- 20 Marks
FR – L2 – Q8 – Financial Reporting Standards
Explain the correctness of accounting treatments for preference shares, customer liquidation, and goodwill impairment in Trust Plc's financial statements.
Question
The following information has been extracted from the draft financial statements of Trust Plc for the year ended 31 December 20X8.
| Net assets | Profit for the year |
|---|---|
| GH¢000 | GH¢000 |
| 5,000 | 500 |
As the senior in charge of the audit, you identify the following:
(i) The company has preference shares in issue and these are included in equity at an amount of GH¢500,000. The annual dividend of 10% has been recognised in equity. The shares are to be redeemed in three years’ time.
(ii) One of Trust Plc’s customers went into liquidation shortly after the year-end owing Trust Plc GH¢25,000. The finance director has argued that the liquidation did not exist at the year-end and has retained the balance in the financial statements.
(iii) The company had recognised impairment of goodwill in the amount of GH¢400,000 in the financial statements for the year ended 31 December 20X8. The finance director has reversed the write-off in this year’s accounts due to an upturn in fortunes of the cash-generating unit to which the goodwill related. This has resulted in a credit of the full amount to the statement of profit or loss.
Required:
(a) Explain whether the above accounting treatments are correct and, if not, explain the correct
(b) Adjust the net assets and profit figures after making any necessary corrections in respect of the above accounting treatments.
(c) Identify and explain any ethical issues arising in the above. (Assume that Kofi is a full member of ICAG and that you are a student member).
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