Issue Analysis Paper

1116 Words Jan 30th, 2011 5 Pages
TO: Jill Tsin (CFO of LSL)
FROM: Company Controller (LSL)
DATE: December 10, 2010
SUBJECT: LumberSell Limited—Financial Reporting Issues (Fiscal Year 2010)

This memo will analyze significant financial reporting issues relating to LSL’s financial statement for 2010.

LUMBERSELL LIMITED (LSL)
LSL is a public company in lumber business and has decided to report financial issues under IFRS for the year of 2010. Based on the expectation that the company will only have a break even this year, we are seeking to increase the company’s line of credit, which depends on the company’s net income and liquidity ratios for 2010.
The financial statement users and their objectives, including the following: • As the CFO of the company, you want
…show more content…
Because it is highly likely the fees and duties will be either reduced significantly or completely eliminated, the contingency exists. This alternative has no affect on net income but leaves us with higher liquidity ratio.
Alternative 3: report the $4 million as restricted cash and disclose in notes.
IFRS says “material funds that are set aside for particular purposes should be reported as restricted cash” (Kieso, 380). We can treat the restricted cash as future payment to the U.S. government, and should disclose that the fees are likely to be cancelled. Reporting it as restricted cash does not affect our net income but with higher liquidity.
Conclusion:
All treatments are supported by IFRS and have no affect on the bottom line of the company. I recommend reporting the fees as contingent liabilities since it leaves us a higher liquidity, which is advantageous to increasing the line of credit.

ISSUE #3: ACCOUNTING FOR LAWSUITS
LSL is sued by its former president for wrongful dismissal. There are contingent losses associated with the lawsuit. CICA HB3290.05 states that “contingency is uncertainty about whether a gain or loss will occur and that will finally be resolved when one or more future events occur or fail to occur”.
Alternative #1: record the full amount of $8,250,000 as liability.
CIAC HB 3290.05 says that “If it is likely that a contingency will result

More about Issue Analysis Paper