Question

1. Accountants who do financial reporting often complain about the number of accounting standards and regulations that they must comply with. Explain why there is a need for accounting standards in financial reporting.

Describe four tasks that a management accountant might be asked to do.

2. Danny Patel is keen to start his own business and has come to you for advice.

“I want to keep costs as low as possible because I’m not going to be earning a lot in my first year. I just enjoy woodworking as a hobby and I want to make some money on the side. I don’t really have a lot of cash lying around but need some money to upgrade my garage into a proper workshop. I’ve asked around and my friend Tony is keen to join the business and have some fun.”

Give Danny some reasonable advice about 1) how he can raise the money that he needs, and 2) which legal form his business should take.

Answer 1

1. Accounting standards are written policy documents issued by the respective government with the support of other regulatory bodies covering the following aspects of accounting transaction in a financial statement:

• Recognition
• Measurement
• Presentation and,
• Disclosure

Need for accounting standards in financial statements:

• Accounting standards reduce to a reasonable extent or eliminate altogether confusing variations in the accounting treatment followed for the purpose of preparation of financial statements.
• Standards may call for disclosure beyond that required by law which leads to avoiding the conflict in users of financial statements.
• Accounting standards help in improving the credibility of accounting data for inter/Intra enterprises comparison.

2.

Danny Patel is keen to start his own business with his friend Tony, also they wanted to keep the costs as low as possible & also expected that they will not earn in the first year & they want to earn money & at the same time enjoying his hobbies & Fun.

But the issue is that they don't have the enough cash for the business so in this situation Danny Patel may form a partnership with his friend Tony as it doesn't require lot of compliances & both may contribute the capital in the business & distribute the earnings in their agreed ratio.

Hence, Partnership is better to form in this situation as it doesn't requires lot of capital & Compliances in comparison to other forms of entity.