ACCT221 Assignment

1. Identify the mistakes and classification inaccuracies in the above statement of financial position.

There are various classification errors and mistakes which have been recognized below:

• Goodwill – The classification of the goodwill amounting to $2000 has been made in a current asset which is wrong. The goodwill should be recognized as an intangible or non-current asset which is not readily convertible into cash (Standard, 2015).
• Land held for sale – The land held for sale should have been recognized as current assets which is not the case in Manar Corporation. The land held for sale amounting to $3000 has been classified as long term asset which is incorrect classification. (It has been assumed that land will be sold in 12 months period)
• Note Payable – The note payable is due to be paid in the year 2022 which makes it long term liability for the company. However this has been classified as current liability in the statement of Manar Corporation. Therefore this is a wrong classification.
• Foreign Currency translation reserve – This item has to be recognized in the shareholder’s equity and reserve section which is not the case in Manar Corporation and therefore this represents wrong classification (Mućko, et. al., 2019).
• Unearned rent revenue – There is calculation mistake in unearned rent revenue together with the classification mistake. The unearned rent revenue is not the part of shareholder’s equity and it is recognized in the liabilities section of the balance sheet.

2. Do you agree or disagree with the following statement: “the matching principle means that revenues equal expenses.” How could violating the matching principle impact analysis of performance for the company?

Yes, the statement is true in the context that revenues and any kind of associated expenditures should be recognized in the accounting records of the company together in the same period. Therefore, there exist a cause and effect relationship among expenditures and revenues. This principle of accounting is based on accrual concept of accounting which is crucial for analysing and assessing the performance and position of the company correctly. The follow up of the matching principle of accounting assist the management in presenting true and fair view of financial position and performance of the company (Robinson, et. al., 2015).

3. Find the missing datain the above statement of financial position.

The missing data has been calculated below:

1. Inventory = 38000 – 9000 = $29000
2. Supplies = 1200 – 250 = $950
3. Prepaid Rent = 22000 – 3000 = $19000
4. Depreciation reserve = 200 + 1200 = $1400
5. Machine value = 12900 – 1400 = $11500
6. Unearned Rent Revenue = 10750 – 10350 = $400
7. Salaries Payable = 5500 + 7500 = $13000
8. Prepare the correct statement of financial position as of December 31, 2019.

5. Prepare the full statement of cash flows for the period ending December 31, 2019.

6. Discuss the benefits of the classification of the statement financial position.

The classification of statement of financial position of the company assist management in organising the various items included in the balance sheet which ultimately helps in making the information easier to be understood by the users of the statement of the financial position. The information becomes easy to be read by the users. The enhanced and organized statement helps the management of the company in making efficient and effective decisions without sorting or digging through the information (Perera and Rathnairi, 2016). The classification involves dividing assets and liabilities of the company into different categories according to their nature and this will help in more clarification and accuracy in decision making.

References:

Mućko, P., Janowicz, M., Hońko, S. and Hendryk, M., 2019. Is accounting ready for the dual measurement in the statement of financial position and the statement of profit or loss? Content analysis of comment letters to the Exposure Draft of the Conceptual Framework. Zeszyty Teoretyczne Rachunkowości, (103 (159)), pp.203-225.

Perera, E.A.S.M. and Rathnairi, U.A.H.A., 2016. Classification of Non-Current Asset as Held for Sale.

Robinson, T.R., Henry, E., Pirie, W.L. and Broihahn, M.A., 2015. International financial statement analysis. John Wiley & Sons.

Standard, I.A., 2015. Presentation of Financial Statements. Balance Sheet, 54, p.80A.