Income Statement Profit and Loss Statement

The income statement, or profit and loss statement measures the performance of an enterprise. The bottom line of this statement is the net result of the operations of the enterprise in the reporting period. It reveals the change during the period in the equity of the enterprise re­sulting from its operations- Revenues

Revenues are inflows or enhancements of assets (or reductions of liabilities) that arise in the course of the normal activities of the enter­prise.

The events that result in revenues and revenues themselves are re­ferred to by a variety of names: including sales, fees, interest, divi­dends, royalties and rent,

Expenses

Expenses are outflows or depletions of assets (or additions to lia­bilities) that arise in the course of the enterprise’s normal activities.

The events from which expenses arise and expenses themselves are referred to by a variety of names, including cost of sales, wages and depreciation.

An expense is recognized when it is realized that an expenditure docs not produce future economic benefits- It is also recognized when a liability is incurred without the recognition of an asset. When it is possible to do so, expenses are recognized in the income state­ment on the basis of direct association between expenses incurred and the earning of specific items of income. The process is commonly re­ferred to as matching of expenses with revenues.

Gains and losses

Gains are increases in equity that result from transactions that are incidental to the enterprise’s activities and from other transactions, events or circumstances affecting the enterprise during a period, ex­cept those that result in revenues or equity contributions.

Losses are decreases in equity that result from transactions that are incidental to the enterprise’s activities and from other transac-226

tions, events or circumstances affecting the enterprise during a peri­od, except those that result in expenses or distributions of equity.

Gains are normally recognized when realized. Losses are normal­ly recognized when realized or when it becomes evident that there is an impairment in the value of the assets, or an increase in the liabili­ties, to which the losses relate.

Based on: Objectives and Concepts.

Exercise 1. Summarize the text. Exercise 2. Ask questions to the text. Exercise 3. Make a plan for retelling the text.

U n i t 5

Loan agreement кредитное соглашение

Exercise 1. Study the document.

A bank loan is a form of credit agreement whereby a bank or an­other financial institution (the lender) advances to the borrower a cer­tain sum of money for a specified period of time, usually on fixed-rate terms. The principal is repaid either in regular installments or at a fixed redemption date. Also, a bank loan may take the form of an agreement under which the borrowers borrow as much money as they require up to a pre-arranged total limit and are charged interest on outstanding balances.

Depending upon the nature of the loan and the risk involved, the loans may be unsecured or secured, the latter requiring of the bor­rower to deposit with the bank a collateral security (e.g. documents certifying ownership of land) to guarantee against default of the loan.

Low-risk, low-interest borrowers seldom default on loans, and do so only for reasons outside of their control. High-risk borrowers take risks with their money and frequently default on their debts, but they also pay higher interest, hence the motivation for the banks to work with them.

Besides this risk another pitfall frequently awaits the banker, namely, the mistake in strategy, usually known as «borrowing short against lending long». Giving out loan scheduled for repayment after long periods of time, the banks look for ways to replenish their capital and sometimes find no better choice than to borrow at higher interest than they lend. Needless to say, by such strategy the bank can only push itself into a corner. However, this is already a matter of policy rather than of concrete financial terms and obligations.

Given below is an example of a standard loan agreement the study of which may be helpful in understanding the mechanism of banking.

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N o t e s:
lender n	кредитор
borrower n	заемщик
on fixed-rate terms	с фиксированной процентной ставкой
installment n	взнос
redemption date	дата погашения долга
outstanding balance	невыплаченный остаток
loans may be unsecured	ссуда может быть не застрахована
collateral security	залог
default n	дефолт
pitfall n	западня
«borrowing short against lending long»	брать взаймы на короткое время, а давать на долгое.

A LOAN AGREEMENT

Preamble, Amount of Principal

This agreement is dated as of October llth, 1998 and is between the Russbank of Russia, a juridical person organized and existing un­der the laws of Russia, hereinafter referred to as «the Borrower», and Landing Bank Limited, a corporation organized and existing under the laws of England, hereinafter referred to as «the Lender».

Witnesseth:

Whereas, Russimport, Moscow, Russia, a juridical person organ­ized and existing under the laws of Russia, hereinafter referred to as «the Buyer», has entered into Purchase Contract6 No. ... dated April 16th, 2007, hereinafter referred to as «the Purchase Contract» with British Motors Corporation, a corporation organized and existing un­der the laws of England, hereinafter called «the Seller» for the pur­chase of Iron Manufacturing Plant Equipment from British Electric Co and Addendum No. 1 dated October 31st, 2007 hereinafter called

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«the Addendum» for the purchase of additional equipment for the above plant, hereinafter called «the Equipment», and

Whereas, the Borrower has requested the Lender to lend One Mil­lion Eight Hundred Nineteen Thousand Two Hundred Three United States Dollars (USD 1,819,203) to facilitate payments for the Equip­ment under the Addendum, and

Whereas, the Lender is willing to lend the funds under the terms and conditions set forth below, therefore, in consideration of the promises contained herein, and each party intending to be legally bound thereby, the parties agree as follows.