Balance Sheet and Nike

¶ … balance sheet would be recognized at historical cost? The balance sheet presents a list of the firms' long- and short-term assets and liabilities. The historical cost convention sees assets measured at their historical price; the price that was paid for them when they were purchased, rather than estimating the current value. Where historical cost is used, the assets are assessed based on their historical value, and then deprecated over their estimated useful life.

On Nikes balance sheet, it is the property, plant and equipment, including buildings, equipment and computer hardware and software are recorded at cost, which are listed under the long-term assets. Which of the items listed using historical cost could potentially be the most undervalued? The method of accounting for these assets means that at any point in time it is highly likely the book value of the assets on the accosting will different form the current value.

The assets which are most likely to be undervalued are those which may appreciate rather than depreciate. For example, there was $273 million in land, and $1,250 million in building, it is possible that either of these may be undervalued as the real estate market may have increased the value since they were purchased. Analyze any of the items that could possibly be overvalued under historical cost.

As goods are recognised at historical cost and then deprecated across the useful life, it is possible that some assets will lose market value faster than the deprecation method. Goods which may be included here are items such as hardware and software, where it is not only a matter of age, but technological progress which may result in more rapid loss of market value.

It is also possible that goodwill may be undervalued, it is for these reasons that note 3 of the Nike accounts indicates the value of these are checked for impairment. Justify and evaluate if the notes to the financial statements disclose fair market values on these items identified. The accounts notes do not give the fair market value for these assets. Fair market value is used for other assets, such as derivatives used for hedging, but is not given for the long-term assets.

The firm notes that gaining accurate fair market prices/values for assets, such as international real estate would be problematic. What is the amount of Total Assets on the Balance Sheet? Evaluate if the balance seemed high, low, or just about right to you. Justify your answer. The total amount of assets on the balance sheet is shown as $21,600 million for 2015, which has increased from $18,594 for 2014.

These may appear to be very high levels of assets, as the value reported is high however, it is more approporate to consider the assets in the context of the firm and its business. To assess whether or not these are high it is best to look at the ratios. The firms' current ratio that is the current assets divided by the current liabilities (15,976/6,334) is 2.5.

This is a high ratio, meaning current assets to current liabilities are high, and with the ratio above the 1.5 benchmark, this means there are a high level of current assets. To consider fixed assets, ratios such as the asset turnover (the amount of times Nike sells the value of its fixed assets in a year) at only 9.91 for 2015, also indicates the level of assets is not too high, so overall, the asset level appear to be just right.

What is the amount of Total Current Liabilities on the Balance Sheet? What determines if an item is listed as current? The total amount of current liabilities on the balance sheet is $6,334 in 2015, increasing from $5,027 in 2014. For an item to be classified as a current liability, the payment that is liable should be due for payment within the following 12 months. If the liability is not due to be paid for more than 12 months it will be a long-term liability.

Justify and evaluate if the Notes to the Financial Statements are adequate in regard to disclosing areas that need further clarification. The notes to the accounts appear to be comprehensive and meet the legal requirements. Details are provided not only of the breakdown in each asset and lability.