Financial Accounting: Case Studies, Concepts and Company Analysis

This article covers case studies related to financial accounting, including recognition and change in accounting policies. It also analyzes AGL Energy Limited's financial performance.

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student:
Name of the University:
Author Note

1FINANCIAL ACCOUNTING
Table of Contents
Case 1...............................................................................................................................................2
Answer to Part a...........................................................................................................................2
Answer to Part b..........................................................................................................................2
Case 2...............................................................................................................................................3
Case 3...............................................................................................................................................3
Part 1................................................................................................................................................4
References........................................................................................................................................6

2FINANCIAL ACCOUNTING
Case 1
Answer to Part a
The financial information about the investment company’s holdings that would be most
relevant is the market value of the shares that it buys, holds or sells in order to gain revenue. A
particular share has an issue price and the price at which it is being traded in the market that is
the market price. The market price of the different shares that the enterprise currently holds
indicates the profitability of the enterprise. The difference between the issue price of the shares
and the market price is the point where the revenue generation. Therefore, the balance sheet of
the company must be reviewed and checked in order assess the financial performance of the
company which will indicate the estimated return on the investment done (Points, 2013).
Answer to Part b
The concept of recognition in the conceptual framework refers to the inclusion of a
particular financial transaction in the financial statements based upon certain norms of inclusion.
For instance, a financial statement prepared on the basis of accrual accounting will recognize the
revenue at the point when it is realized, irrespective of the fact as to when the particulars of that
transaction that is the cash in regards to the revenue is received by business. On the other hand,
financial statements prepared on the basis of cash accounting recognize a particular revenue or
expenditure at the point when cash in real is expended or received by business in relation to that
particular transaction.
The concept of recognition would very well apply while checking the financial
performance of the company as it would matter as to how the enterprise has recognized the
revenue from dividends received and investment securities.

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Case 2
The issue presented in the case is that the directors of an Australian company have
prepared the financial reports under the Corporations Act and have declared that the application
of the requirements of AASB 136 regarding the impairment of assets would not provide a fair
presentation as because the resulting impairment loss of $80,000 is temporary in nature.
Now the particular recommendation in case of such a situation is that the company should
recognize the impairment loss in the income statement of the entity. However, the reversal of
such an impairment loss can be reported in the disclosure of the income statement as stated in
section 82 of the AASB 101. The impairment loss must be recorded and recognized. This is
because the omission of such a loss may hamper the true and fair view, represented by the
financial statements of the company (Hodgson & Russell, 2014).
Case 3
The issue presented in the question is that the change in the accounting policies should
mandatorily, be disclosed in the financial statements. As mentioned in the AASB 108, a change
in accounting policy should only be adopted when the account balances in the financial
statements provide a much more relevant and reliable financial information in regards to the
entity’s financial position or financial performance. The approach that should be adopted by the
company in changing its accounting policy is a retrospective approach or precisely the
retrospective application. This is because as stated in section 19 of AASB 108 when an entity
proposes the change in an accounting policy upon the initial application of an Australian
Accounting Standard, that lists no inclusion of the specific transitional provisions, that may be

4FINANCIAL ACCOUNTING
applicable to that change, then the retrospective application for the change in the accounting
policy should be utilized.
Now, in relation to the case provided in the question, the managers feel the need to
change the accounting policy as they reckon that such is a much more appropriate accounting
treatment. Therefore, it can be understood that the respective accounting policy will be covered
under the retrospective approach. As revealed in the case study the loss of financial data due to
the computers getting affected by virus make it impracticable to determine the period specific
effects that the change in the accounting policy will have on the assets and liabilities. Therefore,
the new accounting policy shall be applied to the carrying amounts of the assets and liabilities
(Carrol & Laing, 2016).
Now, in case of disclosures as the management of the company will have to be report the
change in the accounting policy and the reasons that led to the decision making regarding the
respective change in the accounting policy along with a detailed description of the areas where
such a change has been applied. However, it should be noted that financial statements of
subsequent periods should not have to repeat these disclosures (Loughran & McDonald, 2014).
Part 1
Name of the company: AGL Energy Limited
Current share price of the company: $24.990
Web link to the annual report of the company: https://www.agl.com.au/-/media/AGL/About-
AGL/Documents/Investor-Centre/160828_AR_1587084.pdf?
la=en&hash=D41A3F2721F7C6978BB627E91339A8A13986DFAD

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References
Carrol, A., & Laing, G. (2016). Manipulation of earnings through correction of prior period
errors (AASB108): An empirical test. e-Journal of Social & Behavioural Research in
Business, 7(1), 16.
Hodgson, A., & Russell, M. (2014). Comprehending comprehensive income. Australian
Accounting Review, 24(2), 100-110.
Loughran, T., & McDonald, B. (2014). Measuring readability in financial disclosures. The
Journal of Finance, 69(4), 1643-1671.
Points, K. L. (2013). Financial Statement Analysis.