Exam (elaborations)
Understanding ias 8 and answering in the five step approach
- Course
- Finance and accounting
- Institution
- Finance And Accounting
A theory question that seeks to uncover your understanding on ias 8.
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QUESTION(30 MARKS)
[36 MINUTES]
You have recently started a new job as the senior accountant at Rand-Lover Ltd, a company that
manufactures cheap, off-road vehicles.
One of your first tasks in your new position is to review draft annual financial statements that were
prepared by the previous senior accountant for the period ended 31 December 2015 and to
provide feedback to the Financial Manager.
In addition to the financial statements, you are provided with the following balances extracted from
the trial balance:
Retained Earnings 31 December 2013 R1 160 000
Retained Earnings 31 December 2014 R1 490 000
Profit for the year ended 31 December 2014 R370 000
Profit for the year ended 31 December 2015 R293 250
Dividend Paid 31 December 2014 R40 000
Dividend Paid 31 December 2015 R80 000
Additional Information:
1) During your review of the financial statements, you noticed that the previous senior
accountant failed to provide for the December 2014 electricity invoice amounting to
R136 800 (inclusive of VAT). You immediately bring the matter to the attention of the
financial manager as the amount is material.
The financial manager responds:
Yes, we should have booked that in our favour because if
we accounted for that invoice, we were going to miss our profit target and that means no
bonuses for staff during 2016
is done.
2) During your review of the capital expenditure information, you notice that at the start of the
year, Rand-lover began to measure Investment Property using the Fair Value model as
permitted by IAS 40 Investment property in order to achieve a more appropriate presentation.
This differs from the treatment applied in the previous period where Investment Property was
carried on the cost model. All amounts had been correctly treated, however there was no
mention of the change in treatment in the notes to the financial statements.
3) The prevailing tax rate is 28%.
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