FINANCIAL ACCOUNTING

Accounting and Financial Statement



Table of Contents

Key accounting concepts underlying the preparation of financial statements1

Comparison between statement of comprehensive income and proceeding formats2

Usefulness of the P/E ratio in analysing the performance of an entity4

Investigation for elements of “Other Comprehensive Income” statement and Its Impact5

Explanation of “OCI” Items and its effect on companies5

Overview of Companies in lieu of their use of OCI6

Summary of the Effect of OCI on These Companies7

Critical Synthesis of the Statement: "True" Earnings Could Be Considerably Higher or Lower Than a Company Has Announced8

Effects of 'OCI' amounts in comparison to the “earnings” figure used in the calculation of the P/E ratio8

Explanation of Financial Statements about the items in 'OCI'10

Effects of Goodwill on the financial statements- Example of Tesco Company10

Increase in Goodwill valuation and its Notional Effect11

References13

Appendix15

Accounting and Financial statement

Key accounting concepts underlying the preparation of financial statements

Financial statements are the final product of the accounting process. The objective of financial reporting is to provide general purpose, with respect to the entity that this (the entity), information useful to users for their decisions. The financial statements are formulated with the basic assumption that a corporation or an entity treats as a going operation, and it will continue its activities in future predictable. IAS (International Accounting Standards) sets out the purpose or objective of general purpose financial statements that utilizes the concepts of accounting in explaining the core phenomenon occurring and the direction of the statements (Bamber, Jiang, Petroni, 2010). The objective stated above refers to the explanations provided in the Conceptual Framework on needs of users of financial statements. To meet this objective, the financial statements entity provides information on:

a) Assets;

b) Liabilities

c) Equity;

d) Income and expenses, including gains and losses;

e) Investments by owners and distributions to owners acting in that capacity;

f) Cash flows.

This information, along with other information in the notes, assists users of financial statements in predicting future cash flows of the entity, particularly their timing and certainty. These are:

Going Concern principle: Accountants assume that a company is not going broke or liquidates, it will run forever. This has important implications for the valuation of assets and liabilities in the balance sheet of the company. Balance sheet is an important financial statement that makes use of this accounting principle.

Consistency: Unless a remarkable change intervenes in the situation of the merchant, natural or legal person, the annual accounts or valuation methods cannot be changed from one year to another. Where accounting policies are changed, companies are required to disclose this fact and explain the impact of any change.

Prudence: The accounting principle of prudence refers to a product being recognized only when it is performed, while a load must be taken into account when realization is probable or even possible. For their establishment, the merchant, person or entity shall be presumed to continue its operations.

Matching (or "Accruals"): Income should be properly "matched" with the expenses of a given accounting period. At the date of entry into the business assets, assets acquired for consideration ...