This case spans all 12 chapters and is based on the consolidated financial statements of Nestl. As

This case spans all 12 chapters and is based on the consolidated financial statements of Nestlé. As you work with Nestlé throughout this course, you will develop the confidence and ability to use the financial statements of other companies as well.

Refer to Nestlé’s financial statements in Appendix A. Alternatively, you may obtain the full annual report from Nestlé’s website at www.nestle.com/investors. You may find the information overwhelming for now, but try to spot the key principles that we have discussed in this chapter. It will get progressively easier as you gain familiarity with the elements of the financial statements.

Nestlé—like all other businesses—adjusts accounts prior to year-end to get correct amounts for the financial statements. Examine Nestlé’s Balance Sheets in Appendix A, and pay particular attention to Note 11 on provisions.

Requirements 1. Open a T-account for “provisions.” Insert Nestlé’s balance of CHF 3,165 million at December 31, 2015. What four items does this total consist of? (Hint: for further details refer to the notes to the financial statements.)

2. For simplicity’s sake, assume that there is only one provisions account, provisions for warranties, with an opening balance of CHF 3,165 million at December 31, 2015. Journalize the following transactions for the year ended December 31, 2016. Key entries by letter, and show amounts in millions.

a. Made warranty payments of CHF 464 million to consumers.

b. Charged CHF 895 million to the Income Statement as its best estimate of future warranty needs.

c. Misc. adjustments to the provisions account to the tune of a CHF 336 million debit due to exchange movements and reversal of previous over-estimation (credit retained earnings).

3. Post these entries to “provisions” and show that the ending balance of the account agrees with the corresponding amount reported in Nestlé’s December 31, 2016, Balance Sheets.

4. Examine Note 8—Property, plant and equipment. Notice that accumulated depreciation and impairment stood at CHF 26,323 million at December 31, 2015, and at CHF 28,376 million at December 31, 2016. Assume depreciation and impairment expense for 2016 was CHF 2,795 million in total. Explain what must have happened to account for the remainder of the change in the accumulated depreciation and impairment account during 2016.