Leap Pty Ltd1 (Leap) is a Cambodian company formed by 10 people who live in the same
Question:
Leap Pty Ltd1 (Leap) is a Cambodian company formed by 10 people who live in the same village. Each shareholder contributed capital of US$5000. Two shareholders were appointed as executive directors to manage Leap’s operations and finances.
Leap has operated a small farm for three years but has not yet generated a profit.
On 30 June 20X1 Leap obtained a loan from the Asian Development Bank for an expansion. The loan is micro-finance aimed at enhancing development and relieving poverty in the region. The terms of the loan are as follows:
Amount US$30 000
Interest rate 0%
Repayment Leap must make payments in the amount of 10% of profit until the principal ($30 000) is repaid in full. In any year that Leap does not generate a profit, no repayment is required.
Leap prepares financial statements for its shareholders. Other users of Leap’s financial statements include the Bank and potential future investors and creditors. Leap is not required to comply with International Financial Reporting Standards. However, the Company chooses to comply with the AASB Conceptual Framework for Financial Reporting and most Australian Accounting Standards because they are accessible and provide a good set of principles for financial reporting.
Leap has decided not to apply AASB 132 or AASB 9 and thus relies on principles in the Framework and other Australian Accounting Standards when deciding how to account for financial assets or financial liabilities.
Leap’s functional and presentation currency is the US dollar. Accordingly, all its financial records and financial statements are in US dollars and AASB 121 The Effects of Changes in Foreign Exchange Rates is not relevant to this case.
REQUIRED
- What is the main accounting policy issue that needs to be resolved to record the receipt of US$30 000 from the Asian Development Bank? (15 – 60 words)
- identify one principle that is relevant to the accounting policy issue identified in part a) and explain why it is relevant.
- Write an accounting policy to account for the sum of money received from the Asian Development Bank. Do not justify your policy. Just describe it
Expert Answer:
What is the main accounting policy issue that needs to be resolved to record the receipt of US30 000 from the Asian Development Bank 15 60 words The m... View the full answer
