Question

Respond to the specific questions in each of the two cases, below.
Case A
The following disclosure note is from the 31 October 20X2 financial statements of Green World Limited, a mining company: The preparation of the financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates are related to the physical and economic lives and the recoverability of mining assets, mineral reserves, site restoration and related obligations, commodity contracts and financial instruments, and income taxes. Actual results could differ from those estimates.

Required:
1. What is the purpose of this disclosure note?
2. How could this note be made more meaningful to the financial statement user?
3. List four other financial statement elements (not listed above) that are affected by estimates. Case B The following disclosure note is from the 31 December 20X2 financial statements of UMM Limited, a software company: UMM has entered into an agreement with Vitech Ltd., a shareholder, with respect to acquiring certain rights to Vitech’s software, technology, services, and other benefits. In the current year, UMM acquired $ 200 (million) of specific soft-ware products from Vitech. These assets were recorded at the transaction price, which represents fair market value as determined by an independent appraisal. UMM has expensed $ 68 (million) in services received from Vitech in 20X2. Sales in 20X2 to Vitech amounted to $ 151 (million). These transactions were conducted in the normal course of business at prices established and agreed to by both parties.

Required:
1. What is the purpose of this disclosure note?
2. In general, what makes two parties related?
3. What measurement attribute has been used to record software assets, and revenues and expenses between these related parties? Comment.
4. What evidence has UMM gathered to support the value for software purchased?



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  • CreatedFebruary 17, 2015
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