ACCTG

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Describe & Apply the Conceptual Basis of Accounting in Context

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A company constitution is used to suit a company so that the company can take advantage of certain clauses in the Company Act 1993, such as restrictions on share sales and financing of share purchases.

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In a partnership all of the profit is shared amongst the partners according to the profit-sharing clauses in the partnership agreement. This is so that the partners can pay income tax on their share of the partnership profit in their own name.

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A company pays income tax on its profit in its own name. So a company does not need to distribute all of its profit to shareholders. The shareholders will receive some of the profit in the form of dividends and the company will retain some of the profit, in the retained earnings account, to assist with funding future expansion of the company.

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Shareholders of a registered company have limited liability. This means that if the company was to get into financial problems then the shareholder's personal assets would not be used to repay the debts of the company. The shareholder would be liable only for any money that he owed on the shares that he owns: if the shares were only partly paid he would need to pay the balance owing on the shares.

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When a company has assets under $10 million and turnover under $20 million, the company does not meet the minimum requirements to be considered a large company, so is not a full reporting company under the Financial Reporting Act. However if the assets and turnover amounts exceed the maximum allowance for an exempt company of $1 million and $2 million respectively, the company does not qualify for an exempt company either. Therefore, a company such as this is described as one that qualifies for differential reporting.

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Discount allowed is reported as an expense because it decreases the future economic benefits that will be received by the company. It therefore depletes assets in the form of accounts receivable decreasing because the discount amount is no longer due from those customers. It decreases the profit and therefore decreases equity. Discount allowed is not a distribution to the shareholders as it is not a dividend. Therefore discount allowed is an expense.

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The going concern assumption states that the company is expected to continue to operate into the foreseeable future. The management do not intend to liquidate the company or know of any reason that might force the company to cease trading.

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Inventory is reported at the lower of cost or net realisable value. Under the qualitative characteristic of relevance, valuing inventory at its net realisable value provides a better predictive value of the inventory as this is the amount of cash that is expected to be received in the future from selling the goods.

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The Auditor's Report provides shareholders in the company that are not involved in the management of the company and other users of the financial statements with an assurance that the financial statements of the company provide a true and fair view. This means that the financial statements can be relied upon when making financial decisions regarding their shareholding in the company or whether to lend money or provide goods or services on credit to the company.

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Pictures and graphs are used to assist with the understandability of the financial statements by presenting the financial information in a manner that may be easier to comprehend.

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The essential characteristics of an asset are that it provides future economic benefit, comes from a past event and is under the present control of the entity.

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With regards to goodwill there may be a past event in that the quality of services provided in the past has led to the company being rated as the top of its kind in its area.

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But there has been no payment or contract that establishes the goodwill.

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The goodwill may provide future economic benefit as the company may attract more clients as a result of its ranking, although that cannot be guaranteed.

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The goodwill is not under the present control of the company as it cannot force or compel people to start or stay as clients of the company.

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The recognition criteria of an asset states that it must be probable that the future economic benefit will flow to the entity and that the value of the asset can be measured reliably.

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The goodwill cannot be measured reliably as there is no source document, so the value of the goodwill is not free from bias.

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Any dollar amount for goodwill is possibly based on the director's value of goodwill.

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It is not probable that future economic benefits will flow to the company as there is no guarantee that the ranking will lead to increased clients and increased income.

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Based on these matters, goodwill should not be reported as an asset in the Statement of Financial Position.

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fk why do i even bother.

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hahahah. what a joke.

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that urge. to cut. again. fk

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i won't do it. cause it's summer. lame reason right?

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whatevs. it works, at least.

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just one of those times when i wish i didn't exist

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head is exploding. scheisse

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funny how i push away people who try to get inside my heart. people who really care

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yet, i complain about not having anyone to talk to. oh the irony of life.