Please Read first the case. The U.S. GAAP standards in this image (and found in

Question

Please Read first the case.

The U.S. GAAP standards in this image (and found in your book on page 80) were developed and codified by the Financial Accounting Standards Board (FASB) and accepted by the AICPA (American Institute of Certified Public Accountants). You have probably heard of the AMA (American Medical Association) for physicians. It is a professional organization that promotes and educates physicians. The professional organizations that developed GAAP (Generally Accepted Accounting Principles) are similar to the AMA in that they provide a similar role for accountants providing guidance for how GAAP accounting standards must be applied.

Case Study 5-1 on pages 80-81 demonstrates the way professional accountants must use professional judgement when reporting results. Medicine is art and science. "Accounting is more art than science". (Harrison and Harrison, 2013, p.80)

ANSWER THE FOLLOWING:

Which of the approaches in the case most accurately reflects the financial operations of the company for their first year of operation?

What are the two different accounting treatments offered?

Do you find both acceptable, and why or why not?

and sirmply the commonly accepted ways of recording anpcr t accounting information insl comaination ar onity that companies use to comp ways if a financial statement is not prepared using GAAP be very wary! www.investopedia convtemiapassp asp atx) Ga Generally accepted accoanting principles (GAAP) are the basi and rules that accountants tollow in recording financial transacti results. These standards have been developed and codified unde the Finamcial Accounting Standards Board (FASB) and accepted b Institute of Certitied Public Accountants (AICPA) to provide for c financial reporting. Further information on these organizations ma respective websites:.wfashore and www.aicna.ore The AICPA perforinonhen anat r the eTRy ation (AMA for physicians, promoxing the profession and providing educational programs t o practitioners to keep their skills current. roles for professional accountants as the American Medical Associ g educational prograins to añow Accounting is more art than science. The application of the rules of GAA reporting reyi orum, a the use of estimates and judgments by professional accountants in the rep financial results. Consider the following case study CAS E STUDY: Applied Scientific Mcthods (ASM) is a small pharmaceutical research firm engaged in work to develop new drugs. Last year, ASM raised the needed research funds from a public stock offeri as the stock is publicly traded. Their business plan is to spend the $21 million raised from the sale of stock to finance a two-year research program that will result in a marketable drug that will yield $300 million in sales over the first three years of production. Once in production, annual costs of manufacturing the dnug and continues

Explanation / Answer

1) The company's old equipments are good enough. They can survive for long. This would improve operating efficiency.

2) The company is operating three other plants than Greenville cover plant. The advantage of continuing operations will not impact the cost of operations at other plants.

3) Employees such as direct labour, supervisor and won't lose their jobs due to plant shutting down.

4) Since the company is using high-quality fabric, if the plant continues its operation then it is less likely to incur the termination charges that the company have to pay to suppliers.

5) If the plants have limited production capacity, then the company would find it difficult to meet the quantity demanded.

I would choose GAAP as it is more flexible in nature compared to IFRS. Apart from this most of the corporates and organizations are following US GAAP to prepare their accounting statements. Any difference in usage of accounting principle other than GAAP will make it difficult to draw comparative analysis for stakeholders.

The basis of Difference IFRS GAAP 1) Measurement of Carrying Value Actual cost or net realizable value, whichever is lower Actual cost or market value, whichever is lower 2) Valuation methods FIFO and Weighted Average method is acceptable. LIFO is not acceptable FIFO, LIFO and Weighted Average method all are acceptable.

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