International Financial Reporting Standards - Assignment Example

Section_1 Question_no 1 The IAS 1 affirms the employee (internal user) uses the financial reports as basis for seeking work-related benefits (Weygandt et al., 2014). A high net profit picture encourages the employee to request for salary increases. A net loss financial report prods the employee to seek employment in another company, fearing the company may close shop in the near future due to bankruptcy. Similarly, IAS 1 affirms the resident (external user) who is living within the vicinity of the company uses the financial report to determine if the company is a viable work alternative (Weygandt et al., 2014). A high net profit picture encourages the resident to apply for any job vacancy within the company. A net loss financial prods the resident to seek employment in other competing companies, fearing the company may close shop in the near future due to bankruptcy. Question_no 2 Monetary unit assumption. IAS 1 affirms only transactions that involve money are included in the accounting records (Weygandt et al., 2014). For example, transactions that show the friendliness of the company’s sales personnel should not be included in the preparation of the financial reports. Going Concern Assumption. Similarly, IAS 1 dictates unless factors contribute to the business stoppage crop up, the business entity will continue to exist in the future (Weygandt et al., 2014). For example, the company was able to generate $100,000 net profit for the past three years ending 2014. The trend indicates that the company will be able to generate an estimated $100,000 net profit for the years 2015, 2016 and 2017. Question_no 3 Understandability. IAS 1 indicates financial information is prepared in a clear manner so all readers/users of the financial reports can easily understand the information (Weygandt et al., 2014). For the United States companies, the financial reports should be prepared using the international language, English. Relevance. IAS 1 affirms the information submitted is related to the decision making process (Weygandt et al., 2014). For the income statement, all revenues, costs and expenses should be recorded in the period when such accounts are incurred or used. Such recording will ensure the costs and expenses of one accounting period relate to the revenues generated in the same accounting period. Reliability. IAS 1 confirms the financial information can be verified by other individuals, neutrally faithful (Weygandt et al., 2014). Supporting documents such as official receipts and statements of accounts will confirm whether the accounts or amounts recorded in the financial reports are the same or correct. Comparability. IAS 1 confirms accounting principles are similarly implemented to ensure data from two accounting periods or two business entities can be easily compared (Weygandt et al., 2014). For example, chairs should be classified under furniture. Question_no 4 Income Statement. IAS 1 confirms the income statement includes the revenues, expenses, and whether the company generated a net profit or net loss in one accounting period (Weygandt et al., 2014). Balance Sheet. IAS 1 confirms the balance sheet includes the assets, stockholders’ equity, and liabilities components. The balance sheet shows financial position of the company within accounting period (Weygandt et al., 2014). Question_no 5 IAS 1 allows the presentation of comprehensive_income statements. For merchandising companies, the same statement includes the sales or revenue account. Likewise, the same statement includes the cost of_sales amount. Finally, the same statement incorporates the expense account (Weygandt et al., 2014). Section_2 Question_no 1 According to IAS 2, Import duties, commissions payable to agents in Dubai for arranging imports from India, labor costs on work in progress, Freight & Insurance on Purchases, Fabric Cost are included in the inventory cost. IAS 2 dictates all costs in the acquiring and installation of the purchased products should form part of the product inventory costs. Applying logic, if the import duties are not paid, the customs authorities will not release the purchased product, fabric material. The nonpayment of the freight and insurance amounts will prevent the arrival of the ordered fabric within the expected delivery time period (Weygandt et al., 2014). Question_no 2 IAS 16 describes the cost of the assets. The installation of the new gearbox is $ 290,000. The asset includes the original cost, $200,000 and the new gearbox asset, $90,000 (Weygandt et al., 2014). Question_no 3 IAS 23 shows how the borrowing cost can be capitalized (Weygandt et al., 2014). $ 8 m x 12% x 4 years = $ 3,840,000 $ 8 m x 2% = $ 160,000 Total = $ 4,000,000 IAS 23 indicates borrowing costs should include all amounts attributed to the ensuring the assets are acquired and installed for the company’s beneficial usage (Weygandt et al., 2014). Question_no 4 IAS 36 explains the impairment loss includes the amount representing the amount that the book value of the noncurrent assets exceeds the same assets’ recovery figures (Weygandt et al., 2014). The following computation shows the $2,000,000 impairment loss calculation is correct. Carrying value [$25 million] - value in use [$23 million] = $ 2 million impairment loss. Question no 5 IAS 38 dictates only the $ 15 million legal cost should be capitalized as intangible asset amount. The operational costs shall fall under operating expenses. The advertising campaign costs should fall under selling expenses (Weygandt et al., 2014). Question_no 6 1. IAS 38 dictates land held by Kiwis for undetermined future use should be classified as property investment. IAS_40 dictates properties that are held to generate rent income and/or capital_appreciation must be classified as property investment (Weygandt et al., 2014). 2. For the other remaining four properties enumerated in the same question 6 above, they should be classified under the account title: Property, Plant & Equipment to comply with IAS_16 accounting principles. The four properties are the property used by Kiwis to as factory site to produce the company’s toy products, property held by the Kiwi real-estate company, hotel, and the property being held by a real estate company (Weygandt et al., 2014). Section_3 Question_no 1 According to IAS no 8, the following computation shows the adjusted net profit. The above table shows how the adjusted net income is arrived at (Weygandt et al., 2014). The increase in the beginning inventory due to change in accounting in accounting principle, LIFO inventory costing method to FIFO inventory costing method, should be added to the original cost of sales figure. For 2012, the beginning inventory should be added $ 8,000. For the 2013 accounting period, the beginning inventory should added $13,000. Similarly, the change from LIFO to FIFO inventory costing method should be reduction of the higher inventory end figures. For 2012, the ending inventory should be deducted the $13,000 corrected amount. For 2013, the ending inventory should be deducted the additional $18,000 corrected amount. Next, the adjusted net profit is computed (Weygandt et al., 2014). For the 2012 accounting period, the adjusted net profit is $ 60,000. For the 2013 accounting period, the adjusted net profit is $ 70,000. Question_no 2 Computation: The above computation shows how the depreciation expense for 2010 was arrived at (Weygandt et al., 2014). Further, the above computation shows how the depreciation expense for 2013 was arrived at (Weygandt et al., 2014). Furthermore, the new depreciation figures are based on the remaining adjusted life of the above non-current assets (Weygandt et al., 2014). Since 3 years had already passed, the noncurrent assets’ adjusted new life should be deducted 3 years from the new estimated life. The above computation shows the depreciation expense computation for 2010 and 2013 (Weygandt et al., 2014). For 2010, the annual depreciation for buildings is $1,250,000. For 2010, the annual depreciation for plant & equipment is $1,000,000. For 2010, the annual depreciation for furniture is $1,400,000. For 2013, the annual depreciation for buildings is $1,770,833.33. For 2013, the annual depreciation for plant & equipment is $1,285,714.29. For 2013, the annual depreciation for furniture is $1,000,000. The above computation indicates the remaining life of the assets are reduced, the annual depreciation amounts are increased. Question_no 3 IAS 10 requires the authorization date to be the date when the board of directors approved the issuance of the financial report, 20 March 2010. The date when the stockholders will approve the release of the financial statements is not considered as the date of the authorization (Weygandt et al., 2014). Question_no 4 IAS 37 dictates the financial statements shall report the lawsuit amount as contingent liability (Weygandt et al., 2014). The figure should be the best estimated probable amount for previously filed lawsuits. IAS 10 requires lawsuit court decisions that crop up after the balance sheet date requires adjustment of the year end lawsuit balances. Consequently, the 31 Dec 2014 financial report must include adjusting the lawsuit figure to the $9 million figure. Since the court decision was made prior to the release of the financial report to the general public, the company can easily revise the financial report to indicate the lawsuit amount should be the adjusted $9,000,000. Section_4 Question_no 1 IAS 7: Cash flow from Operating Activities: The above cash flow statement shows the company’s operations generated a $636,000 cash inflow figure (Weygandt et al., 2014). Similarly, the company’s business operations generated a $655,000 cash outflow figure. Consequently, the company’s net cash used for its business operations is $19,000. Cash flow from investing Activities: The above cash flow statement shows the company’s investing activities generated a $30,000 cash inflow figure (Weygandt et al., 2014). Similarly, the company’s investing activities generated the $ 85,000 cash outflow figure. Consequently, the company’s net cash used for its investing activities is $ 55,000. Cash flow from Financing activities: The above cash flow statement shows the company’s financing activities generated a $100,000 cash inflow figure (Weygandt et al., 2014). Similarly, the company’s business financing activities generated a $135,000 cash outflow figure. Consequently, the company’s net cash used for its financing activities reached $ 35,000. Question_no 2 IAS no 7 dictates that conversion of bonds to shares of stocks should not be included in the cash flow statements. The reason is because there was no cash inflow or cash outflow from the conversion of the bonds to stocks. Only transactions that involve either cash inflows or cash outflows are included in the statement of cash flows report (Weygandt et al., 2014). Question_no 3 IAS 18 dictates that revenue from goods sales should be recognized when the amount of revenue can be measured reliably. Since the $900,000 can be reasonably measured, the sales figure should be recognized at $ 900,000. Since the company is not sure whether the customer can sell at an amount reaching or exceeding $1,000,000 within the agreed accounting period, the 2 percent discount should not be deducted from the $900,000 sales figure (Weygandt et al., 2014). Question_no 4 IAS 18 dictates the sales transaction should be recorded at the agreed price, $140,000. It is the amount that the customer agreed to pay the seller within the 6 month time period (Weygandt et al., 2014). The $140,000 sales transaction recorded as a debit to accounts receivable and a credit to Sales. IAS 18 dictates that revenue from goods sales should be recognized when the amount of revenue can be measured reliably and the costs incurred related to the sales transaction can be reliably measured. Question_no 5 The computer should be recorded as $100,000 sales price in the computation of the income (Weygandt et al., 2014). IAS_18 dictates all sales transactions should be recorded at the cash price. The same IAS dictates that sales that include delivery of future services will include the amount for future services if the costs incurred for the transaction and the costs to complete the transaction can be measured reliably. Since the number, time used, materials used, and type of future repairs cannot be predicted, the amount of future repairs expenses cannot be predicted. Reference: Weygandt et al., (2014). Financial Accounting. New York: Wiley & Sons Press. Read More