Chapter 1
Recognition and Measurement
25
AP-5B (
3
)
Linkes Inc. is a publicly traded residential developer of condominiums. You were recently
hired as its accountant and found the following while reviewing the financial statements in
anticipation of an annual audit.
Required
For each situation, identify the underlying assumptions and concepts of financial reporting
that have been violated.
a) Greg Vikas, the majority shareholder and CEO, has funded several corporate construction
projects this year using personal funds because of the company’s cash shortage.
b) The company is currently engaged in several construction projects in Greece. All of these
revenue amounts are reported in euros while the rest of the accounts are reported in
Canadian dollars.
c) This year, the company acquired a large parcel of land for development in Barrie, investing
the remaining cash it had and borrowing millions from the bank. A major condominium
was planned to be erected but further surveying discovered that the land is not suitable
for construction. Management is uncertain about the future of the company and whether
they can recover. No notes to the financial statements have been prepared and the assets
were not revaluated by management.
