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Information is a critical factor in decision making processes, and any lack of the required details would effectively impair the making of appropriate business decisions. Prior to making judgment on various financial aspects of the organization, it is imperative to analyze clients’ information with specific relevance to the organization’s financial accounting. Information provided by clients would be essential in providing solid background for making informed business decisions regarding various issues. This necessitates up-to-date keeping of the essential accounting information on which all the organization’s financial decisions will be based on.
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One of the significance attached to the information obtained from clients’ details regards the deduction of current cost or market value of the organizations’ items. This function is known as “the lower-of –cost or market rule (LCM)”. It is a an accounting principle that relates the company’s assets listed in the inventory to the actual costs of the assets or items under current market values and expected future value of the items. Defined by Porter and Norton (2010), as “a conservative inventory approach” that attempts to “anticipate declines in the value of inventory before its actual sale”, LCM has become a critical principle in accounting and valuation of inventory, and the entire value of the organization according to market value. Of great note is the fact that the market value of the inventory may in reality be lower, or even higher, than its cost to the organization. Uncertainty on the market value of the inventory arises from a number of factors influencing including major declines in price, oversupply of the items, obsolescence and defects. The organization is responsible for countering this problem and ensuring the inventory is adjusted according to the market value at the conclusion of the accounting period without overstating income and company assets. For this to be effectively determined using various costing methods, essential details have to be obtained from information provided by the organization’s clients for analysis. Adjustments to lower values in the inventory will be made on items found to be of lesser market value than their cost to the organization.
Loan agreements attract interests on top of the normal interests that should be paid back by the lender under various circumstances. These additional interests are referred to as capitalized interests and are generally accrued when the borrower fails to pay the lender on time, as scheduled under the loan agreement. The borrower may choose to defer payment under various circumstances. Delaying payment for a given period, usually short, would allow the borrower to channel the scarce financial resources to other critical projects. Capitalizing interest by purchasing assets is a viable decision that can be made by the organization in spite of the higher costs presented by the capitalized interest; particularly the acquisition of investment ventures with high income flow such as construction of buildings. The decision to capitalize on building construction by the organization would hinge on the expected additional flow of cash expected from the buildings after completion. Interest accrued during the period of construction the buildings, after borrowing money from the financial institutions, will be regarded as of the total cost of acquiring the assets. With this in mind, it is prudent for the organization to obtain essential information before deciding on capitalizing interest.
All assets meant for disposal can be sold, abandoned or exchanged by the organization. According to the market value, these items may be disposed at higher or lower value than indicated in the inventory. Before recording the gains or losses made during asset disposal however, the company has to be kept up to date with depreciation calculations. Asset disposal is viewed as part of the organization’s investing activities rather than part of the operation activities. As a result, all gains or losses made during disposal will be recorded as part of the organization’s net income. Losses during these exercises will be deducted from the net income while all gains made will be added to the same. Considering this fact, all information pertaining to the organization’s net income will be essential during asset disposal. All necessary information required in the process of recording gains and losses to the company as part of its income, also involves details to be provided by the clients.
Presently, goodwill is “subjected to impairment testing” according. Impairment testing estimates goodwill at the conclusion of each financial period, serving to ascertain the organization’s financial position. Adjusting goodwill will is a vital exercise that depends on details provided by the organization’s clients. Procedures for impairment testing have to be established by the organization in collusion with methods for testing and valuing of the company’s reporting unit. Furthermore, estimation of goodwill may be required at shorter notices rather than the normal annual basis. In such cases, relevant information has to be made available at shorter intervals. Determination and proper recording of the adjusted good will according to the established impairment loss can only be conducted after the acquisition of necessary information. The significance of adjusting goodwill for impairment is portrayed by its influence on the valuation of the organization. This can be projected from a number of factors including expected future cash flows. In like manner to all other factors included in the adjusting of goodwill, information from clients would be important in forecasting cash flows.