Answer the following questions:
1. A company invested 70% of its funds in a pharmaceutical company manufacturing only one basic drug and exporting the entire production to a company in USA. The importing company in USA has gone bankrupt and thus the domestic company suffers large loss as it is unable to realize it debts from the company in USA. Do you think it material information for the company that has invested 70% of its funds in that domestic company? Should it disclose in its report to the shareholders?
2. An investment company has securities as current assets having market value substantially lower than the cost price. The company continues to show them at cost. Do you think the concept of prudence is being followed?
3. An investment company has been valuing its inventory of securities at lower of Market Price or Cost. It now wants to value its inventory at the market price which is higher than the cost. In your opinion, can the company do so and if yes, what disclosures should it make?
4. An infrastructure company had built a road under a scheme whereby it had a right to collect toll for a period of 11 years after which the road shall become the property of the government. The company depreciates the construction cost of the road in 11 years instead of the normal 15 years. The company does not disclose this fact in its balance sheet. Do you think it is complying with the convention of full disclosure?
5. An enterprise prepares its account under the accrual basis. Salaries amounting to $10000 for the month of March, 2007 were not paid. The owner did not want to account it in the books of accounts on the ground that the amount was not paid. The enterprise closes its books of accounts on March31 every year. Is he correct?