ACCT 7960 - MASTER OF SCIENCE IN CORPORATE GOVERNANCE AND COMPLIANCE (2023-24 Trimester 1)

ACCT 7960 - MASTER OF SCIENCE IN CORPORATE GOVERNANCE AND COMPLIANCE (2023-24 Trimester 1)

Individual Assignment 1

Answer ALL questions

Question 1

The following trial balance has been extracted from the books of A Ltd as at 31 March 2023

Additional information

a. Inventory on 31 March 2023 was valued at cost of $92,000 by a physical stock taking on that date, which included deteriorated goods cost $10,000.  These goods can be sold for $4,000 if a further cost of $1,000 is spent on restating them.

b. Depreciation for the year to 31 March 2023 is to be charged against cost of sales as Buildings is 5% on cost (straight line method) and plant and machinery is 30% on reducing balance method.

c. Income tax of $165,000 is to be provided for the year to 31 March 2023.  The loan is repayable in five years.

d. Salaries are to be apportioned equally between cost of sales, administration expenses and distribution expenses.

e. Office rent, audit fee, bad debts are classified as administrative expenses whereas advertisement should be treated as distribution expenses

f. Subject to professional valuer assessment, the land was revalued to $250,000 on 31 March 2023.

Required

Prepare the statement of profit or loss and other comprehensive income and statement of financial position for the year ended 31 March 2023 in accordance with the format under HKAS 1 (Revised).   (35 marks)

(All relevant workings must be shown)

Question 2

Discuss the following statement in accordance with the relevant generally accepted accounting principle. Write not more than 400 words `Competent managers have been called the most value asset of a business.  However, accountants leave them off the asset in the Statement of Financial Position.’

(15 marks)

Question 3

Part a

LAM Ltd is a property developer, during the year ended 30 September 2023, the following separate and independent events occurred:

On 1 February 2023, LAM Ltd purchased a piece of a leasehold land with unexpired term of 75 years.  The price is $1,500 million; LAM Ltd will develop the site and build an office tower for its own use.  As of 30 September 2023, the leasehold land is vacant and no development having started.

On 1 March 2023, LAM Ltd started to promote Long Ping Garden, a residential estate developed for sales.  All the construction activities of the estate have been completed.  Due to the change in government policy towards sales of property, LAM Ltd estimated that the whole project will realize a loss of $960 million.

A villa property in Yuen Long, which was held for rental purposes for many years suffered several damage from landslide at the hillside next to the property and all tenants were evacuated.  LAM Ltd has completed the slope reinforcement and is planning to rent out the property again in the market.  In accordance with the independent valuer’s estimation, the fair value of the property as at 30 September 2023 when compared with 30 September 2022, dropped by $72 million.

On 1 August 2023, LAM Ltd purchased another piece of land at $1,560 million.  The company has not decided whether to hold it for internal use or to develop it for sales.

Additional information

LAM Ltd adopts cost model for property, plant and equipment and fair value model for investment property.

Required

For each of the above items, determine the correct classification under Hong Kong Accounting Standard with brief explanation of reason(s) and address whether depreciation or amortization is required.  (16 marks)

Part b

The following information is extracted from the data record of research and development projects undertaken by JKL Skin Rejuvenation Ltd for the financial year ended 30 September 2023.  Expenditures on research and development were incurred on the following projects.

Project J is about the development of a natural herb cream.  Commercial production and sales of this product commenced in May 2023.  The market response was overwhelmingly favourable.  It is expected that this product will bring in good profits for the company.

Project K is about the development of skin enhancement product.  Market potential was forecasted to be good for this type of product.  Due to an expected budget overrun after a review carried out in September 2023, the product is now on hold and the company is looking for a strategic partner to raise further finance for the project.

Project L which, commenced during 2023, is about the research of a patented herbal base chemical agent for skin rejuvenation, further research study and data analysis  were just carried out to confirm the result.

REQUIRED

In accordance with HKAS 38, explain the accounting treatment for the research and development expenditures for each of project. (12 marks)

(Total 28 marks)

Question 4

The definition of a liability forms an important element of the International Accounting Standards Board’s Framework for the Preparation and Presentation of Financial Statements which, in turn, forms the basis for HKAS 37 Provisions, Contingent Liabilities and Contingent Assets.

Required

a. Discuss the ANY TWO difficulties in measuring a provision under HKAS 37 `Provisions, Contingent Liabilities and Contingent Assets’ (4 marks)

b. Consider the following situations, all are independent:

1. Prior to reporting date, the board of an enterprise decided to close down a division. The future costs of implementing the close down, including redundancy costs and cost of disposing the division’s plant and equipment as well as inventory have been estimated by the finance director.  Up to the year ended date, neither the decision to close down the division nor the redundancy arrangements for employees have been communicated to any of those employees affected and no other steps have been taken to implement the decision. (4 marks)

2. During the current year, the enterprise filed a lawsuit against its business partner for breach of contract. The enterprise’s legal counsel estimates that a favorable settlement is highly probable.  (3 marks)

3. During the current year, 10 employees died after a plant explosion, possibly as a result of lack of equipment maintenance or safety procedures at the plant by the enterprise. Legal proceedings have been started seeking damages from the enterprise but it disputes liability. Up to reporting date, the enterprise lawyers have advised that it is probable that the enterprise would be found liable. But they have also advised that it is almost impossible to estimate the amount of compensation the court might award against the company or how long it might take to exhaust all the legal avenues before a final court decision is reached in this case.  (4 marks)

4. The Hong Kong government introduces a number of changes to the income tax system.  As a result of these change, the enterprise in the financial service sector, will need to retrain a large proportion of its administration and sales workforce in order to ensure continued compliance with financial service regulation. At the reporting date, no retaining of staff has taken place. (3 marks)

5. The enterprise, a retail store, has a policy of refunding purchases by dissatisfied customers even though it is under no legal obligation to do so, its policy of making refund is generally known (4 marks)

Required

For each of above situation, explain the rationale of your decision whether a provision should be recognized, a contingent liability or contingent asset should be disclosed or nothing should be accounted for.

(Total: 22 marks)