- 8 Marks
CR – May 2023 – L3 – Q1b – Financial Instruments (IFRS 9, IAS 32, IAS 39)
Discuss IFRS 9 rules on derecognition of financial assets, apply these rules to factoring, and analyze ethical implications of falsifying a land sale.
Question
The directors of Omi PLC reviewed the group statement of financial position as of November 30, 2020. Concerned about meeting future loan agreements, they proposed the following actions to improve liquidity:
- Factoring of Receivables:
- Factoring N400 million of receivables.
- 80% cash is received immediately (N320 million), and the factoring company charges N32 million.
- The balance will be paid 30 days later.
- Adjusting Financial Statements:
- The executive director suggested falsifying financial statements to show that land located in Ikoyi was sold before year-end to improve liquidity.
Required:
- Discuss the rules of IFRS 9 – Financial Instrument on derecognition of financial assets.
- Apply these rules to factoring in part (1).
- Discuss the ethical implications of falsifying the sale of land in part (2).
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