International Financial Reporting: Evaluating Firm for Investment and International Accounting Standards for R&D

INTERNATIONAL FINANCIAL
REPORTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Question 1 Recommending suitable firm top Ding Dong Plc for the investment purpose
through using ratio analysis.........................................................................................................1
Question 2 Critically evaluating the main contents of International Accounting Standards
which covers R&D......................................................................................................................5
Question 3....................................................................................................................................7
a. Income statement.....................................................................................................................7
b. Notes to income statement.......................................................................................................8
c. Statement of financial position................................................................................................9
d. Notes for Statement of Financial Position.............................................................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
International financial reporting may be defined as framework which lays focus on drafting
financial statements which contains characteristics of consistency, transparency and
comparability. In the current times, business units make focus on presenting highly reliable
information to the stakeholders with the motive to influence their decision making. The present
report is based on different case scenario which will provide deeper insight about firm which
prove to beneficial from investment purpose. It will depict how ratio analysis tool can be used
for assessing the extent to which one organization is better than other referring ratio analysis
tool. Further, it will also develop understanding about IAS 38 and its importance in relation to
recording transactions pertaining to R&D.
Question 1 Recommending suitable firm top Ding Dong Plc for the investment purpose through
using ratio analysis
On the basis of cited case scenario, Ding Dong Plc is planning to expand business
operations. In this regard, business unit have two options for investment such as Lockup and
Secure Ltd. Hence, for assessing the attractiveness of investment opportunities ratio analysis tool
has been applied. Ratio analysis may be presented as a quantitative tool which enables investor
to evaluate business performance from several perspectives such as profitability, liquidity,
solvency and efficiency (Hamilton and et.al., 2021).
Ratio Lockup Ltd Secure Ltd
Current ratio 1.0 5.0
Acid-test ratio 0.75 1.0
Accounts receivable days 40 30
Inventory turnover (times) 6.0 12.80
Accounts payable days 70 30
Percent of total debt to total assets 40% 80%
Gross profit percentage 24.6% 12.5%
Operating profit percentage 12% 5%
Return on capital employed 16% 4%
Return on equity 11% 11%
Gearing 20% 90%
Interest cover (times) 2 5
Dividends in pence 7.20 1.20
Profitability ratio analysis
1

By evaluating ratios it has identified that Lockup Ltd exerted effectual control on both
direct and indirect expenses in the period of 2020. Moreover, in the accounting period gross and
operating profit margin of Lockup implies for 24.6% & 12% significantly. Nevertheless, during
the same period such ratios of Secure Ltd was 12.5% & 5% respectively. In business, attainment
of high sales and profitability is the main motive of management which helps in gaining
competitive edge. Hence, from profitability perspective, Lockup Ltd will prove to be more
beneficial for Ding Dong Plc. In addition to this, efficiency of management’s strategies can be
evaluated from its efforts pertaining to using capital and equities while performing business
operations as well as functions. Comparatively, with regards to the usage of capital employed for
profit generation performance of Lockup Ltd can said to be good. Thus, from the investment
perspective Lock Ltd is good. The rationale behind this, by investing money in the profitable
firm Ding Dong Plc can explore business prominently.
Liquidity ratio analysis
In the context of current ratio, business unit must have 2 assets for meeting 1 current
obligation. Outcome of ratio analysis clearly shows that current ratio of both the concerned
organization was not good in the period of 2020. On the basis of results derived through ratio
analysis it can be said that Lockup failed to maintain enough liquidity in comparison to
benchmark. Moreover, current ratio of Lockup Ltd was 1 at the end of 2020 which in turn entails
that company has no enough current assets for fulfilling obligations. On the other side, Secure
Ltd maintained high liquidity which directly impacts profitability. Moreover, instead of
maintaining more assets company should focus on investing additional liquid funds in profitable
opportunities. Hence, referring overall assessment it can be presented that liquidity position of
Secure Ltd was good in 2020 as compared to Lockup.
Solvency ratio analysis
The above depicted table shows that solvency position of Secure and Lockup Ltd was
not in line with the ideal ratio at the end of 2020. The rationale behind this, for developing
optimal capital structure company should issue 1 debt in against to 2 equities while raising funds
(Hicks and et.al., 2020). However, from evaluation, it has assessed that Lockup Ltd raised more
funds from equities rather than debt instruments. On the other side, Secure Ltd places equal
emphasis on both the sources of funds while generating capital. In the context of business
2