Английский язык = English. Учебное пособие-1

1.Machinery with an original cost of $50,000 and accumulated depreciation of $30,000 was sold for $30,000.

2.Common stock originally issued for $30,000 was acquired for $35,000 and retired. The $5,000 difference was debited to retained earnings.

3.Dividends declared and paid during 1992 totalled $35,000. The statement of cash flows is prepared using the follow-

ing steps:

1.Determine the net increase or decrease in cash and cash equivalents for the period. We see that Aggie Pro Shop’s cash balance increased by $40,000 during 1992. (The company had no cash equivalents.) This amount serves as a control figure. Once we have completed the statement of cash flows, the net cash inflow or outflow must agree with the $40,000 net change in the cash account.

2.Analyze any available income statement data, changes in non-cash balance sheet accounts, and additional information provided in order to determine the transactions that caused inflows and outflows on cash during the period.

3.Prepare the statement of cash flows on the basis of the two previous steps [1, p. 1070].

Exercise 1. Answer the questions.

1.What data are to be available to determine the transactions that caused inflows and outflows of cash during the period?

2.What is done:

a)at the first step of the preparation of the statement of cash flows?

b)at the second step?

IV. Translate Text D in writing.

TEXT D

One measure of a company’s profitability is net income. Total reported net income or net loss (assuming a nominal dollar concept of capital maintenance) equals net cash inflow or out-

101

flow. Since income determination is based on accrual accounting, however, the equality of income and cash flows rarely holds for short time periods, such as annual accounting periods. For example, a company may operate for several years because its annual cash inflows exceed its required annual cash payments even though the company may not be profitable in the long run. Or a profitable company may experience severe short-run cash problems.

The statement of cash flows complements the income statement by disclosing the amount of cash generated by the company’s operating activities. It also complements the balance sheet by disclosing cash flow transactions that cause changes in assets, liabilities, and stockholders’ equity. For example, the amount of cash used to purchase long-lived assets during an accounting period is reported on the statement of cash flows.

Many users believe that the statement of cash flows presented in conjunction with an income statement better satisfies many of the qualitative characteristics. The statement of cash flows may be more reliable than the income statement. The information presented in the statement of cash flows avoids many of the arbitrary allocations and estimates (e.g., depreciation expense) that are necessary in income determination. Furthermore, comparability among companies may be enhanced through the statement of cash flows. Because GAAP permits the use of many alternative accounting procedures to determine income, intercompany comparisons often are difficult. Finally, a statement of cash flows is readily understandable.

None of this is meant to lessen the importance of the income statement and balance sheet as reports on performance and as sources of information to users. When investment decisions are made, many factors must be assessed. The income statement and balance sheet provide information about some, but not all, of these factors. The statement of cash flows provides information about other factors. Furthermore, a significant body of empirical research suggests that cash flow information is useful. [15, pp. 72, 193–194]

102

KEY TERMS EXERCISES

Exercise 1. Match the words on the left with the definitions on the right.

Exercise 2. Complete the sentences with the proper ending.

1.Cash equivalents are…

a)cash flow information;

b)short-term highly liquid investments;

c)idle cash;

d)lending money.

2.Activity format means…

a)that cash flows and outflows should be classified in terms of operating, investing and financing activities;

b)that cash flows from operating activities are generally the cash effects of transactions and economic events included in the determination of income.

3.Under the direct approach…

a)income taxes are paid;

b)cash is paid to employees.

4.Under the indirect approach…

a)interest and dividends are received;

b)net income is adjusted.

103

ORAL SPEECH SECTION

Exercise 1. Read the dialogue and decide if foreign currency borrowings are profitable for the company.

Illustrative dialogue

Obtaining Finance. Discussion of Treasury Management and Foreign Exchange

The Managing Director of Primrose, the Financial Controller and the Treasury Manager from Birmingham discuss treasury management and foreign Exchange.

MD: ...I’ve decided to sit in on your discussion because I need to understand how we should manage and report on our foreign currency borrowings.

TM: Well, the present situation is that Birmingham wants you to finance your expansion through borrowing in dollars.

FC: I take that it means using part of these borrowings to finance our proposed investment in the East?

TM: Actually the Board has not yet made a decision, but you must consider borrowing either in dollars or currency of a selected Eastern country, if that’s at all possible...

MD: But surely the Board has already decided where we are to be funded?

TM: Not entirely. Between us, some Board members are undecided about the Group’s long-term financing strategy. They fear that heavy additional borrowing will increase the Group’s gearing. UK investors may become alarmed and sell their shares, and this would force the share price down.

FC (to MD): You see, if we invest in dollars and Eastern Europe, the assets acquired will be in the local currency and may be exposed to exchange losses if sterling strengthens. So it makes sense to take out dollar loans to finance these assets in order to hedge or minimise possible losses. Or, better still, to borrow in the country where we want to set up.

MD: You mean that losses from translating local currency assets into sterling will be covered in the consolidated balance sheet by the gains when translating local currency borrowings...

104

FC: ...and vice versa...

TM: Suppose we acquire fixed capital assets in dollars for $200,000, then at today’s exchange rate of $20 to the Pound the assets will be reported to Head Office at a value of £10,000.

MD: Yes...

TM: If by December 31st, when our financial year ends, the exchange rate is $25 to the pound because sterling has strengthened against the dollar, the assets will be reported at £8000.

MD: A difference of £2,000 – a loss, I presume.

FC: Yes, so if we borrow $200,000 to finance the purchase of assets, a loan initially translated as £10,000 becomes a loan of only £8,000 at the end of the year.

MD: Fine, I get it. A loss of £2,000 from translating the assets is offset by the gain of £2,000 when translating the loan.

FC: That’s why we need to persuade our Flowery Bank to lend us in dollars ... and without giving them a Primrose Group guarantee.

MD: Or Eastern Bank to lend to us in their currency. FC: That, too, seems a likely possibility. [20, p. 113]

Exercise 2. Find the proper answer to the following questions.

1. Where is the company to be funded?

a) in the East b) in the UK c) in Birmingham

d)in Eastern Europe

2.What kind of a loan is preferable to minimize possible losses?

a) in local currency b) in dollars c) in pounds d) in euros 3. What is “today’s” exchange rate?

a) $20 to the pound b) $25 to the pound c) £20 to the dollar d) £25 to the dollar

4. What financial document do they use while translating

c)balance sheet d) savings account

5.The Treasury Manager mentions Group’s gearing. What do you think it is?

105

Exercise 3. Match expressions on the left with the correct equivalents on the right.

Exercise 4. Give answers to the questions on the dialogue between a managing director, a financial controller and a treasury manager as in the model.

Model: How can they manage their currency borrowings?

–Through borrowing in dollars.

1.How are they going to finance their proposed investment in the East?

2.How can sterling strengthen?

3.In what way can the company minimise possible losses?

4.How will the losses from translating local currency assets into sterling be covered?

5.How can the Board make a decision on where they are to be funded?

6.What are the ways to persuade the bank to lend?

7.How can they calculate a loss?

Exercise 5. Complete the dialogues.

1)A.: Well, the Board wants you to finance your expansion through borrowing in dollars.

B.: …?

A:No, they have not yet made a decision.

B:…?

2)A: Some Board members fear that additional borrowing will increase the Group’s gearing.

B:…?

A:Well, I suppose because UK investors may become alarmed and sell their shares.

B:…

106

3) A: Will, do you think, the assets be exposed to exchange losses if sterling strengthens?

B: …

A:So it makes sense to take out dollar loans to finance these assets.

B:…

4)A: Probably it is better to borrow in the country where we want to set up.

B:…

A:… and vice versa…

B:…

5)A: By the end of our fiscal year the exchange rate may be different to the pound.

B:…

A:Yes, I believe it may be a $ 2,000 difference which means a loss.

B:…

6)A: We need to persuade our bank to lend us in dollars.

B:…

A:Yes, you are right here. Or Eastern Bank to lend us in their currency.

B:…

Exercise 6. Work in pairs. Make up short dialogues and act them out taking the roles of a treasury manager and a financial controller.

1.You want to get the information about the exchange rates.

2.You want to know about the long-term financing strategy.

3.The Board has not decided yet on the loan.

4.You want to minimize possible losses.

5.There is a danger to lose investments.

6.You think the exchange rate will be different by the end of the year.

7.You suggest borrowing in dollars.

8.One of you has to report to the Head Office vin a few minutes.

107

Exercise 7. Fill in the missing question words and give short answers to these questions, based on the poem from exercise 13.

Model: … is he telling about?

– What is he telling about? About the importance of cash flow information.

1.… face was money-green?

2.… did the businessman ponder?

3.… did he hear at midnight?

4.… did he feel?

5.… does it matter?

6.… of inventory does the company have?

7.… does the banker want the businessman to do?

8.… did he ask the banker for?

9.… kind of security does the banker insist on?

10.… do customers pay?

Exercise 8. Make up sentences and translate them into Russian.

Exercise 9. Ask and answer questions. Start your answers with

I suppose..., I am (not) sure…

1.When dividends are declared.

2.What cash flow is.

3.Where the managers are having a discussion.

4.How often a profitable company may experience severe cash problems.

5.What kind of information income statement and balance sheet provide.

108

6.Whether the statement of cash flows is more reliable than the income statement.

7.Who permits the use of may alternative accounting procedures.

8.How many factors must be assessed while making investment decisions.

9.If income statement is important to users.

10.What companies should report.

Exercise 10. Read the illustrative dialogue and speak on treasury management and foreign exchange in the name of a company’s controller or a treasury manager.

Exercise 11. Respond to the situations as shown.

Situation 1: This company usually does well. This did not happen last year.

Response: The company usually does well. Last year it did badly. It did worse last year. It must do better.

1.This accountant always looks through company’s records carefully. This did not happen today.

2.The company has acquired too much expensive finance.

3.The current ratio is too high. This means that the company has more money than it can efficiently use.

4.Company A was a successful and profitable enterprise. It is not now.

5.The management considered various ways of acquiring extra funds.

Situation 2: The Board is to make a decision. You have to prepare necessary information.

Response: I’ll prepare the information before they make a decision.

1.You have to prepare statement of cash flows. You’ll talk to your boss first.

2.The bank is going to lend in dollars. You give it a guarantee.

3.Financial year is ending. The manager needs to prepare a report.

109

4.You should not operate at a loss. But things happen.

5.They want to set up in a foreign country. Their assets will be in local currency.

Exercise 12. Make up dialogues on the following situations.

1.Начальник поручает вам подготовить краткое сообщение о кредитах в иностранной валюте. Спросите у него, когда ему нужна эта информация. Он отвечает, что необходимо

ееподготовить до заседания совета директоров. Вы уточняете, означает ли это, что компания будет использовать эти кредиты для финансирования инвестиций в другой стране. Начальник говорит, что решение еще не принято, но необходимо рассмотреть возможность кредитов либо в долларах, либо в валюте отдельной страны.

2.Начните разговор с приветствия, вопросов о семье. Выслушайте ответы. Поинтересуйтесь, принято ли решение основать филиал вашей компании в соседней стране. Ваш собеседник сообщает вам, что решение принято. Сейчас имеет смысл взять кредиты в долларах, чтобы финансировать эти активы и минимизировать возможные потери. Вы говорите, что, возможно, лучше взять кредит в стране, где предполагается создать филиал компании.

3.Начните разговор с руководителем с традиционных фраз вежливости. Сообщите начальнику, что к концу финансового года обменный курс изменится, так как фунт стерлинга укрепился по отношению к доллару на уровне $3 к фунту. Вы также сообщаете, что если этот курс сохранится, компания получит убытки в 30 000 фунтов (£30,000). Ваш менеджер считает, что если вы возьмете кредит на покупку активов, то ссуда к концу года станет выгодной. Вы согласны с ним и говорите, что важно убедить банк выдать кредит в долларах и без предоставления банку гарантии.

Exercise 13. Read the following poem. Be ready to answer the following questions.

1.Is cash flow information important or not?

2.How should cash flow be watched?

110