Accounting Business Reporting for Decision Making

212 Accounting: Business Reporting for Decision Making

Investment

A critical way that Samsung responds to the highly uncertain business environment and the

increasingly competitive marketplace is through our commitment to R&D. Each year we invest

at least 9% of our sales revenue in R&D activities. Samsung is committed to leading technology

standardisation and securing intellectual property rights.

Source: Samsung 2013, Research and development, http://www.samsung.com/au/.

Required

a. Construct an argument justifying research costs being expensed, rather than capitalised and

recorded as assets on the balance sheet.

b. List the factors to be considered in determining the probability of a development project gen-

erating future economic benefits.

c. Imagine that development costs were capitalised, but it subsequently became apparent that the

project would not generate future economic benefits. Report on how to account for this.

d. Samsung notes its team of talented researchers and engineers is its strongest asset. More than a

quarter of all Samsung employees work every day in research and development, collaborating

on strategic technologies for the future and original technologies designed to forge new market

trends and set new standards for excellence at the company’s research facilities around the

world. From a financial accounting perspective, discuss if employees are assets to be recog-

nised on the balance sheet.

5.48 Classifying items   LO5, 6

When corporations found their traditional funding revenues drying up during the global financial

crisis, one solution adopted by banks was to issue convertible bonds. Convertible bonds are often

referred to as ‘hybrid financing’ as they have the characteristics of debt and equity. Differentiate

the features of a convertible bond from a bond. Given that convertible bonds have debt and equity

characteristics, explain how they should be classified in the balance sheet.

5.49 Understanding a balance sheet   LO8, 9, 10

Access the latest financial report for Maybank Banking Corporation on its corporate website and

answer the following questions:

a. The financial institution is not following the current/non-current asset and liability classifi-

cation. On what basis do you think the assets and liabilities are listed on the balance sheet, and

why would this format be appropriate and acceptable?

b. What is the rationale for reporting financial numbers for two reporting periods?

c. Explain the meaning of ‘consolidated’ figures. What is the rationale for providing consolidated

figures?

5.50 Valuing inventory   LO10

Ikon Furniture Ltd, an office furniture retailer and wholesaler, carries a particular brand of office

chair. During the year ended 30 June, the following purchases occurred:

August

October

December

March

50 chairs at $45

60 chairs at $54

55 chairs at $60

60 chairs at $58

As at 1 July, Ikon Furniture Ltd had 18 chairs in inventory, costed at $44 per unit. As at 30 June,

an inventory count revealed 21 chairs in inventory.

Required

a. Explain why the inventory costing method affects the financial reporting numbers.

b. Compare the value of the office chairs on hand as at 30 June to be included in the inventory

balance on the balance sheet, under the following cost flow assumptions:

i. FIFO

ii. weighted-average.