Employability Skills: Understanding Accounting Standards and Goodwill Valuation

This study material covers the topic of accounting standards and goodwill valuation. It discusses the importance of fair and accurate goodwill calculation and adherence to accounting standards. The material also highlights the unethical practices used by organizations to boost goodwill value in their balance sheet. The subject is relevant for courses related to accounting and finance. The content is suitable for college and university students.

EMPLOYABILITY SKILLS

Table of Contents
QUESTION 1..................................................................................................................................1
QUESTION 2..................................................................................................................................5
REFERENCES................................................................................................................................8

QUESTION 1
1
Profit and loss account
sales 12160000
Less: COGS
Op 564000
Add: Purchase 6564000
Less: CL stock 796000 6332000
Gross profit
margin 5828000
Less
Depreciation -
Motor Vehicles 247,000
76000
Depreciation -
Machinery 323,000
114000
Interest 144,000
Other expenses 2,166,000
Income tax
expense 688,000
3,568,000
2,260,000
Balance sheet
asset
Land 2,900,000
Motor
Vehicles 6,992,000
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Machinery 5,472,000
Trademarks 572,000
Cash 1,452,000
Accounts
receivable 1,152,000
CL
inventory 796,000
19,336,000
Accounts
payable 732,000
Dividends
Payable 736,000
Loan from
Bank of
Naples Ltd
2,400,000
Share
capital 1,472,000
Retained
earnings
(Opening
balance)
11,028,000
Depreciation
- Motor
Vehicles
847,000
Depreciation
- Machinery 903,000
profit 2,260,000
20,378,000
2

Changes in equity
changes in
equity
beginning
equity 1472000
Add: net
income 2,260,000
Less: dividend 1,104,000
2,628,000
2.
Rate of loan= 2400000 * 1.54 = 3696000
Cost of closing inventory = 796000 * 1.50 = 1194000
3.
Profit and loss
sales 18240000
Less: COGS
Op 846000
Add: Purchase 9846000
Less: CL stock 1194000 9498000
Gross profit
margin 8742000
Less
Depreciation -
Motor Vehicles 370,500
76000
Depreciation -
Machinery 484,500
114000
Interest 216,000
Other expenses 3,249,000
3

Income tax
expense 1,032,000
5,352,000
3,390,000
Balance sheet
asset
Land 4,350,000
Motor
Vehicles 10,488,000
Machinery 8,208,000
Trademarks 858,000
Cash 2,178,000
Accounts
receivable 1,728,000
CL
inventory 1,194,000
29,004,000
Accounts
payable 1,098,000
Dividends
Payable 1,104,000
Loan from
Bank of
Naples Ltd
5,544,000
Share
capital 2,208,000
4

Retained
earnings
(Opening
balance)
16,542,000
Depreciation
- Motor
Vehicles
1,270,500
Depreciation
- Machinery 1,354,500
profit 3,390,000
32,511,000
Changes in equity
changes in
equity
beginning
equity 2208000
Add: net
income 3,390,000
Less: dividend 2,208,000
3,390,000
QUESTION 2
To manager
Positano Pty Ltd
Subject: obtaining understanding regarding accounting standards
There are several types of accounting standards which are required to be followed by
organization in order to have significant processing in the industry. Goodwill is one of the
crucial asset that play crucial role in influencing the financial position of the business. In order
to become successful company highly pay attention on boosting the performance of
organization by adding the value to the business. It permits the business to get the ability to
attract the larger number of stakeholders as having strong position in sector contribute in
meeting the organizational objectives in effectual pattern. For this purpose, organization in the
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current business environment largely use unethical practices to boost the goodwill value in their
balance sheet (Allen and Krever, 2020). It aids the company to reach the position where it can
attain the attention of investors so that raising fund for meeting the organizational needs
becomes easy to achieve.
From the evaluation it can be specified that for building the goodwill there is need to
focus on having clarity regarding the brand name. The main reason behind this is to achieve the
goodwill that is effective and suitable type for attaining the growth and development. Boosting
the goodwill with developing quality brand name so that particular objecting of adding value
can be attained. In order to obtain this, it becomes crucial to get the depth understanding
regarding the crucial aspects so that dealing effectively can become possible. There are certain
accounting standards which ensures quality performance of organization that matches with the
set bench marking. It aids in getting the ability by firm to avoid the loss bearing situation which
might arise due to occurring of legal obligation due to non-compliance with prevailing rules
and regulation.
In order to have proper adherence with the rules and regulations so that achieving good
goodwill in fair and accurate manner as per the accounting standards. These standards help in
getting the basis for calculating the good by including appreciation value so that significant
position to attract stakeholders can become possible. In this manner it becomes essential to set
the appropriate brand name so that possessing capabilities to hold market share in effectual
manner can become possible. In this manner it should pay attention on possessing international
financial reporting standards so that developing transparent financial information to protect the
stakeholders from fraudulent practice. It is crucial for enterprises to focus on understanding that
it is calculating on the basis of which method so that expected benefit for the specified periods
can be obtained. It will focus on segmenting reports, goodwill accounting, allowable method to
depreciation, lease classification, measure of outstanding share, revenue, recognizable, etc.
these play important role in conducting ethical activities so that smooth functioning can be
obtained. From the assessment of the given information it can be specified that there is lacking
of proper knowledge regarding application and valuation of goodwill which is need to be
improved (Sarwal, 2020.).
For this purpose, it is advised to the specified organization to get the understanding
regarding valuation method of accounting in turn the mentioned issue related with application
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of the unethical action to boost the financial performance. In addition to this, getting depth
understanding related with proper execution of accounting standard to have accurate & fair
goodwill can be done by business. It is suggested to the company to execute fair calculating of
goodwill to coordinate with the mentioned accounting standard in turn gaining trustworthiness
& credibility.
Sincerely,
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REFERENCES
Books and Journals
Sarwal, A., 2020. ‘Think imperially’: Indian journalists’ goodwill visits to White Australia, 1927
and 1947. Asian Ethnicity. 21(1). pp.160-178.
Allen, C. and Krever, R., 2020, March. Recognising the cost of purchased goodwill.
In Australian Tax Forum (Vol. 35, No. 1, pp. 59-87).
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