Financial Reporting and Analysis Assignment
Question 1 -
(a) Financial statements are prepared on the accrual basis of accounting and the assumption that an entity is a going concern. Describe how these two concepts help to fulfil the objectives of the financial statement.
(b) To provide relevant and reliable information to meet the users' needs, financial statements should also be subject to certain constraints. Describe three of these constraints.
(c) Examine and describe how the IFRS help in resolving and reconciling the accounting differences in different countries.
Question 2 -
(a) Discuss what prior period errors are.
(b) HiPres Pte. Ltd. bought a piece of equipment for $2,000,000 on 1 January 20X1. On 1 January 20X3, using the information obtained over the past few years, HiPres decided to revise the useful life of the equipment. The useful life was revised from being a total of 5 years to being a total of 8 years. The equipment was originally depreciated on the straight-line basis over its useful life and it was expected that the asset have no residual value. No depreciation has been provided in the current period.
(i) Is this a prior period error? Discuss why.
(ii) Prepare the journal entry to account for the change and discuss your answer.
Assuming that the change had a material effect on financial performance for the period, prepare an appropriate supporting note.
(c) After reviewing JP's accounting reports, it was concluded that a prepayment of $300,000 recognised in the consolidated balance sheet (Statement of Financial Position) at 31 December 20X3 should have been expensed off in accordance with relevant accounting standards. Discuss how this should be classified according to relevant accounting standards and how it should be reflected in JK's financial statements for the year ending 31 December 20X4.
Question 3 -
(a) Explain the differences between events after the balance sheet date and subsequent events.
(b) The 31 December 20X2 financial statements of AB Well Pte. Ltd. have been prepared and sent for review by the directors. Before the reports were released to shareholders, the following events occurred. Illustrate and discuss the appropriate accounting treatment for these events.
(i) The court had handed down a judgment on 2 February 20X3 in relation to a 20X1 product liability case brought by a customer against the company. The judgment rendered the company liable for court costs and compensation totaling $235,000.
(ii) On 9 March 20X3, heavy rain flooded the company's warehouse and destroyed goods worth $430,000. The goods were uninsured.
(iii) On 17 March 20X3, the company entered into a contract to purchase 10% of the issued shares of its supplier for $370,000.
(iv) On 19 March 20X3, the directors proposed a dividend of $520,000.
(c) Briefly describe the organisation that you are working for or one which you are familiar with.
Give an example of a recent event that occurred after the balance sheet date that is not similar to the events described in part (b).
Illustrate and discuss the appropriate accounting treatment for that event.
(d) Gamebit Pte. Ltd. has a number of non-current assets, some of which require, in addition to normal ongoing maintenance, substantial expenditure on major refits or refurbishment at certain intervals or on major components that require replacement at regular intervals.
Describe whether this should be treated as a liability in the form of a provision.
Question 4 -
A fixed price construction contract worth $31 million was awarded to Lin Bin Ltd by the Hub Development Board. Lin Bin commenced construction of the housing units on 1 January 2012. The project is expected to be completed by 2014. The expected cost at the commencement of construction is $26 million. The expected costs to complete a construction project can change throughout the project and it did happen in this case. Lin Bin uses the percentage of completion method for its construction contracts. The following data relates to the project:
|
|
2012 ($'000)
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2013 ($'000)
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2014 ($'000)
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|
Costs for the year
|
8,000
|
13,000
|
7,500
|
|
Costs incurred to date
|
8,000
|
21,000
|
28,500
|
|
Estimated costs to complete
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19,000
|
7,000
|
|
|
Progress billings during the year
|
9,000
|
14,000
|
8,000
|
|
Cash collected during the year
|
8,000
|
12,500
|
10,500
|
(a) Compute and show the percentage of completion for each of the year using the contract cost method.
(b) From the percentage completions obtained in (a), compute and show the gross profit to be recognised for each of the three years.
(c) Explain the three elements of contract costs.