Ste. Famille Communications Ltd . ( SFC ) is the largest print magazine publishing company in Canada
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Ste. Famille Communications LtdSFC is the largest print magazine publishing company in Canada with titles in the Lifestyle, Current Affairs, Family, Business and Entertainment sectors In recent years, print media publications have experienced intense competition from digital content providers. Over the last decade, SFCs revenues dropped by and in SFC recorded the first loss in the companys history. SFC has borrowed funds in recent years to invest in digital products for its publications and to support working capital requirements.
In October management reviewed the results for the first nine months of the year. Revenues were even lower than in resulting in a higher projected loss in than The CFO expressed concern that if performance does not improve SFCs results will not meet the requirements of its loan agreement and the lender, Molson Bank, may require immediate repayment. If that occurred, SFC would not have sufficient funds to pay off the debt and could be forced to file for bankruptcy.
The CEO of the company directed the CFO to change the accounting policy for magazine sales immediately. Under the current policy, revenue is recognized when the magazines are shipped based on of their total sales value. Within days of receiving the magazines, sales outlets must send payment for any magazines they sell and return any unsold magazines. At this time, SFC adjusts revenues for any difference between the payments received and the revenue recognized when the magazines were shipped to sales outlets. These adjustments are usually very low as SFC know the market well. The CEO directed that under the new policy, of the sales value of the magazines be recognized when they are shipped to sales outlets. Any adjustment for unsold titles will only be recognized after the day return period has passed and the correct amount can be determined.
Required:
a What is the financial accounting issue? State as an issue statementquestion as done in class.
b What are the implicationsimpact of the issue to the financial statements?
c What is your recommendation for the financial accounting issue?
d Why did you recommend this?
Support your answer using GAAP conceptual framework principles and APPLYING them to the SFC Ltd situation.
Related Book For
Intermediate Accounting
ISBN: 978-0071339476
Volume 1, 6th Edition
Authors: Beechy Thomas, Conrod Joan, Farrell Elizabeth, McLeod Dick I
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