ACCT26000 Corporate Accounting

ACCT26000  Corporate Accounting

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Content
Part A
Introduction
Brief discussion of balance sheet
Measurements of various classes of assets
Conclusion

You are required to suggest:

ACC 300 Auditing and Assurance 

ACCG101 Accounting 1B 

ACCG100 accounting 1A

Part A

Introduction
This report is aimed to discuss whether the various classes of assets showing in the balance sheet are simply added together or they have been measured on some different measurements bases. In this report, the definition and further analysis of asset and balance sheet will be provided with references and examples in order to make the decision be more reliable that the various classes of assets are measured by different measurements.

Brief discussion of balance sheet
A balance sheet a summary of the financial balances of a sole proprietorship, a business partnership, a corporation or other business organization, such as an LLC or an LLP. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. Balance sheet is required by AASB for reporting entities to prepare their annual reports. In fact, a balance sheet is often described as a "snapshot of a company's financial condition". It is mostly used to provide information for external and internal users. For external users, they are including creditors, investors, suppliers etc and internal users including managers, shareholders etc. Obviously, both of them are willing to get information about the total net asset at the moment the report issued from the balance sheet in order to help know the business status of the company. Hence, managers can make more effective decisions to run the business and investors can decide whether to invest more or not. Therefore, the relevance and reliability are necessary when prepare balance sheets. Measurements of various classes of assets

There are many classes of assets included in the balance sheet. Under current asset section, there are cash, inventories, short-term investments, accounting receivable etc and there are some other assets included in non-current assets such as land, vehicles, furniture etc. In fact, most of the reporting entities follow General Accepted Principles of accounting (GAAP), which indicates that different classes of assets should be measured by different measurements in order to provide fair and true financial position of entities.

For current assets, inventories held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of services. For example, a company has some products which are ready to sale in stock, then the products need to be recorded in inventories. According to AASB 102, inventories are required to be measured at the lower of cost and net realisable value on an item by item basis. Furthermore, cash is also included in the current assets. In common language, cash is referred to money in an asset on the balance sheet can either be converted to cash or used to pay current liabilities within 12 months.For example, a company sells its product for $300,000 in cash and then the $300,000 cash would be recorded as cash asset in balance sheet. According to GAAP and AASB13，cash is measured by using fair value which is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction. Debtors are also included in current assets and the measurement of debtors is face value less a provision for doubtful debts.

For non-current assets, according to International Accounting Standard (IAS) 16, non-current assets are assets whose future economic benefit is probable to flow into the entity, whose cost can be measured reliably. In fact, property, plant and equipment such as land, vehicles, buildings are typical items included in the section and they are measured by cost, recoverable amount or revalued amount (GAAP). The elements of cost include the purchase price, costs that are directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, and the initial estimate of any dismantling and site restoration costs that qualify for recognition on acquisition.

Next, in order to make measurements to be simple, someone said that it is a good way to use fair value as a measurement for all variable classes of asset which is able to simplify the measurements. Unfortunately, that is impossible because it cannot give a fair and true picture of the entity's financial position. For instance, if there was a painting purchased for investment at the present market value $60,000 in 2006. However, because of the global financial crisis happened in 2007, the market value of the painting decreased rapidly to $20,000. Obviously, it is not fair to put the amount of fair value in the account and it would not show a fair and true financial position.

It will important to read out following chapters:

ACC 202 Management Accounting 

ACCG 308 Corporate Accounting and Reporting

Conclusion
After analyzing balance sheet and different measurements of variable classes of assets, it is clear to know that those assets are not simply added together. They are important information which is really significant for users to give users true and fair financial positions of entities which is helpful for them to make better decisions. Furthermore, using fair value as a simple measurement for all assets are not impossible due to providing unfair financial position for which had bad influences on decision making. Undoubtedly, that may cause losses of the entity. Therefore, using different measurements which best reflect the financial position of the entity to add up variable assets is necessary.