QUESTION FIVE Part A Richmond Chemical Ltd\'s draft income statement for the yea
ID: 2587053 • Letter: Q
Question
QUESTION FIVE Part A Richmond Chemical Ltd's draft income statement for the year ended on 30 June 2015 reported a profit before tax of $16.7 million. An investigation of the underlying records produced the following information: 0) In the previous financial year (ending 30 June 2014), a $2 million provision was recognized for cleaning up contaminated land near a factory owned by the business. The clean-up of the land is due to take place in two years' time. At the end of the current financial year (ending 30 June 2015), it was found that the contamination was more extensive than first estimated and that the total clean-up cost was now estimated to be $4.6 million. No action has been taken when the draft income statement was prepared for the financial year ending 30 June 2015. (i) During the financial year ending 30 June 2015, a court case was brought against Richmond Chemical Ltd for infringement of patent rights. A rival business is claiming $1.5 million compensation. Richmond Chemical Ltd, as a consequence, recognized a provision for $1.5 million during the current year. But the lawyers of Richmond Chemical Ltd believe there is a high probability that the company will not be found liable. REQUIRED: Determine the revised profit before tax for the current year (i.e. financial year ending on 30 June 2015) for Richmond Chemical Ltd after taking into account the above information. Explain your answer fully by making reference to any adjustment made to year-end profit PartB There are increasing pressures on companies from stakeholders to measure and report on social and environmental impacts. Accountants, therefore, are facing a challenge in terms of measuring a broader performance base. It is argued that triple bottom line reporting can assist accountants in meeting such a reporting challenge. Define Triple bottom line reporting' and briefly discuss how triple bottom line reporting can help the accountants to meet the challenge of measuring performance from a broader perspective. (5 + 3 = 8 marks)Explanation / Answer
Answer of Part A
Note:
As compansesation is a type of liabilities which can or can not be ocuured but company should create the provision for same for True & fair Accounting.
Answer of Part B
The phrase “the triple bottom line” was first coined in 1994 by John Elkington, the founder of a British consultancy called Sustainability. His argument was that companies should be preparing three different (and quite separate) bottom lines. One is the traditional measure of corporate profit the “bottom line” of the profit and loss account. The second is the bottom line of a company's “people account” a measure in some shape or form of how socially responsible an organization has been throughout its operations. The third is the bottom line of the company's “planet” account a measure of how environmentally responsible it has been. The triple bottom line (TBL) thus consists of three Ps: profit, people and planet. It aims to measure the financial, social and environmental performance of the corporation over a period of time. Only a company that produces a TBL is taking account of the full cost involved in doing business.
Triple bottom line reporting help accountatns in following way to meet Challanges of measuring performance from a broader perspective
TBL is a societal and ecological agreement between the community and businesses. In presenting information about the company’s impact on issues impacting sustainability, there will be both positive and negative items that emerge. TBL reporting incorporates presenting what the business is doing well, along with areas that need improvement. Reporting in this way demonstrates a drive towards increased transparency, which can mitigate concerns by stakeholders on hidden information.
Also, including TBL reporting demonstrates to stakeholders that the business is taking accountability to a higher level. This reporting maintains and raises expectations of companies and improves “global clout” (Ho & Taylor, 2007). An undeniable case for action has been mounted effectively by senior scientists around the world, with growing acceptance by governments and the wider community (Rogers, 2001). Evidences of diminishing natural resources have made consumers more aware of the impact businesses are having on the world; however, the corporate world lack of desire to change has led to minimizing capital stocks. Without change, the state of the world’s economy, society, and natural resources will be insufficient for not-so-distant generations. Larger companies are beginning to adjust business processes to utilize more responsibly the finite resources that are available, as well as to report on the impact of these changing policies and procedures. Everyone involved in the process of TBL, including employees and external stakeholders, can increase their knowledge of the company and expand their relationships with other stakeholders in the company. Participating in a learning environment is beneficial and necessary for a business to meet the goals of sustainability. The process of building a sustainable environment can lead to other revelations on how the business world can lend a helping hand in protecting the natural resources that are quickly evaporating. Uniting the employees of a business toward a common set of goals, especially ones that have a broader impact than just efficiency and profit, could outweigh the risks of additional public scrutiny and substantial policy adjustment. Being united creates a more resilient front. The possible initial negative exposure could be weathered because the stakeholders have learned to forge a strong sense of business purpose and identity. Finally, one can argue that companies have a social responsibility to be accountable for the resources that they use and waste. Reporting on a company’s sustainability gives a benchmark for the future.
Calculation of Revised Profit and Loss account Particular Amount ( In Million) Profit as given for the year ended on 30th Jun 2015 16.70 Less: Excess Provision Need to recognise 4.60 Provision for Compensation 1.50 Revised Profit 10.60