Fin621 GDB Solution
Wednesday, November 24, 2010 Posted In Fin Edit ThisSemester "FALL 2010"
"Financial Statement analysis(FIN621)"
This is to inform that next Graded Discussion Board (GDB)
will be opened according to the following schedule
Schedule
Opening Date and Time
November 22, 2010 At 12:01 A.M. (Mid-Night)
Closing Date and Time
November 24, 2010 At 11:59 P.M. (Mid-Night)
Topic/Area for Discussion
" Accounting Principles and its Application in Financial Statements "
Note: The discussion question will be from the area/topic mentioned above. So start learning about the topic now.
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"Suppose you are working as an accountant and the president of your firm Mr. Ali has a little back ground of accounting. This morning, he approached you and said:
"Last year we purchased a piece of land for Rs. 200,000. During this, the inflation has driven prices up by 12 %, and an expert has also just told me that we can sell this land for Rs. 300,000 whereas our balance sheet still shows the land at Rs. 200,000. It should be valued at Rs. 300,000 or at least at Rs. 224,000 (after the effect of 12% inflation)".
Identify accounting principle(s) (GAAP) applicable to this situation which negates Mr. Ali's Claim. "
"Last year we purchased a piece of land for Rs. 200,000. During this, the inflation has driven prices up by 12 %, and an expert has also just told me that we can sell this land for Rs. 300,000 whereas our balance sheet still shows the land at Rs. 200,000. It should be valued at Rs. 300,000 or at least at Rs. 224,000 (after the effect of 12% inflation)".
Identify accounting principle(s) (GAAP) applicable to this situation which negates Mr. Ali's Claim. "
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Solutions:
According to me Answer Must be
1) Going Concern
and
2) Cost Principle
1) Going Concern
and
2) Cost Principle
................
Prudence principle: when choosing between two solutions, the one that will be least likely to overstate assets and income should be picked
Cost principle requires companies to account and report based on acquisition costs rather than fair market value for most assets and liabilities. This principle provides information that is reliable (removing opportunity to provide subjective and potentially biased market values), but not very relevant. Thus there is a trend to use fair values. Most debts and securities are now reported at market values.
Cost principle requires companies to account and report based on acquisition costs rather than fair market value for most assets and liabilities. This principle provides information that is reliable (removing opportunity to provide subjective and potentially biased market values), but not very relevant. Thus there is a trend to use fair values. Most debts and securities are now reported at market values.
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Just 3 concept oppose the valuation of fixed assets
+Cost principle(historical value recognition)
+Going concern assumption(fixed assets are not for resale purpose,thats y valuation doesn't matter
+The objectivity Principle(assets are valued verifying by independent expert)
These three principle are reject the purpose of revaluation in "GAAP"Remember IAS and FRAS standards promote revaluation of fixed assets,i think IAS 7,OR IAS8(Revaluation)
"Error & ommision are accepted"
+Cost principle(historical value recognition)
+Going concern assumption(fixed assets are not for resale purpose,thats y valuation doesn't matter
+The objectivity Principle(assets are valued verifying by independent expert)
These three principle are reject the purpose of revaluation in "GAAP"Remember IAS and FRAS standards promote revaluation of fixed assets,i think IAS 7,OR IAS8(Revaluation)
"Error & ommision are accepted"
...........
These are the accounting principle(s) (GAAP) applicable to this situation.
Goging Concern Assumption
An accounting guideline which allows the readers of financial statements to assume that the company will continue on long enough to carry out its objectives and commitments
Cost PrincipleThe cost principle is an accounting concept that states goods and services should be recorded at their original or historical cost. This concept is mainly used when recording short- and long-term assets and liabilities or equity investments.
Objectivity PrincipleIt is the principle of accounting which states that the books of accounts should be prepared on the basis of verifiable data.
Goging Concern Assumption
An accounting guideline which allows the readers of financial statements to assume that the company will continue on long enough to carry out its objectives and commitments
Cost PrincipleThe cost principle is an accounting concept that states goods and services should be recorded at their original or historical cost. This concept is mainly used when recording short- and long-term assets and liabilities or equity investments.
Objectivity PrincipleIt is the principle of accounting which states that the books of accounts should be prepared on the basis of verifiable data.
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