Financial Accounting Report: Case Studies, Analysis, and Valuation

This report on financial accounting comprises three key parts. The first section presents accounting case scenarios to analyze transaction treatments, covering topics like depreciation and revenue recognition. The second part analyzes the 2011 financial statements of London Business School, focusing on long-lived assets and their valuation, including freehold and leasehold properties. The third section delves into the valuation of intangible assets, particularly goodwill, using a case study of an acquisition. The report references relevant accounting standards (IAS 18, IAS 38) and provides a detailed breakdown of accounting entries and their impact on financial statements, offering insights into financial error correction, asset revaluation, and the application of accounting principles in practical scenarios. The report concludes with a summary of the key findings and a list of references.

FINANCIAL ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
Financial errors............................................................................................................................1
PART II...........................................................................................................................................3
Long-lived Assets London Business School...............................................................................3
PART III.........................................................................................................................................4
Tangible assets............................................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Financial accounting is one of the branch of accounting that contains the management
and accounting of financial transactions and events (Edwards, 2013). This report is divided in
mainly three parts. In first part accounting case scenarios are given to analyse the treatment of
accounting transactions. Second part covers the analysis of financial statements of London
school for the year 2011 and third part contains the valuation of intangible assets. Evaluation of
accounting transactions were based upon accounting standards and plans.
PART 1
Financial errors
1. In the middle of the fiscal year, on July 1st, The Bite purchased a new coffee machine for
$10,000 in cash. The coffee machine has a 5-year useful life and a salvage value of $500. The
accountant forgot to record ANY entries related to the purchase and depreciation of the coffee
machine during the year.
Current Assets (U) 10000 Long-term assets (O) 9100
Current
Liabilities NE Long-term liabilities NE
Capital Stock NE Retained Earnings (U) 1900
Explanation: There is a transaction took place in term of acquiring a new coffee machine
for 10000 in cash. It will impact upon fixed long term fixed assets, current assets and retaining
earnings. Current assets will be decreased by $10000 and fixed assets will be increased by $9100
(10000-1900). Depreciation will be charged upon fixed assets (10000-500)/5 = $1900 that will
reduce the retain earnings by $1900.
2. Microhard Inc. manufactures and sells a bundled product of software and technical support for
one year to its clients. Microhard typically receives payment from its customers upfront for this
product. In the last month of the 2011 fiscal year, Microhard received $750,000 in cash from its
customers for payment in full. Microhard delivered the software to its client at the time of the
cash collection but it will start providing the technical support in the first month of 2012.
Microhard’s management is struggling to report earnings that will meet analysts’ forecasts, and
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they recognized $750,000 cash collection as revenue for 2011. Assume that 1/3 of the cash
collection was for technical support.
Current Assets (O) 750000 Long-term assets NE
Current Liabilities NE Long-term liabilities NE
Capital Stock NE Retained Earnings (O) 750000
Explanation: there is a transaction made in terms of providing services of software
products and technical support for one year. There is sale agreement was made between $750000
in terms of determining the changes. 1/3 of cash payment was made that will. There is an
increment of current assets and increment of sales. How ever sales agreement was made that was
categories are analysed subject to analyse the consistency with creating changes with managing
the changes and variations. $750000.
3. Rolls-Royce Holdings plc derives its revenues from long-term contracts in its marine business
and uses the percentage-of-completion method to recognize its revenues. The UK Government
recently awarded Rolls-Royce a contract to develop a new propulsion system for submarines.
Assume that the total value of this contract is £3 billion and is expected to take three years, and
cost £500 million in each year. The actual costs in the first year were as expected. After the first
year of the contract, suppose that Rolls-Royce recognized £2 billion of revenues.
Revenues £3 billion
Expenses £1.5 billion
Retained Earnings £1.5 billion
Explanation: IAS 18 accounting for revenues contains the rules related to recognition of
revenue and the accounting treatment of revenues (IAS, 18 Revenue recognition, 2018). This
accounting standard helps in determining the the receivables and the management of accounting
concepts. The above concept is mainly associated with assessment of income and expenditure.
As per above case scenario revenues from long term contracts in its marine business and use of
percentage of completion method to analyse the revenues are categorised in various form. Total
contract value is £3 billion for three years and cost would be £500 million in each year. The
actual revenues would be counted as £1.5 billion rather than estimating £2 billion for revenues.
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PART II
Long-lived Assets London Business School
1. Net book value of tangible assets are £76067000 of London School (as reported at the
end of 2011).
2. Balance of accumulated depreciation on was £6350000 for the year 2011.
3. Total depreciation expenses was counted as £4036000 and there are type of tangible
assets are considered as fixed assets as freehold properties, long leasehold property,
assets of construction and furniture and equipment. Depreciation on long term leasehold
properties were calculated high for £1913 for the year 2011.
4. Freehold properties are the most slowest property considered as lowest depreciated assets
contains longest useful life.
5. The life of computer equipment increased by 33% after decreasing the value of salvage
value.
6. There are major three change were considered in terms of change in book value of
tangible assets such as
 Charging of depreciation for every year
 Revaluation of assets every year
 Change in value of fixed assets and rate of taxes
7. Yes, there was a revaluation done by London school regarding tangible assets in 2011.
the revaluation was made in terms of lease hold property, freehold properties.
8. Net book value of Free hold properties is £17007000 and long leasehold is £39587000 for
the year 2011
9. London business school reported £4036000 for the year 2011 after revaluation.
10. The cost of assets in course of construction was analysed £3390000 and the depreciation
was charged accordingly. There are four potential items such as additions, transfer form AICC
and transfer revaluation are considered in the net amount.
11. the effect of £7,545 decrease in the gross book value of tangible asset category, “Facility
improvements” on the overall gross book value tangible assets London Business School
reported at the end of 2011 will impact the increment the amount of net tangible assets
for the year 2011. Because the revaluation and cost will be considered nil and the value
of assets will remain same for both the years.
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12. Total depreciation and pre tax gain results was analysed as £1374 for the year 2012 the
tax for £20 was considered nil for the first fat of the new fiscal year.
PART III
Tangible assets
Assume Golden paid €20 million to purchase Ryanair.com.
Assume further that Ryanair had the following summarized data at the time of the Golden
acquisition (amounts in million euros):
Assets Share
holder
s’
Equity
and
Liabili
ties
Current Assets 10 Total Liabilities 25
Long-term Assets 22 Shareholders’ Equity 7
32 32
Ryanair’s long-term assets had a current market value of only €18 million.
1. Cost of goodwill purchased by Golden = 24
2. Transaction happened between Golden and Ryanair subject to acquisition
Particular Dr. Cr.
Current assets of Ryanair a/c 10
Long term assets a/c 18
Goodwill a/c (B/F) 24
To payment to Ryanair 20
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To total liabilities 25
To Shareholders equity 7
3. To account goodwill in books of accounts, Golden has to follow IAS 38 accounting for
goodwill accounts. As per IAS 38 the assets that do not contains physical substance are
counted as intangible assets and it is outlined on the basis of identifiable assets (IAS 38,
intangible assets, 2017I).
CONCLUSION
The above report is summarized in respect of financial accounting and the management
of accounting transactions for effective accounting forecasting. All the three sections helps to
understand the tendency of financial statements of financial transactions, treatment of tangible
and intangible fixed assets in the books of accounts.
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REFERENCES
Books and Journals:
Edwards, J. R., 2013. A History of Financial Accounting (RLE Accounting). Routledge.
Online
IAS 38, intangible assets, 2017. [online]. Available through:
<https://www.iasplus.com/en/standards/ias/ias38>.
IAS, 18 Revenue recognition, 2018. [online]. Available
through:<https://www.iasplus.com/en/standards/ias/ias18>.
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