Timetable

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ASSIGNMENT TITLE:

Financial statements give an indication of assets and liabilities at a given point in time. However, various assumptions are taken into consideration when preparing same. Besides, users of financial statements look for information which are useful to them. You are required to examine the above statement, by explaining:

1. the underlying assumptions when preparing financial statements; and (50 marks)
2. the uses of financial statements by stakeholders. (50 marks)

Support with examples from a business entity of your choice.

CONTENTS

1.        THE UNDERLYING ASSUMPTIONS WHEN PREPARING FINANCIAL STATEMENTS        1

(i)        INTRODUCTION        1

(ii)        THE QUALITATIVE CHARACTERISTICS OF FINANCIAL STATEMENTS        2

⮚        UNDERSTANDABILITY        2

⮚        RELEVANCE        2

⮚        RELIABILITY        2

⮚        COMPARABILITY        2

iii)        ACCOUNTING CONCEPTS        3

∙        Prudence concept        3

∙        Consistency concept        3

∙        Going concern concept        4

∙        Accruals including matching        4

∙        Separate entity concept        5

∙        Money measurement        5

∙        Realisation concept        5

∙        Historical cost concept        6

∙        Materiality concept        6

∙        Substance over form        6

∙        Dual aspect concept        7

∙        The Accounting period        7

iii)        CONCLUSION        7

2.        THE USES OF FINANCIAL STATEMENTS BY STAKEHOLDERS.        8

i)        INTRODUCTION        8

ii) USERS OF FINANCIAL STATEMENTS        8

ii)        USES OF FINANCIAL STATEMENTS BY STAKEHOLDERS        9

1.        Directors and Managers        9

2.        Shareholders        9

3.        Prospective Investors (shareholders)        9

4.        Financial Institutions        10

5.        Suppliers        10

6.        Customers        10

7.        Employees        10

8.        Competitors        10

9.        General Public        11

10.        Government and its agencies        11

iii)        CONCLUSION        11

LIST OF REFERENCES        12

LIST OF FIGURES

Figure 1: Assumptions while preparing financial statements……………………………………1

Figure 2: Users of financial statements…………………………………………..………………8

LIST OF TABLES

Table 1: Rent paid and Rent recorded by Kalachand & Co Ltd…………………………………4

1. THE UNDERLYING ASSUMPTIONS WHEN PREPARING FINANCIAL STATEMENTS

1. INTRODUCTION

The paramount aspect of any business is a simple understanding of the books of accounts that could lead to the smooth operations of the business as a going concern. Accounting can thus be used to forecast the performance of a firm in future. The financial statements are of utmost importance to the different stakeholders of a firm.

For financial statements to be completely objective and reflect a true and fair view, they must be prepared using the generally accepted accounting rules and procedures in the form of concepts. Concepts refer to the minimum basic requirements to be observed by entities while preparing their accounts. Usually, the concepts are designed by ASB (Accounting Standard Board) to be adhered by firms during their day-to-day activities of recording of transactions and processing of account data. (Anderson and Aukhojee, 2014)

IAS (International Accounting Standards) helps entities in preparing financial statements while adhering to the fundamental characteristics in the disclosure of accounting information.

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Figure 1: Assumptions while preparing financial statements (Source: Expertsmind.com, 2019)

1. THE QUALITATIVE CHARACTERISTICS OF FINANCIAL STATEMENTS

The qualitative characteristics of financial statements information refer to the attributes that the financial statements information should possess so as to make it useful to the users. The ASB (2000) of ICAI has discussed the four principal qualitative characteristics of financial statements information including understandability, relevance, reliability and comparability (Shodhganga, 2019). The characteristics are discussed below.

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