Задание 1.

Цель и содержание задания

Цель задания[1]: совершенствование лексического и грамматического навыков при выполнение различных видов упражнений.

Содержание задания: Look through the subjects “Accounting and Financial Statements”  and “Takeovers” and do the tasks:

Vocabulary. Match up the terms on the left with the definitions on the right.

a) bookkeeping G working out the unit cost of products, including materials, labour and all other expenses

b) accounting C keeping financial records, recording income and expenditure, valuing assets and liabilities, and so on.

c) managerial accounting D preparing budgets and other financial reports necessary for management

d) cost accounting B writing down the details of transactions (debits and credits)

e) tax accounting A calculating an individual’s or a company’s liability for tax

f) auditing E inspection and evaluation of accounts by a second set of accountants

g) ‘creative accounting’ F using all available accounting procedures and tricks to disguise the true financial position of the company

 

 

 

 

2.a Vocabulary. Match up the words with the definitions below.

Assets; depreciation; liabilities; turnover; creditors (GB) or accounts payable (US); debtors (GB) or accounts receivable (US); overheads (GB) or overhead (US); revenue or earning or income; shareholders (GB) or stockholders (US); stock (GB) or inventory (US)

a company’s owners = shareholders (GB) or stockholders (US)

all the money received by a company during a given period = revenue or earning or income

all the money that a company will have to pay to someone else in the future, including taxes, debts, and interest and mortgage payments = liabilities

the amount of business done by a company over a year = turnover

anything owned by a business (case investments, buildings, machines, and so on) that can be used to produce goods or pay liabilities = Assets

the reduction in value of a fixed asset during the years it is in use (charged against profits) = depreciation

sums of money owed by customers for goods or services purchased on credit — creditors (GB) or accounts payable (US)

sums of money owed to suppliers for purchases made on credit = debtors (GB) or accounts receivable (US);

(the value of) raw materials, word in progress, and finished products stored ready for sale = stock (GB) or inventory (US)

the various expenses of operating a business that cannot be charged to any one product, process or department = overheads (GB) or overhead

 

2.b. Reading. Insert the words from 2a in the gaps in the text below.

Accounting and Financial Statements

In accounting, it is always assumed that a business is a ‘going concern’, i.e. that it will continue indefinitely into the future, which means that the current market value of its fixed assets is irrelevant, as they are not for sale. Consequently, the most common accounting system is historical cost accounting, which records (1) assets at their original purchase price, minus accumulated depreciation charges. In times of inflation, this understates the value as it does not record the replacement cost of plant or (2) stock (GB) or inventory (US). The value of a business’s assets under historical cost accounting – purchase price minus (3 depreciation  – is known as its net book value. Countries with persistently high inflation often prefer to use current cost or replacement cost accounting, which values assets (and related expenses like depreciation) at the price that would have to be paid to replace them (or to buy a more modern equivalent) today.

Company law specifies that (4) shareholders (GB) or stockholders (US) must be given certain financial information. Companies generally include three financial statements in their annual reports.

The profit and loss account (GB) or income statement (US) shows (5) revenue or earnings or income and expenditure. It usually gives figures for total sales or (6 turnover and costs and (7) overheads (GB) or overhead (US). The first figure should obviously be higher than the second, i.e. there should be a profit. Part of the profit goes to the government in taxation, part is usually distributed to shareholders as a dividend, and part is retained by the company.

The balance sheet shows a company’s financial situation on a particular date, generally the last day of the financial year. It lists the company’s assets, its (8) liabilities and shareholders’ funds. A business’s assets include (9) debtors (GB) or accounts receivable (US)  as it is assumed that these will be paid. Liabilities include (10) creditors (GB) or accounts payable (US) as these will have to be paid. Negative items on financial statements, such as creditors, taxation, and dividends paid, are usually enclosed in brackets.

In accordance with the principle of double-entry bookkeeping (that all transactions are entered as a credit in one account and as a debit in another), the basic accounting equation is Assets=Liabilities + Owners’ (or shareholders’) Equity. This can be rewritten as Assets – Liabilities = Owners’ Equity or Net Assets. This includes share capital (money received from the issue of shares), share premium (GB) or paid-in-surplus (US) (any money realized by selling shares at above their nominal value), and the company’s reserves, including the year’s retained profits. Shareholders’ equity or net assets are generally less than a company’s market capitalization (the total value of its shares at any given moment, i.e. the number of shares times their market price), because net assets do not record items such as goodwill.

The third financial statement has various names, including the source and application of funds statement, and the statement of changes in financial position. This shows the flow of cash in and out of the business between balance sheet dates. Sources of funds include trading profits, depreciation provisions, sales of assets, borrowing, and the issuing of shares. Applications of funds include purchases of fixed or financial assets, payment of dividends, repayment of loans, and – in a bad year – trading losses.

2c Summarizing. Complete the following sentences.

Companies record their fixed assets at historical cost because сountries with persistently high inflation often prefer to use current cost or replacement cost accounting, which values assets (and related expenses like depreciation) at the price that would have to be paid to replace them (or to buy a more modern equivalent) today.

Historical cost accounting usually underestimates the value of assets that appreciate (gain value) such as land and buildings (US: real estate).

Countries with a regularly high rate of inflation generally use a system of current cost and replacement cost accounting, which records assets at the price that would have to be paid to replace them.

Company profits are usually split three ways: into tax, dividends, and retained earnings.

Double-entry bookkeeping requires that all transactions are entered as a credit in one account and as a debit in another), the basic accounting equation is Assets=Liabilities + Owners’ (or shareholders’) Equity.

A company’s net assets consist of its assetsminus liabilities.

A company’s stock market capitalization is the marketvalue of a publicly traded company’s outstanding shares.

Flows of cash both in and out of the company are recorded in the source and application ofthe funds statement.

3.Types of assets. Match the accounting terms with the definitions below

current or circulating or floating assets fixed or capital or permanent assets intangible assets liquid or available assets

net assets net current assets or working capital wasting assets

liquid or available assets are anything that can quickly be turned into cash.

net current assets or working capital are the excess of current assets (such as cash, inventories, debtors) over current liabilities (creditors, overdrafts, etc)

wasting assets are those which are gradually exhausted (used up) in production and cannot be replaced.

current or circulating or floating assets are those which will be consumed or turned into cash in the ordinary course of business.

intangible assets are those whose value can only be qualified or turned into cash with difficulty, such as goodwill, patents, copyrights and trade marks.

net assets or shareholders’ equity, on a business’s balance sheet, is assets minus liabilities (which is generally equal to fixed assets plus the difference between current assets and current liabilities).

fixed or capital or permanent assets such as land, buildings and machines, cannot be sold or turned into cash, as they are required for making and selling the firm’s products.

4.Make your own balance sheet using different examples.

Rockford Real Estate Balance Sheet June 30, 2021 (Q2)
Assets		Liabilities
Current Assets		Current Liabilities
Bank account	$3,500	Accounts payable	$3,500
Accounts receivable	$7,300	Wages payable	$9,500
Temporary investments	$5,000	Taxes payable	$6,000
Total current assets	$15,800	Total current liabilities	$19,000
Noncurrent Assets		Noncurrent Liabilities
Property	$47,000	Bonds payable	$25,000
Total noncurrent assets	$47,000	Total noncurrent liabilities	$25,000
		Stockholders’ Equity
		Retained earnings	$15,000
		Common stock	$3,800
Total assets	$62,800	Total liabilities and stockholders’ equity	$62,800

 

Takeovers

 

Watch the following dialogue between experts in M&A and categorise the sentences as true or false:

1.Matt Simmons considers that size has always to do with quality. TRUE

According to Matt Simmons, the critical issue in M&A is represented by people. FALSE

According to John Gibson, the critical issue in M&A is represented by people. TRUE

According to John Gibson, a bad idea with good people is worse than a good idea with bad people. FALSE

Neville Henry considers that most of the times, the M&A process excludes firing people. TRUE

David Johnson emphasizes the good communication existing between the merging parties from the very beginning.  TRUE

Matt Simmons argues that the aim is t build one culture out of two or three cultures. TRUE

According to John Olson, in the oil and gas industry, it is essential to make the information about reserves transparent. TRUE

As regards reserves in any type of company, David Johnson and Tom Fry agree that the best practice for having exact information about one company is to use internal auditors. FALSE

There is general disagreement that it is essential to rely on companies’ integrity. TRUE

 

2.Match the words or phrases with their corresponding definitions:

1. leveraged buyout B	a. joining together of the stock of two companies, so they become part of the same company and former management preserve their positions;
2. bid H	b. buying a majority of the shares in a company, and so winning control over the company;
3. amalgamation E	c. a high-yield, speculative bond, often issued to finance the takeover of a corporation
4. merger A	d. takeover of a company or controlling interest in a company, using a significant amount of borrowed money. Often the target company’s assets serve as collateral for the borrowed money.
5. buyout G	e. the combination of two or more commercial companies
6. junk bonds С	f. a special type of security such as life-assurance policy or shares used to secure a bank loan;
7. collateral а	g. a situation where workers or management buy all the equity (or more than 50%), or buy other assets, and so gain control of a business;
8. takeover D	h. an offer to buy part of or all the share capital of a company.

3.Fill in the gaps with one of the words defined in the previous exercise:

In a market economy, it is quite common that smaller companies, with reduced financial means, should be taken over by other bigger companies or that two or several companies should merge to form a new company.

A ……1 takeover means the purchasing of a company, either entirely, or at least of the controlling percentage of its shares. In the case of small companies with limited assets, in order to make a takeover collateral 2……, that company will have to borrow heavily to finance the takeover of a larger company. For these, they might use both their own assets and the assets of the target company or leveraged buyout 3…… as security or junk bonds 4……. for getting the loan. Such a takeover is called a ……5 amalgamation.

A takeover bid is an offer to buy made to the shareholders of the target company. The purpose of the bid 6…… is to add that company to their portfolio and turn it into a subsidiary. The bid may be for payment in cash made to the shareholders (cash bid) or for payment by shares of the company making the bid. Sometimes the bid is considered acceptable by the board of the target company and in this case it is said to be a welcome/ friendly takeover bid. In other instances it is considered unfavourable by the board of the target company and then it is termed an unfriendly/ hostile. In the latter case, a takeover battle ensues in which the bidder might offer better terms or another bidder comes into the field.

A ……7 merger is the unifying of the two or several companies into a new one with the purpose of increasing efficiency, of doing away with competition. It is usually to the advantage of all parties involved, hence it is considered amicable. All members of the former boards are offered almost similar positions in the new board. Another term for this type of merger is buyout 8….. .

 

Choose the correct answer:

A …..company or investment is one that can be trusted and is not likely to fail.

blue-chip; b. blue; c. trusting; d. blue-cheap.

……involves buying a company cheaply, selling its assets separately at a profit.

asset-distribution; b. asset-taking; c. asset-stripping ; d. asset-selling.

A……’s main purpose is to control another company through owning shares in it.

branch; b. holding company; c. subsidiary; d. subsidy.

A reason for acquisitions is synergy. Synergy includes:

revenue enhancements; b. cost reductions; c. lower taxes; d. all of the above.

Compensation paid to top management in the event of a takeover is called a:

poison pill; b. golden parachute; c. salary; d. buyout.

A ………is when one company offers to buy another.

merger; b. takeover bid; c. leveraged buyout d. share.