Business Accounting Principles: Acme Holding Financial Report
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This report provides a financial analysis of Acme Holding, a company listed on the KLSE Stock Exchange, focusing on its 2018 annual report. The analysis is divided into two main tasks: first, it examines the qualitative characteristics of financial information as described in SFAC-2, including relevance, reliability, comparability, and consistency. Second, it evaluates the company's financial information by creating a chart of accounts as provided under GAAP, classifying each account in the balance sheet as current or fixed assets, current or long-term liabilities, or equity. The report details specific accounts like inventories, trade receivables, property, plant, and equipment, and analyzes their changes from 2017 to 2018, providing insights into the company's financial performance and position.
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Diploma in Business Management
Diploma in Business Management
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Contents
Introduction......................................................................................................................................3
Task 1: Qualitative Characteristics of the financial information as described in SFAC -2.............3
Task 2: Chart of accounts as provided under GAAP in relation to the selected company..............5
Conclusion..................................................................................................................................... 12
References......................................................................................................................................13
Contents
Introduction......................................................................................................................................3
Task 1: Qualitative Characteristics of the financial information as described in SFAC -2.............3
Task 2: Chart of accounts as provided under GAAP in relation to the selected company..............5
Conclusion..................................................................................................................................... 12
References......................................................................................................................................13
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Introduction
The financial statements prepared by the company help to provide financial information
required by investors, creditors, management, and analyst to evaluate the performance of the
company. There is proper format using which companies have to draft their financial statements
so that financial information presented in the report fulfils the qualitative characteristics of the
financial information. The report aims to evaluate the financial performance of company listed
on KLSE Stock Exchange. For this purpose the company selected is Acme Holding which is
listed on the KLSE Stock Exchange. There are two tasks that need to be completed in this report.
First task will examine the qualitative characteristics of the financial information and second task
will evaluate the financial information provided by the selected company in their annual report.
Task 1: Qualitative Characteristics of the financial information as described in SFAC -2
Qualitative Characteristics of Financial Information
The major qualitative characteristics of financial information as per the SFAC 2 with
elaborative application are as follows:
Relevance
It is the primary qualitative characteristics of useful financial information as per which
the information must be able to guide the decision-making process of end-users. As such, the
financial information must have an influence on the economic decision taken by its general users
such as investors, lenders, creditors, borrowers and others. The information in order to be
relevant must possess the following features:
Predictive Value
Introduction
The financial statements prepared by the company help to provide financial information
required by investors, creditors, management, and analyst to evaluate the performance of the
company. There is proper format using which companies have to draft their financial statements
so that financial information presented in the report fulfils the qualitative characteristics of the
financial information. The report aims to evaluate the financial performance of company listed
on KLSE Stock Exchange. For this purpose the company selected is Acme Holding which is
listed on the KLSE Stock Exchange. There are two tasks that need to be completed in this report.
First task will examine the qualitative characteristics of the financial information and second task
will evaluate the financial information provided by the selected company in their annual report.
Task 1: Qualitative Characteristics of the financial information as described in SFAC -2
Qualitative Characteristics of Financial Information
The major qualitative characteristics of financial information as per the SFAC 2 with
elaborative application are as follows:
Relevance
It is the primary qualitative characteristics of useful financial information as per which
the information must be able to guide the decision-making process of end-users. As such, the
financial information must have an influence on the economic decision taken by its general users
such as investors, lenders, creditors, borrowers and others. The information in order to be
relevant must possess the following features:
Predictive Value
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The financial information in order to be relevant must have a predictive value as per
which it must be able to depict an accurate prediction regarding its earning potential and
financial outcomes in future context. For example, the financial information reflecting the
present status of economic resources or past performance of an entity is usually take as a base by
financial analysts to predict its future financial position.
Feedback Value
The financial information should also have predictive value for improving its relevancy.
This refers that it must be able to improve the capabilities of end-users to correct their
expectations made on the basis of knowledge gained by interpretation of financial statements of
an entity (FASB, 2010). The financial information must be able to cause a reduction in the
uncertainty of decision-making of end-users. For example, business entities tend to disclose the
result by segment reporting that provides information related to its past performance and also the
future expected trend of earnings (Kaminski and Jon, 2011).
Timeliness
The financial information to be capable for providing assistance to the end-users should
be of recent time for disclosing its current financial position. For example, business entities as
per FASB rules are required to develop and disclose the financial reports on an annual basis to
provide latest financial information to the end-users (Statement of Financial Accounting
Concepts No. 2. 2008).
Reliability
The financial information in order to be relevant must have a predictive value as per
which it must be able to depict an accurate prediction regarding its earning potential and
financial outcomes in future context. For example, the financial information reflecting the
present status of economic resources or past performance of an entity is usually take as a base by
financial analysts to predict its future financial position.
Feedback Value
The financial information should also have predictive value for improving its relevancy.
This refers that it must be able to improve the capabilities of end-users to correct their
expectations made on the basis of knowledge gained by interpretation of financial statements of
an entity (FASB, 2010). The financial information must be able to cause a reduction in the
uncertainty of decision-making of end-users. For example, business entities tend to disclose the
result by segment reporting that provides information related to its past performance and also the
future expected trend of earnings (Kaminski and Jon, 2011).
Timeliness
The financial information to be capable for providing assistance to the end-users should
be of recent time for disclosing its current financial position. For example, business entities as
per FASB rules are required to develop and disclose the financial reports on an annual basis to
provide latest financial information to the end-users (Statement of Financial Accounting
Concepts No. 2. 2008).
Reliability
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The reliability also refers to the primary characteristics of financial information by having
credibility in the eyes of end-users. Reliability depends on faithful presentation of information to
ensure that it is complete and error-free so that users can take accurate decisions. The reliable
financial information need to have the following characteristics:
Verifiability
The financial information presented to the end-users should be disclosed in a format by
business entities so that it can easily be verified or re-checked by the application of accounting
methods. This means that financial information need to be completely verifiable so that end-
users can assess whether it is error-free before utilizing it to take pertinent economic decisions.
This refers that business entities need to select an appropriate measurement method for
determination of the financial value of key financial items such as assets, liabilities, debt and
equity. This is important so that measurement method is relatively easy to be implemented by the
end-users for analysing the verifiability of the result. Fr example, business entities tend to adopt
the use of mainly historical cost accounting that is a simple and easy accounting method to be
adopted for assessing the value of key financial items (Kaminski and Jon, 2011).
Accurate Representation
This refers that financial information should be true and fair in all aspects without any
chance of manipulating the public opinions or view regarding the financial position of an entity.
The faithful presentation in a direct form indicates that the financial information should be able
to provide a reasonably informed sues the exact measure, including all the estimates,
classifications, judgment and allocations, the financial performance of an entity. For example, in
situation such as lack of accurate market prices for assets the accountants need to determine the
The reliability also refers to the primary characteristics of financial information by having
credibility in the eyes of end-users. Reliability depends on faithful presentation of information to
ensure that it is complete and error-free so that users can take accurate decisions. The reliable
financial information need to have the following characteristics:
Verifiability
The financial information presented to the end-users should be disclosed in a format by
business entities so that it can easily be verified or re-checked by the application of accounting
methods. This means that financial information need to be completely verifiable so that end-
users can assess whether it is error-free before utilizing it to take pertinent economic decisions.
This refers that business entities need to select an appropriate measurement method for
determination of the financial value of key financial items such as assets, liabilities, debt and
equity. This is important so that measurement method is relatively easy to be implemented by the
end-users for analysing the verifiability of the result. Fr example, business entities tend to adopt
the use of mainly historical cost accounting that is a simple and easy accounting method to be
adopted for assessing the value of key financial items (Kaminski and Jon, 2011).
Accurate Representation
This refers that financial information should be true and fair in all aspects without any
chance of manipulating the public opinions or view regarding the financial position of an entity.
The faithful presentation in a direct form indicates that the financial information should be able
to provide a reasonably informed sues the exact measure, including all the estimates,
classifications, judgment and allocations, the financial performance of an entity. For example, in
situation such as lack of accurate market prices for assets the accountants need to determine the
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fair value of assets by deduction of estimated depreciation from fair value of similar new assets.
This is essential o faithfully present the financial information to the end-users (Statement of
Financial Accounting Concepts No. 2. 2008).
Comparability and Consistency
The comparability feature refers to the ability of financial information to be able to make
a comparison of the financial performance of the entities from one financial period to another.
This is required to provide a comparative disclosure regarding the increase or decrease in the
financial performance of an entity for facilitating the decision-making process of users. For
example business entities as per this feature often adopts the consistent accounting policies so
that financial information can be easily compared. Also, the financial statement developed shows
comparative results of the key financial items if an entity in the current year relative to that of its
previous year. This is done mainly so that users can easily interpret the percentage growth or
decline occurred in the key financial items of a business entity (Elen, 2016).
The consistency also helps in improving the comparability of financial formation across
the world. For example, of one account adopt a specific accounting policy which is different
from others then there will be problems faced by the end-users such as investors to easily analyze
and compare the financial results of them. As such, FASB has directed all the business entities’
to adopt similar type of accounting policies. Also, businesses are directed to adopt the same type
of accounting policies and methods over time to improve the comparability and consistency in
the financial results (Christensen, 2010).
The qualitative characteristics can be presenter through the following chart:
fair value of assets by deduction of estimated depreciation from fair value of similar new assets.
This is essential o faithfully present the financial information to the end-users (Statement of
Financial Accounting Concepts No. 2. 2008).
Comparability and Consistency
The comparability feature refers to the ability of financial information to be able to make
a comparison of the financial performance of the entities from one financial period to another.
This is required to provide a comparative disclosure regarding the increase or decrease in the
financial performance of an entity for facilitating the decision-making process of users. For
example business entities as per this feature often adopts the consistent accounting policies so
that financial information can be easily compared. Also, the financial statement developed shows
comparative results of the key financial items if an entity in the current year relative to that of its
previous year. This is done mainly so that users can easily interpret the percentage growth or
decline occurred in the key financial items of a business entity (Elen, 2016).
The consistency also helps in improving the comparability of financial formation across
the world. For example, of one account adopt a specific accounting policy which is different
from others then there will be problems faced by the end-users such as investors to easily analyze
and compare the financial results of them. As such, FASB has directed all the business entities’
to adopt similar type of accounting policies. Also, businesses are directed to adopt the same type
of accounting policies and methods over time to improve the comparability and consistency in
the financial results (Christensen, 2010).
The qualitative characteristics can be presenter through the following chart:
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(Source: Statement of Financial Accounting Concepts No. 2)
Task 2: Chart of accounts as provided under GAAP in relation to the selected company
In order to accomplish this task company known as Acme Holding Berhad has been
selected and this company is manufactures household goods such as plastic products, wood
products and sound system. Acme Holding has published its lasted annual report 2018 which is
available on investor’s relations section of the company.
Below table will show the chart of accounts as described by the Generally Accepted
Accounting Principles (GAAP). This chart of accounts is prepared for showing the accounting
information presented in the balance sheet of Acme Holding Company. Each account shown in
balance sheet of the company will be classified as current and fixed assets, current and long term
liabilities and equity account.
Chart of Accounts
Account Amount in RM Account type Description of each
account
(Source: Statement of Financial Accounting Concepts No. 2)
Task 2: Chart of accounts as provided under GAAP in relation to the selected company
In order to accomplish this task company known as Acme Holding Berhad has been
selected and this company is manufactures household goods such as plastic products, wood
products and sound system. Acme Holding has published its lasted annual report 2018 which is
available on investor’s relations section of the company.
Below table will show the chart of accounts as described by the Generally Accepted
Accounting Principles (GAAP). This chart of accounts is prepared for showing the accounting
information presented in the balance sheet of Acme Holding Company. Each account shown in
balance sheet of the company will be classified as current and fixed assets, current and long term
liabilities and equity account.
Chart of Accounts
Account Amount in RM Account type Description of each
account
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2018 2017 (Current Asset, Fixed
Assets, Current Liability,
Long term liability or
Equity)
Inventories 18885886 5199250 Current Asset Inventories referred to
the stock of goods
that company kept
with them to make
future sales. It is
shown under current
asset section of the
balance sheet as it
was predicted that
inventories shown in
balance sheet will
turn into cost of goods
sold in next 12
months. Any asset
that has capability to
turn into cash and
cash equivalent in one
year time period is
2018 2017 (Current Asset, Fixed
Assets, Current Liability,
Long term liability or
Equity)
Inventories 18885886 5199250 Current Asset Inventories referred to
the stock of goods
that company kept
with them to make
future sales. It is
shown under current
asset section of the
balance sheet as it
was predicted that
inventories shown in
balance sheet will
turn into cost of goods
sold in next 12
months. Any asset
that has capability to
turn into cash and
cash equivalent in one
year time period is
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shown under the
current asset section
of balance sheet. The
inventory amount has
been increased more
than 3 times in year
2018 as compared to
previous year.
Trade
Receivable
12045244 7431651 Current Asset Trade Receivable also
known as account
receivable (US
Government, 2014). It
refers to amount to
receivable from the
customer to whom
goods and services
are given on credit. It
is shown in current
asset section because
generally recovered
the year end
receivables in one
accounting year.
shown under the
current asset section
of balance sheet. The
inventory amount has
been increased more
than 3 times in year
2018 as compared to
previous year.
Trade
Receivable
12045244 7431651 Current Asset Trade Receivable also
known as account
receivable (US
Government, 2014). It
refers to amount to
receivable from the
customer to whom
goods and services
are given on credit. It
is shown in current
asset section because
generally recovered
the year end
receivables in one
accounting year.
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Current tax
assets
87529 42000 Current Asset Tax assets represents
advance tax amount
paid to the
government
authorities (US
Government, 2014).
Tax advance that can
be used to pay the
current tax liabilities
will be presented in
this section
Cash and Cash
Equivalents
6041583 1902387 Current Asset It is refers to bank
balance of company
at the year end and
any form of cash &
cash equivalents hold
by the company at the
end of year (Davies
and Crawford, 2011).
The value of cash and
cash equivalents has
been increased by
218% in year 2018 as
Current tax
assets
87529 42000 Current Asset Tax assets represents
advance tax amount
paid to the
government
authorities (US
Government, 2014).
Tax advance that can
be used to pay the
current tax liabilities
will be presented in
this section
Cash and Cash
Equivalents
6041583 1902387 Current Asset It is refers to bank
balance of company
at the year end and
any form of cash &
cash equivalents hold
by the company at the
end of year (Davies
and Crawford, 2011).
The value of cash and
cash equivalents has
been increased by
218% in year 2018 as
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compared to 2017.
Overall it has been
seen that current
assets position of
company has been
improved.
Other
receivables,
deposits and
advance
payments
10605203 1102148 Current Asset Receivable other than
from customers in
form of deposits,
payment paid in
advance are shown in
this section as it is
believed that it will
used in next year or it
will recovered in next
year.
Property
development
cost
4045208 20545149 Current Asset It represents the cost
incurred for
development of
property. The main
reason it is shown
under current assets is
due to its limited use
compared to 2017.
Overall it has been
seen that current
assets position of
company has been
improved.
Other
receivables,
deposits and
advance
payments
10605203 1102148 Current Asset Receivable other than
from customers in
form of deposits,
payment paid in
advance are shown in
this section as it is
believed that it will
used in next year or it
will recovered in next
year.
Property
development
cost
4045208 20545149 Current Asset It represents the cost
incurred for
development of
property. The main
reason it is shown
under current assets is
due to its limited use
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or there will no
existence of such
property after one
year.
Property, plant
and Equipment
14049840 14896596 Fixed Assets It is the major part of
fixed assets as it helps
the company to
produce goods and
services required.
Property, plant and
equipment generally
have long life (more
than one year) which
makes them to be
recognised under
fixed assets section of
balance sheet (US
Government, 2014).
Property, plant and
equipment are
tangible assets and
they are depreciated
or there will no
existence of such
property after one
year.
Property, plant
and Equipment
14049840 14896596 Fixed Assets It is the major part of
fixed assets as it helps
the company to
produce goods and
services required.
Property, plant and
equipment generally
have long life (more
than one year) which
makes them to be
recognised under
fixed assets section of
balance sheet (US
Government, 2014).
Property, plant and
equipment are
tangible assets and
they are depreciated
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