Financial Accounting for Business Finance Basics - myassignmenthelp

Question: Discuss about theFinancial Accounting for Business Finance Basics. Answer: While evaluating the holdings of an investment company, we would first see if the heads under which the holdings have been classified. We need to check the proportion of investments made in different type of securities (Girard, 2014). We need to analyse the risk return liquidity tax benefits etc in order to evaluate the investments of an investment company. The holdings will help us calculate the fixed income for the company. We need to evaluate the portfolio of the company and compare the risks with the return. The adjustments made in the value of investment at the yearend will help us know the profits and loss due to fluctuations. Therefore, the classification of the holdings will be relevant in understanding the financials of the investment company. As per the relevant conceptual framework, the revenues earned by the company in the ordinary course of business are to be classified as revenue from operations and the income earned from any other sources is to be classified as other income. In the current scenario we have an investment company (Ittelson, 2009). The primary activity of the company is investing in various securities and earning from them. The revenues include appreciation and income from the investments made. This income is to be classified as revenue from operations, since the primary objective of the company is to earn income from investments. Also, the principles of revenue recognition should be adopted by the company. The interest income should be recognised based on accrual concept of accounting (Lerner, 2009). The dividends received should be accounted for only when the rights to receive dividends have been established. All these incomes in different formats would be recorded under revenue from operations. The IAS 1 lays down the basic requirement of how the financial statements should be presented. They define the principles which should be followed by the enterprise in preparing the financial statements (Loughran, 2010). It is the duty of all the organisations to comply by the accounting standards in preparation of the financial statements. In case the company fails to abide by this, they must mention the fact of non compliance and the reason for the same. They should quantify the affect of such non compliance and mention them in the note to accounts. (Piper, 2015) In the given case we see that in order to abide by the corporation act, the company has failed to disclose the Impairment loss of $80000, as it is temporary. As per the standard on impairment, any impairment should be recognised and when the circumstances change the impairment loss can be reversed. Since the company has failed to report this impairment loss due to statutory regulations, it should mention such fact in the notes to accounts mentioning the loss of $80000 and that it is temporary in nature. Accounting estimates As per the relevant accounting standards whenever there is change in an accounting policy or an accounting estimate, details of such change should be mentioned in the notes to accounts (McLaney Adril, 2016). The reporting entity should mention the change, reason for such change and quantify such change in the reports. Any change in policy can be made if required by law, statute or for better presentation of financial statements. In the given scenario the directors are of the view that the profits and losses from cash flow hedges should be recognised in the profit and loss statement and should be capitalised. This would result in better presentation of the financial statements. Therefore, the directors can do so mentioning such fact in the notes to accounts. They should write a note specifying the reason and effect of such change on the profits of the company. References: Girard, S. L. (2014). Business finance basics. Pompton Plains, NJ: Career Press.Ittelson, T. (2009). Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports. Franklin Lakes, N.J.: Career Press.Lerner, J. J. (2009). Schaum's outline of principles of accounting. New York: Schaum.Loughran, M. (2010). Auditing For Dummies? Hoboken, NJ: John Wiley Sons.McLaney, E., Adril, D. P. (2016). Accounting and Finance: An Introduction. United Kingdom: Pearson.Piper, M. (2015). Accounting made simple. United States: CreateSpace Pub.