Accounting Standards

Balance sheet practice Exeter Eastern Company, owned by you, listed the following on March 31, 2016. Prepare a Balance Sheet for the company using the following information: A/R – Hensal, 700 A/R – Zurich, 400 A/R – Dashwood, 800 Cash, 2000 Land, 55,000 Mortgage, 70,000 Trucks, 120,000 Supplies, 200 A/P – Seaforth, 1000 A/P – Lucan, 600 Insurance, 1000 Building, 100,000 Furniture, 5000 Bank Loan, 20,000

Scenario Wal-Mart is looking to expand in Canada by purchasing the old Target location in the Conestoga Mall for $1,000,000. Because they feel that they can better utilize this location, they list the building at $4,000,000 on their balance sheet. What will this do to their net worth? Do you agree with this? What rule would you propose to fix this?

The Cost Principle In an attempt to offer consistency, accountants are forced to record the value of assets at their historical cost price. This may be adjusted down at a later date (Grade 12)

Accounting Standards It is important to have standards in accounting practices so that statements are reliable, consistent, verifiable, and objective Historically GAAP – Generally Accepted Accounting Principles Came from CICA Handbook CICA committees formed AcSB (Accounting Standards Board) In 2006 – AcSB announced process to replace the Canadian GAAP with IFRS (International Financial Reporting Standards).

Public Companies IFRS start date was Jan 1 2011 – for public companies only (listed on stock exchanges) International standards that will help Canadian businesses communicate globally.

Private Companies Private companies not listed on stock exchanges can follow ASPE (Accounting Standards for Private Enterprises). ASPE was developed from traditional Canadian standards – fewer changes than IFRS As of Jan 1 2011 – private companies can choose which standard they would like to follow.

Accounting Standards Throughout the course we will look into a few standards and principles that relate to the topics in our textbook. There are 4 key standards that relate to the balance sheet: The Cost Principle Business Entity Concept Continuing Concern Concept The Revaluation Model

Business Entity Concept Keeps the personal affairs of the owner separate from the affairs of the business organization. Therefore the owner should not include personal assets on the balance sheet (I.e. the family home) The balance sheet of the business must reflect the financial position of the business alone. Important in ASPE and IFRS just as it was in Canadian GAAP.

The Continuing Concern Concept Assumes the business will continue to operate unless it is known that it will not. This assumption frees the reader of a balance sheet from worrying about the market values of assets and whether debts will have to be paid before they are due.

The Revaluation Model Under IFRS: allows for modifications to the cost principle. Allows accountants to change the value of particular assets based on market conditions.

Homework Page 27 # 12, 13