Essay on Business Letter

Submitted By yuankaistudymode
Words: 1126
Pages: 5

Date: 20th August, 2012
To: Byron Grunt
From: LOL
Subject: Issues in relation to draft financial report of 2012

Hi, Byron

I am Lei WANG, the new financial accountant of Elmo Travel Pty Limited. The following is my opinion about issues in the draft financial statement.

The Impacts of two key items that you identified( in Appendix A) on the financial statement
As you requested, I will explain two items about the acquisition. First, the implication of acquisition on our financial statements, second, the difference between acquisition by shares and acquisition by assets.

1.Acquisition implications on financial statements:

In your email, you mentioned that the acquisition of the holiday resort business is likely to be finalized prior the 30 June 2012 financial statement, and the expected completion time will be on 30 September 2012. If it does happen, it means this event happens after the end of the reporting period but prior the issue of financial statement. Therefore, our company (acquirer) need to consider the impacts of the acquisition when prepare the financial statement according to IAS 10. IAS defines this kind of event as non-adjusting event. Due to the significant influence of this acquisition ( investors may make decisions based on this event), it should be disclosed on the notes of financial statement.

Difference between acquisition via shares and acquisition via net assets:

As the acquisition is an non-adjusting event, so the impact on the financial statement is the same no matter which method we employ. However, these two forms of acquisition does different if we need to prepare the consolidated financial statement in future years.

If our company acquire the new business by purchasing the net asset of the company , according to the IFRS 3 , our company(acquirer) need to prepare the consolidated financial statement in following years. The correct accounting treatment is to bring the net asset of acquiree into acquirer's financial statement at the cost of the business combination. Moreover, the goodwill or bargain on purchase arise during the process need to recognized in acquirer's statement. The consolidated financial statement will show the acquisition via acquirer's accounts. If one company acquire the other entity by purchasing shares of the company, it should be classified as the investment in subsidiary. the investment should be measured in accordance with IAS 39 or carried at cost. The goodwill or bargain purchase will be recognised on consolidated statement.

2. Correction of material errors

As the money amount($10 million) taken by the former employee is large, it will have a significant impact on the financial statement of 2011. Based on the requirement of IAS 8 , our company should correct this error on a retrospective basis, which means we need to correct it in this year's financial statement. The possible solution for us is to restate comparative amounts in the financial statements. Moreover, the disclosure information in this year's statements should include the nature, amount of the error, and the amount of correction to restate the opening balance.

Seven key missing and/ or incomplete issues in relation to financial reporting and disclosure

The following items and disclosures are missing and/ or incomplete after checking the draft financial statement:

1.
There is no finance cost on the line item list of the statement of comprehensive income. Paragraph 82 of IAS 1 set the minimum line items that should be included on the face of income statement. Finance cost falls in the compulsory requirements. Finance cost is cost of borrowing from various creditors,such as interest expense and bank charges.

2.
Our statement did not disclose additional information on the nature of the expense. As our company choose to classify the expense by function, According to the paragraph 104, IAS 1, we need to provide additional information on the nature of the…