Free Sample   Fundamentals Of Accounting: Document For HappyDaze Limited

100000+

Students can't be Wrong!

767452

Orders

4.9/5

Ratings

4981

PhD Experts

GET BEST GRADE, ORDER NOW

250 Words

Fundamentals Of Accounting: Document For HappyDaze Limited

  395 Downloads   |   4 Pages 998 Words   |   Published Date: 02/11/2016

Questions:

You are employed in a management role by HappyDaze Limited. The company is considering offering bonuses to employees in the form of shares in the company. The employees recently attended a seminar on the understanding of financial statements. The feedback provided by the employees was very negative and almost all of the attendees stated they did not understand the subject matter.

The document should provide answers to the following questions. An appropriate heading should be provided for each question. Advice is given below.

1. Why do accountants depreciate some non-current assets?

2. What is the difference between the reducing balance and the straight line methods of depreciation? State examples, with explanations, of when the reducing balance or straight line methods should be used.

3. What is a statement of financial position?  

4. What is capital?

5. Why are assets always equal to capital and liabilities?

6. Why does the date of the statement of financial position begin with ‘as at’ whereas the date of the income statement begins with ‘year ended’?
 
 

Answers:

1. Depreciation of Non-current Asset

Non-current assets refer to the fixed assets, intangible assets and the long term investment of the company. Depreciation is calculated for the non-current asset which is used for more than one year. Generally the non-current assets are capitalized by the business and consequently its value starts declining (Weygandt, Kieso and Kimmel, 2003). For example, a machine has a useful life of ten years and in the beginning year the value of the asset will be same as the cost of acquiring the machine. Net year onwards the value of the asset will decline as it will be capitalized over the useful life. Not consideration of depreciation of the non-current asset may lead to overestimation of asset and it can inflate the financial position of the company. Hence, the accountants consider depreciation of the non-current asset (Harrison and Horngren, 2001). 

2. Difference between Reducing Balance and Straight Line Method

Reducing balance and straight line methods are the two approaches for calculating depreciation on the non-current asset. Reducing balance method estimates depreciation at a greater rate in the earlier period. The amount of the depreciation will decline as the life of the asset progresses (Elliott and Elliott, 2008).

Depreciation per annum = (Net Book Value – Residual Value) * Rate of Depreciation

On the other hand, in straight line method, depreciation is calculated by following formula:

Depreciation per year = (Cost of Acquisition – Residual Value at the end of life) / Useful Life

It means that in straight line method, the amount of depreciation remains same every year (Adah, 2014). In contrast, in case of the reducing balance method, depreciation rate remains the same but the amount of depreciation changes as it calculated on the residual value of the asset each year.

 

3. Statement of Financial Position

Statement of financial position provides the relevant information regarding asset, liability and equity of the business on a particular date. It is also referred as balance sheet and significantly contributes in analyzing the current financial position of the business (Pratt, 2000). Elements which are owned by the company for deriving economic benefits are listed under the asset category. Liability includes the short term as well as log term obligation of the business which is owed to someone and can be settled through monetary transactions. Equity includes the share capital and retained earning held by the business (Libby, Libby and Short, 2004).

4. Capital

In simple terms, capital refers to accumulated wealth of the business firm. Basically, capital includes all the financial resources available to the business which can be utilized for conducting business activities. Capital indicates that amount invested by the business owner. There are two major type of capital in business: fixed capital and working capital. Fixed capital is utilized for acquiring long term assets and meeting the long term obligations. On the other hand, working capital is used for undertaking the day to day activities of the business (Needles and Powers, 2004).

5. Assets are Equal to Capital and Liabilities

From the basic accounting equation it can be found that assets are equal to the capital and liabilities of the business. Capital refers to the total wealth of the organization. Liabilities indicate the obligations which need to be satisfied by the business firm. Assets refer to the entities which are capitalized for deriving economic advantages. Hence it can be stated that capital and liabilities are the sources of fund or the total resources that are utilized for acquiring assets and retained for future business activities. Hence, assets are equal to capita and liabilities (Pratt, 2000).

6. Statement of Financial Position Start with ‘as at’ and the Date of Income Statement with ‘year ended’

It has been observed that financial position starts with ‘as at’ and the date of income statement starts with ‘year ended’. The financial position of the business changes over the time on the basis of asset, liability and equity. Hence, the statement of the financial position illustrates the financial position on that particular date. On the other hand, income statement is associated with providing relevant information regarding the revenue, profit and expenditure of the business firm. This information is specific for that particular year and will not be changed. Hence, the income statement starts with the ‘year ended’ in order to depict the net income of the business (Weygandt, Kieso and Kimmel, 2003).

 

References

Adah, A. (2014). Straight Line Method of Depreciation and Financial Information Quality of Nigerian Service Companies. IJFAS, 2(2), pp.1-7.

Elliott, B. and Elliott, J. (2008). Financial accounting and reporting. Harlow: Financial Times Prentice Hall.

Harrison, W. and Horngren, C. (2001). Financial accounting. Upper Saddle River, NJ: Prentice Hall.

Libby, R., Libby, P. and Short, D. (2004). Financial accounting. Boston: McGraw-Hill/Irwin.

Needles, B. and Powers, M. (2004). Financial accounting. Boston: Houghton Mifflin.

Pratt, J. (2000). Financial accounting in an economic context. Cincinnati, Ohio: South-Western College Pub.

Weygandt, J., Kieso, D. and Kimmel, P. (2003). Financial accounting. New York, NY: Wiley.

Thepeacekeepers.info provides guaranteed satisfaction with a commitment to complete the work within time. Combined with our meticulous work ethics and extensive domain experience, Thepeacekeepers.info is the ideal partner for all your homework/assignment needs. We pledge to provide 24*7 support to dissolve all your academic doubts. We are composed of 3000+ esteemed experts who have been empanelled after extensive research and quality check. Thepeacekeepers.info provides undivided attention to each assignment order with a methodical approach to solution. Our network span is not restricted to US, UK and Australia rather extends to countries like Singapore, Canada and UAE. Our assignment help services include thesis help, case study help, homework help, coursework help, MBA help and Programming help. Get your work done at the best price in industry.

Most Downloaded Sample of Management

  242 Download  |   1 Pages 48 Words

You are required to write a researched argument essay that convinces persuades the reader of your position / stance. This is an academic, researched and referenced do...

More

  186 Download  |   9 Pages 2,237 Words

Executive SummaryThe purpose of this report is to elaborate the factors which are considered by individuals before selecting an occupation. Choosing an occupati...

More

  359 Download  |   13 Pages 3,112 Words

IntroductionWith the increase enhancement in the field of technology, it has been considered essential by the businesses to implement such technology in their b...

More

  316 Download  |   9 Pages 2,203 Words

Executive SummaryIn a merger & acquisition, role of an HR has emerged as a very critical function. At each stage of merger and acquisition process, HR plays a s...

More

  349 Download  |   7 Pages 1,521 Words

IntroductionIn this competitive business environment where every business organization is trying to attract the customers of each other, it becomes essential for ...

More

  278 Download  |   6 Pages 1,467 Words

Corporate Social ResponsibilityCorporate Social Responsibility (CSR) has become a buzzword in the modern organizations. The reasons for focusing on it may be philan...

More

  125 Download  |   17 Pages 4,208 Words

IntroductionAbout Farstad ShippingFarstad Shipping ASA is a major international supplier of large, modern offshore support vessels. It has a fleet of 57 vessels...

More

  207 Download  |   9 Pages 2,031 Words

IntroductionThe Decision making process has been an important criteria that has to be given due attention in case of the organizations. The complexity in the busine...

More

  267 Download  |   5 Pages 1,153 Words

IntroductionThe Organizational Health and Safety (OHS) Act, 1995 requires all organizations to carry out a risk assessment before making an intervention. Risk ass...

More

  398 Download  |   9 Pages 2,225 Words

IntroductionThe successful completion of a project depends upon the knowledge and skills possessed by the project manager in handling the project. The ability of ...

More

  242 Download  |   12 Pages 2,813 Words

Project TitleImpact of a stable Customer Service on Loyalty of Clients in the banking domainAbstractWith banking being part of a technology driven ind...

More

  275 Download  |   11 Pages 2,550 Words

Executive SummaryChanges can lead to transformation. For any organization to constantly innovate and grow it is critical that the policies should be driven towa...

More

  116 Download  |   6 Pages 1,266 Words

Abstract The dynamics of the business and the environment has changed in last decade. There have been cases where the attention has been drawn on the scandals, an...

More

  204 Download  |   8 Pages 1,966 Words

IntroductionThe news of BP deep water spill is still fresh in the memories of the people. The deep water oil spill happened in the Gulf of Mexico. However, a more...

More

  57 Download  |   4 Pages 786 Words

IntroductionThis paper develops an intelligent approach by comparing two planning models stated in two literature works. The plan is a statement of actual steps...

More

  125 Download  |   6 Pages 1,325 Words

IntroductionEvent management plan is a process of planning festival, ceremony, competition, concert, party or any celebration. Various types of event management...

More

  293 Download  |   3 Pages 557 Words

IntroductionThe aim of this paper is to provide an explanation with regard to cross-vergence as a concept and to provide an analysis on the claim that culture i...

More

  310 Download  |   3 Pages 509 Words

IntroductionAustralia is better known as one of the liberal democracy around the globe. The notion of the liberal democracy suggests a distinctive perspective o...

More

  267 Download  |   13 Pages 3,083 Words

Phase 1: Problem of Business and Objectives of the ResearchBackground OverviewSony VAIO is sub-brand for most of the computer products manufactured by Son...

More

  135 Download  |   4 Pages 885 Words

Task 2: Stakeholder analysis for Wessex WaterStakeholder group numberStakeholder group nameStakeholder key objectivesTo what extent th...

More