A comparative study
A comparative studies of consolidated financials
Table of Contents:
1. A. Description of Expanded accounting equation for Hal Burton Web
consulting for the period of 1-30, 2015
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B. Basic and consolidated financial statements of Hal Burton Web
consulting for the period of 1-30, 2015
1.1 Income Statement.
1.2 Statement of financial position
1.3 Statement of owner’s equity
1.4 Statement of Cash Flows.
2. A. Requirements of International Accounting Standards (IAS-1) and its
comparison with US-GAAP for the presentation of financial statements.
B. Supporting examples of financial statements prepared under IFRS and
US GAAP
References.
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1) A. Analyze and summarize the below transactions using the accounting equation in the form of a table showing different assets, liabilities,
capital, revenue and expenses.
Table 1. Expanded Accounting Information
Hal Burton Web Consulting
Expanded Accounting Equation
For the period September 1-30, 2015
Assets =Liabilities
+ Owner's Equity
Cash +
Accounts +Receivab
leOffice +Equipment
OfficeSupplies
NotesPayable
Hal Burton's
Capital stock
Withdrawals +
Retained earnings
Sep. 1 $100,000 $100,000 Sep. 2 -$1,200 -$1,200 $98,800 Sep. 3 -$8,000 $30,000 $22,000 $90,800
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Sep. 4 -$750 $750 $90,050 Sep. 8 $2,700 $2,700 $92,750 $1,500Sep. 15 $3,600 $3,600 $5,100Sep. 20 $3,600 -$3,600 $96,350 Sep. 30 -$3,000 -$3,000 $93,350 $2,100 -$2,000 -$2,000 $91,350 Total $91,350 $30,000 $750 $22,000 $100,000 -$2,000 $2,100
Balance $122,100 = $122,100
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B. Prepare the basic financial statements at the end of the month:
I. Income Statement
II. Statement of financial position
III. Statement of owner’s equity
IV. Statement of cash flows
Hal Burton began a Web Consulting practice and completed these transactions during
September of the current year:
Sept. 1 Invested $100,000 of his personal savings into a checking account
opened in the name of the business.
2 Rented office space and paid $1,200 cash for the month of September
3 Purchased office equipment for $30,000, paying $8000 cash and
agreeing to pay the balance in one year
4 Purchased office supplies for $750 cash.
8 Completed work for a client and immediately collected $2,700 cash for
the services.
15 Completed $3,600 services for a client on credit.
20 Received $3,600 from a client for the work completed on September 15.
30 Paid the office secretary's monthly salary, $3,000 cash
30 Burton withdrew $2,000 for personal use.
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Table 2. Statement of Income Statement position as on September 30, 2015
Hal Burton Web Consulting
Income Statement
For the period September 1-30, 2015
Sales Revenues $6,300 Operating expenses Rent $1,200 Salaries $3,000 $4,200 Net Income $2,100
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Table 3. Statement of Financial position as on September 30, 2015
Hal Burton Web Consulting
Statement of financial position
As on September 30, 2015
Assests Liabilities & Owner’s Equity Liabilities: Cash $91,350 Notes Payable $22,000 Office Supplies $750 Total Liabilities $22,000Office Equipment $30,000 Owner's Equity: Hal Burton's capital account $100,000 Withdrawals -$2,000 Retained Earnings $2,100 $100,100 Total $122,100 Total $122,100
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Table 4. Statement of Owner’s Equity as on September 30, 2015
Hal Burton Web Consulting
Statement of Owners Equity
As on September 30, 2015 Capital Invested by Owner $100,000 Net Income $2,100 $102,100 Withdrawals by owner -$2,000
Hal Burton's Capital As on September 30, 2015 $100,100
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Table 5. Statement of cash flows for the period September 1- 30, 2015
Hal Burton Web Consulting
Statement of Cash flows
For the period September 1- 30, 2015 Cash flows from Operating activities: Cash Received from revenue transactions $6,300 Cash paid for rent expenses -$1,200 Cash paid for salary expenses -$3,000 Cash paid for office supplies -$750 Net cash provided by operating activities $1,350Cash flows from Investing activities: Purchase of equipments $8,000 Net cash used by investing activities -$8,000Cash flows from financing activities: Sale of capital stock $100,000 Withdrawals by the owner -$2,000 $98,000Net Increase in cash $91,350Cash balance before September 1,2015 $0Cash balance as on September 30, 21015 $91,350
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2. A. Explain briefly the requirements set out by the international accounting standards (IAS
1) on the presentation of financial statements and how it differs from the requirements as
per US-GAAP
Presentation of financial statements using International Accounting Standards (IAS 1)
propose the basis for overall determination of financial statements. However, it should ensure
the comparability between years and entities. For this, IAS 1 prescribed some rules and
requirements while presenting the financial statements, are discussed below (IFRS, Fact
sheets).
1. Going concern
While preparing financial statements, concerned management should perform an
assessment of an entity’s ability to continue as a going concern
Based on going concern financial statements shall be prepared unless management either
intends to settle the entity or to finish trading
2. Accrual basis of accounting
Here an entity can prepare its financial statements using the methodology of accrual basis
for accounting except for cash flow information
3. Materiality and aggregation
Irrespective of the number of similar items, the financial statements shall have an separate
entry for each material class
All material items with dissimilar nature or function shall also need to be presented
separately, If any immaterial items exits no need to present separately
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4. Offsetting
Assets and liabilities, as well as income and expenses, shall not be offset unless they are
required or permitted according to the standards
5. Consistency of presentation
One should keep in mind regarding the presentation and classification of items. It should
be consistent that the financial statements shall be retained from one period to the next
(Hervé Stolowy and Michel Lebas, 2006)
The presentation of statement must be consistent till a standard revision suggests
changing or any substitute presentation and classification to do so.
6. Comparative information
If required, in order to understand the financial statement of current period comparative
information shall be included
Unless permitted to do otherwise, information must be presented for the current and
previous reporting period for all amounts reported in the financial statements.
7. Fair presentation and compliance with IFRS
An entity should clearly and fairly present in the financial statements especially the
financial position, financial performance and cash flows
While presenting the financial statements an entity, which comply with IFRS standards,
these compliance should make an explicit and clear statement in the notes.
US GAAP is similar to IAS 1 in the presentation of financial statements in several contexts,
using the same components in order to prepare complete financial statements, for instance:
statement of financial position, notes to the financial statements, other comprehensive
income, cash flows, income statement as wells as statement of cash flows etc. In fact both of
these approaches used to prepare the financial statements on the accrual basis of accounting
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(except statement of cash flow), other than the unavoidable situations. On the other hand both
of these approaches have similar concepts in terms of materiality and consistency of
presentation that entities have to consider while preparing their financial statements.
Mainly, US GAAP currently does not include guidance on going concern issues. Under US
GAAP offset is permitted only when a right set-off exists. This set-off can exists at different
situations for example, the parties, be indebted each other determinable amounts or right of
set-off enforceable by law.
2. B. Support your explanation with examples of financial statements prepared under IFRS
and US GAAP
Here, I considered the financial statements of Nestle Group prepared using IFRS (Fig. 1- Fig.
6) and Google prepared using US GAAP (Fig. 7- Fig. 11). The preparation of financial
statement is similar in both of these approaches. Differences between the two tend to arise in
the level of specific guidance. Significant differences are as follows:
1. Balance sheet (statement of financial position):
US GAAP doesn’t include minimum list of mandatory items to be presented, where as
IFRS includes. Nevertheless, SEC regulations have more detailed requirements than
IFRS.
Analysis: As can be seen in Fig. 3. NESTLE group clearly presented in their balance sheet
that was prepared under IFRS, the current and non current assets as well as liabilities, where
as Google. Inc only stated or focused on current assets and liabilities only, as their balance
sheet prepared under US GAAP (see Fig. 6)
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2. Income statement:
US GAAP doesn’t include minimum list of mandatory items to be presented, where as
IFRS includes. Nevertheless, SEC regulations have more detailed requirements than
IFRS.
US GAAP don’t prohibit extraordinary items like IFRS
US GAAP does not define certain key income statement measures. Similarly IFRS also
does not define all these measures either. Nevertheless, regulations according to SEC
requirements and limitations on the ability of public companies to disclose non-GAAP
measures.
Analysis: As mentioned earlier, US GAAP doesn’t prohibit any extraordinary items. As
shown in the Fig. 7, Google Inc. presented the net income (loss) per share both in dilute and
basic for discontinuing operation in their income statement. Contradict can be observed from
the income statement of NESTLE group (IFRS) which shown in Fig. 1.
3. Statement of comprehensive income:
US GAAP allows to present comprehensive income in either one statement of
comprehensive income or in two statements consisting of a separate income statement
and a statement of comprehensive income like IFRS
Analysis: Both NESTLE and Google prepared their income statements and comprehensive
income statements but NESTLE (IFRS) group mentioned it clearly whether they reclassify it
in income statement of not, but Google didn’t reclassified it.
4. Statement of changes in equity:
US GAAP permits the components of comprehensive income that need to
present/disclose in the statement of changes in equity unlike IFRS
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Analysis: Moreover, NESTLE group (IFRS) doesn’t permit components of comprehensive
income to be presented in the statement of changes in equity where as Google Inc (US
GAAP) permits it.
5. Statement of cash flows:
US GAAP does not permits alternative choices for the classification of interest and
dividends while IFRS allow this
Analysis: Google Inc. group (US GAAP) doesn’t permit dividends and interests in the
statement of cash flow where as NESTLE (IFRS) permits it.
6. Notes to the financial statements:
Comparison with US GAAP, most of the companies that follows the IFRS to prepare
their financial statements will experience additional financial disclosure requirements
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Case1: Consolidated financial statements of NESTLE Group prepared according to IFRS
Fig. 1 Consolidated income statement
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Fig. 2 Consolidated statement of comprehensive income statement
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Fig. 5 Consolidated balance sheet
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Fig. 3 Consolidated statement of changes in equity
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Fig. 5 Consolidated cash flow statement
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Fig. 6 Consolidated cash flow statement (continued)
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Case 2: Consolidated financial statements of Google prepared according to US GAAP
Fig. 7 Consolidated balance sheets
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Fig. 8 Consolidated statements of income
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Fig. 9 Consolidated statements of comprehensive income
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Fig. 10 Consolidated statements of stockholder’s equity
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Fig. 11 Consolidated statements of cash flows
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Fig. 11 Consolidated statements of cash flows (continued)
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References
1. H Stolowy and Michel J. Lebas, (2006) “Financial Accounting and
Reporting: A Global Perspective ”, Cengage Learning; 2 edition.
2. Financial statements (2014), Nestle Group http://www.nestle.com/asset-
ibrary/documents/library/documents/financial_statements/2014-financial-
statements-en.pdf
3. Financial statements (2014), Google Inc.
https://investor.google.com/pdf/20141231_google_10K.pdf
4. http://www.cpaaustralia.com.au/~/media/corporate/allfiles/document/
professional-resources/auditing-
ssurance/ias_1_presentation_of_financial_statements.pdf
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