Accounting Standards
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Q no 1:- List down various accounting standards and financial reporting standards discussed in the case study.
Ans: – After read the case study I read the following standards which are discussed in the case study. SSAPs & FRSs these 2 standards are discussed in case study.
Statements of Standard Accounting Practice (SSAP)
The following SSAPs standards are discussed in case study.
SSAP 12 Accounting for depreciation
SSAP 25 Segmental reporting
SSAP 9 stock and long-term contract
Financial Reporting Standards (FRS)
The following FRSs standards are discussed in case study.
FRS 11 Impairment of fixed assets and goodwill
FRS 1 cash flow statement
FRS 3 Reporting financial performance
FRS 3 Exceptional items
Details of these standards are discussed below in Question No.2.
Q 2:- Discuses each accounting standard and FRS in 5 to 6 lines.
Introduction:
Accounting standards in the United States appear in the form of the generally accepted accounting principles, a set of standards, guidelines and procedures that are used when accounting for the affairs of most governmental and non-governmental bodies. The interpretation of numbers and the wherewithal to place them in the proper context are at the heart of accounting. Standards exist to ensure that accounting decisions are made in a unified and reasonable way.
The accounting standards are as follow in detail.
SSAP 12 Accounting for depreciation
SSAP 25 Segmental reporting
SSAP 9 stock and long-term contract
SSAP 12 Accounting for depreciation:-
All fixed assets, except for investment properties and certain intangibles need to be depreciated. This is in order to match their measure of wearing out over the accounting periods which benefit from their use.
2. SSAP 25 Segmental reporting
Many entities carry on several classes of business or operate in several geographical areas with different rates of profitability, different opportunities for growth and different degrees of risk. It is not usually possible for the user of the financial statements of such an entity to make judgments about either the nature of the entitys different activities or their contribution to the entitys overall financial results unless the financial statements provide some segmental analysis of the information they contain.
3 :- SSAP 9 stock and long-term contract
SAP 9 gives guidance on the accounting treatment of both stocks (inventories) and long-term contracts.
The determination of profit for an accounting period involves the allocation of costs to reporting periods. Owing to the length of time taken to complete such contracts, to defer recording turnover and taking profit into account until completion may result in the profit and loss account (income statement) reflecting not so much a fair view of the results of the activity of the company during the period but rather the results relating to contracts that have been completed in the period. It is therefore appropriate to take credit for ascertainable turnover and profit while contracts are in progress in accordance with the guidance given in SSAP 9.
Financial Reporting Standards (FRS)
The following FRSs standards are discussed in case study.
FRS 11 Impairment of fixed assets and goodwill
FRS 1 cash flow statement
FRS 3 Reporting financial performance
FRS 3 Exceptional items
FRS 11 Impairment of fixed assets and goodwill
FRS 11 sets out the principles and methodology for accounting for impairments of fixed assets and goodwill. It replaces the previous approach whereby diminutions in value were recognized only if they were regarded as permanent. Instead, the carrying amount of an asset is compared with its recoverable amount and, if the carrying amount is higher, the asset is written down.
If the value in the financial statements is higher than the recoverable amount then this is impairment and this will normally be a charge to the profit and loss account unless that the asset had been previously revalued.
FRS 1 cash flow statement
This makes it difficult to interpret a companys results with confidence. Cash flows are less subject to manipulation. Standard headings an in FRS 1 cash flow statement.
♦ Net cash flow from operating activities
♦ Dividends from associates (not examinable)
♦ Returns on investments and servicing of finance
♦ Taxation
♦ Capital expenditure
♦ Acquisitions and disposals (not examinable)
♦ Equity dividends paid
♦ Management of liquid resources
♦ Financing