Question 1 (16 marks) Ferdinand and Karen (F&K) is a large manufacturer of electronic products and...
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Question 1 (16 marks) Ferdinand and Karen (F&K) is a large manufacturer of electronic products and home appliances in the city. Its year end is 31 December. Ken is the newly appointed chief accountant of F&K. On his table is a memo by Karen, his assistant, that draws his attention on the following matters in the finalization of financial statements for 2019. The details are as follows. 1. F&K needs iron for the manufacture of a line of washing machines. Because the price of iron fluctuated during the year, the purchasing manager signed a contract on 30 November 2019 with a supplier for the delivery of 500 tons of iron at $10 per ton. On the delivery day, 31 January 2020, the market price of iron rose to $12 per ton. 2. To promote a new brand of refrigerator introduced during 2019, F&K included a discount coupon for the purchase of the refrigerator when customers purchased other lines of products. F&K, however, did not have information on the number of customers who would be attracted to buy the refrigerator and hence the number of coupons that could be redeemed because it did not have prior experience. 3. F&K started manufacturing a new line of LED bulbs on 1 July 2019. This product had a design which was similar to that of a famous brand of a competitor who then sued F&K for infringement of copyright on 1 December 2019. Accordingly, F&K made a provision of $1 million on the advice of its lawyer. On 3 February 2020, the court ordered F&K to pay $1.2 million. 4. The management of F&K drafted up a detailed plan of restructuring which was approved on 21 December 2019. Under the plan, F&K would close down retail shops on the outlying islands. Due to the holidays, the plan was only discussed with the staff union on 4 January 2020 and affected staffs were sent notices on the next day. Required: Discuss whether and how the above matters should be dealt with in the draft financial statements of F&K for the year ended 31 December 2019 under HKAS 37 Provisions, Contingent Liabilities and Contingent Assets and other relevant accounting standards. (16 marks) Question 1 (16 marks) Ferdinand and Karen (F&K) is a large manufacturer of electronic products and home appliances in the city. Its year end is 31 December. Ken is the newly appointed chief accountant of F&K. On his table is a memo by Karen, his assistant, that draws his attention on the following matters in the finalization of financial statements for 2019. The details are as follows. 1. F&K needs iron for the manufacture of a line of washing machines. Because the price of iron fluctuated during the year, the purchasing manager signed a contract on 30 November 2019 with a supplier for the delivery of 500 tons of iron at $10 per ton. On the delivery day, 31 January 2020, the market price of iron rose to $12 per ton. 2. To promote a new brand of refrigerator introduced during 2019, F&K included a discount coupon for the purchase of the refrigerator when customers purchased other lines of products. F&K, however, did not have information on the number of customers who would be attracted to buy the refrigerator and hence the number of coupons that could be redeemed because it did not have prior experience. 3. F&K started manufacturing a new line of LED bulbs on 1 July 2019. This product had a design which was similar to that of a famous brand of a competitor who then sued F&K for infringement of copyright on 1 December 2019. Accordingly, F&K made a provision of $1 million on the advice of its lawyer. On 3 February 2020, the court ordered F&K to pay $1.2 million. 4. The management of F&K drafted up a detailed plan of restructuring which was approved on 21 December 2019. Under the plan, F&K would close down retail shops on the outlying islands. Due to the holidays, the plan was only discussed with the staff union on 4 January 2020 and affected staffs were sent notices on the next day. Required: Discuss whether and how the above matters should be dealt with in the draft financial statements of F&K for the year ended 31 December 2019 under HKAS 37 Provisions, Contingent Liabilities and Contingent Assets and other relevant accounting standards. (16 marks)
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ANSWERS 1 FK needs iron for the manufacture of a line of washing machines Because the price of iron fluctuated during the year the purchasing manager signed a contract on 30 November 2019 with a suppl... View the full answer
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