Chapter 1
Recognition and Measurement
23
e) Closki Ltd. has been recording its office and administration expenses in an account named
“Office & Administrative” on the general ledger. The company replaced its accountant
during the year and he recorded all the same expenses in the “Other Expenses” account.
The statements were released using the new account.
f ) Cordova Moving Ltd. has a corporate jet on the books worth $1 million. The jet recently
underwent a major engine re-haul which increased its useful life by three years. No notes
concerning the matter have been prepared on the financial statements.
AP-4B (
2
)
You have just been hired as a summer intern with Red Brick Limited, a private construction
supplies distributor. While reviewing the draft financial statements for fiscal 2016, you have
identified the following items.
Required
For each item, indicate which qualitative characteristic is violated.
a) A $250,000 loan was advanced to the corporation by the CFO’s father. The loan is interest-
free but repayable within one year, yet no such information is disclosed in the notes to the
financial statements.
b) Due to the economic downturn, one of Red Brick’s biggest customers requested to delay
the payment of receivables over and above the normal terms. There are some media
reports that the company may go bankrupt soon. Management does not want to write off
any receivables this year as this will have a substantial impact on the company’s profits.
