UU-ACG-4600

ADVANCED FINANCIAL REPORTING

ASSIGNMENT 1
WEEK 2

INSTRUCTIONS TO STUDENTS
This Assignment carries 20% of your final grade. Please read carefully and answer ALL
questions which carry marks as indicated.
Marking Criteria
General Presentation / Structure and Cohesion 20%
Content Quality/Critical Analysis / Rational 70%
Academic Writing – Grammar& Spelling 10%
Total Weight 100%

Question 1
Whilst acknowledging the importance of high quality corporate reporting, the
recommendations to improve it are sometimes questioned on the basis that the marketplace for
capital can determine the nature and quality of corporate reporting. It could be argued that
additional accounting and disclosure standards would only distort a market mechanism that
already works well and would add costs to the reporting mechanism, with no apparent benefit.
It could be said that accounting standards create costly, inefficient, and unnecessary regulation.
It could be argued that increased disclosure reduces risks and offers a degree of protection to
users. However, increased disclosure has several costs to the preparer of financial statements.
Required
(a) Explain why accounting standards are needed to help the market mechanism work
effectively for the benefit of preparers and users of corporate reports. (15 marks)
(b) Discuss the relative costs to the preparer and benefits to the users of financial
statements of increased disclosure of information in financial statements. (20 marks)

Total 35 marks
Question 2
Required:
(a) How does IAS 37 define a contingent liability? (5 marks)
(b) How should contingent liabilities be treated in the Financial Statements? (5
marks)

After a wedding in 20X8 ten people died, possibly as a result of food poisoning from products
sold by Callow Co. Legal proceedings are started seeking damages from Callow but it disputes
liability. Up to the date of approval of the financial statements for the year to 31 December
20X8, Callow's lawyers advise that it is probable that it will not be found liable. However,
when Callow prepares the financial statements for the year to 31 December 20X9 its lawyers
advise that, owing to developments in the case, it is probable that it will be found liable.
Required:
(c) What is the required accounting treatment? (15 marks; equal marks for each case)
 At 31 December 20X8?
 At 31 December 20X9?

Total 25 marks

Question 3
Crinckle Co bought an asset for $10,000 at the beginning of 20X6. It had a useful life of five
years. On 1 January 20X8 the asset was revalued to $12,000. The expected useful life has
remained unchanged (ie three years remain).
Required:
(a) Account for the revaluation and state the treatment for depreciation from 20X8
onwards (10 marks)
(b) What are the purposes of providing for depreciation? (10 marks)
Total 20 marks
Question 4
At 1 January 20X2 the fair value of the assets of a defined benefit plan were valued at
$1,100,000 and the present value of the defined benefit obligation was $1,250,000. On 31
December 20X2, the plan received contributions from the employer of $490,000 and paid out
benefits of $190,000.
The current service cost for the year was $360,000 and a discount rate of 6% is to be applied
to the net liability/ (asset).
After these transactions, the fair value of the plan's assets at 31 December 20X2 was $1.5m.
The present value of the defined benefit obligation was $1,553,600.
Required
Calculate the gains or losses on re-measurement through Other Comprehensive Income
(OCI) and the return on plan assets and illustrate how this pension plan will be treated
in the statement of profit or loss and other comprehensive income and statement of
financial position for the year ended 31 December 20X2.
Total 20 Marks

END OF QUESTION PAPER