- 14 Marks
FR – May 2021 – L2 – Q6b – Conceptual Framework for Financial Reporting
Analysis of qualitative characteristics application in specific financial reporting scenarios.
Question
The following transactions and events took place in Jaye Investment Nigeria Limited during the year ended March 31, 2019.
(i) The company entered into a lease to rent an asset paying N150,000 a year for 5 years out of its useful economic life of 15 years. Assume a rate of interest implicit in the lease to be 10%. (6 Marks)
(ii) The company’s statement of profit or loss prepared using the historical cost method showed a loss from operating its hotels, but the company is aware that the increase in value of its properties during the year far outweigh the operating loss. (4 Marks)
(iii) A decision was made by Jaye Investment Nigeria Limited’s board of directors to change the company’s accounting policy from one of expensing the finance cost on building new retail outlets to one of capitalising such costs. (4 Marks)
Required:
Explain how you would treat the items in (i) to (iii) above in Jaye Investment Nigeria Limited’s financial statements and indicate on which of the qualitative characteristic framework your treatment is based.
Find Related Questions by Tags, levels, etc.
- Tags: Financial Statements, Historical Cost, Leases, Policy Change, Qualitative Characteristics
- Level: Level 2
- Topic: Conceptual Framework for Financial Reporting
- Series: MAY 2021