Account Case Study

Only available on StudyMode
  • Download(s) : 232
  • Published : August 17, 2015
Open Document
Text Preview

HARVARD BUSINESS SCHOOL CASE STUDY
DEPRECIATION AT DELTA AIR LINES
ACCOUNTING ( SHAC 1033 )
2014/2015
SEMESTER 1
GROUP MEMBERS :

MOHD AMMARUL HAZIQ BIN SAIDIN A14HA0057 NURSAIDA SYAMIM BINTI FAUZI A14HA0136 NORHAMIZAH BINTI ABDUL HAMID A14HA0095 FATIN RAIHANAH BINTI MOHAMED RABEI A14HA0024

FOR:
EN. KAMARUZZAMAN BIN ABDUL RAHIM

FACULTY OF MANAGEMENT
UNIVERSITI TECHNOLOGI MALAYSIA

DATE: 18 / 12 / 2014

1. Define and explain “Fresh Start Accounting”.

Generally, when emergence occurs, a company’s balance sheet is to be restated to Fair Value, as required by American Institute of Certified Public Accountants. Fresh Start accounting gives a breath of bookkeeping fresh air to a company that has emerged from bankruptcy. Then, upon emergence from bankruptcy, the consolidated financial statements of the “successor Company” apply the provisions of the fresh start accounting in according to Generally Accepted Accounting Principles (GAAP).

Under fresh start accounting, a new reporting entity, the “successor company”, is considered to be created, and the recorded amounts of assets and liabilities are adjusted to describe their fair value. As a result, the reported historical financial statements of the “predecessor Company” generally are not comparable to those of the “successor Company”.

Based on HBS case study, fresh start accounting requires resetting the historic net value of assets and liabilities to fair value and becoming a new entity for financial reporting purpose. Delta’s consolidate financial statement after May 1, 2007, are not comparable to consolidated financial statements before that date.

2. Identify and explain other methods for measurement of assets apart from historical cost.

The accounting view of asset value is to pressing a very important principle of historical cost, which is the original cost of the assets, adjusted upward for improvements made to the asset since purchase and downward for loss in value associated with the aging of the asset. This historical cost is called thebook value. The generally accepted accounting methods for valuing an asset vary across different kinds of assets and apart from historical cost methods. Which are used of market value,valued differently depending on whether they are generated internally or acquired, and looked up on the way of investment is categorized and the motive behind the investment. First, we have the short-term assets of the firm, including inventory, receivables, and cash. These are categorized as current assets. It is in this category accountants are most agreed to the use of market value. This is some ways allowed to firms in the valuation of inventory, with three commonly used approaches. First in first out (FIFO), where the inventory is value based upon the cost of material bought latest in the year. Next, last in first out (LIFO), where inventory is valued based upon the cost of material bought earliest in the year. Last way of valuation is weighted Average, which uses the average cost over the year.

In the category of investments and marketable securities, accountants consider investments made by firm in the securities or assets of other firms and other marketable securities, including Treasury bills or bonds. The way these assets are valued depends on the way the investment is categorized and the motive behind the investment. In general, an investment in the securities of another firm can be categorized as a minority and passive investment or minority and active investment or a majority and active investment. Finally, that is last but not least the ways valued of tangible assets. These include patents and trademarks that probably will create future earnings and cash flows and also uniquely accounting assets, such as goodwill, that arise because of acquisitions...
tracking img