Business Law and Finance

Accounting and finance are two different things in nature, but most of the people regarded both of them as a single thing (Danielson & Scott 2004). A large difference could be found among the basics of accounting and finance-based literature (Danielson & Scott 2004). Accounting is the name of recording the day-to-day transactions, while finance is the name of utilizing the funds of the company at a place, from where the likelihood of earning would be on a higher scale (Danielson & Scott 2004). There are numerous concepts that come under the ambit of account management, and maintenance of accounts is one of them, which has its own recognition and importance. Organizations have to consider the working of different regulatory authorities, which predominantly are International Financial Reporting Standards (IFRS), Generally Accepted Accounting Principles (GAAP), and inevitably, corporations have to make the things according to these principles.

The main perspective of this assignment is to answer some questions related to IFRS, and after that, making the trial balance accordingly. It is important to complete the assignment in a perfect manner, as the assignment has been broken down into two different approaches and questions, hence, it would be essential for one to complete the same in a perfect and ethical manner. In the first questions, some basic accounting exercises are required along with their description. Let one now moves towards the same to define it in details. The company, which has been considered for the assignment, is basically a hypothetical company with the name of Insofar Limited. Ans-1) Comprehensive Income Analysis Comprehensive Income means the income statement.

Mostly in cost accounting, this particular term would have been used in details. This would have arrived by subtracting the variable cost from the sales. The income stamen of the company is mentioned below: From the above mentioned income statement, it can be said that the total net income after the tax would be $ 26,560,000, while the Earning per Share (EPS) would be 3. Now, one is about to compute the balance sheet of the company.

Changes in Equity From the entire analysis of Income statement, balance sheet, and changes in equity, it has been found that the company is in a good financial position. Now, one is moving towards the last section of the report, which is all about that the Accounting standards should have been followed by the company as a whole. Ans-2) Accounting is the term used to record the day-to-day transaction which occurs in the company, while finance is the name of utilizing the funds of the organization at a place, from where the likelihood of earning would be high. Apart from the basic function of both of these subjects, there is another important aspect adhering, and which urges the companies to comply with the rules and regulations completely and effectively. Financial reports are the end result of an organization that identifies the main financial position of the company as a whole. Among the number of regulations, the name of International Accounting Standard/ International Financial Reporting Standards, and General Accepted Accounting Principle (GAAP) are some of them.

While making the financial reports and recording the financial transactions, organizations have to ensure that all the things have been adhered to the requirement of the accounting standards. The main theme of this part is to analyze the concept of GAAP and its relevance to the UK based companies. Both of these standards cover the topic of IASB. Both IFRS and GAAP would be defined accordingly in this section to cover everything in details.

International Accounting Standard Board (IASB) Everything has a head header on its head; companies have a head header like Security Exchange Commissions (SECs), while organizations have upper management on its head. Likewise other things, there is a head header on the accounting standards, which is International Accounting Standard Board (IASB). The international Accounting Standard Board (IASB) is the independent accounting standard setting body by the IFRS foundations. IASB was founded in the year 2001, as one of the basic successor of the International Accounting Standard Committee (IASC). IASB made specific standards for the companies to use the financial standards according to their line of businesses. In 2001, International Accounting Standard Foundation (IASF) was formed as a tax exempt entity in the Department of Justice, United States.

International Financial Reporting Standard (IFRS) and GAAP are two of the subsidiary of IASB. IASB has 14 members, in which 12 are full-time, while 2 of them are part-time. All the members have been selected on their skills, expertise, and common over making and analyzing the policies of accounting management and financial accounts. Both IFRS and GAAP raise funds for IASB in total. Most of the companies and banks take part in the fund raising and management, and promote the usage of international standards. American company in the year 2008 gives ?2.

4m to the board, in order to go on with their operations. IFRS: An Outlook The acronym of IFRS is International Financial Reporting Standard, which is specifically designed as a common and unified language used globally for business affairs, so that the company accounts are understandable and comparatively made across the international boundaries. IFRS are standards that require the companies to adopt them, in order to save them from all sorts of financial scams and frauds in total. They are consequences of growing international shareholding and trades, which are particular important for the companies dealing with and operating in different countries of the world. Initially, IFRS had been made to in order to harmonize accounting across the European regionn, but that harmonization quickly becomes the unified concept of attraction for the companies around the world.

IFRS are still known as International Accounting Standard (IAS) in most of the countries, as their standards are specifically made to strengthen the accounting and finance activities of the companies in total. There are number of objectives of IFRS, and the most dominating objective of the same is to give a unified and well-organized platform to the companies, by which all the accounting and financial based transaction would be recorded. One of the finest and dominating objectives of IFRS is to make the financial statements of the company as ones that reflect the true picture of the entity. A person, after getting a cursory look over the financial statement, should not think that the information mentioned in the statement is misunderstood and misrepresented.

Companies operating in the European, as well as Asian region are the ones that use IFRS framework in order to make their financial statements. GAAP: Outlook and Convergence of UK Firms The acronym of GAAP is Generally Accepted Accounting Principles. It is the framework of accounting, in order to make the financial statements. Usually the companies here-in the United States of America (USA) used this particular framework for the same in details. Generally accepted accounting principle “is the abbreviation for generally accepted accounting principles.” (GAAP) CPA GAAP and businesses know how to prepare and submit a compilation of their operating income and expenses, assets and liabilities of the financial statements.

Generally accepted accounting principles are not a single accounting rule, but rather the fact how the sum of many rules taking into account various types of transactions. The basic principles of generally accepted accounting principles are set out below. GAAP and International Financial Reporting Standards (IFRS) global business become more prevalent in favor of slowly being phased out. Applied only to the financial report of the United States generally accepted accounting principles, the report, according to GAAP, U.S. companies, may show different results if it is a British company which adopts international standards compared.

Although, there is a close similarity between the accounting standards and international rules. Though associated specifically with the standards of the firms of the United States (US), the concept of the same could be applied to the firms of the UK, as well, because the companies of the UK have been surrounded by many of the things in total. The convergence from IFRS to UK GAAP would certainly enhance the productivity, as well as the stance of the reporting as a whole, and would certainly equip the company to take into consideration in measurement of tangible non-current assets. In the language of finance, an asset, which has an average life below than 1 year, is called current asset, and an asset, which has a life more than 1 year, is known as noncurrent asset. There are certain things which need to be cleared before starting to analyze the measurement technique used in the GAAP UK.

The entire assets, which are noncurrent in nature, are the long-term assets of the company, and these are those assets from which the entire operations of a company would be set forth (Rachev & Fabozi 2009). International Accounting Standard (IAS) 16 would analyze the tangible assets in total. By definition, tangible is anything that can be touched by hands, while intangible assets are those which cannot be touched physically (Measurement of Tangible Non-Current Asset 2011). As far as the measurement of tangible noncurrent asset is concerned, it should be carried out and recorded in the valuation at the reporting period. There are basically two types of cost which come under the ambit of accounting standards that predominantly are Historical Cost and Actual Market Cost. According to the standards described by UK GAAP, on the one hand, all of the tangible noncurrent assets would be regarded as the assets for the company, and they should be recorded on the historical cost.

On the other hand, it should have been recorded on the actual market cost, as far as the standards were followed by GAAP. Each year, depreciation would be subtracted from the net value of the asset (Measurement of Tangible Non-Current Asset 2011).Operational heritage asset would have been recognized and recorded in the same way, as the other assets of general types, like buildings, would have been recorded. GAAP UK urged the organizations to mention clearly in the financial statements of the company which valuation and recording method have been taken into account during a fiscal year. According to the IAS 16, depreciation is not at all necessary to be applied to the heritage based operational assets, but all of these things, along with the nature of the asset, should be clearly presented in the notes of the financial statement of the company. All the noncurrent assets, including the Property Plant & Equipment (PPE), and machineries, are some of the major elements striding under the tangible long-term assets (Measurement of Tangible Non-Current Asset 2011).

No matter what the asset would be acquired, or if it would have been self-constructed including property and plant, it should be recorded initially at cost. The essence of the capitalization of costs also allowed to record in the period in which the transaction takes place (Measurement of Tangible Non-Current Asset 2011). Recording the information of the non-current tangible assets in GAAP inevitably provides lots of factual analysis and information to the user of the financial statement. This particular thing has also been mentioned after the current economic crisis, in which assets which belong to different classes have been encountered, and an impairment loss recorded in its actual value because the value of the assets have been recorded on the actual market value.

This particular thing bought many misleading information regarding the companies as a whole, especially misleading its financial information (Measurement of Tangible Non-Current Asset 2011). According to most of the analysts and financial gurus, asset valuation, which should be done on the historical cost, was a not understandable attempt to record on the current market value cost because the asset had been purchased more at that time, rather than today. The measurement method described in the GAAP UK is comparatively better than that of the method described in the IFRS, as all the non-current tangible assets would have been recorded in the historical cost. According to the IAS 16, this is describing the measurement method to value the tangible noncurrent asset; “Present Value” cannot be matched with the past value, and regardless of the fact that effective and sophisticated measures have been taken into consideration (Measurement of Tangible Non-Current Asset 2011). Apart from that, other useful information can be found in the measurement of the tangible noncurrent assets, while making the financial statements, according to the standards defined and described by GAAP UK. One of the basic benefits got by the shareholders due to the recording of tangible noncurrent assets on historical cost is that misinterpretation rarely occurs in the net income, as well as revenue of the company, as a whole (Measurement of Tangible Non-Current Asset 2011).

The names of the companies are, BG Group, BHP Billiton, BP, Barclays, and British America. According to the result extracted from the balance sheet of the above mentioned companies, BP recorded net property plant and equipment amounting to U.S. $ 119,214 million in the year 2011, while Barclays recorded PPE amounting to U.

S. $ 7166 million. Both of the companies used GAAP UK to prepare their financial statements, and both of the companies used historical cost method to measure the amount of PPE, and other tangible non-current assets of the company as a whole. British American Tobacco, which is one of the largest tobacco manufacturing firms of the country, has recorded its property plant & equipment (PPE) for year (FY) 2011 amounting to U.S.

$ 3047 million, which was US$ 3117 a year before. BG Group Plc and BHP Billiton are some of those companies that use GAAP UK to prepare all of their financial statements. The companies recorded PPE amounting to US$ 37316 million and 95247 million in the year 2011 respectively. Both of the companies used IFRS to record its financial result.

All of the companies mentioned everything in the notes of the financials, and everything is worthwhile for the end users. Conclusion Among the number of regulations, the name of International Accounting Standard/ International Financial Reporting Standards, and General Accepted Accounting Principle (GAAP) are some of them. While making the financial reports and record the financial transactions, organizations have to ensure that all the things have been adhered to the requirement of the accounting standards. The main perspective of this assignment is to analyze the effectiveness of IFRS in comparison with the GAAP, as far as recording of noncurrent tangible assets are concerned (Rachev & Fabozi 2009).

From the discussion of the second question, it is clear that the companies of the UK are now diverging towards GAAP UK, which would certainly enhance their functions of reporting, and the best thing would be done by the same recording of Non-Current Tangible assets.