Question

Write a report (1000 words) on applications of various accounting standards in an organisation’s / company annual report(at least 2 accounting standard ) LO1 and LO2.

*Kindly mention the sites’ link used for the reference.

Answer 1

Application of Accounting Standards

Accounting Standards of an organization are the policies and rules which are written as documents and are presented by accounting authority so that there should be a proper track on the transactions taking place in the organization day to day.

Every enterprise and organization are being divided into different levels according to which accounting standards are set. Basically there are there levels.

The various accounting standards are listed below:

1) Disclosure of Accounting Standards

2) Valuation of Inventory

3) Cash Flow Statements

4) Contingencies and Events Occurring after the Balance Sheet date

5) Net profit or loss

6) Construction Contract

7) Revenue Recognition

8) Accounting for Fixed assets

9) The effect of changes in Foreign Exchange rates

10) Accounting for Government grants

11) Accounting for investments

12) Accounting for Amalgamations

13) Employee Benefits

14) Borrowing costs

15) Segment reporting

16) Related party disclosures

17) Leases

18) Earning per share

19) Consolidated Financial Statements

20) Accounting for tax on incomes

21) Accounting for investments in Associates

22) Discountinuing Operations

23) Interim Financial Reporting

24) Intangible Assets

25) Financial reporting of Interests in joint ventures

26) Inpairment of assets

27) Provisions, Contingent Liabilities and Contingent Assets

Let us discuss two of these accounting standards mentioned above.

AS 20 : Earning per share -

Earning per share can be reffered as a financial ratio that can be expressed as Net profit or loss that are attributed to the equity shareholders divided by average of the total number of outstanding equity shares.

This accounting standard is used to find the earning of each equity shares of a company. This tool can be used for the purpose of comparison among different companies and also for judging its own performance with previous years.

There are two types of Earnings per share in which the ratios are reports in the financial statements. They are as - Basic EPS and Diluted EPS.

The basic EPS has the general formula discussed above.

The second that is the diluted EPS is calculated by adjusting the figures for the all effects due to equity shareholders those are dillutive.

The application of this Accounting Standard is that all the earning that are being obtained from the issued equity shares should be calculated properly. This will further help the organization in eatinating the profit and to decide how much dividend would be paid to the equity shareholders. For taking such decisions correctly it is necessary that all the calculations are done according to rules to have correct figures after analysing.

Let us discuss the another accou ting standard -

AS 16- Borrowing costs

The application of this Accounting Standard is to define principles for calculating and mentioning in accounts the borrowing costs per financial year. It only relates to the external borrowing of a company and does not entertain the cost acquired by raising equity shares and preference shares. This basically includes costs incurred while borrowing the funds by a company.

The company should have proper record of how much loan is taken, from which source and what is the interest charged on that amount.

For any enterprise, there are two types of borrowings:

Specific Borrowings: Here, the amount that is going to being capatalized is the difference between borrowing cost actully occurred in a particular period and income on investments that are temporary for funds borrowing.

General borrowing: For calculating this we require to first calculate the capatalization rate which is regarded as weighted average of borrowing cost. Now we need to calculate the cost to be capitalized by multiplying capitalization rate and the amount which is being spent on those qualifying assets ou of all those general borrowings.

In a financial statement following disclosures should be mentioned that is the accounting policy which is being adopted for the purpose of borrowing cost and the amount mentioned for the borrowing cost.

So here we came the various accounting standards and had a detailed discussion on the two of these accounting standards. Fir any organization these accounting standards have their own importance. It is very important for every organization to follow these conduct and rules properly.