Question

1) What are some situations and examples in which estimates affect amounts reported in the balance sheet....Please discuss

2) According to GAAP, what is the balance sheet valuation of each of the following assets?

a. Trade accounts receivable

b. Land

c. Inventories

d. Trading securities

Prepaid expenses

3) How can the skills, loyalty of workers ,customer base and reputation of the company be reliably measured or how will you approach measuring these items.... please explain

4)A balance sheet provides information about a "company's financial flexibility, liquidity and solvency" As accounting students , You know that solvency pertains to the ability of a company to pay its debts as they come due. Liquidity on the other hand pertains to the amount of time it takes for an asset to be converted into cash.

FOR YOU AND THE CLASS: What is the meaning of financial flexibility and how important is it to a company?

Answer 1

1). The effect of a change in an accounting estimate shall be recognised prospectively by including it in profit or loss in :

. The period of the change, if the changes affects that period only,or

. The period of the change and future periods,if the change affects both.

However ,to the extent that a change in an accounting estimate gives rise to change in assests and liabilities,or relates to an item of equity. Examples of estimate s include :

. Useful life of non current assets

. Bad debts

. Depreciation

. Provision of pension benefits

. Revalued amounts of non current assets

2)a. Trade accounts receivable

Accordingto GAAP,the figure that is presented on a balance sheet for accounts receivable is its net realizable value- the amount of cash the company estimates will be collected over time from these accounts.

B. Land

Land is listed on the balance sheet under the section for long term assets.if the land's market value increases over time, its value on the balance sheet remains at historical cost......this is based on the assumption that land is acquired for business use and not as an asset held for sale.

C. Inventories

Under gaap, inventory is recorded as the lesser of cost or market value.

D.trading securities

Investment in trading securities to be reported on the balance sheet at fair value...the gain is not guaranteed. However the unrealized gain is recognised and reported on the owner's year one income statement.

E. Prepaid expenses

Prepaid expenses are initially recorded as assets,but their value is expensed over time onto the income statement.

4) financial flexibility is the ability to react and adapt to changing financial condition.but perhaps the most important factor of financial flexibility is working capital.

Financial flexibility aspects of a capital structure decision are not easy ones to evaluate.the factors that must be considered vary substantial ly from case to case.the approach evaluating whether the trade off in additional ROE is worth the loss of ability to raise. Funs in a flexibility crises. The extra "eating" must be measured against the extra "sleeping".