NES RATNAM COLLEGE OF ARTS, SCIENCE AND

COMMERCE
INTERNAL EXAM – SEMESTER IV
SUBJECT: CORPORATE FINANCIAL ACCOUNTING
NAME: FLEMIN GEORGE
ROLL NO.: 24

1. Explain IFRS in detail?

Ans. International Financial Reporting Standards (IFRS) set common rules so that
financial statements can be consistent, transparent and comparable around the world.
IFRS are issued by the International Accounting Standards Board (IASB). They specify
how companies must maintain and report their accounts, defining types of transactions
and other events with financial impact. IFRS were established to create a common
accounting language, so that businesses and their financial statements can be consistent
and reliable from company to company and country to country.
IFRS are designed to bring consistency to accounting language, practices and statements,
and to help businesses and investors make educated financial analyses and decisions. The
IFRS Foundation sets the standards to “bring transparency, accountability and efficiency
to financial markets around the world… fostering trust, growth and long-term financial
stability in the global economy.” Companies benefit from the IFRS because investors are
more likely to put money into a company if the company's business practices are
transparent.
The History of International Financial Reporting Standards (IFRS) as follows:
IFRS originated in the European Union, with the intention of making business affairs and
accounts accessible across the continent. The idea quickly spread globally, as a common
language allowed greater communication worldwide. Although the U.S. and some other
countries don't use IFRS, most do, and they are spread all over the world, making IFRS
the most common global set of standards.
2. Explain IND-AS in detail?
Ans. Indian Accounting Standard (abbreviated as Ind-AS) is the Accounting standard
adopted by companies in India and issued under the supervision and control of
Accounting Standards Board (ASB), which was constituted as a body in the year 1977.
ASB is a committee under Institute of Chartered Accountants of India (ICAI) which
consists of representatives from government department, academicians, other
professional bodies’ viz. ICAI, representatives from ASSOCHAM, CII, FICCI, etc.

The Ind AS are named and numbered in the same way as the corresponding International
Financial Reporting Standards (IFRS). National Advisory Committee on Accounting
Standards (NACAS) recommend these standards to the Ministry of Corporate Affairs
(MCA). MCA has to spell out the accounting standards applicable for companies in
India. As on date MCA has notified 39 Ind AS. This shall be applied to the companies of
financial year 2015-16 voluntarily and from 2016-17 on a mandatory basis.

Background to ind as are as follows:

Ind AS the new set of accounting standards was notified by the Ministry of Corporate
Affairs (MCA) on February 19, 2015. As of date, there are 39 Ind AS notified by the
MCA. The Ind AS are named and numbered in the same way as the corresponding IFRS.
The application of Ind AS is based on the listing status and net worth of a company.
Conceptual difference of Indian GAAP with IND AS

The volume and breadth of differences between Indian GAAP and Ind AS is enormous.
Further, its impact will vary by industry and for each company. Ind AS will cover every
area comprising reported revenues, expenses, assets, liabilities and equity. In our view,
companies will have to devote substantial amount of their time especially in the
following areas while preparing for Ind AS adoption.

The application of Ind AS is based on the listing status and net worth of a company. Ind
AS will first apply to companies with a net worth equal to or exceeding 500 crore INR
beginning 1 April 2016. Listed companies as well as others having a net worth equal to or
exceeding 250 crore INR will follow 1 April 2017 onwards. From April 2015 companies
impacted in the first phase will have to take a closer look at the details of the 39 new Ind
AS currently notified. Ind AS will also apply to subsidiaries, joint ventures, associates as
well as holding companies of the entities covered by the roadmap.

3. Explain various Methods of valuation?

 Ans. There are numerous ways a company can be valued. You'll learn about several of
these methods below.
1. Market Capitalization
Market capitalization is the simplest method of business valuation. It is calculated by
multiplying the company’s share price by its total number of shares outstanding. For
example, as of January 3, 2018, Microsoft Inc. traded at $86.35. With a total number of
shares outstanding of 7.715 billion, the company could then be valued at $86.35 x 7.715
billion = $666.19 billion.
2. Times Revenue Method
Under the times revenue business valuation method, a stream of revenues generated over
a certain period of time is applied to a multiplier which depends on the industry and
economic environment. For example, a tech company may be valued at 3x revenue, while
a service firm may be valued at 0.5x revenue.
3. Earnings Multiplier
Instead of the times revenue method, the earnings multiplier may be used to get a more
accurate picture of the real value of a company, since a company’s profits are a more
reliable indicator of its financial success than sales revenue is. The earnings multiplier
adjusts future profits against cash flow that could be invested at the current interest rate
over the same period of time. In other words, it adjusts the current P/E ratio to account
for current interest rates.
4. Discounted Cash Flow (DCF) Method
The DCF method of business valuation is similar to the earnings multiplier. This method
is based on projections of future cash flows, which are adjusted to get the current market
value of the company. The main difference between the discounted cash flow method and
the profit multiplier method is that it takes inflation into consideration to calculate the
present value.
5. Book Value
This is the value of shareholders’ equity of a business as shown on the balance sheet
statement. The book value is derived by subtracting the total liabilities of a company
from its total assets.
6. Liquidation Value
Liquidation value is the net cash that a business will receive if its assets were liquidated
and liabilities were paid off today.

This is by no means an exhaustive list of the business valuation methods in use today.
Other methods include replacement value, breakup value, asset-based valuation and still
many more.

4. Explain Corporate financial Reporting in detail?

Ans. Corporate financial reporting is an essential activity for all businesses. This form of
accounting should provide investors and creditors with useful information that they can
employ in making lending or investment decisions. Since stockholders and lending
institutions rely on income or repayment from your business to accurately run their own
companies and estimate their cash flow, it’s essential that your company be able to
present accurate, timely information that speaks to the overall health of your company.
Failure to provide accurate information can not only lead to problems of reputation; it can
cause legal difficulties.
Corporate financial statements are essential for tax preparation and audit protection, as
well. When your business files monthly or quarterly reports that showcase the health of
the company, you may use that information in preparing other, more complex reports
come tax time or keep them on hand in case your company is ever subject to an audit.
The Four types of financial reporting are as follows:
When preparing corporate financial reports, there are generally four types of financial
statements that can be used. These parallel the financial statements used in the accounting
industry. They are income statements, balance sheets, statements of cash flow and
statements of changes in equity. Each relies on slightly different information and
provides those who review them with a different look at the financial health of the
business.
An income statement is used to illustrate the financial performance of an organization
over a certain period of time (the reporting period). The income statement reports all
sales, and it then includes expenses incurred. By subtracting expenses from sales, it is
possible to arrive at a net income or net loss. If your company deals with shareholders,
you might also provide an earnings-per-share figure on your income statement. Since this
type of corporate financial report speaks to a company’s overall performance, it is widely
regarded as the most useful statement.
A balance sheet is used to illustrate the overall financial position of a company at a given
moment in time. Information is classified into one of three categories: assets, liabilities
and equity. According to Generally Accepted Accounting Principles, items within the
assets and liabilities categories should be presented in order of most to least liquid. This
statement is also prized by creditors and investors for its ability to speak to the overall
health of a company.
Statements of cash flow are used to show the money that has come in and gone out from
the business during a given period of time. Generally, this sort of financial statement is
broken down into three categories: operating activities, investing activities and financing
activities. This type of report is usually less widely distributed, as it does not paint as
clear a picture of a company’s overall financial state. In addition, it can be difficult to
decipher for the layperson.

The final type of corporate financial report is a statement of changes in equity. This
document illustrates all changes during a given period to shares of stocks, dividends and
 profits or losses. For this type of report, the beginning equity plus net income, minus
dividends and plus or minus any other changes are equal to the ending equity. Statements
of changes in equity are typically only supplied to outside parties. The utility of this sort
of report for management and making internal financial decisions is limited.
To get the best sense of a company’s overall financial health and well-being, the review
of all four types of corporate financial reports is ideal. Doing so provides a holistic look
at what is going well and what isn’t for the business, and, since it is viewed on such a
large scale, can offer suggestions for improvement that might be missed if the reports are
viewed independently. It is important, however, to use caution when releasing corporate
financial statements to external parties. Creditors and investors should only receive
information that is required by the Generally Accepted Accounting Principles or that is
absolutely necessary for their decision-making.

5. Explain consolidated financial statements in detail?

Ans. Consolidated financial statements are financial statements of an entity with multiple
divisions or subsidiaries. Companies can often use the word consolidated loosely in
financial statement reporting to refer to the aggregated reporting of their entire business
collectively. However, the Financial Accounting Standards Board defines consolidated
financial statement reporting as reporting of an entity structured with a parent company
and subsidiaries.
Private companies have very few requirements for financial statement reporting but
public companies must report financials in line with the Financial Accounting Standards
Board’s Generally Accepted Accounting Principles (GAAP). If a company reports
internationally it must also work within the guidelines laid out by the International
Accounting Standards Board’s International Financial Reporting Standards (IFRS). Both
GAAP and IFRS have some specific guidelines for companies who choose to report
consolidated financial statements with subsidiaries.
private companies have very few requirements for financial statement reporting but
public companies must report financials in line with the Financial Accounting Standards
Board’s Generally Accepted Accounting Principles (GAAP). If a company reports
internationally it must also work within the guidelines laid out by the International
Accounting Standards Board’s International Financial Reporting Standards (IFRS). Both
GAAP and IFRS have some specific guidelines for entities who choose to report
consolidated financial statements with subsidiaries.
Generally, a parent company and its subsidiaries will use the same financial accounting
framework for preparing both separate and consolidated financial statements. Companies
who choose to create consolidated financial statements with subsidiaries require a
significant investment in financial accounting infrastructure due to the accounting
integrations needed to prepare final consolidated financial reports.
There are some key provisional standards that companies using consolidated subsidiary
financial statements must abide by. The main one mandates that the parent company or
any of its subsidiaries cannot transfer cash, revenue, assets, or liabilities among
companies to unfairly improve results or decrease taxes owed. Depending on the
accounting guidelines used, standards may differ for the amount of ownership that is
required to include a company in consolidated subsidiary financial statements.
Consolidated financial statements report the aggregate reporting results of separate legal
entities. The final financial reporting statements remain the same in the balance sheet,
income statement, and cash flow statement. Each separate legal entity has its own
financial accounting processes and creates its own financial statements. These statements
are then comprehensively combined by the parent company to final consolidated reports
of the balance sheet, income statement, and cash flow statement. Because the parent
company and its subsidiaries form one economic entity, investors, regulators, and
customers find consolidated financial statements helpful in gauging the overall position
of the entire entity.