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The Procter & Gamble Company (P&G) The financial statements of P&G are presented in Appendix B. The company’s complete annual report, including the notes to the financial statements, is available online. Instructions Refer to P&G’s financial statements and the related information in the annual report to answer the following questions. (a)   What alternative formats could P&G have adopted for its balance sheet? Which format did it adopt? (b)   Identify the various techniques of disclosure P&G might have used to disclose additional pertinent financial information. Which technique does it use in its financials? (c)   In what classifications are P&G’s investments reported? What valuation basis does P&G use to report its investments? How much working capital did P&G have on June 30, 2014? On June 30, 2013? (d)   What were P&G’s cash flows from its operating, investing, and financing activities for 2014? What were its trends in net cash provided by operating activities over the period 2012–2014? Explain why the change in accounts payable and in accrued and other liabilities is added to net income to arrive at net cash provided by operating activities. (e)   Compute P&G’s (1) current cash debt coverage, (2) cash debt coverage, and (3) free cash flow for 2014. What do these ratios indicate about P&G’s financial condition?

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Answer and explanation:

S/No. Description

a         P&G classifies its property, plant and equipment under three  

               descriptions in its balance sheet: Buildings, Machinery and

               equipment, and Land.

b         Depreciation expense is recognized over the assets' estimated

               useful lives using the straight-line method.

c          Machinery and equipment includes office furniture and fixtures

               (15- year life), computer equipment and capitalized software (3- to

               5-year lives) and manufacturing equipment (3- to 20-year lives).  

               Buildings are depreciated over an estimated useful life of 40

               years.  

d         P&G’s Income statement reports depreciation and amortization of

               $3,141 million in 2014, $2,982 million in 2013, and $3,204 million

              was charged to expense in 2012.

e            The statement of cash flows reports the following capital

              expenditures:

             2014, $3,848 million;  

             2013, $4,008 million; and  

             2012, $3,964 millio

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