Disclaimer: The following notes are based on a fictitious company and the numbers have no bearing on any real data. Note 1: Significant Accounting Polices The financial statements of ABC Company have been prepared in agreement with current accounting rules and regulations, and are compliant under GAAP. ABC Company is a parent company, and all reporting rules and regulations have been adhered to in the reporting of ABC Company’s subsidiaries. ABC Company and all subsidiaries use the same accounting methods.
Individual columns that do not total within the financial statements and related data are due to differences in rounding. Note 2: Inventory The ABC Company values its inventory at market value. These inventories are maintained on the last-in, first-out, meaning that the most recently produced items are recorded as sold first for the ABC Company’s inventory products. The cost average method is used when maintaining the cost of spare parts. Note 3: Property, Plant and Equipment All property, plant, and equipment for the parent and subsidiary companies are recorded at historical cost.
The method of depreciation for each asset is determined according to current accounting rules and regulations as set forth by GAAP. All amortization, including the amortization of intangible assets, is on a straight-line basis over the estimated life of the intangible asset. All useful asset lives for amortization and depreciation have been estimated as accurately as possible. Any changes that occur in estimations are thoroughly noted and accounted for in the respective period when it is determined that the useful life should be changed.
Note 4: Contingencies and Liabilities ABC Company is subject to claims and liabilities from time to time that are typically related to lawsuits. We follow GAAP standards for recognizing all contingent liabilities. The accrual and relevant notes relating to any and all contingent liabilities is fully disclosed in the financial statements. Note 5: Changes in Accounting Principles or Estimates The preparation of our company’s financial statements requires us to use estimates on occasion.
The estimates of ABC Company and all subsidiaries are thoroughly analyzed before their respective inclusion on the financial statement. If conditions warrant a change in accounting principle, the events surrounding the change are disclosed, and the effects of the changes in accounting principles are also disclosed. Although these instances are infrequent, full disclosure is practiced when they do occur. Our main areas of accounting estimates include estimates for intangible assets and trade receivables. Note 6: Post Balance Sheet Events ABC Company includes post-balance sheet events in our notes.
All contingencies or events that occur after the balance sheet date can have a material impact on our operating results, including the operating results of our subsidiaries. All events are fully disclosed. The potential impact of the event is also disclosed, along with the estimate of how significantly the event may impact our financial position. Note 7: Mergers and Acquisitions Effective as of May 1, 2012, ABC Company merged with XYZ Company through a stock-for-stock merger exchange. As a result of the merger, 2 million shares of company stock were issued for each share of XYZ Company outstanding stock.
The merged company will retain the name of ABC Company. The merger was the direct result of ABC Company’s strategic seven-year plan to expand operations by merging with smaller companies. As part of the plan, we also are considering an acquisition for 2014 of MNO Company. The Management Discussion and Analysis section of our annual report and the Letter to Investors discloses all financial data relevant to the merger. Note 8: Lease Obligations ABC Company and all subsidiary companies have current lease obligations that are contained in one lease.
ABC Company recognizes the lease as an operating lease and has accounted for the lease through the appropriate expensing. The lease obligations are recognized in each subsidiary’s financial statements as a capital lease and related assets are treated as asset purchases. Note 9: Earnings per Share (EPS) The weighted average of outstanding shares that were used to calculate earnings per share was 856, 742, and 899 for the years ending December 31, 2011, 2010, and 2009. We also calculated the diluted earnings per share for the same years.
Basic earnings per share are calculated by means of the weighted average of shares outstanding. Note 10: Long-Term Debt The total amount of long-term debt contained in the financial statements includes debentures, foreign currency obligations, and debt that have been reclassified from short-term debt. The conditions of reclassification are due to condition changes that were unforeseeable when the short-term debt commenced. The conditions appear in the Management Discussion and Analysis section of the financial statement and are also thoroughly discussed in the notes to the balance sheet.
Note 11: Employee Pension Obligations ABC Company has pension obligations from the defined pension plans and defined contribution pension plans that are part of our total employee benefits package. The defined benefit plans consider years of service, rate of salary, and anticipated retirement date into consideration for each employee’s defined benefit package amount. All contributions, payments, and related expenses for all pension plans are recognized in the financial statements in the period which the costs incur. ABC Company is current with all pension obligations, and all pension obligations are fully funded to-date.
Note 12: Provisions for Doubtful Accounts Although we make every effort possible to accurately estimate the amount of uncollectible accounts that our company will sustain in a given fiscal year, our estimates and assumptions do periodically change due to factors out of the company’s control. We base our estimates on historical trend and current economic conditions, which are factors in our assumptions. Any of these changes in our estimates for our doubtful accounts are fully disclosed, including the amount of the change.
If the amount is significant, we fully disclose how material it is in relation to our general financial position. Note 13: Revenue Recognition All sales made by the ABC company are recognized in the accounting period in which they are realized under GAAP. All realized revenue has met the conditions as stated for revenue recognition criteria. If revenue has not been realized, it is properly disclosed as a current liability until the time that the conditions have been met for realizing the revenue. It is then recognized in the current accounting period.