Could you please help me to answer these questions! Thank you very much! QUESTIO
ID: 2335316 • Letter: C
Question
Could you please help me to answer these questions! Thank you very much! QUESTION 2 1 QUALITATIVE CHARACTERISTICS Total 2 marks The auditor checking Company A's financial statements thinks that a sale of $1 million has not been included in the company's accounts. He found out this information 3 months after the financial statements had been finalised. The company's total sales is $10 million. There are conflicting reports from within the company as to: . The exact amount of the sale .The details of the sale Whether the sale actually happened REQUIRED Explain how the auditor's discovery affects the quality of the company's financial information. Base your answer on the Qualitative Characteristics of Financial Statements as per the NZ Framework. Specifically, focus on the two fundamental qualitative characteristics of relevance and faithful representation (previously called reliability) and the two enhancing qualitative characteristics of understandability, and comparability.Explanation / Answer
Q1.1 Accounting concept involved is cash accounting or accrual accounting. Store manager is not correct in his approach as he should follow accrual accounting system and must take into account the sales made on credit as well.
Q1.2 AC involved is of depreciation and book/fair value. Equipment is required to be depreciated over his useful life and recorded at book value after deductin depreciation. Appreciating it to fair value is not correct. Owner, if sale the equipment for higher price shall record the profits in the income statement.
Q1.3 AC involved is of recognition of expenditure as revenue or capital. Accountant is correct to record it as expenses and not as assets.
Q1.4 AC involved here is of depreciation and book/fair value. Matt is incorrect as even though machine are in good condition it needs to be recorded as per IFRS/US GAAP which require PP&E to be depreciated/
Q1.5 AC involved here is of treatin the exp. as capital or revenue. AS per IFRS and US GAAP, all the expenditure incurred till the time asset is complete needs to be added into the cost of asset and not as expenses. Thus treatment of having cement as expenses is not correct and should be added in value of barbeque area
Q1.6 AC involved is of debtors and provision for debt. Sheila should make proper proivsion of debt and give appropriate treatment in income statement. It is not correct to keep them as asset once they are long overdue and be written off through making provision of the same
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