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ACCT 7020 Financial Reporting

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Question:

You are a qualified Chartered Accountant with Dynamics Co. Ltd, a listed company that manufactures and distributes premium security equipment. The financial statements of Dynamics are prepared up to 31 December each year in accordance with International Financial Reporting Standards (IFRS).

You encountered the following outstanding issues while preparing the financial statements for the year ended 31 December 2016:

a) Dynamics sold some trade receivables, which arose during December 2016, to a factoring company on 31 December 2016. The trade receivables sold are unlikely to default in payment based on past experience but they are long dated with payment not due until 1 July 2017.

Dynamics has given the factor a guarantee that it will reimburse any amounts not received from the factor. Dynamics received $90 million from the factor, being 90% of the trade receivables sold. The trade receivables are not included in the statement of financial position of Dynamics and the balance of $9 million (10% of trade receivables factored) which has not been received from the factor has been written off against retained earnings. (25 marks)

b) On 1 April 2016, Dynamics commenced construction of a new distribution centre. The building was completed and available for use on 30 November 2016. The cost of construction amounted to $4.5 million, funded out of general borrowings, which comprise two bank loans as follows: (i) $2 million of bank loan finance at 6% interest (ii) $3 million of bank loan finance at 4.5% interest Ignore any depreciation in relation to the new distribution centre. (25 marks)

Required Prepare a justification with reference to relevant IFRS of the accounting treatment for each of the outstanding issues above, preparing supporting calculations and discussing the impact, where appropriate.
 
The IASC has been actively pursuing the goal of international accounting harmonisation for two decades. Currently, the International Financial Reporting Standards (IFRS) seems to clearly emerge as a global financial reporting benchmark. Provide a critical updated evaluation of the main benefits as well as practical obstacles arising from the adoption of a single set of accounting standards. (50 marks)
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