Veselin Kamel vice president of finance for Hand Corp has recently
Veselin Kamel, vice-president of finance for Hand Corp., has recently been asked to conduct a seminar for the company's division controllers. He would discuss the proper accounting for items that are large but do not typify normal business transactions (due to either the nature or frequency of the transaction). Kamel prepared the situations that follow to use as examples in the discussion. He understands that accounting standards mandate separate presentation of certain items, that these standards change over time, and that different standards may have different requirements. He has decided to focus on general principles.
1. An earthquake destroys one of the oil refineries owned by a large multinational oil company. Earthquakes are rare in this location.
2. A publicly held company has incurred a substantial Joss in the unsuccessful registration of a bond issue. The company accesses capital markets very frequently.
3. A large portion of a farmer's crops is destroyed by a hailstorm. Severe damage from hailstorms is rare in this area.
4. A large diversified company sells a block of shares from its portfolio of investments. The shares are currently treated as fair value-OCI investments.
5. A company sells a block of common shares of a publicly traded company. The block of shares, which represents less than 10% of the publicly held company, is the only share investment that the company has ever owned. The shares are accounted for as fair value-OCI investments.
6. A company that operates a chain of warehouses sells the extra land surrounding one of its warehouses. 'When the company buys property for a new warehouse, it usually buys more land than it needs for the warehouse because it expects the land to increase in value. Twice during the past five years, the company sold excess land.
7. A textile manufacturer with only one plant moves to another location and incurs relocation costs of$725,000. Prior to the move, the company had been in the same location for 100 years.
8. A company experiences a material loss in the repurchase of a large bond issue that has been outstanding for three years. The company regularly repurchases bonds of this type.
9. A railroad experiences an unusual flood loss to part of its track system. Flood losses normally occur every three or four years. How would this be different if the company were to insure itself against this loss?
10. A machine tool company sells the only land it owns. The land was acquired 10 years ago for future expansion, but shortly after the purchase, the company abandoned all plans for expansion and decided to keep the land as an investment that would appreciate in value.
For each situation, determine whether the item should be classified as unusual. Explain the reasons for your position.
Assume that the company follows IFRS, and that the company accounts for its investments in accordance with IAS 39.
Membership TRY NOW
  • Access to 800,000+ Textbook Solutions
  • Ask any question from 24/7 available
  • Live Video Consultation with Tutors
  • 50,000+ Answers by Tutors
Relevant Tutors available to help