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Koneksie Finance Training
June 2016
INDEX
PART 1- INVENTORY
PART 2 – REVENUE RECOGNITION
PART 3 - PERIODIC CLOSE
TOPICS – PART 1
INVENTORY•Definitions•Presumed title transfer•BoM: inventory vs expense•Costing method•Full Absorption Costing•Transfer pricing; apply, do not charge•Interco booking @ Kibo•Labor costing: wip and fgi•Plant overhead•Procurement overhead•FGI to COGS•Overview of costing, flow, process•Periodic stock count, valuation, and adjustment•Inventory Journal Entries
Inventory Definitions
• Assets which (1) are held for sale in the ordinary course of business (2) are in the process of production for such sale, or (3) in the form of materials or supplies to be consumed in the production process or in the rendering of services
Inventory• Costs of Good Sold. Under a full absorption costing method this would
include direct materials, direct labor, production overhead, and procurement overhead costs. COGS
• Raw materials inventory. Materials that are in stock that have not been put into any conversion process. Essentially, raw materials are available on stock as delivered by the vendor.Raw
• Work In Process. Materials that have been issued or kitted from stores or the warehouse, and are in process in the production area. Materials in WIP may lie in various stages of completion.WIP
• Finished Goods Inventory. Units that are completed and available for sale or other disposition. FGI
• A part number (often abbreviated PN, P/N, part no., or part #) is an identifier of a particular part design used in a particular industry. Its purpose is to simplify reference to that part. A part number unambiguously identifies a part design within a single corporation, and sometimes across several corporations.
P/N
Inventory Definitions, continued
• Bill of Materials: a list of the raw materials, sub-assemblies, intermediate assemblies, sub-components, parts and the quantities of each needed to manufacture an end product.BoM
• Direct Material Cost file. A spreadsheet created containing non-fastener part numbers on the BoM with procurement unit prices and qty per indicated. Extending the unit prices and qty per provides an estimated standard cost for the BoM excluding fasteners.
DMC File• Abbreviation for Quantity. Identifies the quantity of a sub-component
required to manufacture the end product.Qty• Performance against standard.
• i.e. job standard is 1.0 hours, actual work of 1.0 hour is 100% efficiency• if the job is 90% done in an hour, the efficiency is 90%• 2 standard hours @ 90% efficiency takes 2 / 90% = 2.22 hours
Efficiency• Actual productive time versus available time
• Working 8 hours in an 8 shift = 100%• Working 6.5 hours in an 8 hour shift [breaks, training other] = 6.5 / 8.0
= 81.25%Productivity
• Efficiency x Productivity = Utilization• Efficiency = 90%, a 1 hour job takes 1.11 Hours• Productivity = 90%; of an 8 hour shift Direct Labor is available 7.2
hours• Utilization = 90% x 90% = 81%• An 1 hour job takes 1 / 81% = 1.2345 hours
Utilization
Inventory Definitions, continued
• Hours per Unit. The standard number of hours to manufacture a product.
• HPU is the standard at 100% efficiency / productivity / utilization. • At the time of writing of this policy, there are not technical/industrial
time studies done for the assembly of the motor vehicles, and 12 hours per unit is deemed to be an accurate estimation.
HPU
• Equivalent Units. An equivalent unit of production is an indication of the amount of work done by manufacturers who have partially completed units on hand at the end of an accounting period.
• Fully completed units and the partially completed units are expressed in terms of fully completed units. i.e. % of completion.
EU
• Intercompany. Transactions between related parties within the Group. Interco
FOB• Free On Board. Indicating "FOB port" means that the seller pays for
transportation of the goods to the port of shipment, plus loading costs. • The passing of risks occurs when the goods are loaded on board at the
port of shipment.
Inventory Title transfer, control, risk
FOB with suppliers is supplier location
Consolidated shipments, FOB = closed
container [locally]
Transfer of title, control, & risk
Kibo has access to a “case by case” insurance
policy
Simultaneous transfer to Kibo
Goods in Transit = Kibo title
Inventory BoM: Inventory vs. Expense
• Assets which (1) are held for sale in the ordinary course of business (2) are in the process of production for such sale, or (3) in the form of materials or supplies to be consumed in the production process or in the rendering of services
Definition
• Cost/benefit of inventory control• Material Requirements Planning [MRP] management?• Flow through the operations
In Practice
• Low value, small in size• Fast moving, shorter lead times• Min/Max or safety stock procurement management• Treat as Expense [charge Plant cost center]
Fasteners
• body parts, brakes, electric parts, engine, exhaust, frame, front fork, front wheel, handle bars, lighting, rear wheel, and swing arms
• BoM and production scheduling drive purchase requirements• Treat as Inventory
All other part groups
What is inventory?
Inventory Costing Method: Standard, Weighted Avg Act, or…?
Topic Dynamics Effecting Cost per Unit Current Policy Costing Method
Direct Materials • Stabilization/finalization of BoM, minimizing obsolescence and optimizing lead times
• Price changes based on volume leverage, sourcing, and negotiations
Standard cost from DMC file estimate of $1608.02 will be used for EU and COGS units.
Direct Labor • Reduced rework• New hiring and training stabilizes which minimizes
learning curve effects• Effective direct labor per unit reduction, since production
assembly staff are effectively paid on a fixed monthly salary basis
• Continuous improvement, Lean, Six Sigma implementation
Actual costs: Total variable direct labor costs per hour will be used on WIP and FGI EU.
Production Overhead
• Reduced overhead per unit based on increased volume throughput
Actual overhead costs based on standard theoretical capacity.
Procurement Overhead
• Sourcing• Reduced frequency of expedited orders
Actual costs: Procurement cost center as % of inventory received, applied to ending material inventory value.
Inventory Full Absorption Costing
Concept Explanations
What is Full Absorption Costing?
• All of the manufacturing costs are absorbed by the units produced • cost of a finished unit in inventory includes direct materials, direct labor• variable and fixed manufacturing overhead• COGS reflects all direct and indirect costs of production
Direct vs. Indirect
• Direct• Identifiable to products or services• The process included in the HPU
• Indirect• Not specifically identifiable to an end-unit/FGI• Administrative, supervision, management
Production Overhead
• Plant cost center• Indirect employee costs, depreciation, facilities, supplies, etc…
Procurement Overhead
• Transport• Duties/import fees that are not-reclaimable• Typically procurement, warehouse, handling staff
Applying Full Absorption Costing
• Production Overhead per unit• Theoretical capacity basis [10 units / week / 50 weeks per year]
• Procurement overhead• Procurement overhead % [procurement CC / inventory purchases]• Applied to ending gross materials /inventory value
Inventory Interco and proper cost objectives
Concept Explanations
IntraGroup is not “trade”
• Interco transactions should not be presented as part of trade creditors or debtors
• Separate as intercompany• Facilitate intercompany consolidation [elimination]• Proper consolidation to external parties [assets, liabilities, ratios]
Manual work flows
• PO administration• Invoice administration [transport/commercial and interco]
Identification • Excel administration• Important to identify and align on proper cost objectives
• international transport costs, tools as expense, capitalized tooling for production, product development, GASS, spare parts
Inventory EU in WIP and FGI, Direct Labor Costing
Concept Explanation
Proper presentation of Raw, WIP, FGI
• Present inventory status in ledgers and management reporting• Control, accountability
• Observation of status at period close• Materials vs. labor vs. % of completion of units
Full Absorption Costing
• Direct labor and overhead as part of inventory valuation • Direct labor: total variable cost per hour
• Gross wages, medical, social security, lunch, unused vacation days
Revenue & Expense recognition
• Full absorption model also results in concurrent recognition• Revenues, COGS
Other • Cumulative YTD basis, for units on hand in inventory• Not the same as “units produced”
Example • Beg EU FGI: 20• Units produced 30• Units sold 40• End EU FGI: ? • What’s the number of units for the WIP/FGI labor & overhead analysis? 10
Inventory EU in WIP and FGI, Direct Labor Costing [the model]
a b c d e f g f + g
a x b c x d c x e
DMC File/Standard Cost
63 total units issued to product @ $1608,02
Inventory Overview – inventory account movements
Account type Increments Decrements
Goods in transit Based on Interco invoices from Koneksie BV, when goods are shipped from Vendors and have not yet arrived in Kenya.
Goods are received and transferred to Raw Materials.
Raw / parts in stock
Interco invoices for shipments received by Kibo.
Period ending WIP/FGI analysis, based on % of completion and EU’s, and applying Standard cost BoM.
WIP Period ending WIP/FGI analysis, based on % of completion and EU’s, and applying Standard cost BoM.
Changes in WIP/FGI balance from period ending analysis based on EU.
FGI Period ending WIP/FGI analysis, based on % of completion and EU’s, and applying Standard cost BoM.Also, any purchased/transferred completed units from outside Kibo.
Recognition of sold units, @ standard cost of direct material file.
Inventory Periodic GL Inventory Adjustment to Stock Count
Steps Comments
Suggested timings
• Minimum 1x / year, with auditor observation• Aligned to significant period result reportings/presentations• Inherent risks or weaknesses in inventory control & process
1. Stock count • Qty of Part numbers of inventory parts [not fasteners]• Unless there are specific provisions/reserves, obsolete/cancelled
part numbers should not be included
2. Apply Unit Prices
• USD Unit prices [latest PURCHASE cost-prices, not future/new contracts]• Historical cost perspective
3. Weighted AVG FX [Eur/USD]
• Based on timing, amount, and effective purchases reflected in ending inventory [not of Exact, OANDA, or other]
4. Post Adjustment
• Compare the valuation from steps 1-3 to the Exact GL balance and adjust accordingly using
Inventory Periodic GL Inventory Adjustment – Weighted AVG FX Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Total
Exact FX 1,17900 1,12250 1,07290 1,11880 1,09710 1,11610 1,09780 1,11810 1,12432 1,03370 1,01650 1,04884 Purchases $1.000.000 $100.000 $1.100.000
Weighting % 91% 9% 100%
Weighted FX 1,07182 - - - - - - - - - - 0,09535 1,16717
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 1.01000000
1.03000000
1.05000000
1.07000000
1.09000000
1.11000000
1.13000000
1.15000000
1.17000000
1.19000000
Exact FXExact Avg FX [YR]Weighted FX
Inventory Sample Journal Entries [KIBO]Description Month 1 Month 2
Beginning FGI 0 5
Produced 10 15
Sold 5 10
Ending FGI 5 10
List Price KES 295.000 KES 295.000
Standard BoM KES 160.800 KES 160.800
HPU 12 10,8
DL / hour KES 216 KES 216
Plant Ovhd / unit KES 38.036 KES 38.036
Procure % 49,38% 40,00%
Plant CC Runrate [Indirect Costs] KES 1.834.528 KES 1.834.528
Inventory:
Kits Procured 60 10
Inventory Procured KES 9.648.000 KES 1.608.000
Raw KES 8.040.000 KES 7.236.000
WIP KES 0 KES 0
FGI KES 804.000 KES 1.608.000
Total KES 8.844.000 KES 8.844.000
P&L
Revenue KES 1.475.000 KES 2.950.000
COGS:
* Materials -804.000 -1.608.000
* Plant -1.834.528 -1.834.528
* Procurement -4.764.447 -643.200
Plant Reversal - 203.166
Procurement Reversal - 4.367.410
New Plant overhead Adjustment -203.166 -403.735
New Procurement overhead Adjustment -4.367.410 -3.537.600
Gross Profit -10.498.551 -506.487
Gross Margin -711,8% -17,2%
Cost / Unit KES 2.394.710 KES 345.649
B/S
Materials:
Raw KES 8.040.000 KES 7.236.000
WIP KES 0 KES 0
FGI KES 804.000 KES 1.608.000
Labor & Overhead KES 203.166 KES 403.735
Procurement Overhead KES 4.367.410 KES 3.537.600
Total KES 13.414.576 KES 12.785.335
Month 1 Debit Credit Month 2 Debit Credit
1. Inventory Procured from Koneksie BV 1. Inventory Procured from Koneksie BV
60 kits @ Standard BoM 10 kits @ Standard BoM
30000 Parts in stock KES 9.648.000 30000 Parts in stock KES 1.608.000
Interco Pay to Koneksie BV KES 9.648.000 Interco Pay to Koneksie BV KES 1.608.000
2. Inventory movement to FGI 2. Inventory movement to FGI
10 for units produced @ Standard BoM 15 for units produced @ Standard BoM
30200 FGI KES 1.608.000 30200 FGI KES 2.412.000
30000 Parts in stock KES 1.608.000 30000 Parts in stock KES 2.412.000
3. Units Sold 5 @ List Price 3. Units Sold 10 @ List Price
80009 Revenue KES 1.475.000 80009 Revenue KES 2.950.000
13000 Trade AR [or 16700 Prepayments] KES 1.475.000 13000 Trade AR [or 16700 Prepayments] KES 2.950.000
47XXX COGS KES 804.000 47XXX COGS KES 1.608.000
30200 FGI KES 804.000 30200 FGI KES 1.608.000
4. Ongoing Plant Cost Center Costs 4. Ongoing Plant Cost Center Costs
4XXXX Various KES 1.834.528 4XXXX Various KES 1.834.528
16XXX or 17XXX KES 1.834.528 16XXX or 17XXX KES 1.834.528
5. Apply Labor and Overhead to FGI 5a. Reverse Month 1 Labor and Overhead
5 Units @12 HPU @ KES/HR and Ovhd/unit
30250 Production Overhead Applied KES 203.166 30250 Production Overhead Applied KES 203.166
49500 Production Overhead Adjustment KES 203.166 49500 Production Overhead Adjustment KES 203.166
5. Apply Labor and Overhead to FGI
10 Units @10,8 HPU @ KES/HR and Ovhd/unit
30250Production Overhead Applied KES 403.735
49500Production Overhead Adjustment KES 403.735
6. Monthly Procurement Cost Center Costs 6. Monthly Procurement Cost Center Costs
4XXXX Various KES 4.764.447 4XXXX Various KES 643.200
17XXX KES 4.764.447 17XXX KES 643.200
7. Apply Procurement Overhead to Inventory Balance 7a. Reverse Month1 Procurement Overhead
30260 Procurement Overhead Applied KES 4.367.410 30260 Procurement Overhead Applied KES 4.367.410
49600 Procurement Overhead Adjustment KES 4.367.410 49600 Procurement Overhead Adjustment KES 4.367.410
7. Apply Procurement Overhead to Inventory Balance
30260Procurement Overhead Applied KES 3.537.600
49600 Procurement Overhead Adjustment KES 3.537.600
Inventory Sample Journal Entries [KIBO]
See Excel Comprehensive Example
Inventory Cost Structure and Overhead Pools
TOPICS – PART 2
REVENUE RECOGNITION•Definitions•Revenue or Cost?•The Sales Menu•GL Dimensions•Gross vs. Net revenues•Vehicles: additional charges•Vehicle payment/sales process•After Sales: Repair vs. Maintenance•Service contracts•Standard warranty•Multiple elements•Franchise Revenue Streams•Intercompany elimination
Revenue Recognition Definitions
• Revenue arises in the course of an entity’s ordinary activities. It is referred to by a variety of terms including sales, fees, interest, dividends, royalties and storage.
• Koneksie Group records revenues using the Group international chart of accounts as net revenue. (net price after discounts from sales deals)
Revenue
• In addition, revenue from the sale of goods is recognised when:• the entity has transferred to the buyer the significant risks
and rewards of ownership of goods; and • the entity retains neither continuing managerial involvement
nor effective control over the goods sold.
Sale of Goods
• The amount by which the Standard sales price has been adjusted. Discount
• Terms and Conditions for sale of KIBO motorcylesT’s & C’s
Revenue Recognition Definitions
• Two or more transactions need to be grouped together if they are linked in a way that the whole commercial effect cannot be understood without reference to the series of transactions as a whole.
• i.e. combine vehicle sales with service and accessories, potentially as “bundled sale” with a total discount applied.
Multiple Element Arrangements
• Royalties are recognised on an accruals basis in accordance with the substance of the relevant agreement.Royalties
• Business model of organizations or companies selling direct to other organizations or companies. Abbreviation for “Business to Business”
B2B
• Business model of organizations or companies selling direct to consumers. Abbreviation for “Business to Consumer”.B2C
Revenue Recognition Revenue or Cost / the Sales Menu
Should a transaction be Revenue or cost offset? Company Sales Menu
KFC • Various types of chicken• Drinks• Side dishes• Menu’s
KA • Provides procurement services to BV• Intercompany
KO • Provides strategic direction and access to IP of design of motorcycles• Controls the Franchise strategy model. • Sells materials to Kibo which may be at a higher transfer price than acquired
from KA, and sells franchise products and services.
Kibo • Assembles and sells vehicles• Provides after sales services, training, gear and accessories• No “upstream” intercompany sales expected
Revenue Recognition Dimensions
• GL account• Type: Vehicles, GASS, After Sales,
Training, Services, Franchise, Interco• Cost Center• Cost Unit
Current
• Country• Model• Configuration• GASS specifics• Business models [B2B, B2C]• Sales channels [direct, indirect,
franchise*]
Future Potential
Revenue Recognition Gross vs Net Revenues, Additional Charges
Gross / List Price Discounts Net Price
Vehicle Revenue
MotorcyclesFX rate changes
StorageDeliverySales taxesDuties
Interest
• Revenues are recognized at Net • Vehicles revenues include additional charges
Revenue Recognition When is Revenue recognized?
the gross inflow of economic benefits (cash, receivables, other assets) arising from the ordinary operating activities of an entity• Sales Menu
such as sales of goods, sales of services, interest, and royalties
it is probable that any future economic benefit associated with the item of revenue will flow to the entity• Payment in advance• Credit standing of B2B customers
the amount of revenue can be measured with reliability• List price• Agreed “deal”• Invoice
Revenue
Revenue Recognition When is Revenue recognized?
Rendering of Services
amount of revenue can be
measured reliably
probable that the economic
benefits will flow to the seller
stage of completion at the balance
sheet date can be measured reliably
costs incurred, or to be incurred, in respect of the
transaction can be measured reliably
Sales of Goods
Seller transfer to buyer risks and
rewards of ownership
Seller has no managerial
involvement nor effective control
amount of revenue can be
measured reliably
probable that the economic benefits associated with the
transaction will flow to the sellercosts incurred or to
be incurred in respect of the transaction can be measured reliably
Revenue Recognition When is Revenue recognized?
Payment
• In advance, and cleared
Actual risks
• Not to buyer until delivery
Kibo responsibility
• Maintains until delivery
Vehicle delivery
• Sale of goods completed
• Revenue can be recognized
• COGS recognition
Per 2015 Kibo T’s and C’sSections 4.7, 5.2, and 5.3
Revenue Recognition After Sales: Repair or Maintenance?
The After Sales Revenue category includes the following: Repair services, Maintenance services, Service contracts, Spare partsRevenue accounting is driven by conditions of After Sales being Contract or non-contract
Maintenance•Routine, perhaps scheduled•Oil/fluids•Tire pressure check•Brakes pads/discs/system•Chain•Tires•Lubrication•Filters•Battery•In the process of maintance, you may find items needing repair or replacement
Repair•Is it broken?•Malfunction•Replacement•Can the vehicle safely be operated?•Warranty vs out-of-warranty
Revenue Recognition Service Contracts
Included in sales price
Future obligation
• Recognize in the future
Defer Revenue
Not Standard Warranty. These are service agreements to conduct maintenance, and potentially include repairs
Assign revenue• Based on relative
list prices or Benchmark study
Balance sheet provision• Part of current
liabilities
Recognize• Over time or
activity-based• Costs recognized
as incurred
Revenue Recognition Standard Warranty
What is Warranty?
• Promise that the product complies with the specifications in the contract• Materials free from defect• Workmanship
• Properly constructed of proper materials
• the customer does not have the option to purchase a warranty from the entity separately
• Recognize revenue and concurrently accrue any expected warranty cost when the product is sold.
• Revenue from separately priced extended warranty contracts is deferred and recognized over the expected life of the contract.
GL Accounts Non-current / recall liability Non-current expense
Standard product liability [current liability]% of revenue or COGS?
Standard product expense
07080 44225
19500
44220
Revenue Recognition Multiple Elements
• Discounted by 10%
Vehicle Intro price
295k KES
• 10% of bikes will require 5k of materials
Standard Warranty
• Available for Sale @ 10k
1 year Service
Contract
• Helmet list price: 2k
• Boots list price: 3k
Helmet and boots included
• Fair value 1kRider
Training course
Sample DealSales Price 90% KES 265.500
Description List Price % of Total AllocationVehicle KES 295.000 94,9% KES 251.841Standard Warranty - KES 01 Year service contract KES 10.000 3,2% KES 8.537Helmet KES 2.000 0,6% KES 1.707Boots KES 3.000 1,0% KES 2.561Rider Training KES 1.000 0,3% KES 854Total KES 311.000 KES 265.500
G/L Description GL Account Debit CreditVehicle Revenue 80009 KES 251.841Standard Warranty Expense 44220 KES 500Standard Warranty Liability 16600 KES 500Deferred Service Contracts 16250 KES 8.537Revenue GASS Helmets 80080 KES 1.707Revenue GASS Boots 80095 KES 2.561Training Revenue 80130 KES 854Trade AR 13000 KES 265.500
Totals KES 266.000 KES 266.000Deferred Service Contracts 16250 KES 711Revenue - Service Contracts [1/12]
80120KES 711
* Monthly Amortization
Standard Warranty Liability KES 495Inventory KES 495* Actual warranty claim, materials used
Totals KES 1.206 KES 1.206
Revenue Recognition Franchise Models
License
Rights to particular market
Usually covers several years
Payment upfront = deferred revenue
recognized over the contract period
Accounts:•Unamortized Licenses:
07060•AR: 13050•Uncollectible accounts:
13150•Revenue: 80155
Equipment Sales
“Koneksie” approved production equipment
Where will franchisees get the equipment? •This revenue stream in
case Koneksie sells to Frachisees
Accounts:•Prepaid Equipment for
Sale: 30910•Equipment for Sale:
30500•Equipment Revenue:
80160•Equipment COGS: 47160
Parts/Inventory
Sales
Will franchisees buy “start-up” inventory
from Koneksie?
Will Franchisees buy directly from Suppliers
or via Koneksie?
Accounts: • Inventory: 30450•Revenue: 80165•COGS: 47165
Royalties
Ongoing % of franchisee revenues
Accounts:•Revenue: 80170•COGS: 47170 (potentially
none)
The Franchise “Sales Menu” is unique compared to the 3 other Group companies
Revenue Recognition Intercompany Elimination
Description KA KO Kibo
Cost Plus Mark-up % on Operating Expense
80180 Revenue Interco Services
* Leaves a small taxable residual in Asia
47180 COGS Interco Services
Royalties [IP] 80190 Interco Royalty Revenue
47190 Interco COGS Royalty
Head Office Charge
80195 Interco Head office Charge
47195 Interco COGS Head Office Charge
Part Sales w/ Mark-up
80175 Interco Part Sales
47175 Interco COGS Part Sales
Interco Profit Kibo’s inventory will include the interco mark-up, which needs to be eliminated. Use the mark-up% and inventory value to determine the amount of interco gross profit to eliminate in Consolidation.
TOPICS – PART 3
PERIODIC CLOSES•Definitions•Accounting basis: IFRS, DAS, HK? •Close days•Check lists•Status on chart of accounts•Cost structure•Staff costs•Expense recognition: Bonus/variable, vacation days, employer wage costs•Rent•Insurance•Deposits for property leases•Prepaid expenses•Prepayments to vendors for tooling•Prepayments to vendors for inventory materials•Marketing expenses•Allowances: bad debts, warranty, inventory•Exact close procedures•Quality Control•Management package overview
Periodic Closes Definitions
• Costs of Goods Sold. This includes the prime costs – direct materials and direct labor – and related overhead for Plant and Procurement cost centers. These are specifically production costs related to the manufacture of goods to be sold.
COGS
• Chart of AccountsCoA
• Koneksie AsiaKA
• Koneksie BV in the NetherlandsKO• Journal Entry. A procedure at the general ledger of the financial
system represented in debits and corresponding credits that net to zero.
JE
• Dutch Accounting StandardsDAS
• International Financial Reporting StandardsIFRS
Periodic Closes Accounting Standards
KA KO Kibo
Standard • HKFRS• Converged with IFRS
• Dutch Accounting Standards [DAS] for small companies• Minimal presentation
required• IFRS applicable for large and
publicly traded companies
• IFRS• IFRS for SME’s
Notable Comparisons
• Chart of Accounts• Revenue / Costs
placement• Mostly alike for Revenue• LIFO inventory not allowed
by IFRS
Group Policy • Potential investors will not be just Dutch, not just Kenya• IFRS:• Chart of accounts structure• Leads to financial reporting structure
• Mapping for Statutory Accounts 1x per year• General features: Fair presentation, Going Concern, Accrual basis, Materiality and
aggregation, Offsetting [forbidden], Comparability, Consistency• Qualitative characteristics: Relevance, Faithful presentation, Verifiability, Timeliness,
Understandability• Recognition of Elements in the financial statement
Periodic Closes Close Days
-5
-4
-3
-2
-1
Periods• Fiscal months & years• Prior months to be closed once
completed• Only current month opened?• Prior years closed once Statutory
Accounts completed
Close Days• Reference last and first business
days in the month• + and - concerning the
current/close month• Close doesn’t not always start on
the same day
+1
+2
+3
+4
+5
-5
-4
-3
-2
-1
+1
+2
+3
+4
+5
-1
-2
Periodic Closes Check Lists
Close May 2016
Company Topic Action Who When Done Approved Follow upBV Salary journal Make Salary journal RW -7 xBV On charge Gotektsi for DvS TH RW -7 xBV Cash USD Book them RW -5 xBV Cash CNY Book them RW -5 xBV Cash TWD Book them RW -5 xBV Cash HKD Book them RW -5 xBV Cash DKK Book them RW -5 xBV ABN Amro Euro Book them RW 1 xBV ABN Amro Euro Book them RW 1 xBV ABN Amro USD Book them RW 1 xBV Cash EUR Book them RW 1 xBV Niet toegewezen bank 23000 Must run on "0" RW 1 x Input Huib/thami/PaulineBV Salary journal Make Bonnus journal RW 1 xBV Make vacation payment journal RW 1 xBV Intangible assets Book the investments from the period to the specifications RW 1 x Input from PieterBV Adjust depreciation for period in speccifications RW 1 xBV Book depreciation for period in Exact Online RW 1 xBV Check general ledger with Specification RW 1 xBV Tangible assets Book the investments from the period to the specifications RW 1 x Discuss tooling with Pieter
Common Format• Excel• Filter & Sort
All items• JE’s• Reports• Exact tasks, etc
Focus• Completed• Challenges
Timing• Chronological flow best• When is in “close days”
Perpetual updates
Periodic Closes Chart of Accounts, Status
•Attempt to maintain current groupings
•All 3 companies•Done in week 23 / 2016
•Maintain GL Account transactional history
•Fully implement with new ERP
•IFRS structure•Balance sheet liquidity•Revenue at top of P&L
•Flexibility•Future business models•Single language•Element/type•322 accounts•30 Revenue accounts New 6-
Character IFRS
Version
Current Version Mapped
Gaps added
Uploaded to Exact
Periodic Closes Cost Structure
Plant• Activites
related to production / assembly of vehicles
• Mfg Ovhd CC
Procurement• Supply chain
• Transport
• Duties• Overhea
d CC• Material
s Management?
R&D / Product
DevelopmentSales
• Vehicles• Profit
Center
After Sales
• Services• Profit
Center
GASS
• Profit Center
Training
• Profit Center
M&A
• Management
• Finance
Cost Center FocusOverhead pools• What does it cost to
make a unit?• Production / Assembly• Materials
Management
Accountability• Financial
responsibility
Revenue / Profit Center Management• Gross Profit at Product
category
Periodic Closes Staff Costs – Guiding Principles
Reflect Local Labor Laws•What happens when an employee leaves?•Vacation days carryover / balances•Bonus payments•Additional months
Local Company Policy•Vacation days carryover / balances•Bonus Payments
Payroll at Gross•Actual costs to Koneksie Group•Employee taxes are withheld and remitted
•So far, KO and Kibo employees are “monthly salaried” and paid before month end•Month end wage accruals not necessary•NL holiday pay paid each month
Use of proper GL accounts•Employee•Casual Labor• Interim / Temporary•Agency•Management fee•Payroll added costs•Employer wage tax/social costs/Benefits
Cost Center Focus Applied
Timing / Recognition•Accruals - •When earned, not when paid•Vacation days•Bonus•Sales Quotas•Management Objectives•Productivity
Minimize “Trend Blips”
Periodic Closes Other Items Affected by Accruals & Recognition• Period prepayments
• Carry on the balance sheet• Free rent periods
• Amortize net total payments over entire lease period
Rent
• Match premiums to coverage periods• When no invoice, accrual estimatesInsurance
• Carry on balance sheet• Charge to Expense as Landlord applies to rentDeposits for Leases
• Recognize over appropriate periods• Ongoing review• T’s & C’s [rights to return/adjust]
Prepaid Expenses
• Often paid in phases• Trigger for capitalized & depreciate:
• When Tooling is completed
Prepayments to vendors: Tooling
• Vendor invoices booked effectively at net• No liability once prepayment is paid
• Are current assets• Transfer to inventory when vendor “Sale of Goods” per FOB terms are
met
Prepayments to vendors: Inventory
• Fixed amount for current period• Actual costs for past periods• Potential for accruals
Subscriptions / mixed contracts
• Deadlines and Products can be different than Supplier Invoicing timing• Watch T’s and C’s of projectsMarketing Expenses
Periodic Closes Allowances and Write-offs
Bad Debts• Provision for AR that becomes
uncollectible• Establish Allowances:
• DR 45600 CC ?• CR 13100 / 13150 Franchise
• Write-offs• DR 13100 / 13150• CR 1300 / 13050 Franchise• VAT Payable?
Warranty• Provision of costs to meet
warranty obligations• Establish Allowances:
• Short-term / Recall• DR 44220 / 44225• CR 16600 / 07080
• Write-offs• DR 16600 / 07080• CR 30000 / 30460
Inventory• Provision for
obsolete/excess/impaired stock
• Establish Allowances• DR 47220• CR 30700
• Write-offs• DR 30700• CR 30000
Historical / Expected %
Establish allowances• Asset
valuation• During the
Close
Write-offs• Against
allowancesUpdate
Historical %’s
Repeat
Periodic Closes Exact Close Procedures: Process and Revaluation
1. Process all entries
2. Set journal type to “90”3. Set financial year4. Select “to be processed” entries
5. “Process”
Periodic Closes Exact Close Procedures: Process and Revaluation
6. Update FX RATESOANDA +4% [2015]Avg, KCB / Oanda 0% [2016]
Periodic Closes Exact Close Procedures: Process and Revaluation
7. Revaluation
8. Select currencies9. Select journal type “90”10. “Process”
Periodic Closes Exact Close Procedures: Others
Year End Close
Menu selection
Process the Final P&L• Roll results to Retained
Earnings
G/L Account Upload
Menu selection
File layout
Mandatory fields
Field criteria and selections
Procedures & Graphics in Close Policy and Appendices
Periodic Closes Quality Control
Quality Financial Reporting
Policies & Procedures•Standards•Accounting treatment
Accounting period control•Right place, right time
Schedule and Task Management•Checklists
JE review & approvals
• Peer Reviews?Trend analysis•Financial Statements•GL Account•Cost Center•Cost Unit
Balance Sheet Reviews•Specifications
Management Reporting
Periodic Closes Management Package Overview
Accounting basis
Accounting basis is IFRS. Generally IFRS and DAS theories are aligned.
Kenya adopted IFRS in 1999.
Differences: presentation formats, inventory costing
methods allowed, audit requirements for small
companies, practical Chart of Accounts structure.
Transfer Pricing
Current policy is "apply but do not charge". Effectively transfers are at cost-price.
No Royalties. No Head Office charges. No mark-up
on inventory.
Revenue Recognition
Transfer of title, control, and risk: Delivery of
vehicles.
Prepayments from customers are not
recognized as revenue until vehicles are delivered.
Currently no revenue deferral for included
services on vehicle sales.
Profit Centers
Kibo in total treated as a single Profit Center
Cost Centers
P&L costs have been assigned to departments via "cost centers" for all
types of expenses
Cost Centers: Plant, Sales, After Sales, GASS, Training,
Product Development, Procurement, M&A
Excise Tax assigned to Sales cost center
Standard Levy Tax to Plant CC
No cross-department allocations/splits are
reflected [staff are 100% assigned to a single cost
center]
Periodic Closes Management Package Overview
COGS
Costs of goods sold are aligned to revenue
recognition of vehicles delivered.
Includes direct materials, and PLANT
cost center; production and warehouse
Direct and indirect wages, facilities,
depreciation, supplies; "production overhead"
Adjusted for estimates of WIP & FGI [estimate
added to inventory valuation]
Expense recognition
Expenses are matched to corresponding
periods.
Depreciation of IP and fixed assets
Prepayments for rent, insurance, services are
amortized to associated periods
Staff costs
Classifications between FTE payroll / external /
casual labor
Provisions for vacation days, variable compensation
Other
Currently no provisions/estimates for standard warranty costs
No Allocation for Service Contracts and
Deferred Revenue
Budget P&L focus on cash spending and
funding; no comparative basis P&L
Future enhancements
Split profit centers within KIBO: Sales, After
Sales, GASS, Training
Revenue and COGS at profit center level
Allocation keys for OPEX: staff, facilities,
depreciation, supplies, etc…
Standard warranty provisions
Deferred revenue for included Services
Current Month and YTD results
Periodic Closes Management Package Overview
Functional P&L•COGS, Gross Profit, Cost Center Costs, Operating Income•Sales Variance Analysis
Cost type P&L:•COGS [DM only]•Focus on Expense categories
COGS Breakdown•Present the various cost elements of COGS/unit
B/S & Metrics•Return on Sales• Inventory Turns
YTD Cash usage
Headcount•Cost center level vs. Budget
Benchmarking•Financials vs. Global Public Motorcycle Makers
Initi
al S
ugge
sted
Rep
orts
• ROA• ROE
• Factors driving ROE [3 ratios]
End