Inter Company Analysis

Topics: Generally Accepted Accounting Principles, Balance sheet, Geography Pages: 3 (723 words) Published: October 27, 2009
Case A
One of the underlying assumptions for financials statements prepared using the generally accepted accounting policies (GAAP) is the going-concern assumption. Under the going-concern assumption, the enterprise will continue in operation for a reasonable future period (will not liquidate). This means that the business will continue in operation long enough to recover its assets and repay its outstanding liabilities. The going-concern assumption provides a conceptual basis for many of the measurement methods used in accounting. Managers are required to assess the ability of the company to continue as a going concern. This the case of Miller Mining Limited, the management has assessed that the company is perhaps headed for financial distress and its going concern might be a concern. The purpose of the note is to inform the users of the financial distress that the company can face. The company has current liabilities greater than its current assets at the end of the fiscal year.

If the company is unsuccessful in negotiations with creditors and investors, and they are unable to make their dues, then the company will no longer be able to continue its operations. The creditors have the legal right over any assets of the company, as stated in the loan terms. They can seize these assets to recover parts of their dues. Hence, the company can be forced to liquidate at the choice of the creditors.

If negotiations are not successful then the going-concern of Miller Mining Limited will no longer be valid and the financial statements cannot be prepared of the continuity assumption. All of the company’s assets and liabilities have to be valued and classified based on immediate liquidation (net realizable values).

Case B
The purpose of this disclosure note is to identify the operating segment of Riconda Limited by geographical region. This note helps financial statement users assess Riconda’s operations separately. It should be noted that public companies are...
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