Application Of Accounting Standards Provide-Myassignmenthelp.Com

Question: Discuss About The Application Of Accounting Standards Provide? Answer: Introducation The accounting treatment that the management of the Pewter Ltd. is intending to provide in the preparation and presentation would not give a true and fair view of the financial position of the company. Therefore the importance of accounting standards must be looked in and compliance for the same is required to be followed by the company otherwise it would lead to preparation misleading financial statements. Following are the accounting treatments to be given by the company so as to achieve true picture of companys financial position. Accounting for Deferred Tax Assets and the Deferred Tax Liabilities is undertaken to properly recognise the current and the deferred tax in the financial statements of the company. The said accounting is the requirement of AASB 112 issued by the Australian accounting standard board and is needed to be complied by all the listed entities of Australia (Australian Government, 2012). Application of this accounting standard in the preparation and presentation of financial statements is important for the entities to follow the basic rules of accounting such as accrual concept and matching concept. Moreover, proper accounting of DTA DTL also enables a company to present a true and view of its financial position as it ensures the recognition of the corresponding tax effects of all the transactions during a particular year (Guenther, 2011). Deferred Tax Assets and Deferred Tax Liabilities are created in the financial statements to provide for the values that are the results of differences in the rules of accounting as prescribed in the accounting standards and the rules framed and followed by the tax authorities. As the taxes are required to be paid on the taxable profits calculated as per the tax laws but in the preparation of books of accounts generally accepted accounting principles are followed, there arises the differences in the tax liability under both the frameworks. These differences are primarily classified as the timing and the permanent differences. In creation of DTA DTL, only the timing differences are to be considered as permanent differences do not make any difference in book profits and the taxable profits of any following years (Serocki Callaghan, 2012). DTAs are the prepaid taxes as they represent the anticipated reduction in the taxes in subsequent periods as a result of payment of higher taxes in the current year following the tax rules (Tran, 2015). However, DTL represents anticipated increase in the tax liability in future periods as a result of lesser tax payments made under the tax rules (Branson, 2012). These differences are required to be recognised in the financial statements using the matching concept which prescribes the recognition of the expenses in that particular year in which the income is reported. To report the income in the books of accounts, use of accrual concept is necessary as it recognises income only in the year in which they are actually earned and not in the year of cash receipts for the same. The accrual concept also applies on the expenditures. If the company does not account for DTL it will result in negligence of the accrual concept as the expenses that have been actually incurred in the year are not p rovided for in the financial statements of that year (Harrington, Smith Trippeer, 2012). Non-recognition of DTA DTL will amount to negligence of matching concept as the related tax expenses of the significant transactions will remain unrecognised in the year leading to increase in tax liability in the future periods. Moreover if the tax expenses and the tax savings of the company are not recognised adequately this will mislead the readers of financial statements as they would not depict the correct picture of companys tax obligations. In the current case application of AASB 18 named as REVENUE has to be taken into account while recognising the revenues generated from the sale of products of the company by various retailers (Australian Government, 2010). As per the accounting standard issued by the Australian accounting standard board for the recognition of revenues in the books of accounts, the revenue from the sales and the services must be recognised as and when there is a no uncertainty about the collection of revenue from the operations. In case of sales of goods revenue is recognised in the books of account when it meets the certain criteria which are as follows: When the seller has transferred all the material risks and the rewards relating to the goods and title in goods is also transferred to the buyers. When the revenue from the sale is easily and reliably measurable. When there is a certainty about the inflow of the future economic benefits from the sale transactions. The cost that have been incurred or is going to be incurred in relation to the transactions of sale is identifiable certainly. If all the above mentioned conditions are fulfilled the company must recognise the revenue from its sales operations (Caylor, 2010). But if any of the condition specified above is not fulfilled the entity should not account for the revenue as it will lead to overstatement of revenues without their being actually accrued. The concept of prudence is also to be applied while recognition of revenue as it prescribes that the income must be recognised only when it is realised. In the present case the company has agreed to recognise the revenue from the sales at the start of the quarter which would not lead to acceptable accounting treatment of revenue as the criteria that are above mentioned are not fulfilled at the beginning of the relevant quarter. As at the stage where goods are merely shipped to the retailers, the risk and the rewards from the products are not transferred to the ultimate buyers (Horngren, et al., 2012). Moreover, the decision of not recording the fees separately that is being paid to the retailers for displaying the products of company in their stores just because it is the cost of business is incorrect. The fees must be charged to revenue account separately it will give the better presentation of financial statements of the company. The cost of conducting the business is a materialistic item which needs to be provided for separately in the books of accounts so as to make it clearly understandable to the users of financial statements a bout the quantum of costs incurred in generating the revenues from a particular operation. Moreover, as per the matching concept the company must recognise separately the fees paid to the retailers as the expense at the time of recognising the revenues from the sales operations so that the financial statements depicts the true picture of the sales operations of company(Deegan, 2012). Conclusion: It can be easily concluded from the above research that the compliance of Australian accounting standards while preparing the books of accounts will provide the accuracy and clarity in preparation and presentation of financial statements. Also, the true adherence to the accounting standards will enable the company to avoid the regulatory interventions from various authorities. It is highly recommended to the management of the company to consider the importance accrual and matching concept while accounting for the taxes. Therefore creation of deferred tax assets and deferred tax liabilities in a must for the company so as to avoid incorrect accounting treatment for tax obligations. At the same time the company must avoid recognising the revenue from sales at the stage of mere shipment as it will lead to violation of prescribed accounting standard in relation to this matter. References Australian Government, 2010. Revenue: AASB 118, available at https://www.aasb.gov.au/admin/file/content105/c9/AASB112_07-04_COMPsep11_07-12.pdf (viewed on 11th September, 2017) Australian Government, 2012. Income tax: AASB 112, available at https://www.aasb.gov.au/admin/file/content105/c9/AASB112_07-04_COMPsep11_07-12.pdf (viewed on 11th September, 2017) Branson, C.C., 2012. Reportable tax positions: A recent innovation by the ATO.Taxation in Australia,46(7), p.296. Caylor, M.L., 2010. Strategic revenue recognition to achieve earnings benchmarks.Journal of Accounting and Public Policy,29(1), pp.82-95. Deegan, C., 2012.Australian financial accounting. McGraw-Hill Education Australia. Guenther, D., 2011. What do we learn from large book-tax differences.University of Oregon, Working paper. Harrington, C., Smith, W. and Trippeer, D., 2012. Deferred tax assets and liabilities: tax benefits, obligations and corporate debt policy.Journal of Finance and Accountancy,11, p.1. Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D. and Tan, R., 2012.Financial accounting. Pearson Higher Education AU. Serocki, J.S. and Callaghan, J.H., 2012. Increased understanding of accounting for income taxes through effective tax rate calculations and reconciliations.The Accounting Educators' Journal,21(1). Tran, A., 2015. Can taxable income be estimated from financial reports of listed companies in Australia?.Browser Download This Paper.