You are finalising Pyro Ltd financial statements for the year 31 December 2022. You have extracted...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You are finalising Pyro Ltd financial statements for the year 31 December 2022. You have extracted information from the draft financial statements to review. The extract can be seen below: Draft financial statements for the year ended 31 December 2022 Statement of profit or loss and other comprehensive income for the year ended 31 December 2022 (extract) Revenue¹ Employee benefits expense Depreciation and amortisation expense² Profit on sale of property, plant and equipment² Other expenses³ Impairment loss4 Other comprehensive income (extract) Items that may be subsequently reclassified to profit or loss Investments in equity classified as fair value through other comprehensive income net change in fair value5 Statement of financial position as at 31 December 2022 (extract) Non-current liabilities Long-term borrowings 3. 2022 $ million 4,410 (2,500) (600) 40 5. (30) (120) 6. 3 Explanations provided to Pyro Ltd financial controller 1. Revenue includes fees charged to guests for cruise trips. To boost sales revenue in November and December 2022, the company offered an incentive, entitling each guest to a 20% discount on their next cruise to be taken in January 2023. Revenue recognised in November and December 2022 totalled $1,256,000,000 for guests embarking on cruises over these two months. This included $250,000,000 in revenue attributable to the incentive program redeemed in January 2023. 2022 $ million 2. A cruise ship, the Bottom Liner, was sold on 31 July 2022 for $400,000,000 when its carrying amount was $440,000,000. Included in the depreciation and amortisation expense line item is this ship's annual depreciation charge of $100,000,000. 1,400 4. On 31 December 2022, an impairment test was performed on Pyro Ltd luxury line of cruise ships. No previous impairment had been recognised for these cruise ships. On 31 December 2022, the carrying amount of the cruise ships was $1,000,000,000, the fair value less costs of disposal was $880,000,000, and the value in use was $950,000,000. On 1 July 2022, Pyro Ltd acquired 5,000 shares of Fire Limited for $1,000,000. Pyro Ltd elected to classify these shares at fair value through other comprehensive income at initial recognition. No dividends were received from these shares for the year ended 31 December 2022. The fair value of these shares was $4,000,000 at 31 December 2022. $1,000,000,000 of these borrowings relate to the principal of a 10-year bank loan that will be repaid in full at maturity on 30 June 2023. Included in other expenses is $10,000,000 of interest expense from Pyro Ltd new lease. The interest expense on this lease is not disclosed anywhere else in the financial statements or the notes. The lease is for a new cruise ship, the Fare Value, and commenced on 1 January 2022 for five years. Lease payments are made in arrears on 31 December each year. The present value of all lease payments on 1 January 2022 was $200,000,000. The interest rate implicit in the lease is 6% and Pyro Ltd incremental borrowing rate is 5%. Question: Identify 8 errors in the draft financial statements and briefly explain why the accounting treatment is incorrect. Note income tax issues can be IGNORED. You are finalising Pyro Ltd financial statements for the year 31 December 2022. You have extracted information from the draft financial statements to review. The extract can be seen below: Draft financial statements for the year ended 31 December 2022 Statement of profit or loss and other comprehensive income for the year ended 31 December 2022 (extract) Revenue¹ Employee benefits expense Depreciation and amortisation expense² Profit on sale of property, plant and equipment² Other expenses³ Impairment loss4 Other comprehensive income (extract) Items that may be subsequently reclassified to profit or loss Investments in equity classified as fair value through other comprehensive income net change in fair value5 Statement of financial position as at 31 December 2022 (extract) Non-current liabilities Long-term borrowings 3. 2022 $ million 4,410 (2,500) (600) 40 5. (30) (120) 6. 3 Explanations provided to Pyro Ltd financial controller 1. Revenue includes fees charged to guests for cruise trips. To boost sales revenue in November and December 2022, the company offered an incentive, entitling each guest to a 20% discount on their next cruise to be taken in January 2023. Revenue recognised in November and December 2022 totalled $1,256,000,000 for guests embarking on cruises over these two months. This included $250,000,000 in revenue attributable to the incentive program redeemed in January 2023. 2022 $ million 2. A cruise ship, the Bottom Liner, was sold on 31 July 2022 for $400,000,000 when its carrying amount was $440,000,000. Included in the depreciation and amortisation expense line item is this ship's annual depreciation charge of $100,000,000. 1,400 4. On 31 December 2022, an impairment test was performed on Pyro Ltd luxury line of cruise ships. No previous impairment had been recognised for these cruise ships. On 31 December 2022, the carrying amount of the cruise ships was $1,000,000,000, the fair value less costs of disposal was $880,000,000, and the value in use was $950,000,000. On 1 July 2022, Pyro Ltd acquired 5,000 shares of Fire Limited for $1,000,000. Pyro Ltd elected to classify these shares at fair value through other comprehensive income at initial recognition. No dividends were received from these shares for the year ended 31 December 2022. The fair value of these shares was $4,000,000 at 31 December 2022. $1,000,000,000 of these borrowings relate to the principal of a 10-year bank loan that will be repaid in full at maturity on 30 June 2023. Included in other expenses is $10,000,000 of interest expense from Pyro Ltd new lease. The interest expense on this lease is not disclosed anywhere else in the financial statements or the notes. The lease is for a new cruise ship, the Fare Value, and commenced on 1 January 2022 for five years. Lease payments are made in arrears on 31 December each year. The present value of all lease payments on 1 January 2022 was $200,000,000. The interest rate implicit in the lease is 6% and Pyro Ltd incremental borrowing rate is 5%. Question: Identify 8 errors in the draft financial statements and briefly explain why the accounting treatment is incorrect. Note income tax issues can be IGNORED.
Expert Answer:
Related Book For
Posted Date:
Students also viewed these accounting questions
-
Statement of profit or loss and other comprehensive income Year ended 31 Nine-month Dec-18 period ended 31 Dec-17 Revenue 2,200,228 1,561,138 Cost of sales -1,199,154 -877,354 Gross profit 1,001,074...
-
The statements of profit or loss and other comprehensive income and changes in equity for XY and its subsidiary AZ for the year ended 31 December 20X5 are shown below: Statement of profit or loss and...
-
Prepare a statement of profit or loss and other comprehensive income, and a statement of changes in equity for Sandham for the year ended 31 August 2022 and a statement of financial position at 31...
-
Use your answer to question 44 to compute the cumulative frequencies. Use the following prices of Swiss stocks to answer question. Question 44 Use your answer to question 43 to construct a tally...
-
Cultural values impact planning, operations and decision making for international organizations. The textbook includes a table of United States Values and Possible Alternatives. Plus, the table lists...
-
Which of the following is NOT an advantage of an ERP system? a. Better access control b. Standardization of procedures and reports c. Improved monitoring capabilities d. Simplicity and reduced costs
-
Was the decision by Ikea to recall and stop production of the Sladda appropriate? Explain both why and why not.
-
1. Make the previous numbers work. Kristin and the entire team have put massive amounts of time into the project, and they all expect you to be a team player. You dont want to let them down. Besides,...
-
17. Consider the following projects, for a firm using a discount rate of 10%: Project A B D NPV $200,000 $200,001 $60,000 $(235,000) IRR 12.2% 11% 10.1% 9% If the projects are independent, which, if...
-
Explain the difference between closed-fact and open-fact situations.
-
The story, you can also watch the short film at the following link: http://www.onf.ca/film/chandail_le/ Answer the point-form questions (but don't forget the important details!): 1. During their...
-
What marketing strategy should we suggest the bald baker and why and how will we implement it.
-
Sec. 24(B)(1) of the NIRC, as amended, provides that: "[a] final rate of twenty per cent (20%) is hereby imposed upon....other winnings (except winnings amounting to Ten Thousand Pesos (10,000) or...
-
Write a while loop to print square of first X even numbers . Using java language.Ask the user to enter an integer value of X.
-
How do events fit with the corporate strategy of cause-related marketing activities? Provide an example and explain your rationale.
-
4 Consider a flow graph given in Fig. and calculate the cyclomatic complexity by all three methods
-
Prove by mathematical induction each of the following identities: 1+2+3+...+ n = (a) bin (b) (c) (d) (e) r 1 +2+3+...+n 12+2.3+3.4+...+ n(n+1) = n(n + 1)(n + 2) Bend 3 mibnog n(n+1) 2 n(n + 1)(2n +1)...
-
How can a promoter avoid personal liability for pre-incorporation contracts?
-
The profit after tax of B plc for the year to 30 June 2020 is 217,500. The comparative figure for the year to 30 June 2019 was 188,000. On 1 July 2018, the company's issued share capital consisted of...
-
An asset (which has never been revalued) has a carrying amount of 100,000. The asset is being depreciated on the straight-line basis, with a remaining useful life of three years and a residual value...
-
(a) State the objective of general purpose financial reporting. (b) Identify the main classes of information that should be presented in general purpose financial reports. (c) Identify the primary...
-
Briefly identify the following concepts: intergenerational equity, intragenerational equity, intergenerational efficiency, the Hicksian concept of income, weak sustainability, strong sustainability,...
-
State whether the following statements are true, false, or uncertain and explain why. a) The necessary condition for strong sustainability is a non-declining natural capital and nothing else. b) The...
-
In a world so divided in so many ways, sustainable economic development on a global scale will amount to nothing but a figment of human imagination or, to put it mildly, just wishful thinking. If you...
Study smarter with the SolutionInn App