Financial accounting College Essay Example | Topics and Well Written Essays - 750 words

Financial accounting College - Essay Example n both the years because of economic recession and payment of debt which in the end can't help the company's perspective to hold the cash at the optimum level. Net Profit of the firm is fair enough in both the years but due to mismanagement or lack of operational management Fab Footwear Limited reported lower profit in the year 2008 but in the year 2009 Fab Footwear Limited's management revised its strategy and redefines its role in the business which in the end generates revenues at upside. No significant moment is observed in the payment of dividends to the stock holders. Inefficient and ineffective working capital management policies through out the period from 2008 to 2009 and I assume that this policy will not continue in the future. Fab Footwear Limited should adopt a strong strategy between trade debtors and trade creditors because in the end it makes an impression on the operating cycle of the firm. Task 2 NAME OF RATIO CALCULATION RATIO FOR 2008 RATIO FOR 2009 COMMENT ON EACH RATIO Current ratio 2008: 670/620 2009: 1520/1900 1.08 0.8 Fab Footwear Limited current ratio is slightly lower in the year 2009 as compared with the year 2008 and indicates a lower margin of safety with respect to meeting current obligations. Fab Footwear Limited current ratio will not allow them to take more debt as compared to previous years. The overall condition of current ratio reveals the fact that the current ratio which is not stable and healthy as compared to the previous years Besley, Brigham, Scott, Eugene F. (2001). Quick ratio 2008: 670-(180+100)/620 2009: 1520-(600-120)/1900 0.63 0.42 Fab Footwear Limited quick ratio is higher in the year 2008 as compare with the year 2009. The reason behind this decline is the improper working capital management which makes the...The overall condition of current ratio reveals the fact that the current ratio which is not stable and healthy as compared to the previous years Besley, Brigham, Scott, Eugene F. (2001). Fab Footwear Limited quick ratio is higher in the year 2008 as compare with the year 2009. The reason behind this decline is the improper working capital management which makes the quick ratio less attractive in the last two years. The overall signal of Fab Footwear Limited liquidity is not good and it sends a negative signal towards the debt holders and also on the debt market. Moreover, this liquidity crunch problem creates a hurdle for the company in near future. The condition of Fab Footwear Limited working capital is fair in the year 2008 but in the year 2009 the working capital ratio is in negative zone. The reason behind this is the higher dependency on the debt which unstable the company's financial condition. The pivotal reason behind this negative impact of the working capital is the improper cash, stock and debt management Besley, Brigham, Scott, Eugene F. (2001). This ratio is also called the net profit margin. Net profit margin ratio shows the level of profits that the company is able to earn from every amount of sales.

Financial Reporting, Leasers Essay Example | Topics and Well Written Essays - 1500 words

Financial Reporting, Leasers - Essay Example In an operating lease, lease payments are recognized as an expense on a straight-line basis over the lease term unless another systematic basis is more representative of the time-pattern of the entity's benefit. In the case of a finance lease, the lessee recognizes the lease as assets and liabilities in their financial statements at an amount equal to the fair value of the leased property. If the amount is lower, then at the present value of the minimum lease payments, each calculated at the start of the lease. When calculating the present value of the minimum lease payments, the discount rate used is the interest rate implicit in the lease. If this is not practicable to determine, then the lessee's incremental borrowing rate is used. All initial costs of the lessee are capitalized to the asset amount recognized. Minimum lease payments are apportioned between finance charge and the reduction of the outstanding principal liability. The finance charge is set in such a way that it produces a constant rate of interest on the outstanding balance of the liability. Lessors present assets subject to operating leases in their balance sheets according to the nature of the asset. Lease income from operating leases is recognized in income on a straight-line basis over the whole lease term, unless another systematic basis is more representative of the time-pattern of the entity's benefit. ... Treatment in the book of lessors Operating Leases Lessors present assets subject to operating leases in their balance sheets according to the nature of the asset. Lease income from operating leases is recognized in income on a straight-line basis over the whole lease term, unless another systematic basis is more representative of the time-pattern of the entity's benefit. Initial direct costs incurred by lessors in negotiating and arranging an operating lease is to be added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as the lease income. According to paragraph 56 of the incumbent IAS 17 Leases, Lessors shall, in addition to meeting the requirements of IFRS 7, disclose the following for operating leases: The future minimum lease payments under non-cancellable operating leases in the aggregate and for each of the following periods: 1. Not later than one year; 2. Later than one year and not later than five years; 3. Later than five years. Finance Leases For initial recognition, lessors recognize their assets held under a finance lease in their balance sheets and present them as receivable at an amount equal to the net investment in the lease. The recognition of finance income is to be based on a pattern reflecting a constant periodic rate of return on the lessor's net investment in the finance lease. Analysis Now, the above introductory information should put us in a position so as to judge the effect of the proposed changes in the IAS against the benchmark incumbent IAS 17 Leases. Disadvantages The proposed changes in the IAS would render the operating lease to be treated in the same way as a finance lease. For the