Independent University, Bangladesh.

Course Code: ACN-305

Submitted To:

MD. Safiuddin

BBA Department (IUB)

Submitted By:

Ismamul Islam Rudra

ID:1930123

Submission Date:

August 03, 2022

 Table of Contents

ANSWER TO THE QUESTION NO. 1..........................................................................................2

ANSWER TO THE QUESTION NO. 2..........................................................................................3

ANSWER TO THE QUESTION NO. 3..........................................................................................4

ANSWER TO THE QUESTION NO. 4..........................................................................................5

ANSWER TO THE QUESTION NO. 5..........................................................................................7

ANSWER TO THE QUESTION NO. 6........................................................................................10

ANSWER TO THE QUESTION NO. 7........................................................................................11

ANSWER TO THE QUESTION NO. 8........................................................................................13

ANSWER TO THE QUESTION NO. 9........................................................................................14

REFERENCE................................................................................................................................17

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ANSWER TO THE QUESTION NO. 1

How revenue recognition principle was violated to inflate revenue, profit and share price by
Enron. (Enron case 2001)

Houston, Texas-based Enron Corporation was a US energy, commodities, and services firm. In
one of the most contentious accounting scandals of the last ten years, it was found in 2001 that
the corporation had been concealing billions of dollars in bad debt and boosting earnings at the
same time by abusing accounting rules. The controversy caused Enron's share price to drop from
almost $90 to under $1 in a year, causing stockholders to lose nearly $74 billion.

According to an SEC probe, the company's CEO Jeff Skilling’s and previous CEO Ken Lay
concealed billions of dollars in debt off the balance sheet of the business. Additionally, they had
exerted pressure on Arthur Andersen, the company's auditing firm, to overlook the problem.
Sherron Watkins, a former employee of Enron, testified in favor of the two, who were mainly
found guilty. Lay, however, passed away before completing his sentence. Jeff Skilling’s received
a 24-year jail term. Enron's bankruptcy and Arthur Andersen's disintegration were caused by the
scandal.

After the event, prosecutor Andrew Weissman indicted not just specific people but also the
whole accounting firm of Arthur Andersen, thus forcing the company out of business. As a
result, the convictions were as contentious as the company's startling collapse had been. The fact
that the conviction was eventually reversed was of little comfort to the 20,000 workers who had
lost their employment.

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ANSWER TO THE QUESTION NO. 2

Making a list of IAS and IFRS as adopted by Bangladesh and making a disclosure checklist of
relevant IAS/ IFRS as applicable for my studied company Generation next fashion.

Applicable
for
IAS No Adopted by Bangladesh Generation
next
fashion
Company
Check
list
Name of IAS YES or
NO
1 Presentation of Financial Statements YES
2 Inventories YES
7 Cash Flow Statements YES
8 Accounting Policies, Changes in Accounting Estimates and Errors YES
10 Events after the Balance Sheet Date YES
11 Construction Contracts NO
12 Income Taxes YES
14 Segment Reporting NO
16 Property, Plant and Equipment YES
17 Leases YES
18 Revenue YES
19 Employee Benefits YES
Accounting for Government Grants and Disclosure of Government
20 NO
Assistance
21 The Effects of Changes in Foreign Exchange Rates YES
23 Borrowing Costs YES
24 Related Party Disclosures YES
26 Accounting and Reporting by Retirement Benefit Plans NO
27 Consolidated and Separate Financial Statements NO
28 Investments in Associates NO
29 Financial Reporting in Hyperinflationary Economies NOT
ADOPTE
D
31 Interests in Joint Ventures NO
32 Financial Instruments: Presentation YES
33 Earnings per Share YES
34 Interim Financial Reporting NO
36 Impairment of Assets YES

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 37 Provisions, Contingent Liabilities and Contingent Assets YES
38 Intangible Assets NO

Name of IFRS YES or NO

1 First-time Adoption of International Financial Reporting Standard NO
2 Share Based Payment NO
3 Business Combinations NO
4 Insurance Contracts NO
5 Non-Current Assets held for Sale and Discontinued Operations NO
6 Exploration for and Evaluation of Mineral Resources NO
7 Financial Instruments: Disclosures YES
8 Operating Segments NO
9 Financial Instruments NO
10 Consolidated Financial Statements NO
11 Joint Arrangements NO
12 Disclosure of Interests in Other Entities NO
13 Fair Value Measurement YES
14 Regulatory Deferral Accounts NO
15 Revenue From Contracts with Customers YES
16 Leases YES
17 Insurance Contracts NO

ANSWER TO THE QUESTION NO. 3

SL NO Components of Financial Statements According to Components Presented in

IAS 1 Generation next fashion
Company according to
IAS 1
1 A Statement of Financial position (Balance Sheet) at YES
the end of the period
2 A Statement of Profit or Loss and other Comprehensive YES
Income for the period
3 A Statement of Changes in Equity for the period YES
4 A Statement of cash flows for the period YES
5 Notes, Comprising a Summary of Significant accounting YES
Policies and other Explanatory Notes
6 Comparative information prescribed by the standard. YES
According to IAS 1, the components of financial statements presented in Generation next fashion
Company’s disclosure checklist are given below:
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 According to IAS 1, the minimum line items that should be presented on the face of the
statement of financial position of Generation next fashion Company’s and making a disclosure
checklist and comparing the level of disclosure:

SL NO According to IAS-1 Line Items Disclose Amount

1 Property, Plant and Equipment YES 4557324813
2 Investment Property Not Appliable
3 Intangible Assets Not Appliable
4 Financial Assets Not Appliable
5 Investments accounted for using the equity method Not Appliable
6 Biological Assets Not Appliable
7 Inventories YES 2360631513
8 Trade and other receivables YES 1960965205
9 Cash and cash equivalents YES 84051908
10 Assets held for sale Not Appliable
11 Trade and other payables YES 8690651
12 Provisions YES 78142383
13 Financial Liabilities Not Appliable
14 Current Tax Liabilities and Current Tax Assets, as defined in IAS Not Appliable
12
15 Deferred Tax Liabilities and deferred tax assets, as defined in IAS YES 206124471
12
16 Liabilities included in disposal groups Not Appliable
17 Non-controlling interests, presented within equity Not Appliable
18 Issued capital and reserves attributable to owners of the parent. YES 2382325380

ANSWER TO THE QUESTION NO. 4

According to IAS 37, there are the criteria for recognizing and measuring of provisions,
contingent assets, and contingent liabilities from Generation next fashion company’s annual
reports.

R recognition of a provision:

 An entity must recognize a provision if, and only if: [IAS 37.14]
 A present obligation (legal or constructive) has arisen because of a past event (the
obligating event),
 Payment is probable ('more likely than not), and

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  The amount can be estimated reliably.

An obligating event is an event that creates a legal or constructive obligation and, therefore,
results in an entity having no realistic alternative but to settle the obligation. [IAS 37.10]

A constructive obligation arises if past practice creates a valid expectation on the part of a third
party, for example, a retail store that has a long-standing policy of allowing customers to return
merchandise within, say, a 30-day period. [IAS 37.10]

Measurement of provisions:

The amount recognized as a provision should be the best estimate of the expenditure required to
settle the present obligation at the balance sheet date, that is, the amount that an entity would
rationally pay to settle the obligation at the balance sheet date or to transfer it to a third party.
[IAS 37.36] This means:

 Provisions for one-off events (restructuring, environmental clean-up, settlement of a

lawsuit) are measured at the most likely amount. [IAS 37.40]
 Provisions for large populations of events (warranties, customer refunds) are measured at
a probability-weighted expected value. [IAS 37.39]
 Both measurements are at discounted present value using a pre-tax discount rate that
reflects the current market assessments of the time value of money and the risks specific
to the liability. [IAS 37.45 and 37.47]

In measuring a provision consider future events as follows:

 Forecast reasonable changes in applying existing technology [IAS 37.49]

 Ignore possible gains on sale of assets [IAS 37.51]
 Consider changes in legislation only if virtually certain to be enacted [IAS 37.50]

Contingent asset:

 A possible asset that arises from past events, and

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  Whose existence will be confirmed only by the occurrence or non-occurrence of one or
more uncertain future events not wholly within the control of the entity.

Contingent liability:

 A possible obligation depending on whether some uncertain future event occurs, or

 A present obligation but payment is not probable, or the amount cannot be measured
reliably

From Generation next fashion Company’s Annual Reports Disclosure:

Recognition & Measurement of provision: After analyzing the Generation next fashion annual
report of 2020-2021 we came to know that the company follows the recognition and
measurement of provisions, as per IAS 37.

Contingent asset & liability: Contingencies arising from claim, litigation assessment, fines,
penalties etc. are recorded it is probable that a liability has been incurred and the amount can be
measured reliably accordance with “IAS 37: Provisions, Contingent Liabilities and Contingent
Assets”.

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ANSWER TO THE QUESTION NO. 5
1. Composition of Current Liabilities:

A company's current liabilities are its obligations or debts that are due in the upcoming year or
during a regular business cycle. Additionally, current liabilities are created or current assets like
cash are used to pay for current commitments. Current liabilities may be shown on a company's
balance sheet and include things like short-term loans, accounts payable, accrued obligations,
and other equivalent debts.

Current Liabilities 2021 2020 Analysis

ST Debt & Current 787059065 37304350 GNF company has
Portion LT Debt more liabilities in
2021. It means they
have more liability
compared to 2020.
Bill Payable 10,420,058 5,979,762 GNF company
accounts payable
increases from 2020
to 2021.
Income Tax payable 1757938645 28598297 Their income tax
increases from 2020
to 2021
Other Current 3868586223 318598543 They have more
Liabilities provision in 2021
compared to 2020

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Composition of Non-Current Liabilities:

Their Non-current liabilities are the long-term debts a company has that aren't due for payment
for at least a year. Payment of cash, goods, or services might be considered to constitute a
financial obligation. A debt is a liability when the money owing is for the repayment of a loan,
like a mortgage or an equipment lease. The balance sheet of a corporation shows liabilities.

Non-Current Liabilities:

Non-Current Liabilities 2021 2020 Analysis

Long term 1853210164 169441827 Their long-term
debt increases from
2020 to 2021
Deferred Tax 13805850 13583679 Their deferred tax
declined from 2020
to 2021

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ANSWER TO THE QUESTION NO. 6

Current ratio, quick ratio, and net working capital of the Generation next fashion.

Name and Formula Results Comment

2020 The current ratio compares a company’s liquid

assets with short- term liabilities. That means the
= ability of the company to pay the short-term
4601479769/4695441827 liabilities with the current assets such as accounts
= 0.97 receivables, cash etc. The higher the current
2021 ratio, the more liquid the company is. The ideal
Current Ratio = Current current ratio is 2:1. In analyzing the current Ratio
Assets/Current liabilities = for Masons Spinning Mills Limited company’s,
4759208393/1853201164 we can see from the above calculation, in 2020
= 2.56 the ratio was 0.97 times and in 2021 the ratio
were 2.56 times which indicates the company’ s
current ratio was in a good position as the ratio
increases, as the higher is better.

2020 A reliable test of liquidity is the quick ratio test

=(4601479769- that Excludes inventory from current asset. It
2578734896)/4695441827 considered the ability to use its quick assets to
= 0.43 pay its current liabilities. This approach can be
acceptable since inventory of many companies
2021
cannot be quickly converted into cash. The ideal
= (4759208393-
Quick Ratio= (Current quick ratio is 1:1. In analyzing the Quick Ratio
2803226438)/1853201164
Asset-Inventory)/ for Generation next fashion company’s, we can
=1.05
Current liabilities see from the above calculation, in 2020 the ratio
was 0.43 times and in 2021 the ratio were 1.05
times, which indicates the company’s liquidity
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 and financial health is better as the ratio is rising,
as higher is better.

ANSWER TO THE QUESTION NO. 7

Debt to asset ratio, long-term debt to asset ratio of the Generation next fashion company.

Name and Formula Results Comment

2021 The debt to asset ratio calculates the
=3555997296/9448740870 percentage of total assets provided by
=0.37 creditors. The higher the ratio, the greater
the degree of leverage (DoL) and, as a
Debt to Asset result, the greater the financial risk and
Ratio=Total Debt / Total bankruptcy. We can see from the
assets preceding computation that the debt-to-
2020 asset ratio is 0.37 in 2021, indicating a
=3337755171/9227179044 high level of financial leverage. External
=0.36 sources fund about 0.36 in 2020 percent of
the assets, indicating a considerable danger
of bankruptcy. If the firm runs into
financial difficulties and fails to return its
long-term debt on time, it will go
bankrupt. Creditors, on the other hand,
evaluate the ratio to estimate how much
debt the firm currently has and if the
company can repay its existing debt, which
determines whether further debt is
required.
2021 The debt-to-equity ratio, or D/E ratio, is a

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 leverage ratio that compares a company's
=3555997296/5892743574 total liabilities to its shareholder equity to
determine how much debt it is utilizing.
=0.60 The D/E ratio may be used to determine
Debt-to-equity (D/E) = the level of risk in a company's capital
Total Liabilities / Total 2020 structure. The debt-to-equity ratio shows
Shareholder Equity how much of a company's capital structure
=3337755171/5889423873 is made up of debts against equity. An
=0.56 investor, corporate shareholder, or
potential lender may compare a firm's
debt-to-equity ratio to historical or peer
levels. Here, we can see that the debt-to-
equity ratio in 2020 was 0.56, which was
lower than the debt-to-equity ratio in 2021,
which was 0.60, indicating that the debt-
to-equity ratio in 2021 was the greatest.

ANSWER TO THE QUESTION NO. 8

P/E ratio of the Generation next fashion company.

Name and Formula Results Comment

2020 Earnings per share (EPS) are the values
of earning from each outstanding

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 = common shares of a company. Generally,
EPS ratio= (Net Income- (3319702-0)/494974555 EPS is calculated on a per share basis.
The higher the ratio, higher will be the
Preferred Stock Dividends)/ =0.01
earning from the common shares. Which
Weighted Average Shares 2021 was 0.01 both years.
Outstanding =
(5547931-0)/494974555
=0.01

2020 Here Diluted EPS was 0.00 in 2020 and

0.00 in 2021. Another thing was the
Diluted EPS was same in both years. The
=3319702/0
weighted average number of outstanding
Diluted EPS= (Profit After =0 common shares plus any dilutive
Tax/ Weighted average 2021 instruments, whether or whether they are
regarded as common stock equivalents,
number of ordinary shares =5547931/0
results in fully diluted EPS, which is the
outstanding) =0 net income accessible to common
shareholders.

2020 The price-to-earnings ratio, or P/E ratio,

expresses how much investors pay for
every $1 of earnings. A share of stock's
=1.14/0.01
market price (P) is the amount of money
P/E ratio= (Market price per =114 that investors are willing to pay to own it.
share / EPS) 2021 Earnings per share (E) is calculated by
dividing a company's earnings over the
previous twelve months by the average
=2.77/0.01 number of shares outstanding. In 2020,
=277 the p/E ratio was 114, and in 2021, it was
277. In general, a high P/E ratio indicates
that investors anticipate more profits

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 growth in the future as compared to firms
with a lower P/E ratio. A low P/E ratio
might imply that a firm is currently cheap
or that it is performing extremely well in
comparison to its historical patterns.

ANSWER TO THE QUESTION NO. 9

Providing final comments to my analysis of the ratios calculated above.

 Regarding the liquidity ratios, the company’s liquidity situation is quite good. The current
ratio, a value of 2: 1 is considered standard value. In the financial year 2020, the
company’s current ratio has increased from the previous year. It is a clear indicator of
taking the burden of short- term liabilities too long.
 The prospect of quick ratio is also similar, that means the company’s liquidity and
financial health is better as the ratio is increased from previous year, it’s a good sign for
more dependency on outside financing.

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 Net working capital ratio was in a good position from the previous year’s which means,
the company have available resources to invest in any projects.
 Debt to Total Assets ratio is utilized for estimating the company’s debt utilization
capacity. Referring to the summary table, it is found that the company’s dependency on
debt financing is slowly decreasing in the financial year 2021; it is the least than the
previous year’s 2020. Meaning, the company is trying to use less debt and more equity to
finance its assets.
 Long Term Debt to Total Assets ratio was in 2021 is higher than 2020. It means that
company is using long term debt to fund and expansion of asset which is not a good sign
for the company.
 Diluted earnings per share considers what would happen if dilutive instruments were
exercised. Dilutive securities are non-common stock securities that can be converted to
common stock if the holder exercises the conversion option. When dilutive instruments
are converted, they raise the weighted number of shares outstanding, lowering EPS.
Diluted EPS was 0.00 in 2020 and 0.00 in 2021.
 P/E ratio in 2020 was 114 But 2021 EPS was 0.01 given in income statement that’s why
it’s could not calculated and evaluated. P/E ratio in 2020 company’s situation is
developing over the period.

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REFERENCE

 https://lankabd.com/Company/Search?
searchText=GENNEXT&cn=Generation_Next_Fashions_Limited_(GENNEXT)

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