Accounting of Coach Company, Research Paper Example

The accounting method employed to the inventory is on the cash basis since they are computed at cost. The depreciation on assets is derived through the accrual basis of accounting. The fixed assets are recognized through various means such as in securitization structures, through development costs that meet the criteria of IAS. Therefore, the accounting method applied here is the cash basis method of accounting.

The liabilities may be measured in ways including; uncertain tax positions, deferred tax assets relating to stock options. The liabilities are then computed through the accrual basis method as this accounting method accounts for impairments on the company`s fixed and intangible asset.

The company`s intangible assets are identified through the accrual basis together with the amortization. The revenue recognition is immediately when earned therefore the accounting method employed is the cash basis. Finally, pension accounting is recognized at the end period of an employee`s career. This therefore illustrates that the computation of the pension accounting is through the accrual basis.

There is a significant difference in the subsequent accounting of joint operations and the joint ventures. For joint ventures, the investments therein are accounted for using the equity method. Whereas, for the joint operations, investments therein are accounted for using the method that allows the recognition of its liabilities, assets, its revenue, and its expenses hence the investor recognizes those aspects that relate to his particular interest in accordance with the most appropriate reporting standards.

The comparison and contrasts between the USA GAAP to IFRS occur as follows;

Financial statements presentation

In IFRS, the relevant content and form including IAS still extant and IFRIC/SIC interpretations is specified by IFRS. A local statute may only be required to include additional requirements, stock exchanges or regulators. Whereas, GAAPhas the relevant standards including; the relevant content and form is specified by GAAP as set out in GAAP hierarchy.

Numerous differences in the income statements are due to the formatting variations. There are two main formats; a single step and a multistep. In a single step, all the expenses are classified and deducted to find the income before the tax. Whilst, with multiple step, the cost of goods sold is deducted from the sales to obtain the gross profit.

Other expenses or gains are totaled and deducted from gross profit so as to obtain income before tax. In IFRS, there are no formats but the following should occur on the income statement; finance costs, revenue, amount of profit or losses joint ventures and associates account for using the tax expense, equity method, post tax profit or loss because of discontinued operation, and profit and loss.

Inventory can be valued differently in several ways; Last in First out (LIFO), and First in First out (FIFO), and the weighted average are all acceptable ways to account for inventory. The weighted average and FIFO are required in IFRS while LIFO that is extensively used, is not acceptable when using GAAP standards.

The use of LIFO provides better accounting whereas; FIFO gives better and more accurate financial information. In inventory valuation, it can be valued downward both for the IFRS and GAAP but can only be valued up back to its cost in IFRS unlike in GAAP.

An extra financial statement GAAP standards requires is the statement of comprehensive income. This statement may also be included in the income statement.

The U.S. GAAP has in particular minimal guidance necessary for the evaluation of materiality. Its guidance is limited to the description of a material omission such that; misstatements or omissions of items are quantifiable if they could affect the economic assessments that manipulators make. In US GAAP requirements, there is the requirement of prior period financial statements that were issued previously to be revised and re-issued so as to correct the error.

The guiding principles in GAAP ensure that there is the impracticability exception in that there is the need for quantification and restatement of the materials therein without exception.

The criticism against and defense for GAAP approach is dependent on whether either choice of principles or rules is better. The advantages of GAAP approach includes; reduction of risks (when applicable rules are followed), clarity in application, and for comparability for companies in the industry for similar rules.

In the same way, IFRS is normally thought of as principle based. The numerous defined principles in accounting allows more advantages as a basis of accounting including; increased comparability among companies with similarity in transactions regardless of the industry and the capacity to defend positions based on principles followed, Permitting the preparers the ability to consider the appropriate way to report a transaction and t account for the same.

The IFRS is limited to guidance for the evaluation of materiality. There is the indication in ASC Topic 250 that the assessment of an error and the income for the full fiscal year shall be related and together with the trends on earnings but this limits the provision of material guidance.

Under IFRS, there is the requirement of a retrospective presentation of statement in case of an entity`s application of a retrospective restatements of items. This requires that the previous three years of statements of financial position are required to be presented.

The IFRS standards of accounting has disadvantages including; the increased variations in accounting approaches for the same transactions, and the increase in capacity to manipulate transactional accounting, and minimal clear lines to consider in determining how to account for a transaction.

The model financial statements are drawn up with illustrations that depict the applicability with the Generally Accepted Accounting Principle. There is total disclosure on the illustrated figures.

Earnings per share under IFRS rules = Net Income – Preferred Stock

Average common shares

Earnings per share = 1,034.42 – 348.93

281.90

Therefore, Earnings per share = 2.43

Coach Inc.

Consolidated statement of financial position

As at 30^th June 2013

Note – 2013

$’000

Assets

Non-current assets

Property, plant and equipment – 694.77

Long-Term investments – 197.34

Goodwill – 345.04

Intangible assets- 9.79

Deferred tax assets – 84.85

Other non-current assets – 129.17

Current assets

Inventories – 524.71

Trade and other receivables- 175.48

Available-for-sale investments – 72.11

Derivative financial assets

Cash and cash equivalents – 1062.79

Deferred income tax – 111.12

Prepaid expenses- 37.96

Other current assets – 86.80

Total assets – 3531.93

Liabilities

Current liabilities

Trade and other payables – 178.86

Accrued Expenses – 543.15

Total Current Liabilities – 722.01

Non-current liabilities

Loans and borrowings – 0.49

Other noncurrent liabilities – 399.74

400.23

Total Non-Current Liabilities

Total Liabilities- 1122.24

Issued capital and reserves attributable to

Owners of the parent

Share capital – 1000

Share premium reserve – 1511.57

Retained earnings – (101.88)

2409.69

Total Equity – 3531.93

Income Statement

US $

Revenue – 5,075.39

Expenses

Change in finished inventories- (-) 38.63

Bad debt expense – (-) 0.53

Administration expense – 2,173.61

Other non-operating expenses – 6.38

Total expense – 2,382.14

Profit before tax – 2,693.25

Income tax expense – 486.11

Profit after tax – 2,207.14

Earnings per share under IFRS = 2.43

Earnings per share under US GAAP = 1,573.7 – 348.93 286.31

EPS under US GAAP = 4.27

IFRS is better considered as a reporting method that is appropriate for companies to use in their financial reporting. The International Financial Reporting Standards institutes a particular guidance for the fair value measurements and the disclosures about the various measurements.

In particular, the use of the International Financial Reporting Standards in the report of its financial position, the company is allowed more extensive disclosures previously not accepted in the consolidated financial statements. Therefore, the International Financial Reporting Standardis most suited and appropriate as the reporting procedure unlike the GAAP.

References

Weygandt, Jerry J, Donald E. Kieso, and Walter G. Kell.Accounting Principles. New York: Wiley, 1996. Print.

Niswonger, C R, and Philip E. Fess.Accounting Principles. Cincinnati: South-Western Pub. Co, 1977. Print.

Larson, Kermit D, and Barbara Chiappetta.Accounting Principles. Homewood, IL: Irwin, 1996.