You are the financial controller for Commonside Ltd. You are assisting with the preparation of the...
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You are the financial controller for Commonside Ltd. You are assisting with the preparation of the financial statements for the year ended 31 December 2021. The board of directors will receive a bonus if, for the year ended 31 December 2021, earnings per share exceeds 75 pence per share. The following matters have been dealt with by the financial accountant who was acting upon the instruction of the finance director to maximise profits. (1) On 4 October 2021, Commonside Ltd sold goods on credit to an American customer for $408,000. The invoice was correctly translated and accounted for. On 21 December 2021, Commonside Ltd received payment for half the goods. The finance director asked the financial accountant to use the average exchange rate for the year to translate and account for the receipt. The finance director requested that no further entries be made in respect of this sale. The spot exchange rates were as follows: 4 October 2021 21 December 2021 31 December 2021 Average for the year $1.36: £1 $1.38: £1 $1.39: £1 $1.33: £1 (2) At 31 December 2021, Commonside Ltd disclosed a contingent liability of £13,000 for a regulatory fine from the industry regulator. The fine of £13,000 was paid in January 2022. (3) On 1 January 2021, Commonside Ltd entered into a lease arrangement to lease a piece of machinery for four years. The annual payment is £10,000 in advance. The implicit interest rate in the lease arrangement is 5% resulting in a present value of lease payments of £37,232. Company policy is to recognise depreciation of similar non-current assets on a straight line basis within administration expenses. The finance director requested that the first payment of £10,000 on 1 January 2021 be credited to bank and debited directly to retained earnings. No 5 transaction has been posted to the statement of profit or loss for the year ended 31 December 2021. The following financial information is also available: Draft profit for the year is £838,200. > There were 800,000 shares in issue on 1 January 2021. > On 1 April 2021 a further 400,000 shares were issued at market value. REQUIRED: (a) The maximum word count for this requirement is 600 words. In respect of items (1)-(3): • Set out and explain the correct IFRS financial reporting treatment in the financial statements of Commonside Ltd for the year ended 31 December 2021, preparing all relevant calculations. As part of your answer you need to make reference to the relevant definitions and treatments required by the accounting standards. • Explain why you think that the finance director has requested the original accounting treatment. [15 marks] (b) There is no maximum word count for this requirement. Calculate the earnings per share using the draft profit for the year of £838,200 before any adjustments arising from items (1)-(3). [2 marks] (c) There is no maximum word count for this requirement. Calculate a revised profit and revised earnings per share including any adjustments for the accounting treatment for items (1)-(3). [4 marks] You are the financial controller for Commonside Ltd. You are assisting with the preparation of the financial statements for the year ended 31 December 2021. The board of directors will receive a bonus if, for the year ended 31 December 2021, earnings per share exceeds 75 pence per share. The following matters have been dealt with by the financial accountant who was acting upon the instruction of the finance director to maximise profits. (1) On 4 October 2021, Commonside Ltd sold goods on credit to an American customer for $408,000. The invoice was correctly translated and accounted for. On 21 December 2021, Commonside Ltd received payment for half the goods. The finance director asked the financial accountant to use the average exchange rate for the year to translate and account for the receipt. The finance director requested that no further entries be made in respect of this sale. The spot exchange rates were as follows: 4 October 2021 21 December 2021 31 December 2021 Average for the year $1.36: £1 $1.38: £1 $1.39: £1 $1.33: £1 (2) At 31 December 2021, Commonside Ltd disclosed a contingent liability of £13,000 for a regulatory fine from the industry regulator. The fine of £13,000 was paid in January 2022. (3) On 1 January 2021, Commonside Ltd entered into a lease arrangement to lease a piece of machinery for four years. The annual payment is £10,000 in advance. The implicit interest rate in the lease arrangement is 5% resulting in a present value of lease payments of £37,232. Company policy is to recognise depreciation of similar non-current assets on a straight line basis within administration expenses. The finance director requested that the first payment of £10,000 on 1 January 2021 be credited to bank and debited directly to retained earnings. No 5 transaction has been posted to the statement of profit or loss for the year ended 31 December 2021. The following financial information is also available: Draft profit for the year is £838,200. > There were 800,000 shares in issue on 1 January 2021. > On 1 April 2021 a further 400,000 shares were issued at market value. REQUIRED: (a) The maximum word count for this requirement is 600 words. In respect of items (1)-(3): • Set out and explain the correct IFRS financial reporting treatment in the financial statements of Commonside Ltd for the year ended 31 December 2021, preparing all relevant calculations. As part of your answer you need to make reference to the relevant definitions and treatments required by the accounting standards. • Explain why you think that the finance director has requested the original accounting treatment. [15 marks] (b) There is no maximum word count for this requirement. Calculate the earnings per share using the draft profit for the year of £838,200 before any adjustments arising from items (1)-(3). [2 marks] (c) There is no maximum word count for this requirement. Calculate a revised profit and revised earnings per share including any adjustments for the accounting treatment for items (1)-(3). [4 marks]
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Answer rating: 100% (QA)
ANSWER a The correct IFRS financial reporting treatment in the financial statements of Commonside Ltd for the year ended 31 December 2021 is as follow... View the full answer
Related Book For
Auditing Assurance Services and Ethics in Australia an Integrated Approach
ISBN: 978-1442539365
9th edition
Authors: Alvin A Arens, Peter J. Best, Greg Shailer, Brenton Fiedler
Posted Date:
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