The Principle of Materiality of an Item of Financial Information

Question: Explain How Could At The Principle Of Materiality Of An Item Of Financial Information When Preparing Financial Reports? Answer: Introducation: Apple Inc. is a US based company which is involved in the business of designing, manufacturing and selling mobiles, personal computers and laptops, potable digital music players and also markets a variety of software, networking solutions, applications and accessories. Some of its popularFinancial products include iPhone, iPad, iPod, Apple TV and watch. The cash flow statement for the company for the year ending September, 2016 was analysed. There is a net decrease in aggregate cash and cash equivalents by $636 million. The summary of statement of cash flows is presented below: Opening cash balance $2,120 million Cash flows from operating activities $65,824 million Cash flows from investing activities ($45,977) million Cash flows from financing activities ($20,483) million Closing cash balance $20,484 Decrease in cash balance ($636) million (Apple, 2016) From the above table we see that the cash balance has decreased in 2016 due to cash used in investing and financing activities. The cash outflow in investing activities included purchase of marketable securities for $30 billion, net of sale of marketable securities, another $12.7 billion in acquisition of property, plant and equipment. The cash outflow of financing activities included cash spent to repurchase common stock amounting to $29.7 billion, also dividends were paid amounting to $12 billion, and a repayment of debt was made amounting to $2.5 billion. However, new debt was also taken for $25 billion. The investment in property, plant and equipment included expenditure in corporate facilities and infrastructure, product tooling and manufacturing equipment, improvement in retail store facilities, software and hardware, and data centres. These capital investments will reap benefits for the company in the future and hence is a sign of growth and development of the company. The company has increased the cash dividend for the shareholders by 10% from $0.52 to $0.57 per share. This is good news for the shareholders and the additional debt has been undertaken to pay for dividends and to pay for the commercial papers which matured in 2016. The company undertook a capital return program under which it repurchased its shares. The repurchase of shares increases the per share value of the companys shares which is in the interest of the shareholder. The company believes that its cash balance at the end of year 2016 will be sufficient to meet its working capital needs, its capital investment needs and other outstanding commitments over the period of one year. Thus from a financial perspective, it can be said that the company has a positive cash balance at the end of the year. Although the cash balance has decreased in 2016 as compared to 2015 by 30%, but the decrease is mainly on account of cash spent on investing in the companys assets which will help in growth and development of the business. Therefore, the company has a strong position as far as the cash balance is concerned and has good liquidity. Reference Apple Inc., (2016), Apple Inc., Form 10-K, United States Securities and Exchange Commission