Sunday, May 22, 2011

#104- EBITDA ( Practical Guidance on how to compute)

EBITDA stands for Earning before Interest, Tax, Depreciation and Amortisation.

Here is a step by step guidance on how to compute a Company's EBITDA based on a financial statement:

1. Take the Profit before Tax number (from income statement)
2. Add: Interest (usually, this number can be found in cash flow statement.
3. Add: Depreciation ( most likely: depreciation number can be found in notes to account of Property, Plant & Equipment/ cash flow statement)
4. Add: Amortisation ( most likely: amortisation number can be found in notes to account of Intangible Assets/ cash flow statement)

Sunday, May 8, 2011

#103- Provision for Doubtful Debt

We received queries from one of our blog readers in relation to provision for doubtul debt. We will summarize her queries as below:

a. Is general provision for doubtul debts still allowable? If a client provides an allowance of 60k per year as doubtful debt where the double entry is Dr. bad debts Cr. Provision for doubtful debts - is this practice still allowable?

b. Which IAS standard govern this area

Response from

a. No. General provision is no longer allowed. IAS 39 states provision for doubtful debt is required when there's objective evidence that the receivable amount is no longer recoverable. As such, only specific provision is allowed. For accounting entries, it is Dr. Bad Debts Expense, Cr. Provision for Doubtful Debt

b. IAS 39