The paper "Significant Accounting Policy Adopted by Zara Company " is a perfect example of a finance and accounting case study. Zara Company is a business that deals in the textile industry with its head office in Spain the Company currently have main retail outlet globally. Over the last past three years, the company had an increasing trend in profit implying that the financial stability of the company is enhanced over the years. The following is an overview of significant accounting policy adopted by the company and general recommendation concerning the statement of the financial statement of the company As well as the general performance. Company situation The general performance of the company depicts a positive trend and therefore proper accounting policy should be adopted on areas that are susceptible to fraud or are of high materiality.
This is areas such as the inventory, provision for bad and doubtful debt as well as provision for depreciation commands high standards to be upheld if the company is to operate profitably and with good capital base since the areas are susceptible to fraud or risk of overstatement or understatement in effect reducing the value of the reported net profit.
In order to curb competition and remain stable in the competitive market, Zara limited should ensure that a proper accounting standard is upheld so as to enhance the internal control system. The following are some of the recommendations that should be made on the company significant accounting estimate in order to increase accountability as well as cost reduction and profit-maximizing to the company. Basis of preparation The company’ s Financial statement has been prepared on a historical convention derivative instruments, financial assets valued inform of wide proceeds and supplementary amount overdue that are ascertained at appreciated sum or reasonable price, The financial statement of the company must be prepared inconsistency with (IFRS).
The standard commands practitioner to make a conclusion, estimation as well as a hypothesis which affects the use of guiding principle and reported value of assets as well as liabilities, proceeds and operating cost. The estimates and connected hypothesis are based on historical practice and diverse factors that are practised under the conditions, the consequences of which form the foundation of making the conclusion concerning carrying values of assets and liabilities that are not obvious from supplementary sources.
The real outcome may be different from this judgment. The organization, together with the Audit, Risk department as well as the Compliance Commission, ascertains the development, assortment and exposure of the merged entity’ s important accounting guideline and judgment as well as the application of these policies and estimate. The following ratio analysis depicts the company performance. This ratio is an analysis on the assumption that the company followed the relevant accounting standard in preparing their financial report.
In this case, the ratio will not be misleading about the company’ s performance. 1. Profitability ratio Profitability ratios ascertain how well a company is performing in terms of its capability to generate profit. From the ratio analysis below, it depicts that the general performance of the company is well due to the fact that the gross margin of the company is increasing. The return on asset is a ratio that depicts how well is funds bored in terms of relaying the loan.
In Zara case analysis, the return on asset increasing implying that the company project is having returns in terms of the net profit. This, therefore, implies that the company yields return from their investment and hence it acts as a strong indication about the general performance of the company in terms of the profitability.