The Financial Accounting Standards Board, which is a private not-for-profit organization, decrees the financial accounting and reporting standards. The FASB offers several solutions for revenues recognitions. One of them is the percentage of competition method. According to the FASB 605-35-25-57, “The percentage-of-completion method is considered preferable as an accounting policy in circumstances in which reasonably dependable estimates can be made and in which all the following conditions exist: Contracts executed by the parties normally include provisions that clearly specify the enforceable rights regarding goods or services to be provided and received by the parties, the consideration to be exchanged, and the manner and terms of settlement. The buyer can be expected to satisfy all obligations under the contract.The contractor can be expected to perform all contractual obligations”.
The categorization of every lease will not depend on whether a company, bank or person to have legal ownership of the asset, it would depend only if the third party considerably has all the risk and rewards of the ownership. Operating lease payments are made on a straight line basis. Changes in the lease classification will change the will affect the debt equity. When determining whether a lease is operating or a finance lease there need to be increased judgment because there are no strict classification requirements. Lessees are obligated to recognized assets and liabilities for all leases which would eliminate the operating lease accounting.
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In a thorough review of LJB Company’s internal controls it has been found that, although there are some practices currently in place that satisfy a few of the basic principles, there are a significant number of areas of weakness. Based on your company’s current practices and your plan to go public in the future the following internal controls are required: 1. Establishment of duties: Control is most effective when one person is responsible for a given task. As such, you will need to establish one individual to handle petty cash disbursements to employees. 2.
According to "Accrual" (2012),” Cash-basis accounting does not recognize promise to pay or expectations to receive money or service in the future, such as payables, receivables, and prepaid expenses”. Cash basis accounting is a simple and inexpensive method to implement and utilize. Small business owners without a strong accounting background often use cash basis accounting. Even though, both cash basis accounting and accrual basis accounting are approved accounting methods for tax purposes, only accrual basis accounting is generally accepted accounting principles (GAAP). Generally accepted accounting principles requires certain companies to use the accrual basis accounting to
IAS 11 instructs that revenue from a Construction Contract will be recognized if can be estimated reliably. Revenue and costs would be recognized concurrently with the completion of the activity mentioned in the contract, which is known as the “Percentage of Completion Method” of Accounting. In order to make an estimate of the total financial outcome from a contract, the firm would have to be able to calculate approximates of the Total Contract Revenue, Stage of Completion and the completion costs of the contract. In contrasts, if no approximates could be determined, the revenue would not be recognized. Instead, the firm would only be able recognize whether the incurred Contract costs are recoverable and if they should be expensed or incurred.
Taxpayer requested a letter ruling on whether or not the discounts received constitute as constructive dividends received. The IRS indeed ruled the discounts received by the taxpayer constituted as constructive dividends under section 316 and the distribution applied to section 301. A constructive dividend is a form of payment made by a corporation to its shareholders that resulted in any measurable economic benefits to the shareholder. It can either be a direct or an indirect form of payment and mostly occurs in closely held corporations. These payments can also be distributed both advertently and inadvertently.
Service providers, when classified as agents, are able to report trading and brokerage fees as revenue, although not for the full value of the transaction. Although trading firms such as Goldman Sachs and Merrill Lynch used the conventional "agent model" for reporting revenue (where only the trading or brokerage fee would be reported as revenue), Enron instead elected to report the entire value of each of its trades as revenue. This "merchant model" approach was considered much more aggressive in the accounting interpretation than the agent model. Enron's method of reporting inflated trading revenue was later adopted by other companies in the energy trading industry in an attempt to stay competitive with the company's large increase in revenue. Between year 1996 to 2000, Enron's revenues increased by more than 750%, rising from $13.3 billion in 1996 to $100.8 billion in 2000.
There are several issues to consider when comparing the financial ratios of a public company to the industry averages. It is important to allow for any material differences in accounting policies between the specific company and the industry norms. It is also important to determine whether ratios were calculated before or after adjustments were made to the balance sheet or income statement. (Atrill & McLaney, 1997) It is also extremely important that one make sure that the financial data was developed using comparable accounting methods, classification procedures, and valuation bases. I have chosen to analyze Branch Banking & Trusts financial ratios and compare them to industry averages.
Some of the key assumptions include slight government interference in the economy, consumers are able to make decisions because they are informed about the products they are looking to purchase and the price of the products and banks and laws exist for the sole purpose of easing commerce. The conclusions that can be drawn from the market capitalism model and how the business, government and society relationship are as follows; government regulation needs to be limited, corporate performance is measured in profits and the ethical duty of management is to make sure that the interests of the shareholders are met. In the market capitalism model, each individual has the power to own private property and freely risk these investments. The Dominance model can be described as the model where businesses and the government dominate (or control) the general populace. Within this model, the rich elite are the ones that control businesses at the expense of the average person.