This assignment gives a great chance for us to larn more about UBAF1013 Financial Accounting Framework I. Since it is a self-learning footing, we are traveling to seek our ain acquisition stuffs, analyze them and in conclusion do opinions based on our treatment.
We appreciate making this assignment and we claim to finish it with our really best. Beside geting the cognition sing the universe of accounting, we believe that we will one time once more be lead to a higher degree of duty, tolerance, principle, and teamwork spirit.
By the terminal of this assignment, we hope that we could heighten our command of the topics. More significantly, we could analyze how of import for us to analyze the topics, instead than simply specifying it as a “ debit and recognition ” topic.
Q1 ) Not-for-profit organisation demand to bring forth net income
Different from net income organisations that by and large aim to maximise their net incomes, not-for-profit organisations ( besides called non-profit organisations ) exist chiefly to supply services for their members and the populaces. These services included low-priced instructions, low-cost health care services, poorness economy, low-interest funding, human rights protection, environments preservation and the list goes on. Non-profit organisations are of import in advancing societal public assistance.
Make non-profit organisations generate net income? Many have questioned how these organisations survive without fiscal supports. Like most of the net income organisations, they do necessitate financess to keep their day-to-day operations by bring forthing grosss, alternatively of net incomes. One should non be confuse “ gross ” and “ net income ” . Gross is the money generated by organisations over a specific period, while net income is the money generated in surplus of operating costs and after tax write-off of maintained net incomes. Net income is distributed to stockholders as compensations while gross is non needfully distributed.
In a non-profit organisation, the excess gross generated must be retained for its self-preservation, enlargements, and programs, instead than distributed as dividends and personal net incomes. There are assorted ways used by non-profit organisations in different sizes, intents, and services provided to bring forth their gross. Some organizes charity fund-raising and some rents out parts of their belongingss. Many non-profit organisations besides seek for revenue enhancement freedoms including gross revenues revenue enhancements and belongingss revenue enhancements from the authoritiess, in order to take down administrative costs while prosecuting several non-profit ends. The gross generated is so used chiefly to finance their ends while other parts of the financess are used to cover the operating costs, such as compensations of employees. Said compensations of employees, it is hard for today ‘s organisations to hold immense voluntary base. It is because people today want to be paid in conformity with their professions in the competitory occupation market.
UNICEF, Invisible Hands, Earth Hours, World Wide Fund for Nature ( WWF ) , World Vision, and Universiti Tunku Abdul Rahman ( UTAR ) are illustrations of non-profit organisation. For illustration, UTAR chiefly offers low-priced high degree instructions. It is a big organisation with 4 chief campuses and 1000s of pupils. In raising the gross, UTAR collects low-cost fees from pupils and attracts possible investors by maintaining its good will. After subtracting immense operating disbursals such as public-service corporations, securities, fixs, and employees ‘ compensations, the staying gross is used for campus enlargements and installation ascents.
Mentioning back to the inquiry, the term “ net income ” and “ gross ” should non be confused as they lead to different significances. In decision, non-profit organisation demands to bring forth gross, alternatively of net income. No organisation is believed to be able to last without any fiscal supports.
Q2 ) Importance of the conceptual model for accounting
Conceptual model of accounting is interrelated aims and basicss that are needed to execute a consistent accounting criterion. It is a coherent system that acts as a guideline to put up the accounting criterion which is formulated from the model.
Conceptual model is of import for the readying of accounting. First, harmonisation of readying of fiscal coverage can be promoted by following with model. For illustration, organisations that are guided by one consistent model would happen it easier to compare their fiscal statements with other companies following with the same model. Therefore, the conceptual model benefits one organisation by supplying more comparative fiscal information and therefore 1 could utilize the fiscal information to analyse the strengths and failings particularly when organizing schemes.
Second, procedure of determination devising and execution by utilizing conceptual model as a foundation. For illustration, in the procedure of FASB in explicating their execution, conceptual model Acts of the Apostless as the guideline. It provided subject of the fiscal statement which is more consistent therefore modified accounting regulations is provided with the elaborate principle. FASB may debate the acceptance of an accounting criterion alteration, by mentioning to the conceptual model the concluding buttocks can be justified.
Following, efficiencies and better communications are brought by implementing conceptual model. The treatment about the accounting criterion is brought to a higher degree. For illustration, you do n’t ‘ hold to get down from nothing for every clip when you assess the accounting issue, you can debate about the plus, liability in the study. You can easy specify the construct with a better apprehension.
Besides, conceptual model facilitates the convergence of planetary accounting criterion. Recently, there is a strong push towards convergence of planetary accounting criterions by the International Accounting Standards Board ( IASB ) and the Financial Accounting Standards Board ( FASB ) . A standardised conceptual model plays a function in alining the coverage method into a consistent manner.
Besides that, conceptual model provides a more apprehensible platform for fiscal studies users which differ among civilizations and backgrounds. From planetary position, it solves the job that users come from different backgrounds by using normally accepted guidelines and regulations. For case, common international linguistic communication set by the conceptual model can assist heighten the comprehensibility of the fiscal information, and in bend, potentially heighten the international investing activities.
In add-on, conceptual model is besides of import to help user either from external or internal for easy to construe the information in the fiscal statement. The internal user is the director and non managerial employee, and external user including investor, provider and authorities bureaus. Manager can easy construe the information therefore help them in doing future planning. It besides provides the usher and regulator for director to do opinion. For external user like investor, conceptual model that implemented in the accounting criterion will increase their confident to put to the peculiar company. For illustration, the dependability and comprehensibility of the fiscal study.
In decision, conceptual model is of import from assorted point of position Besides determination devisings, it besides contributes to communicating, international criterion puting therefore the apprehension of bing and prospective accounting criterion.
Q3 ) How modern twenty-four hours clerking and the dual entry system evolved and their importance
Bookkeeping is the activity of maintaining records of the fiscal personal businesss of a concern. The usage of the clerking can day of the month back to 4000 B.C. during that clip, clip items were used. Until 1400 ‘s, a book on pattern of clerking was written by Luca Pacioli which titled “ Summe de Arithmetic, Geometria, Proportioni et Proportonality. ” This book is the basis of the modern clerking. Before the usage of the computing machine, all this clerking procedure needs to be done by bookkeeper. All the concern dealing needs to be record manually into a diary. They are so required to post the full diary to the company ‘s general leger and subordinate leger history. This will take longer clip and may happen many mistakes. Bookkeeping is so evolved to computerised clerking system when the broad usage of computing machine. Nowadays, with the aid of computing machine, the procedure of clerking can be done by much expeditiously and efficaciously. Aid of the computing machine non merely can salvage many whereas can cut down the mistake since the diary can be posted electronically and calculated automatically ( Lisiecki, 2010 ) .
Double entry system is the dealing that record in at least 2 histories in term of recognition and debit. The first of usage of dual entry system was by merchandisers in mediaeval Venice. In the late 1400 ‘s, the process for the dual entry system was documented by Luca Pacioli as portion of Summa work. A important part of the accounting rhythm was described in Summa work. Double entry system is so spread throughout and became foundation of modern accounting. Double entry system record on 2 side is to guarantee that the accounting equation in balance so that “ Assetss = Liabilitiess + Owner ‘s Equity ” . However, modern fiscal instruments have made dual entry system more complicated although the pattern of dual entry system remains changeless. Furthermore, corruptness in major accounting bureaus realised that the basicss of accounting can easy be distorted without careful inadvertence ( Yargo, 2011 ) .
Importance of Bookkeeping
Bookkeeping is really of import particularly when a company want to fix for taxing intent ( 123bookkeeping, 2009 ) . Every twelvemonth, concern must include all their disbursals, net income or loss and subject the information to taxing authorization. With a good clerking, one company does non necessitate haste to happen all the measures and it can fix required information easy. In instance the hearer from the authorities wants to scrutinize the company ‘s finance, the company can supply all the records to verify all the minutess.
Besides that, clerking is of import for the readying of fiscal statements ( Importance of Bookkeeping, 2012 ) . Most of the clip, comptrollers need to pull out all the entering done by the bookkeeper before fixing the Trading and Profit and Loss history ( income statement ) and place statement ( balance sheet ) . Without a good and accurate clerking system, comptrollers will confront troubles in fixing the fiscal statements.
Importance of Double Entry System
Double entry system plays an of import function in bettering the truth of the fiscal studies ( Account-Audit-Finance, 2010 ) . Basically, each dealing is recorded as debit sum with a matching recognition sum. If the entire debits recorded does non equal to the entire credits, this indicates that something is incorrect in the recording ( Simplestudies, 2012 ) . With the dual entry system, the comptroller is able to look into back the records and makes rectification of it. Hence, through this method it can better the truth of the fiscal coverage.
Second, dual entry bookkeeping system contains elaborate record of all minutess and it could assist users to do determinations. For illustration, disbursals is one of the elements which can be found in the dual entry. Through the disbursals account, director can easy command the cost of the company ( Account-Audit-Finance, 2010 ) . For illustration, if a director found out that the disbursals for public-service corporations from the disbursals Account are excessively high, directors may promote the employees to salvage the resources.
Q4 ) Advanrages and disadvantages of modulating accounting information through accounting criterions
Accounting Standard standardizes the fiscal coverage and aid users to measure to fiscal information easier, particularly in planetary position. All public listed concerns have to enter all their fiscal information in their fiscal statement after a specific accounting period. The Financial Accounting Standard Board ( FASB ) has set a series of accounting criterions that enhance the recording of fiscal information. There are advantages and disadvantages of utilizing these criterions.
One of the advantages that the standard brings is understandability. The houses are required to follow the accounting criterion published by FASB. The possible fiscal statement users, such as creditors, stockholders, investors and taxing bureaus expect the houses to follow the criterion when fixing the fiscal statements. These users depend on the premise of the accounting criterions when they are construing the consequence obtained from the fiscal statement. Even though different houses have different fiscal statements, the users could merely utilize the same premise to analyse different fiscal statements. Hence, user will merely hold to understand the premise of the accounting standard alternatively of utilizing different ways to analyze different fiscal statement.
Followed by the comprehensibility, the comparison of fiscal information for similar concerns can be improved besides. The consequence is important in planetary position. It is because infinite fiscal experts around the universe that seek to put globally could profit from the low comparison cost. This improved easiness to construe fiscal information could potentially heighten the overall investment activities around the universe. On the other manus, transnational corporations could cut down their coverage cost without holding to accommodate their fiscal information for multiples accounting criterions.
Accounting criterion besides serves as counsel to comptrollers when they are entering the fiscal statement. There are several issues involved in fiscal coverage, such as new accounting minutess due to engineering and alterations in pension programs. Accountants may mention to the accounting criterion when these issues arise in order to find the ways of entering the event. The FASB concerns about the demands of fiscal users and feedback from companies when they making the accounting criterion.
However, the accounting criterions published by FASB face a disadvantage whereby it involves the inflexible model that the comptroller has to bear. Every company around the universe is different in footings of experiences even though they are from the same industries. Some companies may happen it difficult to follow and get by with due to the companies experiences. Hence, comptrollers have to suit the company ‘s alone experience with the guidelines provided by the accounting criterion, in bends, consequences in inflexibleness.
Another disadvantage in using the accounting criterion is the extra cost for houses following with the history criterion. When a new accounting criterion is published by FASB, a company has to see the demand of the criterion, such as what actions needed to be taken what is the cost in order to use the new accounting criterion. At the terminal, company may hold to plan a new process, which needs big fiscal investing such as system ascent, employee preparation and new labour cost.
Q5 ) The virtue and defects of the historical cost accounting construct
The debated about issue of “ historical cost accounting versus current value ( just value ) accounting ” seem like a ceaseless narrative. Actually, the historical cost rule requires that all assets and liabilities must be recorded at their acquisition besides means as the cost they purchased. In the others manus, the current value rule requires that all the assets and liabilities must be recorded consequently to their market or current value.
Historical cost accounting rule
The historical cost accounting rules can be defined as the aggregateA monetary value paid by theA house toA get ownership of an plus, including all payments necessary to obtain the plus in the location and status required for it to supply services in the production or other operations ofA the house. Business houses normally use historical cost rule merely in the state of affairs where the monetary values are stable.
There are some advantages of historical cost rules in the accounting theoretical account. One of the advantages of applied historical cost construct that historical cost is relevant in doing economic determinations. This is because historical cost can impact the rating and choice in the procedure of doing economic determinations. Besides, directors need to roll up the information of quality of their past determinations to find which determination regulation to utilize. Historical cost besides is related to the past determinations.
Second, historical cost is less capable to use. Historical cost rule is easier to be manipulated because it is based on existent cost of the minutess. The directors merely have to enter all their assets and liabilities at their acquisition monetary values. Therefore, historical cost is verifiable. In trunkss, using historical cost rule avoids the hazard of use figures by the directors.
However, historical cost can non get away from some defects that came from the advocates of current cost accounting rule. One of the disadvantages is that historical cost accounting could be misdirecting. There are instances in which some coverage companies use this accounting figure to mislead the investors and creditors.
Besides that, the transaction-oriented comptrollers are more likely to look into paperss for historical cost instead than current physical world and rating of the entity. This means that fiscal information can non be guaranteed of the quality and honestness.
Current value construct
On the other manus, current value construct can be defined as the monetary values hat mustA be paid for an assets or its usage at the day of the month of the balance sheet or the day of the month of the usage or sale if that plus is non already owned.
There are several advantages and disadvantages of current value construct. One of the virtue of current value construct is that it provides a better step of efficiency. The efficiency of the company can be measured by the current value rule. This is because current value rule provides a separation of net income in to the portion which arises from keeping plus before they are sold. This reflects the consequence of plus direction determinations and the impact of the environment on house non reflected in minutess. In add-on, separation coverage of keeping additions besides will enable users of fiscal statement to do a more accurate appraisal of the company ‘s operating public presentation.
Furthermore, the current value accounting is relevant for determination devising procedure besides. The market value ofA current cost accounting better presents the economic world of minutess and hence tends to supply more utile and more relevant information of fiscal coverage.
However, the current value accounting brings some defects to the accounting theoretical account and fiscal coverage. One of the defects of the current value is its openness to subjectiveness. The current value used is non based on existent minutess. It is difficult to find the exact current value. So, the directors might put the scope of the current value, which can be said as the finding of current value is under the discretion of directors.
Besides that, the current value relevant merely for short-run determination besides. Share returns in the long tally are more closely associated with historical informations than current value informations. There was no convincing grounds that single current value accommodation play a important portion in the dividend determinations.
