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Financial Accounting ( Case Study)

Accounting policies are the principal and procedures which are adopted by the company for preparation of financial statements. <br>These are consistently followed by the company so that a true and fair position can be presented by the company. <br>

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Financial Accounting ( Case Study)

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  1. Financial Accounting ( Case Study) • Company Name: Home Of Dissertations • Website: https://www.dissertationhomework.com • Contact Number:+44 7842798340 Connect Now

  2. Table of Contents • Accounting Policies • Critical Evaluation of Accounting Policies • Consolidation and goodwill • Revenue Recognition • Conclusion

  3. Accounting Policies • Accounting policies are the principal and procedures which are adopted by the company for preparation of financial statements. • These are consistently followed by the company so that a true and fair position can be presented by the company. • Consolidation and Goodwill • IAS 38 deals with accounting of intangible assets which are not dealt under other specific standard. • The attributes for meeting the definition of intangible asset in accordance with this standard are: Indentifiability; control and future economic benefit.

  4. Revenue Recognition • IAS 18 deals with recognition of revenue. The details regarding turnover should be provided by the companies only when the operations are being done in accordance with contractual terms. In accordance with IAS 18 companies should recognise revenue when: • The ownership has been transferred in full and economic risk and benefits lies with the buyer. • The revenue or gain must be measurable. • Cost of supplying services or goods is measurable. • Certain probability of receiving cash/ revenue exists.

  5. Critical Evaluation of Accounting Policies • Consolidation and goodwill • Consolidated Financial statements of Roll-Royce consists financial statements of company as well as its subsidiary along with Group’s share result of associates and joint venture made up till 31st December. • In case the subsidiaries are immaterial than the same are carried at cost and consolidated when they become material.. No such policy is followed in case of BAE system. • Joint operations are accounted on the basis of proportionate accounting in case of Rolls Royce; on the other hand BAE system complies with equity method for joint ventures. • Both the companies eliminate intra group transactions and any unrealised expense or income arising from intra-group transactions while preparing consolidated financial statements.

  6. Goodwill • Rolls Royce has excluded the effects of acquisition accounting in accordance with IFRS 3 so that the business can be measured on an equivalent basis. • Goodwill is recognised by the company in accordance with previous accepted accounting policies and no retrospective adjustments have been made in the books of accounts for complying with the adopted IFRS. • In year 2015 75 £m goodwill has been impaired which is relating to marine business; the same amount is impaired by BAE system and it is relating to US Intelligence and Security System which reflects lower growth assumptions. • BAE system applies its own analytical tool for assessing scenario-specific model changes which includes changes in discount rates and expected cash flows. No such tool is applied in case of Rolls Royce.

  7. Revenue Recognition • BAE system complies with provisions of IAS11, for accounting revenue relating to long term contract. Revenue and estimates relating to cost are reviewed and amended quarterly and more frequently if required by circumstances. • Profit is accounted on progressive basis as risk have been mitigated or retired. The revenue on long term contracts is recognized only when all the performance milestones have been achieved. • In Rolls Royce revenue is generally recognised when there is a significant transfer of risks and rewards of ownership of the goods to the ultimate customer. • The application of new standard is expected to have a significant impact on the Civil Aerospace business for accounting policies of revenue recognition.

  8. Conclusion In the end it can be concluded that both the companies have complied by their applicable standards for accounting of goodwill and revenue recognitions. In the annual reports of Roll-Royce separate accounting is observed for all its subsidiaries and joint ventures, which has eased the analyzing of statement. However there is no such system was observed in the accounts of BAE. Since the presentation of policies and their description in the notes to accounts has been better elucidated in the annual reports of BAE, the conclusion can be better drawn on the basis of information provided.

  9. REFERENCESBooks and Journal Bloom, M. (2013). Double accounting for goodwill: A problem redefined. Routledge.Deegan, C. (2013). Financial accounting theory. McGraw-Hill Education Australia.Hoskin, R.E., Fizzell, M.R. & Cherry, D.C. (2014). Financial Accounting: a user perspective. Wiley Global Education.Johansson, S.E., Hjelström, T. & Hellman, N. (2016). Accounting for goodwill under IFRS: A critical analysis. Journal of International Accounting, Auditing and Taxation. 27. Pp.13-25.Qasim, A., Haddad, A.E. & AbuGhazaleh, N.M. (2013). Goodwill accounting in the United Kingdom: The effect of international financial reporting standards.

  10. Thank You !!! • Contact us now • Website:https://www.dissertationhomework.com/ • Contact Number: +44-7842798340 Connect Now

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