Financial Statement Analysis Notes

Financial Statement Analysis Notes - Financial Statement...

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Financial Statement Analysis[560] Introduction to Financial Reporting 1.Financial Accounting Standard Board (FASB) conceptual framework is applicable to general purpose financial statements. 2.Financial statements are prepared based on going concern and accrual basis of accounting assumptions. 3.There are four revenue recognition criteria – definition, measurability, relevance and reliability. 4.Measurement is the process of determining the amount of elements to be recognized and carried to the income statement and balance sheet. Four basic measurements are historical cost, current cost, realizable value and present value. 5.Investments are reported in the balance sheet at their current cost. 6.Short-term receivables are reported in the balance sheet at their net realizable value. 7.Long-term receivables are reported in the balance sheet at their present value. 8.As per the para 23 of the Accounting Standard AS-13, if long-term investments are reclassified as current investments, then the transfers are made at the lower of cost and carrying amount at the date of transfer. 9.Matching concept is the base for preparation of income statement. Balance sheet is prepared on the basis of dual aspect concept, i.e., liabilities and assets both need to be balanced. 10. Information about the management’s assumptions and policies adopted in the preparation of financial statements is most likely to be found in notes to the accounting statements. 11. Information relating to the events occurring after the balance sheet date, related parties transactions and stock option plans is most likely to be found in management discussion and analysis. It includes detailed explanation of deferred tax assets, depreciation and amortization, provision for investment, stock option plan, reconciliation of India and US GAAP financial statement, related party transaction, and events occurring after the balance sheet date etc. 12. International Accounting Standards (IAS) was issued by International Accounting Standards Committee (IASC). 13. Information about raw materials consumed, depreciation charge, provision for tax etc is statutorily required to be shown as a part of the schedules to profit and loss account to convey more information on items appearing in that account. 14. Total 28 Accounting Standards issued by ICAI which are in vogue in India. 15. The newly developed standards of IASB are referred to as IFRS (International Financial Reporting Standard). 16. Expenses related to the financial performance of an entity. 17. According to the FASB conceptual framework, an entity’s revenue may result from a decrease in a liability from primary operations. 18. Essential characteristic of an asset is that it provides future economic benefits. As per SFAC 6, it is the probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.
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