A Mixed Measurement Approach For Measure Assets And Liabilities

Solution – QUESTION 2 (written by Asher Curtis) - 10 Marks Suggestions only: 1. (3 marks for identifying the three dimensions) Applications of cost and equity differ on three dimensions. First, the treatment of dividends, is written against the investment account (Equity) or recognised as revenue (Cost). Second, the treatment of profits reported by the associated entity and the ammortisation of goodwill (the difference in the cost paid and the fair value of the net assets acquired) are not recognised when applying the cost method. The only case where net profit is not affected by choice of the method is where there is no goodwill (cost = fair value of net assets acquired) and the firm pays out all of its profit as dividends. Any of the following alternatives provide examples (2 marks for any of the following): a. The case for a profitable company that pays less than 100% profits out as dividends: The net value of the investment increases under the equity method, which will be more than cost unless the investment is revalued. b. The case for a loss company that pays no dividends: Unless the investment is subject to a recoverable amount test, application of the equity method

One of the most important parts of a business is the financial management. Each and every other company always strives to have the best management when it comes to its finances. Most organizations have come up with plans and marketing strategies. This is due to the fact tat when companies finances are poorly managed then definitely the whole company is likely to be in trouble or even come down. The financial techniques and principles in most cases comprise of quite a number of aspect for instance those that we intend to look at in this paper-the financial reporting. This will basically comprise of the quality of data and information that the company produced to some of the various stakeholders. Other than that, the paper will also analyze the financial position and performance of the organization using accounting ratios. Another important aspect of financial principles is costing. This basically entails the cost of producing goods and services in the company and how it generally affects the overall performance of the company. The paper will also delve into how important costs in the pricing strategy of the business are. It will further come up with a costing and pricing system that can help the company improve. Last but not least, we focus on the company's budgets and budgetary control. Here there are very important areas that have to be looked into, for

Financial management is a work plan that details the revenue and expenses of a company. Financial decisions are strategies that achieve the financial objectives of a company that include capital budgeting, capital structure, and working capital management. Modigliani and Miller (1958) received the Nobel Prize in economics for their study of the relationship between capital structure and corporate value, with and without corporate tax. Whether financial management decisions influence firm value is still debated daily because there are plenty of uncertain factors. In this paper, I intend

Asses and Balance Financials is a small firm that works with the government on the county level and helps departments in the county with their financial needs. This firm analyzes, creates, and finalizes budgets for these departments and ensures that each is equipped with the necessaries for their role in the county. Assess and Balance Financials is in search of filling a position for a budget analyst. Currently, there are two interns in the firm, a staff accountant, a purchasing coordinator, and the finance director. This firm works closely with the county manager as well. The firm is struggling to function with the employees that are currently working, but they can provide the minimum required information, so the firm

Analysis of Other Discretionary Costs  Balance Sheet Analysis of Earnings Quality Conservatism in Reported Assets Conservatism in Reported Provisions and Liabilities Risks in Reported Assets  External Factors and Earnings Quality 2-4 Chapter 02 - Financial Reporting and Analysis ANALYSIS OBJECTIVES  Explain the financial reporting and analysis environment  Identify what constitutes generally accepted accounting principles (GAAP)  Describe the objectives of financial accounting, and identify primary and secondary qualities of accounting information  Define principles and conventions that determine accounting rules  Describe the relevance of accounting

Historical cost is the most common adopted measurement basis in the IASB; FASB suggests that market selling price (Fair Value) is more accurate description of how much assets and liabilities are currently reflected in financial reporting (SFAC 5, 2008). In other words, it was about the historical cost versus fair value. Historical cost gives priority to existing shareholders and regard stewardship as an important function of financial reporting (Whittington, 2008). Historical cost records actual transaction with supporting documents so the financial report is less subject to manipulation by management (Shortridge et al., 2006). The information is relevant to forecasting future cash flows within entity specific perspective rather than direct valuation of future cash flows. Historical cost accounting may lack relevance as during period of inflation (Pozen, 2009). The fact that relevant information has predictive value strengthens its decision making power over reliability principle (KAYA,

40 would require Silic to mark its investment properties to fair value during each reporting period, and report the gains and losses on its income statement. As indicated in the case, French real estate market had experienced substantial upward and downward movements in the value of properties. Thus, a probable outcome of fair value accounting would be a significant fluctuation in the firm’s bottom line during each reporting period. Fluctuations in net income signals great risk of the financial performance of an entity. A normal risk averse investors would not invest in an company that poses significant risk. Therefore, I believe historical cost accounting would present Silic in the most favorable light over

The following report is presented in order to show that there is a specific stimulus for the selection of a particular accounting policy or method from a range of its alternatives. In the report, one of the most successful companies of Australia, i.e. Woolworths Limited (Woolworthslimited.com.au, 2015) is chosen and all the requirements of the report are fulfilled keeping this company in mind. The particular area with which the accounting policies relate is tangible fixed asset, and its valuation. For clarity and understanding point of view, the actual examples from the financial statements in the published annual reports of the company in the past

In an ideal situation, information for decision making should be both perfectly relevant and precisely accurate. However, in reality, such information is often too difficult or too costly to obtain. The degree to which information is relevant or precise often depends on the degree to which it is qualitative or quantitative. (Horngren et al, 2008) Since primary classification of costs on the income statement are by three major management functions: manufacturing, selling, and administrative, it will be definitely most relevant accounting information for Guillermo to consider. Some income statements track fixed and variable costs using the contribution approach, whereas others adopt the absorption approach that considers all direct and indirect manufacturing costs to be product costs. Both, the contribution approach and the absorption approach can be relevant for decision making. However, the key to decision making is not relying on a hard and fast rule about what to include and what to ignore. (Horngren et al, 2008) Thus, Guillermo will need to analyze all pertinent costs and revenues to determine what is and what is not relevant for his particular decision.

The Following involves the analysis of the costing techniques followed by the company along with its Budgeting system. It also involves the Investment appraisal analysis for the given data.

An explanation of the accounting and business techniques that have been used, including a discussion of their limitations

Performance measures have been used to assess the success of organisations. The modern accounting framework dates back to the middle ages and since that time assessment of performance has predominantly been based on financial criteria (Burns, 1998). Double entry accounting systems were developed to avoid disputes and settle transactions between traders (Johnson, 1983). By the start of the twentieth century the nature of organisations had evolved and ownership and management were increasingly separated. As a result, measures of return on investment were applied so that owners could monitor the performance that managers were achieving (Johnson, 1983). Since that time

In today’s businesses, there has been an increase in the demand for financial reporting and also, the need to have reliable measurements of fair value and its disclosures. The need for reliable information has caused continuous change to accounting policies which has posed a challenge not only to management of companies, but also to auditors. The frequent changes in accounting principles pose a challenge for managers in measuring accounting estimates accurately and are an exceedingly difficult task. Fair value accounting is a financial reporting approach in which companies are required to measure and report on an ongoing basis certain assets and liabilities at estimates of the prices they would receive if they were to sell the assets or would pay if they were to settle their liabilities. Under fair value accounting, companies report losses when the fair values of their assets decrease or liabilities increase. Those losses reduce companies’ reported equity and may also reduce companies’ reported net income.

Several elements are bought together in the measurement process. A simple measure of this type, such as a count of cash, depends on the several factors:

After subtracting all economic costs from operating profits after taxes EVA reveals the true economic surplus available for further investment. Traditional cash flow analysis can easily disregard companies with negative cash flows because main purpose of traditional cash value metric is to control cash generation. In contrast, the main purpose of EVA is to optimize resource allocation. At difference to accounting measures, EVA highlights the gap in performance, and hence, aligns the interests of managers and shareholders. The link between shareholders value and economic profit of the company becomes more transparent. At difference to traditional accounting measures of corporate profit, EVA fully accounts for the company¡¦s overall capital costs. It includes both, the direct cost of debt capital and the indirect cost of equity capital. The cost of capital is the minimum return required to pay shareholder¡¦s equity . EVA can therefore determine whether or not the business is creating value but it can also indicate how much value is created at different business levels.