Page 218 - Accounting Principles (A Business Perspective)

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established in the Statement are fairly consistent with those used in current practice. The Statement indicates,
however, that when information more useful than currently reported information is available at a reasonable cost, it
should be included in financial statements.

Summary of significant accounting policies
As part of their annual reports, companies include summaries of significant accounting policies. These policies

assist users in interpreting the financial statements. To a large extent, accounting theory determines the nature of
these policies. Companies must follow generally accepted accounting principles in preparing their financial
statements.
The accounting policies of The Walt Disney Company, one of the world's leading entertainment companies, as
contained in a recent annual report follow. After each, the chapter of this text where we discuss that particular
policy is in parentheses. While a few of the items have already been covered, the remainder offer a preview of the
concepts explained in later chapters.

An ethical perspective:
Maplehurst company

Maplehurst Company manufactures large spinning machines for the textile industry. The company
had purchased USD 100,000 of small hand tools to use in its business. The company's accountant
recorded the tools in an asset account and was going to write them off over 20 years. Management

wanted to write these tools off as an expense of this year because revenues this year had been
abnormally high and were expected to be lower in the future. Management's goal was to smooth out
income rather than showing sharp increases and decreases. When told by the accountant that USD
100,000 was a material item that must be accounted for in a theoretically correct manner,
management decided to consider the tools as consisting of 10 groups, each having a cost of USD
10,000. Since amounts under USD 20,000 are considered immaterial for this company, all of the
tools could then be charged to expense this year.
The accountant is concerned about this treatment. She doubts that she could successfully defend
management's position if the auditors challenge the expensing of these items.

Significant accounting policies
Principles of consolidation
The consolidated financial statements of the Company include the accounts of The Walt Disney Company and its
subsidiaries after elimination of inter-company accounts and transactions.
Investments in affiliated companies are accounted for using the equity method. (Chapter 14)

Accounting changes
The Company changed its method of accounting for pre-opening costs (see Note 12). These changes had no cash

impact.
The pro forma amounts presented in the consolidated statement of income reflect the effect of retroactive
application of expensing pre-opening costs. (Chapters 13 and 14)

text.)

Accounting Principles: A Business Perspective 219 A Global Text