Accting 3501 Corporate Accounting For Assessment Answers

Questions: 

Answers:

1. Company`s income can be identified by analyzing the profit and loss statement of the company as well as attention shall be paid on the indicators like- net income and operating charges, sales revenue and merchandise expenses. As all these three elements is part of the statement of income. Business income of a company can be computed by following three easy steps which are stated below:

• Ascertain the total amount of product or services sold by the company in given period of time(Warren & Reeve, 2017).
• Ascertain the total cost paid by the company in order to operate its business activities in the same given period.
• Formula for computing business income= Total revenue – total expenses.

Virgin Australia Holding uses “Comprehensive Income Statement” for measurement and recognition, requirements of incomes. Comprehensive income statement includes all expenses and income recognized for the duration of a certain time period.

2. GAAP is crucial in terms of financial reporting as well as to carry out practices of business in general. Accounting standards outlines the way to prepare financial statements.

Importance of GAAP for financial reporting- When the financial reporting is done by considering GAAP then relevant and faithful financial statements can be prepared. These financial statement would be helpful for the company to analyze its economic conditions. In addition to this, if the financial reporting is done under GAAP then it facilitate company to compare its financial statement with other companies (Mitai, 2013). Financial reporting under GAAP is auditable and verifiable by third party which is also one of the importance of GAAP. One of the other importance of using GAAP for financial reporting is that the financial statements can be understood by the donors, investors, lenders and other; which can lend benefit for the company as the investors may show interest in making investment in the company (Wild & Shaw, 2012).

Importance of GAAP for business practices- Application of GAAP in the business practices is crucial for the company as through following the accounting standards or principles, company can present relevant and accurate financial statements that may help in drawing attention of investors. As financial information of high quality can be produced by applying GAAP and this may boost the confidence of investors which may result as favorable for the company (Wild & Shaw, 2012). Better financial decisions can also be taken via applying general principles in business practices. As relevant financial information can be accessed through applying GAAP. Risk associated with unintentional errors can also be minimized by GAAP through application of safeguards and checks. 

3. Virgin Australia Holding, has implemented GAAP, in its financial reporting. Here, an example of the implementation of GAAP in preparation of financial accounting is given- 

The GAAP principle outlines full disclosure of financial statements. As it is obligatory to disclose all information through the financial statement which is required by the investors, private individual or lender in order to assess the present financial situation of the business company. As per GAAP principle, if the information is broad and cannot be presented in statement then it should be encompassed as a footnote and attached to the statement as well. Through the above example, it can be assessed that Virgin Australia Holding has implemented the principles of GAAP while preparing its financial statement. As footnote is attached with the financial statement, which discloses whole information (Shaw & Wild , 2015). This implemented principle facilitate company to present its financial statement in adequate manner. In addition to this, it also provide high quality information to the investors; as they can analyze the whole information disclosed in the footnote to make decision to invest in the company. GAAP principle lays emphasis on preparing more realistic financial reporting and this creates value of the company in addition to putting a positive impact on the investors.

4. Here, an example is given which depicts that Virgin Australia Holdings, has not followed GAAP- 

From the above image, it can be assessed that, Virgin Australia Holdings has used Aus. $ instead of using US $, in its financial statement. As per the GAAP standards, it is obligatory to display the financial data in US dollars. In case, the transaction cannot be displayed by using US monetary system then that transaction cannot be included in the financial reporting or statement. From the above example, it is analyzed that GAAP is not used by Virgin Australia Holdings. This noncompliance of general accounting principle can put an adverse impact on -Virgin Australia Holdings’ valuation and performance by the perspectives of investors. As, it is discussed in the above question as well that by using GAAP in financial reporting provides an appropriate and accurate financial statements that facilitates in drawing the attention of investors. As by using GAAP principles, company can provide high quality information through its financial statement to the investors which can boost their confidence to make invest in that company. But in this case, Virgin Australia Holding has not followed the general accounting principles by using Aus. $ to show its financial data (Jayne, 2014). This can put an adverse impact on the investors. As they will assume the information provided through financial statement as inappropriate. Confusion can also occur due to use of Aus. $ instead of US $. This will lead to make investor unconfident to make investment in the company. Valuation of company will also be affected as when the investors would not like to invest in the company, then this situation can put negative effect on the image of the company and it will lead to negative valuation. Investors would get confuse that they shall invest in the company or not or the amount of investment can also be lessen by the investors; which can be one of the drawback for the Virgin Australia holdings (Kimmel & Weygandt , 2013).

References

Dagwell, R., Lambert, C., & Wines, G. (2012). Corporate Accounting in Australia. Pearson.

Greite, S. (2013). The Development of the Australian Accounting Standards After the End of the G4+1. Grin Verlag.

Jayne, B. (2014). The Green Beyond (AASB Book 3). Amazon Digital Services LLC.

Kimmel, P. D., & Weygandt , J. J. (2013). Accounting Principles.

Mitai, S. (2013). Your Guide to Finance and Investments. Network 18 Publications.

Shaw, K., & Wild , J. (2015). Fundamental Accounting Principles. Wiley.

Warren, C. S., & Reeve, J. M. (2017). Accounting. South-Western College Pub.

Wild , J., & Shaw, K. (2012). Fundamental Accounting Principles. McGraw-Hill Education.