Answered: QUESTIONS 4 You are the financial…

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter1: Accounting As A Form Of Communication

Section: Chapter Questions

Problem 1.9P

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Transcribed Image Text:^ >>> QUESTIONS 4 You are the financial controller of Omega, a listed entity which prepares consolidated financial statements in accordance with International Financial Reporting Standards (IFRS® Standards). The financial statements for the year ended 30 September 2018 are due to be published shortly. A trainee accountant who is assigned to your department is reviewing the financial statements as part of a training exercise. She has prepared a list of queries arising out of this review. Query One When I look at the statement of financial position, one of the categories of non-current assets is 'investment properties and another category is 'property, plant and equipment' - in which all other properties are included. Surely we invest in all our properties, so why have two categories for them in the statement of financial position? How do we decide what goes where? note to the financial statements states that investment properties are measured at their fair values and not depreciated. Don't all non-current assets have to be depreciated over their estimated useful lives? Another note states that property included in property, plant and equipment is measured at cost less accumulated depreciation rather than at fair value. Shouldn't all properties be measured in the financial statements on a consistent basis? Finally, I can't immediately see from the financial statements where the gains or losses relating to the measurement of investment properties are included. The profit statement seems to include two main components - profit or loss and other comprehensive income. Where would the gains or losses go? Presumably the treatment of gains and losses is the same for any non-current assets which are measured at fair value? Query Two When I looked at the note detailing the intangible assets we include in our consolidated statement of financial position, I noticed that several brand names associated with subsidiaries we acquired recently were included in this figure. Therefore, I also expected to see a figure for the Omega brand. name included within intangible assets. There doesn't appear to be any amount for the Omega brand name included within intangible assets and I don't understand why. The Omega brand name has been developed within Omega for a number of years and is well regarded by our customers. Surely it's a mistake not to include it as well? Query Three One of the notes to the financial statements refers to a legal claim made against Omega by Customer X. This relates to losses incurred by Customer X due to Omega supplying this customer with a faulty product. Further investigation revealed that the fault was due to one of Omega's suppliers, Supplier Y, supplying Omega with a faulty component. This component was used to manufacture the product supplied to Customer X. Therefore, Omega made a legal claim against Supplier Y in respect of that faulty component. The note states that both legal claims will probably succeed. I don't understand why Omega's financial statements include a liability in respect of the expected settlement of Customer X's legal claim but do not include an asset in respect of the expected settlement of Omega's legal claim against Supplier Y. This seems inconsistent. Required: Provide answers to the queries raised by the trainee. You should justify your answers with reference to relevant IFRS Standards.

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