Accounting Concept & Practices Financial Performances

Question: Discuss about theAccounting Concept Practicesfor Financial Performances. Answer: Introduction:- The stakeholders often use the financial statements of various companies to compare and evaluate the financial performances and positions of the business firm. However, they often face several issues to compare the performances of the different companies on the basis of the financial statements. The main issues, which affect the evaluation processes, are the differences in the accounting methods and principles, adopted by the different companies. Such differences lead to different outcomes for same type of transactions or events. In such cases, the users of the financial statements cannot compare the outcomes effectively and take proper investment-related or other financial decision in accordance to the outcomes (Armstrong et al., 2015). Nestle is a popular Swiss company, which deal with producing and marketing food items. It has extended its business operation in all over the world. The financial statements of Nestle Ltd. are compared with those of Patties Foods and Kraft Foods, based in Australia and America respectively to evaluate the financial performance of Nestle Ltd. However, it should be noted that the three companies belong to three different countries. The accounting rules and methods, followed by each company might be different from each other in many aspects. Therefore, it is very necessary to consider the aspects, which can cause discrepancies in the outcomes of the financial statements, before commencing the comparison amongst the companies (Nobes, 2014). The major factors, which should be considered carefully, are discussed below: Accounting Convention Accounting Standards:- Nestle Ltd. uses to prepare the consolidated financial statements in compliance with International Financial Reporting Standard (IFRS), as stated by International Accounting Standard Boards (IASB) and the guidelines of Swiss Law. The statements are prepared on the basis of accrual method and historical cost convention concept. The financial year for the company ends on 31st December. Patties Foods is based on Australia and hence, apart from complying with IFRS, it also follows the rules of Australian Accounting Standard Board, (AASB), Urgent Issues Group Interpretations (UIGI) and Corporation Act, 2001. As the financial statements of the company are prepared in accordance to IFRS, the company also follows historical cost convention method. The accounting year of the company closed at 30th June. On the other hand, Kraft Foods is an American food company, which considers the US GAAP standard as issued by Financial Accounting Standard Board (FASB), which is very popular amongst the American companies. The company closes all its accounts on 31st December. The company uses to record some assets as per historical costs and some at the lower of cost or market price. Now, as the accounting standards, and related guidelines, followed by the companies, are not same, the process of recording and disclosing any transaction or event become different also. Moreover, the closing dates of each company are also not identical. Therefore, the present value of the financial outcome of each company cannot be compared with each other due to different closing period (Pratt,2013).Moreover, every country has its own accounting culture, which reflects in the related corporate laws. The corporate laws influence the financial reporting of the companies, which causes discrepancies in the corporate reporting of different companies from different countries (Frias?Aceituno et al., 2014). Consolidate Companies:- Nestle Ltd. and Patties Foods both use to consolidate the financial report with all its subsidiaries and associates, even if the subsidiaries and associate are not fully owned by the companies. Kraft Foods includes the subsidiaries, which are wholly-owned only, for consolidated financial reporting. It does not incorporate the companies as associates, where the company does not have full voting right. It implies that the financial statements of Nestle and Patties Food reflect the financial performances of its associates and subsidiaries also, which are not fully controlled by the respective companies. Kraft Foods exhibits the performances of the associates, which are under full control of the company only (Leuz Wysocki, 2015). Foreign Currencies:- Nestle uses to convert its foreign currencies in various forms. Non-Monetary assets and liabilities are recorded at historical exchange rate. On the other hand, there are many events, which are recorded at the exchange rate either on the date of the event or as per the forward contract. Kraft Food record the foreign transactions mostly at forward foreign exchange rate, whereas, Patties Food follows same method as Nestle. The difference is recording the foreign transactions causes problem in comparing the value of various foreign currency related financial items. Moreover, the home currencies of the three companies are also different. Hence, the currency exchange rates, applied for conversions, use to be different also with each other (Balakrishnan et al., 2014). Conclusion:- From the above discussion, it can be stated that if the stakeholders have to evaluate Nestle Ltd. by comparing its performance with Patties Food and Kraft Food, then they should minimize the discrepancies, explained above. Otherwise, the comparison would not be proper. The stakeholders should measure all the financial items of each company under any single method, which can be applicable and appropriate for all the companies. Requirement A:- In the Books of Salzer Graphics Adjustment Journal Entries Dr. Cr. Date Particulars Amount Amount 30/06/2013 Supplies A/c. Dr. $1,300 To, Supplies Expenses A/c. $1,300 Interest Expenses A/c. Dr. $2,000 To, Interest Payable A/c. $2,000 Prepaid Insurance A/c. Dr. $1,200 To, Insurance Expenses A/c. $1,200 Accounts Receivable A/c. Dr. $1,100 To, Unearned Consulting Revenue A/c. $1,100 Accounts Receivable A/c. Dr. $2,000 To, Graphic Revenue A/c. $2,000 Depreciation Expenses A/c. Dr. $1,500 To, Accumulated Depreciation A/c. $1,500 Requirement B:- In the Books of Salzer Graphic Adjustment Worksheet as on 30/06/2013 Trial Balance Adjustment Adjusted Trial Balance Particulars Debit Credit Debit Credit Debit Credit Cash $9,500 $9,500 Accounts Receivable $14,000 $3,100 $17,100 Equipment $45,000 $45,000 Insurance Expenses $1,800 $1,200 $600 Salaries Expenses $30,000 $30,000 Supplies Expenses $3,700 $1,300 $2,400 Advertising Expenses $1,900 $1,900 Rent Expenses $1,500 $1,500 Utilities Expenses $1,700 $1,700 Notes Payable $20,000 $20,000 Accounts Payable $9,000 $9,000 Jill Salzer, Capital $22,000 $22,000 Graphic Revenue $52,100 $2,000 $54,100 Consulting Revenue $6,000 $6,000 Supplies in hand $1,300 $1,300 Interest Expenses $2,000 $2,000 Interest Payable $2,000 $2,000 Prepaid Insurance $1,200 $1,200 Unearned Consulting Revenue $1,100 $1,100 Depreciation Expenses $1,500 $1,500 Accumulated Depreciation $1,500 $1,500 TOTAL $109,100 $109,100 $9,100 $9,100 $115,700 $115,700 Requirement C:- In the books of Salzer Graphics Income Statement For the period ended 30/06/2013 Particulars Amount Amount Revenue: Graphic Revenue $54,100 Consulting Revenue $6,000 Total Revenue $60,100 Expenses: Insurance Expenses ($600) Salaries Expenses ($30,000) Supplies Expenses ($2,400) Advertising Expenses ($1,900) Rent Expenses ($1,500) Utilities Expenses ($1,700) Depreciation Expenses ($1,500) Total Operating Expenses ($39,600) Net Operating Profit before Interest $20,500 Interest Expenses ($2,000) Net Profit for the period $18,500 In the books of Salzer Graphics Statement of Change in Equity For the period ended 30/06/2013 Particulars Amount Amount Jill Salzer, Capital $22,000 Add: Additional Capital $0 Jill Salzer, Closing Capital $22,000 Opening Retained Earnings $0 Add: Net Profit for the period $18,500 Less: Drawings $0 Closing Retained Earnings $18,500 In the books of Salzer Graphics Balance Sheet as on 30/06/2013 Particulars Amount Amount Current Assets: Cash $9,500 Accounts Receivable $17,100 Supplies in Hand $1,300 Prepaid Insurance $1,200 TOTAL CURRENT ASSETS $29,100 Non-Current Assets: Equipment $45,000 Less: Accumulated Depreciation ($1,500) $43,500 TOTAL NON-CURRENT ASSETS $43,500 TOTAL ASSETS $72,600 Current Liabilities: Accounts Payable $9,000 Interest Payable $2,000 Unearned Consulting Revenue $1,100 Notes Payable $20,000 TOTAL CURRENT LIABILITIES $32,100 TOTAL NON-CURRENT LIABILITIES $0 TOTAL LIABILITIES $32,100 Equity: Jill Salzer, Capital $22,000 Retained Earnings $18,500 TOTAL EQUITY $40,500 TOTAL LIABILITIES EQUITY $72,600 References Bibliography:- Armstrong, C., Guay, W. 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