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College of Administrative and Financial Sciences Assignment 1 Deadline: 02 /03/ 2024 @ 23:59 Student’s Name: Shahad Aliessa Sumani Student’s ID Number: S200348661 CRN:23676 Course Name: Financial Accounting Course Code: ACCT 201 Semester: 2 Academic Year: 2023- 24 For Instructor’s Use only Instructor’s Name: Students’ Grade: …… /15 Level of Marks: High/Middle/Low nstructions – PLEASE READ THEM CAREFULLY • The Assignment must be submitted on Blackboard (WORD format only) via allocated folder. • Assignments submitted through email will not be accepted. • Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page. • Students must mention question number clearly in their answer. • Late submission will NOT be accepted. • Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions. • All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism). • Submissions without this cover page will NOT be accepted. College of Administrative and Financial Sciences Assignment Question(s): Marks 15 Chapter 1 to 5 Q1 Globalization demands a single set of high-quality international accounting standards. List the elements of High Quality Standards and explain the two major boards that sets standards. High-quality international accounting standards are essential for ensuring consistency, comparability, transparency, and reliability in financial reporting across different countries and jurisdictions. The following are the key elements of high-quality standards: 1. Relevance: Information should be pertinent to users’ economic decisions. 2. Reliability: Data should be dependable and unbiased, reflecting transactions accurately. 3. Comparability: Standards should enable meaningful comparisons across entities and timeframes. 4. Consistency: Application should be uniform for predictability and reliability. 5. Transparency: Financial statements must provide clear, comprehensive information for assessment. 6. Understandability: Standards should be easily comprehensible to users. 7. Completeness: All relevant information must be included, leaving nothing significant out. College of Administrative and Financial Sciences The two major standard-setting boards responsible for developing international accounting standards: 1. International Accounting Standards Board (IASB): The IASB is an independent standard-setting body responsible for developing and promoting the adoption of International Financial Reporting Standards (IFRS). It was established in 2001 and is based in London, United Kingdom. The IASB operates under the oversight of the International Financial Reporting Standards Foundation (IFRS Foundation). Its standards, known as IFRS, are used in over 140 jurisdictions globally, including the European Union, many Asian and South American countries, and various African nations. 2. Financial Accounting Standards Board (FASB): The FASB is an independent, private-sector organization responsible for developing and issuing accounting standards for public and private companies in the United States. It was established in 1973 and is based in Norwalk, Connecticut. The FASB operates under the oversight of the Financial Accounting Foundation (FAF). While FASB standards primarily apply within the United States, their influence extends globally due to the significance of the U.S. capital markets. The FASB collaborates with the IASB on convergence projects to achieve greater consistency and compatibility between U.S. Generally Accepted Accounting Principles (GAAP) and IFRS. Both the IASB and FASB play crucial roles in setting high-quality international accounting standards, contributing to the global harmonization and improvement of financial reporting practices. College of Administrative and Financial Sciences Q2. Q2. What do you understand by deferrals and accruals in adjusting entries? Give numerical examples on how such adjusting entries are made. (4 Marks) Deferrals and accruals are types of adjusting entries made at the end of an accounting period to ensure that revenues and expenses are recognized in the period in which they are earned or incurred, regardless of when cash is received or paid. 1. Deferrals: Deferrals involve the recognition of revenue or expenses that have been received or paid in advance but have not yet been earned or incurred. Example of Deferral (Prepaid Expense): Company XYZ pays $1,200 on January 1st for a 12month insurance policy. On January 31st, the company makes an adjusting entry to recognize the portion of insurance expense incurred in January: Adjusting Entry: • Debit Insurance Expense: $100 (1/12 of $1,200) • Credit Prepaid Insurance: $100 2. Accruals: Accruals involve the recognition of revenue or expenses that have been earned or incurred but have not yet been recorded. Example of Accrual (Accrued Revenue): Company ABC provides consulting services to a client in December but will invoice the client in January. The service provided in December needs to be recognized as revenue in December: Adjusting Entry: College of Administrative and Financial Sciences • Debit Accounts Receivable: $2,000 • Credit Consulting Revenue: $2,000 Example of Accrual (Accrued Expense): Company XYZ receives utility services in December but won’t receive the bill until January. The expense for the utility service received in December needs to be recognized in December: Adjusting Entry: • Debit Utilities Expense: $500 • Credit Utilities Payable: $500 In both cases, the adjusting entries ensure that the financial statements reflect the accurate financial position and performance of the company for the accounting period. Q3. Fill in the blanks (1 Mark) Sales Revenue – Cost of goods sold 500,000 ? Answer: Sales Revenue 500,000 486,800 ? 305,800 = Gross Profit 175,000 ? – Cost of goods sold = Gross Profit 325,000 305,800 175,000 181,000 – Operating expenses ? 115,750 =Net Profit 76,500 65,250 Operating expenses 98,500 115,750 =Net Profit 76,500 65,250 College of Administrative and Financial Sciences Q4. a. What do you understand by allocation to non-controlling interest and discontinued operations? Explain how they are reported in the income statement. (2 Marks) Answer: Allocation to non-controlling interest and discontinued operations are two accounting concepts related to the presentation of financial information, particularly in the income statement, that reflect the interests of minority shareholders and significant changes in a company’s operations. 1. Allocation to Non-Controlling Interest: When a parent company prepares consolidated financial statements that include its subsidiaries, it needs to account for the portion of the subsidiaries’ net income that belongs to minority shareholders, known as non-controlling interest (NCI). Here is how it is reported: After calculating the consolidated net income, the parent company allocates a portion of this income to NCI. The allocated amount is subtracted from the consolidated net income to arrive at the net income attributable to the parent company. This allocation is usually presented as a separate line item on the income statement, typically titled “Net income attributable to non-controlling interest” or something similar. The net income attributable to the parent company, after deducting the portion allocated to NCI, is then presented as the final figure for net income or profit for the period. Essentially, this ensures that the income statement reflects the portion of profits belonging to minority shareholders, providing a clear representation of the overall financial performance of the group while distinguishing between the interests of the parent company and minority shareholders. 2. Discontinued Operations: Discontinued operations refer to significant components of a company’s business that have been disposed of or are classified as held for sale and are reported separately on the income statement. Here is how it is reported: College of Administrative and Financial Sciences Income or loss from discontinued operations is shown separately from income from continuing operations. The income or loss from discontinued operations includes both the operating results of the discontinued segment up to the date of disposal or classification as held for sale, as well as any gain or loss on disposal. This amount is presented net of tax, and it’s typically shown as a single line item on the income statement, labeled “Income (loss) from discontinued operations, net of tax.” Below the line for income from discontinued operations, the income statement may provide additional details such as the nature of the discontinued operations and any related tax effects. By reporting discontinued operations separately, the income statement highlights the financial impact of significant changes in the company’s business structure, providing stakeholders with clarity on the company’s ongoing operations and the effects of strategic decisions such as divestitures or closures. Q4b. Intraperiod Tax Allocation. XYZ Co. has income before income tax of SR 50,000. XYZ Co. has a gain of SR 10,000 from a discontinued operation. Assuming a 35 percent income tax rate, how would XYZ Co. present the information on the income statement, and if it had a loss of SR 10,000 from a discontinued operation. Assuming a 35 percent income tax rate, show the changes in Income on the income statement (2 Marks) Prepare: 1. Changes in Income on the income statement when Loss made from discontinued operations 2. Changes in Income on the income statement when Gain made on discontinued operations College of Administrative and Financial Sciences Answer: 1. Changes in Income on the income statement when Loss made from discontinued operations: Given: • Income before income tax (from continuing operations) = SR 50,000 • Loss from discontinued operation = SR 10,000 • Income tax rate = 35% Calculation: • Calculate income tax expense on income before income tax: Income tax expense = (Income before income tax x Tax rate = SR 50,000 x 35% = SR 17,500 • Calculate net income from continuing operations: Net income from continuing operations = Income before income tax – Income tax expense = SR 50,000 – SR 17,500 = SR 32,500 • Calculate net income including discontinued operations: Net income including discontinued operations = Net income from continuing operations – Loss from discontinued operation = SR 32,500 – SR 10,000 = SR 22,500 Income Statement: Income before income tax Income tax expense Net income from continuing operations Loss from discontinued operation Net income Amount (SR) 50,000 17,500 32,500 (10,000) 22,500 2. Changes in Income on the income statement when Gain made on discontinued operations: Given: • Income before income tax (from continuing operations) = SR 50,000 • Gain from discontinued operation = SR 10,000 • Income tax rate = 35% Calculation: • Calculate income tax expense on income before income tax: Income tax expense = Income before income tax x Tax rate = SR 50,000 x 35% = SR 17,500 • Calculate net income from continuing operations: Net income from continuing operations = Income before income tax – Income tax expense = SR 50,000 – SR 17,500 = SR 32,500 College of Administrative and Financial Sciences • Calculate net income including discontinued operations: Net income including discontinued operations = Net income from continuing operations + Gain from discontinued operation = SR 32,500 + SR 10,000 = SR 42,500 Income Statement: Amount (SR) Income before income tax 50,000 Income tax expense 17,500 Net income from continuing operations 32,500 Gain from discontinued operation 10,000 Net income 42,500 Q5 The following information in SAR. Prepare a Cash Flow Statement:- (3 Marks) Opening Cash Balance 15,000 Closing Cash Balance 23,000 Increase in current liabilities 13,000 Decrease in current assets 17,000 Fixed assets purchase 30,000 Redemption of 12% bonds 14,000 Profit for the year 18,000 Depreciation 4000 Answer: To prepare the Cash Flow Statement, we’ll use the indirect method, which starts with the net profit and adjusts for non-cash items and changes in working capital. Let’s calculate: 1.Operating Activities: Net profit for the year: SAR 18,000 Add: Depreciation: SAR 4,000 Adjust for changes in working capital: • Increase in current liabilities: SAR 13,000 • Decrease in current assets: SAR 17,000 Net cash provided by operating activities = Net profit + Depreciation – Increase in current liabilities – Decrease in current assets 2.Investing Activities: Fixed assets purchase: SAR 30,000 3.Financing Activities: Redemption of bonds: SAR 14,000 4.Opening and Closing Cash Balance: Opening cash balance: SAR 15,000 Closing cash balance: SAR 23,000 Calculation of the amounts: College of Administrative and Financial Sciences • Operating Activities: Net cash provided by operating activities = 18,000 + 4,000 – 13,000 17,000 = SAR 2,000 (Negative indicates use of cash) • Investing Activities: Net cash used in investing activities = SAR 30,000 (Negative indicates use of cash) • Financing Activities: Net cash used in financing activities = SAR 14,000 (Negative indicates use of cash) • Opening and Closing Cash Balance: Opening cash balance: SAR 15,000 Closing cash balance: SAR 23,000 Cash Flow Statement: Cash Flow from Operating Activities SAR Net profit 18,000 Depreciation 4,000 Increase in current liabilities (13,000) Decrease in current assets 17,000 Net Cash Provided by Operating Activities 2,000 (use of cash) Cash Flow from Investing Activities SAR Fixed assets purchase (30,000) (use of cash) Cash Flow from Financing Activities Redemption of bonds SAR (14,000) (use of cash) Net Increase in Cash Opening Cash Balance Closing Cash Balance SAR (42,000) 15,000 23,000 College of Administrative and Financial Sciences References Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2011). Intermediate Accounting, IFRS Edition. Hoboken, NJ: John Wiley & Sons, Inc. ISBN-978-0-470-1630-7.

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