Customer Concentration Risk Equity Capital – Introduction, Implementation And International Adoption

International Accounting Standards Board

Discuss About The Customer Concentration Risk Equity Capital?

The International Accounting Standards Board is an independent body with a private undertaking that is in charge of development and approval of International Financial Reporting Standards. In the year of 2001 the International Accounting Standards Committee was replaced by the International Accounting Standards Board.The International Accounting Standards Board is the primary body implementingand issuing standards that are generally accepted worldwide and as mentioned in the question is almost accepted globally with a geographical diversity. The International Accounting Standards Board (IASB) had amended a lot of accounting principles so that the preparation of financial statements become proper and they are able to reflect a true and fair view of the financial or liquidity position of the company. With continued effortson the part of International Accounting Standards Board, it started making its own accounting standards named International Financial Reporting Standards (IFRS). The standards of the IFRS are set by a group of experts that constitute of the IASB with enough practical experience to maintain an easy to understand and transparent process while setting the standards. In the due process, the basic points which are taken care of are London office broadcast of the public board meeting, live; publishing the agenda papers mentioning the future actions that might be implemented by the board; outcomes of the board meeting are jotted down and circulated (Giner et al. 2016).

While setting the standard the Board is required to maintain certain methods. In every interval of five years a detailed study is made and after consulting about the priorities the project plan is designed. Each project begins with a research to know the issue and its probable situation and decipher the requirement of the standard. Sometimes public comments are also encouraged. As required the Board amends the standard or brings out something new after a full scope research and discussion. Proposals for amendments and new insertions of standards are made public for consultation (Ames 2013). The Board members and the technical staff of IFRS Foundation consult with as many as stakeholders all around the globe to get further evidence. Issuance of standard is not the job actually, but its implementation that matters the most for the Board otherwise the job may be futile. Thus it is very clear from the above descriptions that setting up financial reporting standards is not at all an easy task but the International Accounting Standards Board is in charge of regular monitoring and reviewing the quality of standards implemented. It is also evident from the above study that it is very natural that due to such care taken countries worldwide will be very interested in implementing the financial reporting standards (Christensen et al. 2015).

Implementation of International Financial Reporting Standards

The reason behind the adoption of financial reporting standards is that it results in better decision making by the management of the firm, it provides a clear and better understanding of the financial position of the firm and especially is of use to countries, which make a lot of international investments.

Unfortunately the United States is still reluctant to fully adopt IFRS in its financial reporting practices.  The main reason is the lack of initiative on the part of the IFRS management team to implement an one in all universal accounting standard that has a strong hold on finance and is worthy enough to match the highly competitive environment of the United States (Barth et al. 2014).  Another reason for the reluctance of United States is that any kind of mistake in the recording or any other part of the financial statements will directly pass onto the auditors. Thus it is very useful to implement such a set financial reporting rules that is absolutely free of errors. The IFRS fails to convince the United States that it is worthy enough to maintain this role. The United States gives the reason for reluctance as safeguarding the interests of its investors or stakeholders (Tokar 2016).

Whatever may be the issue the IFRS Committee must be more careful in order to develop the standards in such a way so that it has a strong convincing image and can approach the United States for the incorporation of the standards.

In the books of Colour Ltd.
Journal Entries
			Dr.	Cr.
Date	Particulars	Amount	Amount
30/6/2017	Salaries & Wages A/c.	Dr.	$32,000
	To,	Accrued Salaries & Wages A/c.		$32,000
	Heating & Lighting Expenses A/c.	Dr.	$16,000
	To,	Accrued Heating & Lighting Expenses A/c.		$16,000
	Insurance A/c.	Dr.	$20,000
	To,	Prepaid Insurance A/c.		$20,000
	Closing Inventory A/c.	Dr.	440000
	Cost of Goods Sold A/c.	Dr.	1460000
	To,	Opening Inventory A/c.		460000
	To,	Purchases A/c.		1440000
	Interest Expenses A/c.	Dr.	30000
	To,	Interest Payable A/c.		30000
	Depreciation Expense A/c.	Dr.	85000
	To,	Accum. Dep.- Plant & Machinery A/c.		36000
	To,	Accum. Dep. – Computers A/c.		20000
	To,	Accum Dep. – Buildings A/c.		29000
	Investment A/c.	Dr.	8000
	To,	Unrealized Gain on Investment A/c.		8000
	Income Tax Expenses A/c.	Dr.	160000
	Deferred Tax Assets A/c.	Dr.	19700
	To,	Current Tax Liability A/c.		179700
	Dividend Declared A/c.	Dr.	21950
	To,	Dividend Payable A/c.		21950

In the books of Colour Ltd.
Statement of Comprehensive Income
for the year ended 30th June, 2017
Particulars	Amount
Sales Proceeds	$2,866,000
Less: Cost of Goods Sold	($1,460,000)
GROSS PROFIT	$1,406,000
Operating Expenses:
Salaries and wages	($352,000)
Heating and lighting expenses	($116,000)
Audit fees and charges	($40,000)
Insurance	($20,000)
Depreciation Expense	($85,000)
NET OPERATING PROFIT	$793,000
Other Non-Operating Expense:
Damage due to flooding	($134,000)
NET PROFIT before INTEREST & TAX	$659,000
Interest Expense	($60,000)
NET PROFIT before TAX	$599,000
Income Tax Expenses	($160,000)
NET PROFIT after TAX	$439,000
Add: Unrealized Gain on Investment	$8,000
NET COMPREHENSIVE INCOME	$447,000

In the books of Colour Ltd.
Statement of Changes in Equity
for the year ended 30th June, 2017
Particulars	Share Capital	Retained Earnings	Accum. Other Comprehensive Income	General Reserve	TOTAL
Balance as on 1st July,2016:	$1,000,000	$124,000		$160,000	$1,284,000
Interim Dividend		($32,000)			($32,000)
Net Profit after tax		$439,000			$439,000
Unrealized Gain on Investment			$8,000		$8,000
Final Dividend Declared		($21,950)			($21,950)

In the books of Colour Ltd.
Balance Sheet
as on 30th June,2017
Particulars	Amount
Current Assets:
Cash at bank	$304,000
Inventories	$440,000
Accounts Receivable	$342,000
Provision for Doubtful Debts	($40,000)
Short term Investment – due 30th September, 2017	$664,000
Prepaid insurance	$60,000
Deferred Tax Assets	$19,700
TOTAL CURRENT ASSETS	$1,789,700
Non-Current Assets:
Investments	$168,000
Plant & Machinery	$360,000
Accumulated Depreciation – Plant & Machinery	($216,000)
Computers	$400,000
Accumulated Depreciation – Computers	($140,000)
Buildings	$580,000
Accumulated Depreciation – Buildings	($145,000)
TOTAL NON-CURRENT ASSETS	$1,007,000
TOTAL ASSETS	$2,796,700
Current Liabilities:
Accounts Payable	$240,000
Accrued Salaries & Wages	$32,000
Accrued Heating & Lightning Expenses	$16,000
Interest Payable	$30,000
Current Tax Liability	$179,700
Dividend Payable	$21,950
TOTAL CURRENT LIABILITIES	$519,650
Non-Current Liabilities:
Bank Loan secured over buildings, due 1st May, 2019	$600,000
TOTAL NON-CURRENT LIABILITIES	$600,000
TOTAL LIABILITIES	$1,119,650
NET ASSETS	$1,677,050
Equity Capital:
Share Capital	$1,000,000
General Reserve	$160,000
Retained Earnings	$509,050
Accum. Other Comprehensive Income	$8,000
TOTAL EQUITY CAPITAL	$1,677,050

• The net comprehensive income of the company is of the value of $447,000. This means that this is the sum of net income and other unrealized gains or losses that have been previously omitted due to some issues.
• The net operating profit is of the value $793,000, this means that this amount is excluding the costs and tax benefits of debt financing.
• The total current asset of the firm is $1789700 and the total current liability of the firm is $519650. Therefore the working capital of the firm is $1270050.
• The net asset of the firm is $1677050 which is alright and indicates that the firm is presently in a good position.
• The net liabilities of the firm is $ 1119650 which is not very close to the asset amount that again indicates a healthy condition of the firm.
• The income tax expense is of the value of $160000 that indicates that the firm is a regular payer of tax and does not generally evade it.
• The total equity capital is of the value of $1677050 that indicates the part to be distributed among the investors or stakeholders.
• The retained earnings is of the value $509050 and indicates to the revenue amount not to be paid out as dividends.
• The deferred tax assets is of the value $19700 that means this asset has been used in the balance sheet in order to reduce the taxable income.
• The general reserve is of the value $16000, this means the firm has enough funds for back up.
• The final dividend declared is $21950 that is this dividend is declared at the annual general meeting after the recommendation by the Board of Directors.
• The share capital is of the amount $1000000 this indicates that the company has enough shares invested in the market.
• The investment of the firm is $168000 deciphering the same that the firm has enough liability in investment.
• The net profit after tax is $439000 that is the revenue remaining after all the operating expenses and interests and other deductible components are subtracted.
• The money owned by the firm to its creditors that is accounts payable is high enough to be $240000.

References

Ames, D., 2013. IFRS adoption and accounting quality: The case of South Africa. Journal of Applied Economics and Business Research, 3(3), pp.154-165.

Baños-Caballero, S., García-Teruel, P.J. and Martínez-Solano, P., 2014. Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67(3), pp.332-338.

Barth, M.E., Landsman, W.R., Young, D. and Zhuang, Z., 2014. Relevance of differences between net income based on IFRS and domestic standards for European firms. Journal of Business Finance & Accounting, 41(3-4), pp.297-327.

Christensen, H.B., Lee, E., Walker, M. and Zeng, C., 2015. Incentives or standards: What determines accounting quality changes around IFRS adoption?. European Accounting Review, 24(1), pp.31-61.

Dhaliwal, D., Judd, J.S., Serfling, M. and Shaikh, S., 2016. Customer concentration risk and the cost of equity capital. Journal of Accounting and Economics, 61(1), pp.23-48.

Giner, B., Hellman, N., Jorissen, A., Quagli, A. and Taleb, A., 2016. On the ‘Review of Structure and Effectiveness of the IFRS Foundation’: the EAA’s Financial Reporting Standards Committee’s View. Accounting in Europe, 13(2), pp.285-294.

Šodan, S. and Aljinovi? Bara?, Ž., 2017. The Role and Current Status of IFRS in the Completion of National Accounting Rules–Evidence from Croatia. Accounting in Europe, pp.1-9.

Tokar, M.B., 2016. ‘IFRS–ten years later’: a standard-setter’s view. Accounting and Business Research, 46(5), pp.572-576.