Brief Case Studies - Week 7 Essay Example | Topics and Well Written Essays - 750 words

Brief Case Studies - Week 7 - Essay ExampleThey are listed in dissimilar stock exchanges of the world as well. to a lower place much(prenominal) circumstances, it becomes quite complicated as well as costly to prepare the fiscal statements under different reporting requirements. IFRS issued by IASB provides the interference of comely appreciate accounting of property, lay and equipment which is currently not back up US GAAP issued by FASB. However, with the increasing adoption of IFRS, it is very likely that US GAAP go forth also add the similar treatment for fair value accounting of Property, Plant and Equipment. b) Fair value accounting has the biggest disadvantage of valuing property, plant and equipment on the basis of subjectivity. When measuring fair values of the property, plant and equipment, several(prenominal) subjective assumptions are taken by the evaluators which pose question marks upon the objective approach towards financial statements. Thus, the financial st atements become less attractive to be compared with other financial statements of other entities due to leave out of objectivity element. c) The fair value accounting for property, plant and equipment has the similarity with that of investment accounting. Under both types of accounting, if the fair values of the asset are increased, then stockholders equity is also increased directly such that it has no impact on the give the sack profit of the entity. However, in case of decrease of the fair value of property, plant and equipment, and investment, the join of decrease is expensed out in the income statement which directly decreases the profitability of the entity. After that the decreased amount of net profit is credited to stockholders equity. This mechanism is set out in set up to apply the principle of conservatism which states that the entity should not holler any profits but it must anticipate all the losses. The fair value accounting for property, plant and equipment and investment accounting consider this principle as the unrealized gains are credited directly to equity whereas unrealized losses are charged as an expense in the income statement thus reducing the profitability of the entity. Analysis of Statement of Cash Flows (Case 16-3) a) 1. As far as depreciation is concerned, it is an item of non-cash expense. To make it very clear, it is not a cash ascend. However, the apprehension behind including depreciation in cash flow statements is the elimination of effect of depreciation from calculating net cash flow increased or decreased. In order to arrive at the corrected intention of cash flows, the depreciation amount needs to be added in the net profit as it was deducted previously when calculating net income in the income statement. Since it is a non-cash expense, therefore, it does not decrease the cash flows. Because of this, it is added in the cash flow statement in order to provide the correct amount of cash flows. 2. Even though perc ent issued for acquiring land is not a cash transaction, however, the substance of this transaction is based on share. If the companionship is going to buy back these shares, it would have to complete this transaction by providing consideration in cash. Under existing scenario, cash is not directly involved, but a significant investment is made, therefore, this transaction is shown as a separate schedule in the cash flow statement and not included in the mainstream working of calculation of cash flows. 3. Gain on sale of investment is also non-cash income therefore its treatment is similar to that of depreciation. Since the amount