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Chapter 24: 9IFRS_a_2 (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.

2. State how the sales revenue, cost of goods sold, and fixed selling expenses would be reflected in Snider Corporation’s quarterly report prepared for the first quarter of the 2017–2018 fiscal year. Briefly y justify your presentation.

Short Answer

Expert verified

In the annual report, sales income, cost of goods sold, and other costs should all be treated equally.

Step by step solution

01

Meaning of IFRS

The IFRS is a set of accounting principles that are used globally. It's also recognized as a collection of principles-based standards that are simple to comprehend and apply.

02

Explaining the revenues and expenses that should be reflected in Snider Corporation’s quarterly report

The quarterly report for the first quarter of the financial year 2017-18 is as follows:

Sales revenue

$60,000,000

Cost of goods sold

36,000,000

Variable selling expenses

1,000,000

Fixed selling expenses

Advertising

2,000,000

Other

1,000,000

Sales revenue and cost of goods sold and other expenses should be given equal treatment if it were an annual report. In addition to product costs, costs and expenses should be charged to expenses as they are incurred in the interim period.

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Most popular questions from this chapter

Keystone Corporation’s financial statements for the year ended December 31, 2017, were authorized for issue on March 10, 2018. The following events took place early in 2018.

  1. On January 10, 10,000 ordinary shares of \(5 par value were issued at \)66 per share.
  2. On March 1, Keystone determined after negotiations with the taxing authorities that income taxes payable for 2017 should be \(1,320,000. At December 31, 2017, income taxes payable were recorded at \)1,100,000.

Instructions

Discuss how the preceding subsequent events should be reflected in the 2017 financial statements.

What are interim reports? Why is a complete set of financial statements often not provided with interim data? What are the accounting problems related to the presentation of interim data?

Operating profits and losses for the seven industry segments of Foley Corporation are:

Penley $ 90 Cheng 20

Konami 40 Takuhi (34)

KSC (25) Molina 150

Red Moon 50

Based only on the operating profit (loss) test, which industry segments are reportable?

The following statement is an excerpt from the FASB pronouncement related to interim reporting. Interim financial information is essential to provide investors and others with timely information as to the progress of the enterprise. The usefulness of such information rests on the relationship that it has to the annual results of operations. Accordingly, the Board has concluded that each interim period should be viewed primarily as an integral part of an annual period. In general, the results for each interim period should be based on the accounting principles and practices used by an enterprise in the preparation of its latest annual financial statements unless a change in an accounting practice or policy has been adopted in the current year. The Board has concluded, however, that certain accounting principles and practices followed for annual reporting purposes may require modification at interim reporting dates so that the reported results for the interim period may better relate to the results of operations for the annual period.

Instructions

The following six independent cases present how accounting facts might be reported on an individual company’s interim financial reports. For each of these cases, state whether the method proposed to be used for interim reporting would be acceptable under generally accepted accounting principles applicable to interim financial data. Support each answer with a brief explanation.

f) LaBrava Company was reasonably certain it would have an employee strike in the third quarter. As a result, it shipped heavily during the second quarter but plans to defer the recognition of the sales in excess of the normal sales volume. The deferred sales will be recognized as sales in the third quarter when the strike is in progress. LaBrava Company management thinks this is more representative of normal second- and third-quarter operations.

(Disclosure of Estimates) Nancy Tercek, the financial vice president, and Margaret Lilly, the controller, of Romine Manufacturing Company are reviewing the financial ratios of the company for the years 2017 and 2018. The financial vice president notes that the profit margin on sales ratio has increased from 6% to 12%, a hefty gain for the 2-year period. Tercek is in the process of issuing a media release that emphasizes the efficiency of Romine Manufacturing in controlling cost. Margaret Lilly knows that the difference in ratios is due primarily to an earlier company decision to reduce the estimates of warranty and bad debt expense for 2018. The controller, not sure of her supervisor’s motives, hesitates to suggest to Tercek that the company’s improvement is unrelated to efficiency in controlling cost. To complicate matters, the media release is scheduled in a few days.

Instructions

  1. What, if any, is the ethical dilemma in this situation?
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