A comparative study

A comparative studies of consolidated financials

Table of Contents:

1. A. Description of Expanded accounting equation for Hal Burton Web

consulting for the period of 1-30, 2015

A comparative study

B. Basic and consolidated financial statements of Hal Burton Web

consulting for the period of 1-30, 2015

1.1 Income Statement.

1.2 Statement of financial position

1.3 Statement of owner’s equity

1.4 Statement of Cash Flows.

2. A. Requirements of International Accounting Standards (IAS-1) and its

comparison with US-GAAP for the presentation of financial statements.

B. Supporting examples of financial statements prepared under IFRS and

US GAAP

References.

A comparative study

1) A. Analyze and summarize the below transactions using the accounting equation in the form of a table showing different assets, liabilities,

capital, revenue and expenses.

Table 1. Expanded Accounting Information

      Hal Burton Web Consulting  

      Expanded Accounting Equation  

     For the period September 1-30, 2015   

               

      Assets  =Liabilities

+ Owner's Equity 

Cash +

Accounts +Receivab

leOffice +Equipment

OfficeSupplies

NotesPayable

Hal Burton's

Capital stock

Withdrawals +

Retained earnings

               

Sep. 1 $100,000         $100,000 Sep. 2 -$1,200             -$1,200  $98,800            Sep. 3 -$8,000   $30,000   $22,000     $90,800            

A comparative study

Sep. 4 -$750     $750       $90,050            Sep. 8 $2,700             $2,700  $92,750             $1,500Sep. 15   $3,600           $3,600                $5,100Sep. 20 $3,600 -$3,600            $96,350            Sep. 30 -$3,000             -$3,000  $93,350             $2,100  -$2,000           -$2,000  $91,350            Total $91,350   $30,000 $750 $22,000 $100,000 -$2,000 $2,100

Balance $122,100 = $122,100

A comparative study

B. Prepare the basic financial statements at the end of the month:

I. Income Statement

II. Statement of financial position

III. Statement of owner’s equity

IV. Statement of cash flows

Hal Burton began a Web Consulting practice and completed these transactions during

September of the current year:

Sept. 1 Invested $100,000 of his personal savings into a checking account

opened in the name of the business.

2 Rented office space and paid $1,200 cash for the month of September

3 Purchased office equipment for $30,000, paying $8000 cash and

agreeing to pay the balance in one year

4 Purchased office supplies for $750 cash.

8 Completed work for a client and immediately collected $2,700 cash for

the services.

15 Completed $3,600 services for a client on credit.

20 Received $3,600 from a client for the work completed on September 15.

30 Paid the office secretary's monthly salary, $3,000 cash

30 Burton withdrew $2,000 for personal use.

A comparative study

Table 2. Statement of Income Statement position as on September 30, 2015

      Hal Burton Web Consulting      

      Income Statement      

     

For the period September 1-30, 2015      

                            Sales Revenues         $6,300               Operating expenses                         Rent       $1,200   Salaries       $3,000 $4,200               Net Income         $2,100             

A comparative study

Table 3. Statement of Financial position as on September 30, 2015

   Hal Burton Web Consulting    

    Statement of financial position    

    As on September 30, 2015    

          Assests  Liabilities & Owner’s Equity     Liabilities:    Cash $91,350  Notes Payable $22,000  Office Supplies $750  Total Liabilities   $22,000Office Equipment $30,000  Owner's Equity:         Hal Burton's capital account $100,000       Withdrawals -$2,000       Retained Earnings $2,100           $100,100                 Total $122,100   Total $122,100

A comparative study

Table 4. Statement of Owner’s Equity as on September 30, 2015

   Hal Burton Web Consulting    

   Statement of Owners Equity    

  As on September 30, 2015                            Capital Invested by Owner     $100,000   Net Income     $2,100 $102,100                        Withdrawals by owner       -$2,000           

 Hal Burton's Capital As on September 30, 2015       $100,100

           

A comparative study

Table 5. Statement of cash flows for the period September 1- 30, 2015

 Hal Burton Web Consulting      

Statement of Cash flows      

 For the period September 1- 30, 2015      Cash flows from Operating activities:        Cash Received from revenue transactions     $6,300 Cash paid for rent expenses     -$1,200 Cash paid for salary expenses     -$3,000 Cash paid for office supplies     -$750 Net cash provided by operating activities       $1,350Cash flows from Investing activities:        Purchase of equipments     $8,000 Net cash used by investing activities       -$8,000Cash flows from financing activities:        Sale of capital stock     $100,000 Withdrawals by the owner     -$2,000         $98,000Net Increase in cash       $91,350Cash balance before September 1,2015       $0Cash balance as on September 30, 21015       $91,350         

A comparative study

2. A. Explain briefly the requirements set out by the international accounting standards (IAS

1) on the presentation of financial statements and how it differs from the requirements as

per US-GAAP

Presentation of financial statements using International Accounting Standards (IAS 1)

propose the basis for overall determination of financial statements. However, it should ensure

the comparability between years and entities. For this, IAS 1 prescribed some rules and

requirements while presenting the financial statements, are discussed below (IFRS, Fact

sheets).

1. Going concern

While preparing financial statements, concerned management should perform an

assessment of an entity’s ability to continue as a going concern

Based on going concern financial statements shall be prepared unless management either

intends to settle the entity or to finish trading

2. Accrual basis of accounting

Here an entity can prepare its financial statements using the methodology of accrual basis

for accounting except for cash flow information

3. Materiality and aggregation

Irrespective of the number of similar items, the financial statements shall have an separate

entry for each material class

All material items with dissimilar nature or function shall also need to be presented

separately, If any immaterial items exits no need to present separately

A comparative study

4. Offsetting

Assets and liabilities, as well as income and expenses, shall not be offset unless they are

required or permitted according to the standards

5. Consistency of presentation

One should keep in mind regarding the presentation and classification of items. It should

be consistent that the financial statements shall be retained from one period to the next

(Hervé Stolowy and Michel Lebas, 2006)

The presentation of statement must be consistent till a standard revision suggests

changing or any substitute presentation and classification to do so.

6. Comparative information

If required, in order to understand the financial statement of current period comparative

information shall be included

Unless permitted to do otherwise, information must be presented for the current and

previous reporting period for all amounts reported in the financial statements.

7. Fair presentation and compliance with IFRS

An entity should clearly and fairly present in the financial statements especially the

financial position, financial performance and cash flows

While presenting the financial statements an entity, which comply with IFRS standards,

these compliance should make an explicit and clear statement in the notes.

US GAAP is similar to IAS 1 in the presentation of financial statements in several contexts,

using the same components in order to prepare complete financial statements, for instance:

statement of financial position, notes to the financial statements, other comprehensive

income, cash flows, income statement as wells as statement of cash flows etc. In fact both of

these approaches used to prepare the financial statements on the accrual basis of accounting

A comparative study

(except statement of cash flow), other than the unavoidable situations. On the other hand both

of these approaches have similar concepts in terms of materiality and consistency of

presentation that entities have to consider while preparing their financial statements.

Mainly, US GAAP currently does not include guidance on going concern issues. Under US

GAAP offset is permitted only when a right set-off exists. This set-off can exists at different

situations for example, the parties, be indebted each other determinable amounts or right of

set-off enforceable by law.

2. B. Support your explanation with examples of financial statements prepared under IFRS

and US GAAP

Here, I considered the financial statements of Nestle Group prepared using IFRS (Fig. 1- Fig.

6) and Google prepared using US GAAP (Fig. 7- Fig. 11). The preparation of financial

statement is similar in both of these approaches. Differences between the two tend to arise in

the level of specific guidance. Significant differences are as follows:

1. Balance sheet (statement of financial position):

US GAAP doesn’t include minimum list of mandatory items to be presented, where as

IFRS includes. Nevertheless, SEC regulations have more detailed requirements than

IFRS.

Analysis: As can be seen in Fig. 3. NESTLE group clearly presented in their balance sheet

that was prepared under IFRS, the current and non current assets as well as liabilities, where

as Google. Inc only stated or focused on current assets and liabilities only, as their balance

sheet prepared under US GAAP (see Fig. 6)

A comparative study

2. Income statement:

US GAAP doesn’t include minimum list of mandatory items to be presented, where as

IFRS includes. Nevertheless, SEC regulations have more detailed requirements than

IFRS.

US GAAP don’t prohibit extraordinary items like IFRS

US GAAP does not define certain key income statement measures. Similarly IFRS also

does not define all these measures either. Nevertheless, regulations according to SEC

requirements and limitations on the ability of public companies to disclose non-GAAP

measures.

Analysis: As mentioned earlier, US GAAP doesn’t prohibit any extraordinary items. As

shown in the Fig. 7, Google Inc. presented the net income (loss) per share both in dilute and

basic for discontinuing operation in their income statement. Contradict can be observed from

the income statement of NESTLE group (IFRS) which shown in Fig. 1.

3. Statement of comprehensive income:

US GAAP allows to present comprehensive income in either one statement of

comprehensive income or in two statements consisting of a separate income statement

and a statement of comprehensive income like IFRS

Analysis: Both NESTLE and Google prepared their income statements and comprehensive

income statements but NESTLE (IFRS) group mentioned it clearly whether they reclassify it

in income statement of not, but Google didn’t reclassified it.

4. Statement of changes in equity:

US GAAP permits the components of comprehensive income that need to

present/disclose in the statement of changes in equity unlike IFRS

A comparative study

Analysis: Moreover, NESTLE group (IFRS) doesn’t permit components of comprehensive

income to be presented in the statement of changes in equity where as Google Inc (US

GAAP) permits it.

5. Statement of cash flows:

US GAAP does not permits alternative choices for the classification of interest and

dividends while IFRS allow this

Analysis: Google Inc. group (US GAAP) doesn’t permit dividends and interests in the

statement of cash flow where as NESTLE (IFRS) permits it.

6. Notes to the financial statements:

Comparison with US GAAP, most of the companies that follows the IFRS to prepare

their financial statements will experience additional financial disclosure requirements

A comparative study

Case1: Consolidated financial statements of NESTLE Group prepared according to IFRS

Fig. 1 Consolidated income statement

A comparative study

Fig. 2 Consolidated statement of comprehensive income statement

A comparative study

Fig. 5 Consolidated balance sheet

A comparative study

Fig. 3 Consolidated statement of changes in equity

A comparative study

Fig. 5 Consolidated cash flow statement

A comparative study

Fig. 6 Consolidated cash flow statement (continued)

A comparative study

Case 2: Consolidated financial statements of Google prepared according to US GAAP

Fig. 7 Consolidated balance sheets

A comparative study

Fig. 8 Consolidated statements of income

A comparative study

Fig. 9 Consolidated statements of comprehensive income

A comparative study

Fig. 10 Consolidated statements of stockholder’s equity

A comparative study

Fig. 11 Consolidated statements of cash flows

A comparative study

Fig. 11 Consolidated statements of cash flows (continued)

A comparative study

References

1. H Stolowy and Michel J. Lebas, (2006) “Financial Accounting and

Reporting: A Global Perspective ”, Cengage Learning; 2 edition.

2. Financial statements (2014), Nestle Group http://www.nestle.com/asset-

ibrary/documents/library/documents/financial_statements/2014-financial-

statements-en.pdf

3. Financial statements (2014), Google Inc.

https://investor.google.com/pdf/20141231_google_10K.pdf

4. http://www.cpaaustralia.com.au/~/media/corporate/allfiles/document/

professional-resources/auditing-

ssurance/ias_1_presentation_of_financial_statements.pdf

A comparative study