ACCT20077: Laurie Farms & Accounting Concepts and Conventions

This report delves into key accounting concepts and conventions, particularly in the context of Laurie Farms' potential listing on the Australian Securities Exchange (ASX). It addresses the importance of relevance and reliability in financial information, highlighting the trade-offs between them using accrual accounting as an example. The report also discusses the benefits and requirements of ASX listing, emphasizing the role of good corporate governance in ethical business practices and attracting investors. An analysis of a provided balance sheet is conducted, assessing the company's financial position and adherence to accounting principles. Finally, the report considers the role of human capital and intellectual property as valuable assets, debating their inclusion in financial statements and the challenges associated with their quantification and consistent measurement. Desklib provides a platform for students to access similar solved assignments and study resources.

Running head: ACCOUNTING CONCEPTS AND CONVENTIONS
Accounting concepts and conventions
Name of the Student
Name of the University
Author Note

1ACCOUNTING CONCEPTS AND CONVENTIONS
Table of Contents
Answer 1................................................................................................................................................2
Answer 2................................................................................................................................................2
Answer 3................................................................................................................................................3
Answer 4................................................................................................................................................4
References.............................................................................................................................................6
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2ACCOUNTING CONCEPTS AND CONVENTIONS
Answer 1
Relevance and reliability , according to the conceptual framework of accounting are
two of the most important concepts. Thus in order for the accounting information to be useful
for the users of the financial statements, the data should be both reliable and relevant.
Relevant financial information is information that has the capacity to make a modification in
the decisions made by investors, lenders and other creditors. To be relevant, the information
must predict future effects and must provide a positive value. Reliable information includes
data that is represented in a true and fair manner.it can be also termed as faithful
representation(Magnan, Menini & Parbonetti,2015). Reliable financial information should be
neutral ,clear and free from all ambiguity.
Relevance and reliability are often considered to be two contending attributes in a
piece of financial data. This signifies that in order to make a data more reliable, there has to
be a compensation in relevance and vice versa. This is a fundamental challenge in the
discipline of accounting. It can be illustrated with the help of an example. In accrual basis of
accounting, when there is credit sales it is recorded as revenue. This makes the revenue
information more relevant because it reflects the sale that we have actually done but less
reliable since there is no such figure in the cash account because the sales have been done in
credit(Christensen et al.,2016). Hence there is always a compromise between relevance and
reliability of financial information. Therefore it can be concluded that in some cases,
relevance and reliability could be in conflict
Answer 2
Being listed on the ASX, Laurie Farms will get offered a host of benefits including
getting additional funding capital from a host of public investors that would help the firm in
expanding their operations.In addition this will help the firm in obtaining additional leverage
when applying for loans from public institutions.Listing will also help the firm in getting
more liquidity and ready marketability of securities(Lau,2015).According to the ASX, the
principles of good corporate governance lay down a framework of rules and regulations that
will help the firm in running its operations ethically.A good corporate governance lays down
rules for a listed company to act ethically and responsibly.It also advocates a solid basis for
management and misunderstanding .A company listed in the stock exchange must disclose
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3ACCOUNTING CONCEPTS AND CONVENTIONS
and publish the corresponding roles and tasks of its Board and management and in what way
their performance is watched and appraised.It should have a proper structure in place that
verify the truthfulness of its corporate reporting.It should also make opportune and stable
revelation of matters that are expected to have a material effect on its accounts(Tricker &
Tricker, 2015).If the company follows these rules of good corporate governance, this will
help the company in achieving a strong ethical platform from where they can run their
business ethically.So if Laurie firm maintains proper disclosure , diversify their corporate
reporting practises and run their business ethically , this will bring a positive goodwill for the
company. This will also help the company in attracting investors and achieving a high
standing in the stock market and help in getting more funds from public investors.This will
help the firm in getting finance from banks and other financial institutions.A good corporate
governance will promote a positive image of the company and also help them in their
expansion plans if they wish to undertake such plans in the future(Tricker & Tricker, 2015).
Answer 3
The financial statements provides a portrait of the concern’s finances at a specific
point in time. From the Balance Sheet above, it can be seen that it is fragmented into two
crucial divisions. Assets are placed on the upper end of the balance sheet and the company’s
liabilities and shareholder’s equity are placed on the bottom side of the balance sheet. Assets
are the resources that the company makes use of operating the corporate while the liabilities
and equity are the two bases that fund the assets of a business. It is also evident that the
Balance Sheet is in stability where the value of combined assets equals the combined value of
the obligations and equity of the shareholders value(Lawless, Lydon & McIndoe-Calder,
2015). Another fascinating feature of Balance Sheet is that it is very well organized. The
assets and liabilities part of the balance sheet are prepared by how current and relevant the
account is. The assets side are categorised from most liquid and ranges till least liquid. For
the Liabilities section, the accounts are prearranged from short to long term borrowings and
consist of other obligations as well(Vukadinović et al.,2018). On further analysis of the
financial statement, it is seen that the amount of current assets is sufficient enough to pay off
the current liabilities .There is sufficient working capital in the business to meet the daily
operational expenses of the company. The fixed assets have been valued in accordance with
the relevant accounting principles and have been valued at cost. However no depreciation has
not been provided on the fixed assets. There is also no evidence of any outstanding or
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4ACCOUNTING CONCEPTS AND CONVENTIONS
prepaid expenses or income in the balance sheet. There is a long term loan that delivers a
corporate with working capital which when applied can be used to obtaining assets ,which
in turn can be used to generate supplementary proceeds for the corporate. Thus it can be
concluded that although there is a long term loan n the business, yet the overall financial
position is sound.
Answer 4
The compiling of talents,skills and knowledge of a company’s workforce is the definition
of human capital. Intellectual property refers to the creations of the mind and transforming
these ideas into commercial assets(Cuozzo et al.,2017).Both of these have become a
significant success factors in the organization’s road to growth and profitability.In today’s
information age,human capital and intellectual capital are valuable assets and can transform
an enterprise’s overall financial position by leaps and bounds.Such assets raise the
competitive advantage of the firm and can help the firm in claiming a dominant market
position. Society has gradually shifted towards an age of information and technology but the
accounting practises have not transitioned with it(Cuozzo et al.,2017). The question remains
whether they should be reported on the financial statements or not. Some points that warrant
their inclusion are:
 Most of the organizations are knowledge based and requires the use of people’s
talents and abilities to produce quality results. The intellectual capital can help turn
ideas into commercially successful products. Without these two assets, the
organization would not be able to function.
 The human capital and intellectual property create competitive advantage for the
organization, which helps the firm in maintaining a significant market share.
 Without the brain power of human capital and the value of intellectual property, the
organization could not achieve their mission.
 Human capital and intellectual property is supposed to help managers in informed
decision making(McCracken et al., 2018).
Some points that do not warrant their inclusion in the financial statements include:
 It is very difficult to quantify human capital and intellectual property and as such is
difficult to measure.
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5ACCOUNTING CONCEPTS AND CONVENTIONS
 Since both are line items in the Balance Sheet it could be very easily wrought and thus
misrepresent the balance sheet(Bradner & Contreras,2017).
 It is very difficult to maintain consistency in the determination of human capital and
intellectual property.

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References:
Bradner, S., & Contreras, J. (2017). Intellectual Property Rights in IETF Technology (No.
RFC 8179).
Christensen, H. B., Nikolaev, V. V., & WITTENBERG‐MOERMAN, R. E. G. I. N. A.
(2016). Accounting information in financial contracting: The incomplete contract
theory perspective. Journal of accounting research, 54(2), 397-435.
Cuozzo, B., Dumay, J., Palmaccio, M., & Lombardi, R. (2017). Intellectual capital
disclosure: a structured literature review. Journal of Intellectual Capital, 18(1), 9-
28.
Lau, A. (2015). Why bidder shareholders should get a say. Equity, 29(6), 21.
Lawless, M., Lydon, R., & McIndoe-Calder, T. (2015). The financial position of Irish
households. Central Bank of Ireland Quarterly Bulletin, (1), 66-89.
Magnan, M., Menini, A., & Parbonetti, A. (2015). Fair value accounting: information or
confusion for financial markets?. Review of Accounting Studies, 20(1), 559-591.
McCracken, M., McIvor, R., Treacy, R., & Wall, T. (2018, March). A study of human
capital reporting in the United Kingdom. In Accounting Forum (Vol. 42, No. 1,
pp. 130-141). Elsevier.
Tricker, R. B., & Tricker, R. I. (2015). Corporate governance: Principles, policies, and
practices. Oxford University Press, USA.
Vukadinović, P., Cerović, S., Matović, V., & Stevanović, G. (2018). Financial position
and credit rating of companies in circular economy in Serbia. Industrija, 46(2),
77-98.
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