(93)-CALCULATIONS FOR INCOMPLETE RECORDS

Calculations for Incomplete Records In practice there should not be any missing item in the opening balance sheet of the business, because it should be available from the preparation of the previous year’s final accounts. Credit sales and debtors If business does not keep a record of its sales on credit, the value of these sales can be derived from the opening balance of trade debtors, the closing...

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(92)-INCOMPLETE RECORDS ACCOUNTS

Incomplete Records Accounts Incomplete records problems occur when a business does not have a full set of accounting records, either because: The proprietor of the business does not keep a full set of accounts Some of the business accounts are accidentally loss or destroyed The problem for the accountant is to prepare a set of year end accounts for the business; i.e. a trading, profit and loss account,...

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(91)-CONTINGENT ASSETS

Contingent Assets Financial reporting standards define a contingent asset as: A possible asset that arises from past events and whose existence will be confirmed by the occurrence of one or more uncertain future events not wholly within the entity’s controlA contingent asset must not be recognized. Only when the realization of the related economic benefits is virtually certain should recognition take...

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(90)-CONTINGENT LIABILITIES

Contingent Liabilities Financial reporting standards define contingent liabilities as: A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the entity’s control; or A present obligation that arises from past events but is not recognized because, it is not probable that...

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(89)-PROVISIONS FOR RESTRUCTURING

Provisions for Restructuring Financial reporting standards define a restructuring as a Program me that is planned and is controlled by management and materially changes either: The scope of a business undertaken by an entity The manner in which that business is conducted. The financial reporting standards give the following examples of events that may fall under the definition of restructuring. The...

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(88)-PROVISIONS

Provisions Financial statements must include all the information necessary for an understanding of the company’s financial position. Provisions, contingent liabilities and contingent assets are “uncertainties” that must be accounted for consistently if are to achieve this understanding.Provisions A provision is a liability of uncertain timing or amount. A liability is an obligation of an entity to...

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(87)-EVENTS AFTER THE BALANCE SHEET DATE

Events after the Balance Sheet Date Non adjusting eventsNon adjusting events those that are indicative of conditions that arose after the balance sheet date.Consequently they do not result in changes in amounts in financial statements. They may, however, be of such materiality that their disclosure is required by way of notes to ensure that financial statements are not misleading.A number of examples...

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(86)-EVENTS AFTER THE BALANCE SHEET DATE

Events after the Balance Sheet Date Events after the balance sheet date are those events, favorable and unfavorable, that occur between the balance sheet date and the date when the financial statements are authorized for issue. The financial statements are significant of a company’s success or failure. It is important, therefore, that they include all the information necessary for an understanding...

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(85)-DISCLOSURE FOR RESEARCH AND DEVELOPMENT EXPENDITURE

Disclosure Requirements for Research and Development Expenditure The companies act does not require disclosure of the total amount of research and development expenditure during an accounting period, but accounting standards requires that all large companies should disclosure this total, distinguishing between current year expenditure and amortization of deferred development expenditure. Accounting...

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(84)-EXAMPLES OF RESEARCH AND DEVELOPMENT ITEMS

Examples of Research and Development and Non Research and development Items Research and development itemsExamples given by accounting standards of activities that would normally be included in research and development are: Experimental, theoretical or other work aimed at the discovery of new knowledge or the advancement of existing knowledge. Searching for applications of that knowledge. Formulation...

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(83)-CATEGORIES OF RESEARCH AND DEVELOPMENT COSTS

Categories of Research and Development Costs In the accounting standards defines research and development expenditure as falling into more of the following categories. Pure research is originally research to obtain new scientific or technical knowledge or understanding. There is no clear commercial and in view and such research work does not have a practical application. Companies and other business...

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(82)-RESEARCH AND DEVELOPMENT COSTS

Research and Development Costs Large companies may spend significant amounts of money on research and development activities. These amounts must be credited to cash and debited to an account for research and development expenditure. The accounting problem is how to treat the debit balance on research and development account at the balance sheet date. There are two possibilities. The debit balance...

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(81)-PURCHASED GOODWILL

Purchased Goodwill Purchased goodwill has been defined as “the excess of the price paid for a business over the fair market value of the individual assets and liabilities acquired”. The accounting treatment of purchased goodwill Once purchased goodwill appears in the accounts of a business, we must decide what to do with it. Purchased goodwill is basically a premium paid for the acquisition of a business...

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(80)-ACCOUNTING FOR GOODWILL IN BUSINESS

Accounting for Goodwill in Business If a business has goodwill it means that the value of the business as a going concern is grater than the value of its separate tangible assets. Goodwill is crated by good relationships between a business and its customers, for example: By building up a reputation for high quality products or high standards of service. By responding promptly and helpfully to queries...

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(79)-SUMMARY ABOUT ACCOUNTING CONCEPTS

Summary about Accounting Concepts In preparing financial statements, certain fundamental accounting concepts are adopted as a framework.Two such accounting concepts are identified in financial reporting standards accounting policies as the bedrock of accounting. The going concern concept. Unless there is evidence to the country, it is assumed that a business will continue to trade normally for the...

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(78)-PRESENTATION OF FINANCIAL STATEMENTS

Presentation of Financial Statements Aspects of this post have also given rise to some controversy. The post begins by making the general point that financial information is presented in the form of a structured set of financial statements comprising primary statements and supporting notes and, in some cases, supplementary information.Components of financial statements The primary financial statements...

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(77)-RECOGNITION AND MEASUREMENT IN FINANCIAL STATEMENTS

Recognition and Measurement in Financial Statements Recognition in financial statements Three stages are used for recognition if assets and liabilities. Initial recognition Subsequent re measurement De recognition Measurement of financial statementsFor this, with its emphasis on current values, is fairly radical and controversial. The following approach is taken. Initially, when an asset is purchased...

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(76)-ELEMENTS OF FINANCIAL STATEMENTS

Elements of Financial Statements The elements of financial statements are listed. They are: Assets Liabilities Ownership interest Gains Losses Contributions from owners Distribution to owners Any item that does not fall within one of the definitions of elements should not be included in financial statements. The definitions are as follows. Assets are rights or other access to future economic benefits...

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(75)-THE OBJECTIVE OF FINANCIAL STATEMENTS

The Objective of Financial Statements The main points rose here as follows The objective of financial statements is to provide information about the financial position, performance and financial adaptability of an enterprise that is useful to a wide range of users for assessing the stewardship of management and for making economic decisions. It is acknowledge that while all not all the information...

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(74)-STATEMENTS OF PRINCIPLES IN ACCOUNTING

Statements of Principles in Accounting The Accounting Standards Board (ASB) published as exposure draft of its statement of principles for financial reporting. The statement consists of eight chapters. The objective of financial statements The reporting entity The qualitative characteristics of financial information The elements of financial statements Recognition in financial statements Measurement...

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(73)-THE SEARCH FOR A CONCEPTUAL FRAMEWORK

The Search for a Conceptual Framework A conceptual framework, is a statement of generally accepted theoretical principals which from the frame of reference for financial reporting. These theoretical principles provide the basis for the development of new reporting standards and the evaluation of those already in existence.The financial reporting process is concerned with providing information that...

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(72)-ACCOUNTING POLICIES & ESTIMATES

Accounting Policies & Estimates Accounting policies An accounting policy is concerned with the, Recognition Selection of measurement base and Presentation Of assets, liabilities, gains and losses of an entity The most appropriate accounting policy should be selected in order give a true and fair view. Two points should be noted about this approach. Accounting policies must confirm to the relevant...

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(71)-SUBSTANCE OVER FORM & PERIODICITY CONCEPT

Substance over Form & Periodicity Concept Substance over form Substance over form means that transactions should be accounted for and presented in accordance with their economic substance, not their legal form. An example of substance over form is that of assets acquired on hire purchase. Legally the purchaser does not own the asset until the final installment has been paid. However, the accounting...

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(70)-REVENUE RECOGNITION CONCEPT

Revenue Recognition Concept Accruals accounting is based on the matching of costs with the revenue they generate. It is crucially important under this convention that we can establish the point at which revenue may be recognized so that the correct treatment can be applied to the related costs. For example, the costs of stock should be carried as an asset in the balance sheet until such time as it...

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(69)-STABLE MONETARY UNIT AND OBJECTTIVITY CONCEPTS

Stable Monetary Unit Concept The financial statements must be expressed in terms of a monetary unit, For example in the USA the $ It is assumed that the value of this unit remains constant.In practice, of course, the value of the unit is not usually constant and comparisons between the accounts of the current year and those of previous years may be misleading. Objectivity (neutrality) concept Objectivity...

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(68)-THE HISTORICAL COST CONVENTION

The Historical Cost Convention Historical cost means transactions are recorded at the cost when they occurred.A basic principal of accounting is that resources are normally started in accounts at historical cost, i.e. at the amount which the business paid to acquire them. An important advantage of this procedure is that there is usually objective, documentary evidence to prove the amount paid to purchase...

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(67)-THE MATERIALITY CONCEPT

The Materiality Concept Only items material in amount or in their nature will affect the true and fair view given by a set of accounts. An error which is too trivial to affect anyone’s understanding of the accounts is referred to as immaterial. In preparing accounts it is important to assess what is material and what is not, so that time and money are not wasted in the pursuit of excessive details....

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(66)-THE SEPARATE VALUATION PRINCIPLE

The Separate Valuation Principle The separate valuation concept states that, in determining the amount to be attributed to an asset or liability in the balance sheet, each component item of the asset or liability must be determined separately. These separate valuations must then be aggregated to arrive at the balance sheet figure. For example, If a company’s stock comprises 50 separate items, a valuation...

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