Stuart Hentschke - Step 3

After locating my company GKN PLC in the company spreadsheet and clicking on the link I was taken to the company website. Shortly after I discovered the notes of “Investor relations/Investor Centre/ Annual Reports (GKN PLC Annual Reports - Not GKN Holdings PLC)” did not relate to the website I was looking at, there wasn’t anywhere that related to investor relations. It looked to me as though GKN is a larger company made up of various other subsidiary companies.

("GKN Website Screenshot," 2019)

Unsure of which of these companies related to PLC I visited all the sections only to find no information relating to annual reports. I used annualreports.com to locate the Annual Report and Accounts 2017 for GKN PLC. These can be found here:

http://www.annualreports.com/Company/gkn-plc

After reading the chairman’s statement by Mike Turner I became aware that GKN had become the target of an unsolicited takeover bid by Melrose Industries PLC in January 2018 (GKN PLC, 2017). Melrose Industries PLC is a company that seeks to buy underperforming companies at a discount, improve the businesses and then resell the entities for a profit. On the 19th of April 2018 Melrose Industries PLC acquired GKN PLC. The finance director stated that this acquisition significantly increase the size of Melrose group (as GKN assets represent 85% of Melrose’s group sales) which makes meaningful year on end comparisons difficult for the eight month period (Melrose Industries PLC, 2018). I emailed Maria, to find out if I should use the annual reports from for GKN PLC from 2015, 2016 and 2017 or those of Melrose Industries PLC from 2016, 2017 and 2018. Her reply was to choose one of the companies and explain why I made the decision. I decided to study the company GKN PLC as I’m interested to see how the company was performing prior to the takeover. I question whether the takeover occurred just through a decrease share price which allowed Melrose to purchase at a discount or was the company struggling financially also which lead to a decrease in share price? Or was there even a decrease in their share price before the acquisition at all? I believe that it will also be an advantage to study GKN as they have three financial reports in a row without

interference of a major acquisition (as if I chose Melrose the large purchase would heavily influence the financial reports).

Background information on GKN PLC

GKN is an engineering and manufacturing company with a global presence primarily involved with transport through air and road. The website homepage can be seen here http://www.gkn.com/

The GKN business is split across four major sectors:

- Aerospace,

- Automotive,

- Powder Metallurgy and

- Wheels and Structures.

Aerospace: https://www.gknaerospace.com/

The company aims to make aircraft fly faster, further and greener. The company designs and manufacturers a range of systems and components that are used in all types of aircraft from single aisle to 5th generation fighter aircraft. An example of some of the components include cabin windows, landing gear and electrical wiring systems. With 18,000 employees, manufacturing in 50 different locations across 15 countries GKN Aerospace produced £3.53bn in 2018 sales.

Landing Gear Manufacturing Image, https://www.gknaerospace.com/globalassets/downloads/gkn-capabilites-brochure-2019-paris.pdf/

Automotive: https://www.gknautomotive.com/ and https://www.gknautomotive.com/en/gkn-formula-e/

GKN Automotive is focused on mobility and specialise in electric drive systems, all-wheel, 4-wheel drive systems, sideshafts and propshafts. They have a strong focus on creating stronger and lighter more fuel-efficient parts and have teamed up with Panasonic Jaguar Racing team in Formula E to bring their expertise to the racetrack. Here is an example of a lightweight modular front propshaft for a pick-up truck. This global engineering company has 29,000 employees, manufacturing in 54 different locations across 21 countries with £4.6bn in 2018 sales.

Propshaft Image, https://www.gknautomotive.com/

Powder Metallurgy: https://www.gknpm.com/

GKN Powder Metallurgy is a combination of three separate businesses of 3D Metal Printing (allowing user to place a 3D printing order and get a quote instantly), creating Metal Powder (to be used to create small cogs – raw material) and Sintered metal parts (creation of small cogs). The core business of conventional powder metallurgy currently produces 13,000,000 parts per day.

3D

Printing Image Design, https://www.gknpm.com/en/our-businesses/gkn-additive/

3D Image Created, https://www.gknpm.com/en/our-businesses/gkn-additive/

Wheels and Structures: https://www.gknwheels.com/

GKN Wheels & Structures is a world leader in providing solutions to machinery which require large off-highway wheels, hub systems and structural assemblies. The types of wheels include those used on harvesters, earth moving and mining equipment which are used in challenging environments.

Wheels, Hub Systems and Structures, https://www.gknwheels.com/

GKN Wheels and Structures were involved in the design of the wheels and chassis for the JCB Fastrac which officially broke the Guinness World Record for the worlds fastest tractor. The tractor achieved a peak speed of 153.771 mph or 247.47 kilometres per hour. The video can be found by clicking the link on my blog post at https://stuart2124.wordpress.com/2019/12/03/my-company-gkn-plc/

Comments / KCQs - GKN PLC latest annual report 2017

Mike Turner the chairman of GKN PLC stated that while it was a good year with record sales it was also a year of disappointing trade margins and cash results. I’m not sure what is meant by this trade margins and cash results as I would have thought that this type of company would ensure a trade margin occurs prior to creating the goods for customers. Maybe other competitors are in the market and GKN had to lower their prices to compete?

The company also identified a balance sheet issue at some of the Aerospace plants leading to an adjustment of £112 million. I find it difficult to understand how an amount this large was incorrectly stated. By balance sheet adjustment I understand this to be the process of adjusting revenue and expenses to suit the reporting period and that £112 million didn’t go missing it was just incorrectly stated. I also found it strange that the company reported 31.7p as their earnings per share on a management basis (in a large font on the group performance page) and when viewed with the footnote said that it excluded the £112 million Balance Sheet Review adjustments. I would have thought that the investors would be more interested in the results stated in the correct manner and not a figure that is incorrect. When the group performance table is viewed the earnings per share is 26.6 pence. So maybe the company just choose to show off the larger number in the larger font while providing the real detail in the group performance table.

A worker in 2017 was tragically killed in October 2017 in the Wheels business in Italy. GKN has provided support by those affected and at the same time investigated the cause and they are acting to ensure that employees go home safely each day. GKN contains a large section of their annual report to principle risks and uncertainties which cover all the business risks in detail. I found this was similar to my company Incitec Pivot in ACCT11059 which also had a large section relating to all types of risks that the company is exposed to.

While the 2017 results show 6% organic growth, this growth was achieved at the expense of cash generation and returns. I don’t understand how they are measuring this growth and I would be interested to work it out. I would guess that revenue has increased by 6% over the various companies combined but expenses have also increased at a greater rate leading to the lack of cash generation and returns. When I compare the 2016 sales figure of 8,822 to the sales figure in 2017 of 9,671 ((9671-8822) / 8822) it returns 9.62% increase.

The total dividend for the year will be 9.3 pence per share which is an increase of 5% over the 8.85 pence per share in 2016. Which is always a positive sign for investors.

It would be difficult for the senior executives to concentrate on expanding and improving the company when they are subject to an unsolicited takeover bid. As at the date of this annual report management are continuing to defend the company and will provide updates to shareholders as necessary. The board is planning to sell off most of its non-core businesses which result in 26% of their revenue over the next 12-18 months and concentrate on the aerospace and automotive markets.

As the population rises and becomes more affluent more people are travelling, and this travel drives the demand for GKNs products in the aerospace and automotive markets. There is a bright outlook and given the demand for increased fuel efficiencies and sustainability. GKN are positioned to

benefit from the growth in full hybrid (two motors; fuel and electric that can operate independently or simultaneously) and electric vehicles in the near future.

Discussions with others

I saw a post on the Facebook group that Chrys Gerard was looking to discuss companies, so I sent her an email.

Hi Chrys,

My company GKN is an engineering and manufacturing company with a global presence primarily involved with transport through air and road. They have been taken over by Melrose Industries PLC on the 19th of April 2018, therefore I am using the annual reports of GKN for 2017, 2016 and 2015 (after checking that this was ok to do).

http://www.gkn.com/

Here is a link to their most recent annual reporthttp://www.annualreports.com/Company/gkn-plc

GKN present their financial statements with the following titles.

- CONSOLIDATED INCOME STATEMENT

- CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

- CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

- CONSOLIDATED BALANCE SHEET

- CONSOLIDATED CASH FLOW STATEMENT

When I compared this to my company Incitec Pivot from ACCT11059, I found they were presented differently as Incitec Pivot combined their income statement and statement of comprehensive income and called them

- Consolidated Statement of Profit or Loss and Other Comprehensive Income

Incitec Pivots other statements are listed in order as- Consolidated Statement of Financial Position (which GKN title their balance sheet)- Consolidated Statement of Cash Flows- Consolidated Statement of Changes in Equity

The only other slight difference is the order in which they are reported. How has your company presented their financial statements?

What have you learnt about your company so far?

I have put some links to news articles on my blog that you can check out here if you like.

https://stuart2124.wordpress.com/2019/12/04/news-articles-gkn/

Kind regards, Stuart.

Chrys replied the same day and I investigated her Swiss based company called company Geberit, which I had never heard off before either. Gerberit sell bathroom and toilet supplies, ceramics and wastewater systems for business and individuals. Chrys mentioned that my company had done well in the 2017 year and when I compared to her company they had a total comprehensive income profit of 551.2 MCHF. I wasn’t sure what this meant. I looked to the notes in section 1 was listed that “The term “MCHF” in these consolidated financial statements refers to millions of Swiss francs.” This makes sense considering the company is from Switzerland. Gerberit presented their financial statements in the following order.

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED INCOME STATEMENTS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

CONSOLIDATED STATEMENTS OF CASHFLOWS

I noticed that when compared to GKN Plc financial statements they are presented in a different order and the denomination is different. Chrys mentioned that Geberit display their annual reports at the end and that the consolidated Reports are mid-way through. I also found this confusing when trying to compare companies as the “Balance Sheets” on page 134 were quite different from those on page 87. I find it interesting that some companies can grow and become very large while many others in the same industry fail.

I replied on Chrys Blog – Life By The Numbers With Chrys

I am happy with GKN as my firm and I wouldn’t have preferred to be given a different company. At first, I was a little concerned given I couldn’t locate the company’s annual reports. I was also concerned that GKN was made up of so many other companies which made understanding them all, in order to understand the whole company more difficult. After reading through all the different things the company did on their website and their annual report, I felt more comfortable. I enjoyed learning that GKN had input to the world’s fastest tractor.

I don’t have any concerns at this stage. I have found this firm slightly easier to understand. I now understand that the parent company can be made up of various other (sometimes in unrelated industries) companies and that the results are all complied together. This was similar to my previous company Incitec Pivot which was made up of separate entities as Incitec Pivot Fertilisers and Dyno Nobel a global leader in commercial explosives. It appears that GKN also have separate business divisions and when the company presents their financial information it is all combined together to give the overall situation for the business for that year.

I have found reading the annual report a lot easier this time compared to the last unit. I believe that this is due to being more familiar with an annual report and having a basic understanding of what to look for when trying to understand what the business is doing. For example, have a good look on the company website before reading the annual report, as the website often contains more images and videos that can make understanding some of the businesses complicated processes or products easier. Locating the firms bottom line of total comprehensive income for the year of £573m was quite simple to do and I’m no longer as confused regarding the other comprehensive income for the year. I now understand the other comprehensive income to be all the other information that isn’t included in income statement (or Profit and Loss) but is still affects the amount that is transferred to equity at the end of the period. I have also found it easy to view the balance sheet and compare previous years assets, liabilities and equity to gauge the firm’s performance.

Know Your Firm

I found the following new articles about my firm and have summarised the content below. I have also provided links to these resources on my blog.

“Government won't block £8bn takeover of GKN by Melrose, business secretary announces – 24 April 2018”

- The government is not going to block the takeover on national security grounds.

- There was concerns as GKN work on vital defence contracts.

- There is a risk that because Melrose buy companies, improves them and sells them that the sale could result in sensitive information getting into the wrong hands

- Melrose’s assurances were inadequate to protect jobs the shadow business secretary claimed.

- 88.5 per cent of GKN shareholders have backed the bid for Melrose to takeover.

https://www.independent.co.uk/news/business/news/gkn-melrose-takeover-latest-government-wont-block-deal-greg-clarke-announcement-a8320021.html

“Melrose directors buy shares – 20 December 2018”

- Shares in Melrose are going to end the year a lot lower than when they started in 2018.

- The directors in Melrose bought shares at 155p, a large discount to their previous trading range of 200 to 240p throughout a majority of 2018

- This indicates that the directors believe the future of Melrose is positive.

(BBC, 2018)

https://www.bbc.com/news/topics/c6y3ekxnyd6t/melrose-industries

“GKN Aerospace to cut staff as it simplifies operations - 3 September 2019”

- Reshaping results in 1,000 jobs cut over the next two years from GKN Aerospace.

- Will reduce management complexity and will be made to the non-productive areas.

https://www.flightglobal.com/news/articles/gkn-aerospace-to-cut-staff-as-it-simplifies-operatio-460623/

I found these news articles interesting. There were concerns about the assurances from Melrose not to cut jobs being inadequate. The company was obviously going to make large changes to the organisation as their aim is to create efficiencies and sell for a profit in the future. This was reflected in the article titled GKN Aerospace to cut staff as it simplifies operations. I found the article about the directors purchasing shares interesting as I believe that they would have a better idea of the company’s future

than others in the market. Looking forward to the share price of Melrose Industries today on google shows a current price of 224p. A large increase since the directors’ purchases.

Melrose Industries PLC Share Price, https://www.google.com/search?q=melrose+share+price&oq=melrose+share+price&aqs=chrome..69i57j0l7.2909j1j4&sourceid=chrome&ie=UTF-8

My blog post – News Articles GKN can be found below

https://stuart2124.wordpress.com/2019/12/04/news-articles-gkn/

Discussions with others

Kayla Walkoms - Journey through Accounting

https://kaylaaccounting.home.blog/2019/12/04/draft-work/

Samantha Edser’s - Samantha'a Accounting Blog

https://samanthacqu.home.blog/

Step 4a) Going through line by line I classified my chart of accounts which is similar to the example given. I have used more accounts to display further details regarding the transactions.

Example - Chart of Accounts My Chart of Accounts1 - Revenue 1- Revenue1-1 Interest Income 1-1 Income – Wages1-2 Income - salary and wages 1-2 Income - Rental Income2 - Expenses 1-3 Refund - Returned Items2-1 Private Health Insurance Expense Contra Revenue Account - Sales Returns2-2 Income Protection Insurance Expense 2- Expenses2-3 Telephone Expense (mobile) 2-1 Expense - Eating Out2-4 Vehicle Expense (registration) 2-2 Expense - Internet / Mobile2-5 Expense - Donations/Gifts 2-3 Expense – Diesel2-6 General Living Expenses (Food, fuel) 2-4 Expense - Loan Repayments3 - Assets 2-5 Expense - Takeaway3-1 - Cash at bank 2-6 Expense - Groceries4 - Liabilities 2-7 Expense - Tools / Maintenance5 - Equity 2-8 Expense - Insurance

2-9 Expense - Homewares / Presents3 - Assets4 - Liabilities5 - Equity

The chart of accounts is simply a list of accounts that make up the ledger, I think about the chart of accounts as segregations of the main categories which give additional detail. While I was classifying income, it made sense to separate wages from rental income. I had returned something to Bunnings and received $8.27. I included this as revenue as “1-3 Refund - Returned Items” although it doesn’t seem right to leave it there. After doing some research it appears as though this refund should also go into the “Contra Revenue Account – Sales Returns”. This amount would be listed below gross revenue and then subtracted to give net revenue, with all being listed on the Income Statement (Keythman, 2019). The other option is to list only the net revenue total in the Income Statement and then provide additional information regarding gross revenue and details of sales returns allowances in the footnotes (Keythman, 2019). I will be interested to look at other students work to see if anyone else had a returned item and how they managed to include it in their Profit and Loss statement. When I subtracted the sales return it changed my loss for the period to $224.48 whereas before it matched the sum of my bank account entries being a loss of $216.21. This seemed to be correct as I didn’t earn the refund. I believe that the contra revenue account – sales returns allows for the extra information of the refunded items to be included without affecting the the net income.

b) As I created my chart of accounts, I could see the trade off between including extra accounts (to gain additional insights into the records) and grouping like accounts together (so that there aren’t too many separate accounts with only small amounts of money in them). I also imagine that as more

and more segregations of accounts are created comes the risk with the potential for incorrect allocation to these accounts. For example, if homewares and presents were separated and also split depending on which store either Target, Kmart and Big W the person entering the information might incorrectly allocate to the wrong account, therefore defeating the purpose of having such a specific chart of accounts. I believe that these decisions would come down to the legal requirements for reporting certain accounts and the wishes of those people who use the reported information to make decisions. I decided to group mobile and Internet together and all forms of insurance together. I did this because I believe that I have good deals on these expenses, and they are not likely to change between the different months and therefore don’t require close attention. However, I choose to split the expenses of Groceries, Eating Out and Takeaway as I believe that these areas require further detail. Groceries would be considered an essential whereas Eating Out and Takeaway could be reduced to help increase profit for the period. If extra detail was required more accounts for the specific areas could be created to give a more in-depth overview of the areas where the money is going. You might want to do this to help see where either revenue is coming from or not coming from and where expenses are going or not going. This extra information could be helpful particularly when results are compared throughout the different periods to gain more exact information rather than seeing an averaged result of a few types of items which are being grouped together. By separating out the accounts into more narrow segregations could be useful for a company in terms of an internal control. An example of this could be the account staff personal protective equipment (PPE) such as work boots, gloves etc. By separating these types of expenses from staff uniform, the company may be able to tell if staff members are using (or perhaps stealing) PPE for their own personal benefit. The company may choose to look at the account every month or quarter and compare to their budget or previous periods to gauge if the expenses are higher than they should be.

c) You might analyse your Income Statement every month to see if you have achieved a profit or a loss over the period. For individuals over the longer term you must have periods of profits that exceed your expenses, else you will eventually run out of money and go broke. In my example, I have resulted in a loss of $224.48 for the period ending 31 December 2018. This is mainly due to the extra voluntary loan repayment that occurred during the period. I don’t consider this loss a problem as I see the extra loan repayments as a good type of expense to have. Using the Income Statement and looking for trends over time between the bottom line and also the individual line items provides insight into your situation. By looking at the amounts of income and the ways you are receiving money compared to your expenses you can make decisions about your future to further improve your situation. For example, you may choose to increase Income by gaining some additional employment or reduce expenses through spending less on takeaway. You might also be happy with your overall situation and choose to continue the current trend, with peace of mind of knowing that all is well due to the analyses of your Income Statement. Another way to analyse your income statement is to use a percentage of your net income and compare it to each account in your chart of accounts. A percentage is a quick method to see how much went where and can be more useful when quickly comparing over different periods, rather than using the total amounts. I have found this exercise of recording transactions useful. I have previously done a similar type of recording process to gain insight into my spending habits and it has confirmed that this a viable way to categorise transactions and display a summarised result in a useful manner. I would use cash accounting and export my bank statement into Excel. Next, I would use the column alongside to

code a number such as 10 for Wages and 21 for Takeaway much like we have here. On a separate worksheet I would use the Sumif function to total all the 10s together and it would group depending on the way the transactions had been coded. I had also come across the problem of paying yearly expenses in a quarterly period and having totals thrown out – hence the reason businesses use accrual accounting. I hadn’t progressed to this step yet personally (I had just looked at the extra expenses and made allowances when looking at the results, although I might now adjust to accrual accounting as I can see the advantages). An advantage of this exercise is that it allows each student to categorise their transactions in a way that they would like to have it reported, much like individual businesses would like more information regarding certain transactions.

d) I understand accrual accounting to be the process of recording a transaction when the economic substance occurs which is not necessarily when the cash changes hands. I understand for the purpose of this exercise we are using cash accounting and using the date that cash changes in our bank accounts to be the date of the transactions. Transactions that could apply the accrual basis of accounting would include wages, rental income, Internet / mobile phone, insurance and loan repayments. Treating these transactions using accrual accounting would differ from the cash basis of accounting as the results from your Income Statement wouldn’t necessarily match your bank statement. This is because revenue and expenses are recognised in the period that they occur and are consumed. In my example wages are paid fortnightly, rental income is paid monthly, Internet / mobile phone and insurance are also paid monthly so it doesn’t provide good (as in large) examples of how accrual accounting would be used over this one-month period. The loan repayments in the example are all voluntary so I don’t understand how they would be accounted for. Am I overcomplicating a simple concept? If for example I had paid insurance for the entire year of $3,228 ($292 x 12) on the 1st of December 2018 I would use accrual accounting and include only $292 as an expense for the month. This is because only this amount has been consumed in that month even though I had paid for more. I have included my thoughts on how the journal entries would be adjusted.

To adjust the journal on balance day 31 December 2018 I would then

Date Debit Credit31/12/2018 Asset: Prepaid Expense 11 Months Insurance $2,959

Expense: Insurance $2,959

This would result in expenses being $2,959 less than $3,228 or a total of $292 which is the amount of insurance used in the period. I would be very interested to hear from other students if this example looks correct to them, as I’m not exactly sure it is correct.

Or would this entry occur like this

Date Debit Credit1/12/2018 Asset: Prepaid Expense 12 Months Insurance $3,228

Expense: Insurance $3,228

Then to adjust the journal on balance day I would then

Date Debit Credit31/12/2018 Asset: Prepaid Expense 1 Months Insurance $292

Expense: Insurance 1 Month $292

I believe this second situation would be more likely. Please let me know your thoughts?

Step 5

Individual Reflections

I found entering the information from GKN’s financial records to be straight forward. While I was keen to try to help others where I could I realised that my comments weren’t very helpful as I hasn’t yet watched the weekly videos and I didn’t fully understand the questions.

By interacting and carefully reading the other students questions made me more aware of things to look for when I did watch the weekly video. For example, I quickly understood my companies’ liabilities to be credits even though they were listed in brackets. This is an example of how different companies report their liabilities, some in brackets representing negative number, some assume this is know from the category, liability. I understand liabilities to have a credit nature and that a negative liability is a debit.

I used my companies totals as I entered the information to check that I had entered all the balance sheet items correctly. I had no trouble balancing the balance sheet. I understand that the balance sheets (profit of £573m in GKN’s case) has been closed off to the retained earnings, other reserves and non-controlling interests accounts in equity. This profit is determined by the difference in their revenue, expense and other comprehensive income accounts. If the income statement and other comprehensive income combined has greater credits than debits the company will have a profit. This exercise helped me to understand that it is the combination of these amounts that creates the companies bottom line. I have totalled the differences of £509m from the income statement and £64m from the other comprehensive income statement to make the profit of £573m. It was reassuring to know that the figure of £573m in my Income Statement trial balance was out the same amount as my companies total comprehensive income for the year.

When initially entering in my company’s information I noticed that the operating profit was very different from the total listed. Once I remove the Sales figure of £9,671m everything balance.

I asked others if they had seen anything like this during the PASS session on the 3/12/2019 but no one had. Others questioned if I had checked in the number 2 note section of the financial statements, which I had briefly done, and we looked over it again quickly, but I didn’t understand exactly why the sales should be omitted in order to balance. My thinking was that this Sales figure is the gross result and not the net return of the company and that the trading profit is the net result. I believe that they have included it here as a reference amount for those interested to see how the Sales of the company has improved compared to the previous year. I was about to post a question on Facebook to see if other had come across the same thing. I looked into note 4 regarding how the trading profit was calculated and it became clear.

That yes, the Sales amount was a gross amount and that once operating costs were subtracted the result was the trading profit which has been included as a Revenue credit in the Income Statement.

As the balance sheet has been closed off and all cells where linked across including those from the income statement and statement of comprehensive income (records which have not yet been closed off) the profit has been double counted if the trial balance debits and credits are totalled. Therefore, the extra profits must be removed in order to for the trial balance to balance. Where the company has closed off these profits to can be found in the statement of changes in equity.

I followed along with the video and entered the formula. I realised that because GKN has non-controlling interests the amounts in equity would be incorrect if I simply took the Retained earnings amount – (All revenue) + (All expenses). While the result is out by £64m (which is correct) it is out in the wrong equity accounts.

The amounts allocated to non-controlling interests are not itemised in the revenue or expense accounts but I knew that they were in this total. I have entered +6 onto retained earnings (to remove the impact of this figure) and -6 on Non-controlling interests. This removes the effect of the £503m closed off to the Retained Earning accounts and the £6m closed off to the Non-controlling interests account. The box highlighted in green represents the changes that occurred from the Income Statement. I can now see what Cassie’s question was about earlier on Facebook as her company also has Non-controlling interests.

The box highlighted in blue represents the changes that occurred from the other comprehensive income statement. It took some time to realise exactly what was happening as the totals didn’t exactly correspond to those listed in the other comprehensive income statement. Once I realised what were sums of figures (ie. that all other reserves included Exchange reserves, Hedging reserves and other reserves) it became easier. Also looking at the statement of comprehensive income to see what the total amounts were. For example, for other reserves, that (163) is the total of -214, -3, -4, +55, +3 and that this amount is the same as the total of reserves as (204) + 43 = -161 (which equals -163 after considering the amount to Non-controlling interests -2).

The amounts of 291 for the remeasurement of defined benefit plans Subsidiaries less the taxation of 64 came to 227. The £227m was closed off to retained earnings. I have simply entered amounts relating to non-controlling interests into that account and subtracted from the other account in order to obtain a correct balance as these amounts were not itemised. I now think about this exercise as

Balance at Year End - What was Closed off = Equity account prior year

Consolidated Statement of Changes in Equity

Retained earnings £m

Other reserves (Combined Total) £m

Non-controlling

interests £m

Total Equity

£mAt as 31 December 2017 1,556 184 39 2,580

Total Amounts Closed off to Equity accounts 730 -161 4 573

Equity account prior year (Amounts required to Balance) 826 345 35 2,007

As I have checked these calculations, I have noticed that unless I take into consideration the effect

of the share and dividend transactions it doesn’t match with the reported total equity balance at 1 January 2017 which is 2,162. This result can be achieved through 2,007 plus the total of share and dividend transactions of 155 to give 2,162. I’m interested to look at other students work to see if I have done something wrong and left these out somehow.

Discussion with others

Cassie Phillips - My Accounting Reality

https://cassiecqu.wordpress.com/steps-three-to-five/

Chrys Gerard - Life by the numbers with Chrys

https://lifebythenumberswithchrys.home.blog/2019/12/08/draft-steps-3-6/comment-page-1/#comment-41

I was keen to discuss and help others where I could as it can feel like a difficult process when things don’t add up. I noticed Natasha comment on Facebook.

When I started looking at the spreadsheet I noticed that the total of Revenue – Expenses did not equal the correct number so any hope of getting things to balance in the equity section would be unlikely. By updating a few cells the Net Income totalled to be the same as in the financial statement. Next step was to look at the other comprehensive income and make sure that the numbers balanced with the statement. After a few adjustments the total comprehenseive income for the period matched also. Looking at the equity and which items to remove from where will be much easier process now the inputs have been corrected.

I was also able to help Natasha spot the relationship between the numbers in her statement of changes in equity. As shown above my company GKN also grouped items together and there are not exactly itemised in the same format as in the income statement and statement of comprehensive income.

Step 6

PEER FEEDBACK SHEET: Assignment Steps 3-5

Feedback From:

Feedback To: .

My Comments

Step 3Background information on company

Comments/KCQs

Discussion with others

Step 4The recording process

Step 5Trial balance Discussion

Overall

Note: Please use this sheet as a guide. There is no need to provide feedback on each step of the Assignment. For example, someone may have little or no draft work completed for one or more of the steps prior to asking for your feedback.

PEER FEEDBACK SHEET: Assignment Steps 3-5

Feedback From:

Feedback To: .

My Comments

Step 3Background information on company

Comments/KCQs

Discussion with others

Step 4The recording process

Step 5Trial balance Discussion

Overall

Note: Please use this sheet as a guide. There is no need to provide feedback on each step of the Assignment. For example, someone may have little or no draft work completed for one or more of the steps prior to asking for your feedback.

PEER FEEDBACK SHEET: Assignment Steps 3-5

Feedback From:

Feedback To: .

My Comments

Step 3Background information on company

Comments/KCQs

Discussion with others

Step 4The recording process

Step 5Trial balance Discussion

Overall

Note: Please use this sheet as a guide. There is no need to provide feedback on each step of the Assignment. For example, someone may have little or no draft work completed for one or more of the steps prior to asking for your feedback.

References

BBC. (2018). Melrose directors buy shares. Retrieved from https://www.bbc.com/news/topics/c6y3ekxnyd6t/melrose-industries

GKN PLC. (2017). Annual Report and Accounts 2017. Retrieved from http://www.annualreports.com/Company/gkn-plc

GKN Website Screenshot. (2019). Retrieved from http://www.gkn.com/Keythman, B. (2019). Should Sales Returns Be Deducted From Total Revenue? Retrieved from

https://smallbusiness.chron.com/should-sales-returns-deducted-total-revenue-63911.htmlMelrose Industries PLC. (2018). Annual Report 2018. Retrieved from

https://www.melroseplc.net/investors/annual-interim-reports/