affected by the economic resources it
controls, its financial structure, liquidity and solvency, and its ability to adapt
to changes in the environment in which the company operates. Information
about the economic resources controlled by a company and its past capacity to
modify these resources is useful in predicting the company’s ability to
generate cash in the future.” The measurement basis used for elements of
financial statements, including historical cost, current cost, realizable value
(completion), and present value. The IASB also points out that the most
commonly used measurement basis is historical cost. The definitions of assets,
liabilities and equity are similar to those contained in SFAC No. 6 and cover
the respective concepts of resources, current liabilities, and remaining interest.

2.6.2 IAS NO. 1

25
 All IASB considerations for preparing the financial statements as
contained in IAS No. 1, “Presentation of Financial Statements,” is discussed
in Chapter 3. The recommended disclosures for the statement of financial
position are the same as those required under US GAAP with a few minor
exceptions. Initially, the IASC took the position that each company could
determine whether or not to present its current assets and short-term liabilities
as separate classifications, and did not require them to be presented in order of
liquidity based on the nature of their operations. IAS Revision No. 1 requires
assets to be classified as current and non-current unless presentation of
liquidity provides more relevant and reliable information, and acknowledges
that the differences in the nature and function of assets, liabilities and equity
are fundamental, so that these components must be presented at the beginning
of the statement of financial position. The new standard also requires the
following categories to be disclosed:

● Property, plant and equipment

● Investment property

● Intangible assets

● Financial assets

● Investing with the equity method

● Biological assets

● Accounts receivable inventory

● Cash and cash equivalents

● Accounts payable, trading and other payables

● Provisions relating to financial liabilities Liabilities and assets for

current tax

26
 ● Deferred tax liabilities and assets Capital and equity reserves

● Minority interests

● Capital and reserves issued by the shareholders of the parent

company

Additional line items will be presented based on materiality, as well as

the nature and function of each component. Monetary and non-monetary
components will be presented separately, along with operating and financial
components, as well as balances with other affiliated companies. As noted in
Chapter 3, the application of the proposed IASC FASB standards to the
presentation of financial statements will greatly change the format of
presentation of the statement of financial position.

2.6.3 IAS NO. 7

In IAS No. 7, “Statements of Cash Flows (Cash Flow Statements),”

IASB outlines the required disclosure and presentation formats for cash flow
statements. Like US GAAP, this report reports cash flows from operating,
investing and financing activities. Additionally, cash flows from operating
activities may be reported using the direct or indirect method, but the IASB
has expressed a preference for the direct method. Cash flows from
extraordinary components need to be disclosed separately as operating,
investing or financing activities under IAS No. 7. In addition, the combined
cash flows arising from the acquisition or disposal of subsidiaries need to be
presented separately and disclosed as investing activities under the provisions
of IAS No. 7.

2.7 Case Study of Cash Flow Statement Fraud

On the realization of the cash flow budget of PT. CMP, there is a

difference caused by a reduction in planned cash receipts, in addition to a
difference in planned costs for marketing, production costs and
general/administrative costs. Any deviations or differences that occur are analyzed

27
according to their respective groups consisting of revenue groups and financing
groups related to cash flow analysis for each period of the financial year in which
it is in operation. From the revenue plan budgeted by management, there has been
a decrease of 44.05% and of the planned spending also fell by 42.21%. Of course,
this has exceeded the general deviation tolerance standard that has been set at
20%.

Deviations in the cash flow budget are due to; first, suspension from
creditors/banks providing loan funds for investment in factory machinery for
phase II, because they are still waiting for confirmation from the supplier. Second,
the decline in the production plan expected by the company, which is directly
related to the planned sales of the product as a result of machine investment.
Third, the estimated excessive use of raw materials is the impact of the
postponement of the investment plan, so that the plan for payment is greater than
the existing realization. As a result of these deviations, the company's
management needs to re-evaluate the company's budget and financial projections
for the coming period.

The production results for the past four years are the realization of the
planned production capacity stages of the available factory machines. In 1991 and
1992 it was 40% of installed production capacity, in 1993 it was 50% and in 1994
it was 60%. The improvement plan for the next four years is projected by adding
investment in factory machinery, in addition to increasing the efficiency of
existing human resources. Projected production results in 1995 were planned at
70% of the installed engine capacity, in 1996 and 1997 the same at 80% and in
1998 at 85%.asurement.

28
 CHAPTER III
CLOSING

3.1 Conclusion

Investors and security analysts monitor company performance using

financial ratios. Financial ratios evaluate the relationship among elements of
financial statements and are most useful when compared to previous years' results,
competitors' results, industry averages, or benchmarks. The ratio of return on
assets (Return on Assets-ROA) measures the percentage of return on assets used
by a company. Financial analysts have suggested that adjustments be made to
both the numerator and denominator of the ROA ratio to increase its use in
evaluating profitability.

Cash flow in and cash flow out of the business is of the utmost importance
to investors and creditors. Presentation of cash flow data is required to evaluate
the company's liquidity, solvency and financial flexibility. The presentation of
cash flow data is intended to enable investors to make rational decisions by
providing them with useful information. The main purpose of accounting is to
provide data that enables investors and creditors to predict the amount of cash to
be distributed in the form of dividends and interest, as well as to enable risk
evaluation. One method for analyzing a company's cash flow statement is to
determine the amount of annual funding needed to maintain annual activities,
which is referred to as free cash flow.

When discussing the statement of financial position in "Preparation and

Presentation of Financial Statements," the IASB points out that the economic
decisions made by users of financial statements require an evaluation of a
company's ability to generate cash.

3.2 Suggestion

In preparing this paper, the author realizes that there are still many
deficiencies that need to be added and corrected. For this reason, the authors hope
for inspiration from readers in terms of helping to improve this paper and the
authors hope that the presence of this paper will provide a change, especially in
the world of education.

29
 BIBLIOGRAPHY

Schroeder, RG, Clark, MW, & Cathey, JM (2020). FINANCIAL ACCOUNTING

THEORY. South Jakarta: Salemba Empat.

Pmabudi, B. T. (1995). Evaluasi Terhadap Arus Dana (Cash Flow) Pabrik Tas.

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