Question

The reporting situations of two different companies are described below:
1. Stardust Explorations Inc. (SEI) is seeking significant new financing for a gold and diamond mining venture in northern Ontario. In their search for new financing, company directors have been visiting Australia, South Africa, China, and India. The directors have met some resistance because Stardust’s financial statements are based on Canadian private company standards and use the Canadian dollar as the unit of measure in the com-pany’s financial statements. Gold and diamonds are valued internationally in U. S. dollars.
2. A new- venture investment fund has invested significant amounts of money in the con vertible debentures of privately owned Cerebral Conceptions Ltd. (CCL), a Nova Scotia company. CCL has been reporting in accordance with Canadian private-company accounting standards. Now, however, the investment fund would like for CCL to begin reporting on a near- cash basis, recognizing all except capital expenditures as expenses and delaying revenue recognition until the revenue has been realized as cash. CCL’s management fears that such a change in accounting policy will prevent the company from receiving an unqualified audit report. Also, the company worries that the change will drastically increase the loss that CCL has been reporting, with possible repercussions from the company’s retired founder, who currently is living on Vancouver Island.

Required:
For each of the two companies, recommend and justify an accounting approach that is appropriate under its particular circumstances.



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  • CreatedFebruary 17, 2015
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