Page 310 - AFM Integrated Workbook STUDENT S18-J19
P. 310
Chapter 14
2.3 The tabular approach to appraising the impact of a
reconstruction on the forecast SOFP and earnings
1 Set up a table with the current forecast earnings and SOFP in the first
column. Set up columns to the right for each of the suggested
reconstruction options.
2 Deal with each of the suggested reconstruction options separately –
start with the one that sounds most straightforward.
3 Deal with the simple parts of the reconstruction first. Usually these will
be the SOFP figures e.g. if the plan is to increase debt finance by
$5 million, simply add $5 million to the non-current liabilities and write
the updated figure in the correct column.
4 Now move on to the more tricky parts. Usually these will be the
adjustments to earnings caused by (one or more of) paying more
interest on the higher amount of debt finance identified in Step 3,
generating more income from assets purchased and identified in
Step 3, generating less income because assets have been disposed of
and identified in Step 3.
5 Having calculated the revised forecast earnings figure in Step 4, adjust
the forecast retained earnings (reserves) in the SOFP to reflect this.
6 Balance off the SOFP by entering anything that is still unknown as a
balancing figure.
7 Repeat steps 3 to 6 for each of the reconstruction options.
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