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Chapter 24: 9IFRS_a_1 (page 1468)

Snider Corporation, a publicly-traded company, is preparing the interim financial data which it will issue to its shareholders at the end of the first quarter of the 2017–2018 fiscal year. Snider’s financial accounting department has compiled the following summarized revenue and expense data for the first quarter of the year.

Sales revenue \(60,000,000

Cost of goods sold 36,000,000

Variable selling expenses 1,000,000

Fixed selling expenses 3,000,000

Included in the fixed selling expenses was the single lump-sum payment of \)2,000,000 for television advertisements for the entire year.

Instructions

a) Snider Corporation must issue its quarterly financial statements in accordance with IFRS regarding interim financial reporting.

  1. Explain whether Snider should report its operating results for the quarter as if the quarter were a separate reporting period in and of itself, or as if the quarter were an integral part of the annual reporting period.

Short Answer

Expert verified

Snider should report its operating result.

Step by step solution

01

Meaning of IFRS

Companies, accountants, auditors, investors, regulatory and tax authorities in many countries use the IFRS set of consistent accounting standards to prepare books of accounts or annual financial statements.

02

Explaining whether Snider should report its operating results for the quarter

Snider Corporation will report its quarterly earnings as part of the annual period in compliance with IFRS. This means that the quarterly results of each intermediate period are included in the annual period.

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Most popular questions from this chapter

Distinguish between ratio analysis and percentage analysis relative to the interpretation of financial statements. What is the value of these two types of analyses?

Differential reporting for small- and medium-sized entities:

a) is required for all companies less than a certain size.

b) omits accounting topics not relevant for SMEs, such as earnings per share, and interim and segment reporting.

c) has different rules for topics such as earnings per share, and interim and segment reporting.

d) requires significantly more disclosures, since more items are not recognized in the financial statements.

Answer each of the questions in the following unrelated situations.

c) A company has current assets of \(90,000 (of which \)40,000 is inventory and prepaid items) and current liabilities of \(40,000. What is the current ratio? What is the acid-test ratio? If the company borrows \)15,000 cash from a bank on a 120-day loan, what will its current ratio be? What will the acid-test ratio be?

(Ratio Computations and Additional Analysis) Bradburn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Bradburn and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2018, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two \(35,000 notes, which are due on June 30, 2018, and September 30, 2018. Another note of \)6,000 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Bradburn’s cash flow problems are due primarily to the company’s desire to finance a \(300,000 plant expansion over the next 2 fiscal years through internally generated funds. The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years

BRADBURN CORPORATION

BALANCE SHEET

MARCH 31

Assets

2018

2017

Cash

\) 18,200

\( 12,500

Notes receivable

148,000

132,000

Accounts receivable (net)

131,800

125,500

Inventories (at cost)

105,000

50,000

Plant & Equipment (net of depreciation)

1,449,000

1,420,500

Total assets

\)1,852,000

\(1,740,500

Liabilities and Stockholders’ Equity

Accounts payable

\) 79,000

\( 91,000

Notes payable

76,000

61,500

Accrued liabilities

9,000

6,000

Common stock (130,000 shares, \)10 par)

1,300,000

1,300,000

Retained earnings*

388,000

282,000

Total liabilities and stockholders’ equity

\(1,852,000

\)1,740,500

Depreciation charges on the plant and equipment of \(100,000 and \)102,500 for fiscal years ended March 31, 2017, and 2018, respectively, are included in the cost of goods sold.

Instructions

A. Compute the following items for Bradburn Corporation.

5. Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2017 to 2018.

As a loan analyst for Utrillo Bank, you have been presented with the following information.

Toulouse Co.

Lautrec Co.

Assets

Cash

\(120,000

\) 320,000

Receivables

220,000

302,000

Inventories

570,000

518,000

Total current assets

910,000

1,140,000

Other assets

500,000

612,000

Total assets

\(1,410,000

\)1,752,000

Liabilities and Stockholders’ Equity

Current liabilities

\( 305,000

\) 350,000

Long-term liabilities

400,000

500,000

Capital stock and retained earnings

705,000

902,000

Total liabilities and stockholders’ equity

\(1,410,000

\)1,752,000

Annual sales

\(930,000

\)1,500,000

Rate of gross profit t on sales

30%

40%

Each of these companies has requested a loan of $50,000 for 6 months with no collateral offered. Because your bank has reached its quota for loans of this type, only one of these requests is to be granted.

Instructions

Which of the two companies, as judged by the information given above, would you recommend as the better risk and why? Assume that the ending account balances are representative of the entire year.
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