Question

QUESTION TWO ABT Security System Inc. (ABT) is a company known around the world for its state-of-the-art electronic surveillance and monitoring equipment, its alarm control centres and a full line of residential security systems including fire alarms, sprinkler systems and burglar protection devices. ABT has a December 31 accounting year-end and the company's headquarter is located in City of Burnaby in the Province of British Columbia. Any prospective customer is entitled to a free home visit by an ABT security consultant. The consultant will provide an assessment of the security needs at the prospective customer's home. If the customer decides to acquire the recommended security system, a formal contract will be prepared by the ABT consultant and signed by the customer. ABT incurs, on average, $400 for every visit conducted by its security consultants. The $400 covers travel costs and the time spent by the consultants on each visit. In the company's current fiscal year, ABT's security consultants conducted a total of 8,500 visits to prospective customers incurring a total cost of $3,400,000. You work in a large public accounting firm and ABT is a new client of your firm. The senior partner in charge of the ABT engagement has instructed you to start a file on ABT. The senior partner has also informed you that your first major responsibility in this engagement is to provide a recommendation to the client on the appropriate basis of financial reporting ABT management should use in the preparation of the company's financial statements. Required: (1) Describe carefully all the major factors you would consider in deciding on the appropriate basis of financial reporting ABT management should use in the preparation of the company's financial statements. (ii) Assume that ABT will prepare its financial statements in accordance with the International Financial Reporting Standards (IFRS) and use accounting policies developed based on the new 2018 IFRS Conceptual Framework. List and explain carefully the major issue you want to address and the important factors you need to consider in deciding how ABT should account for the $3,400,000.

i need the detailed solution for this required questions (i) and (ii).

All information is in this picture

Answer 1

Solution:-

Part 1:-

a) Accrual Basis – The accrual method of accounting, more commonly referred to as generally accepted accounting principles (GAAP), reports revenues in the period earned and expenses in the period incurred.

b) Tax Basis – the tax method of accounting would ensure the financial statements match the organization’s Tax liablities.

c) Regulatory Requirements. Do you have to use a particular basis of accounting?

d)Organizational Documents. Like regulatory requirements, aby-laws may specify the basis of accounting the organization must use. Consider reviewing your organization’s by-laws before undergoing extensive research to make sure you have the flexibility to choose a basis of accounting.

e )Understanding of Financial Position. Financial statements prepared under GAAP typically give readers a better understanding of the financial position of the organization at year-end. GAAP-based financial statements will show payables and other outstanding obligations, as well as any committed receivables or pledges. Cash basis statements often provide limited information. For instance, a not-for-profit that receives donated supplies and materials used in its programs would not capture their value or impact to the organization using cash basis statements.

f)Established Framework. Financial statements prepared using GAAP are based on a familiar framework. Since GAAP is commonly used, it also allows for financial statement comparability. Modified cash basis financials can be presented in any format management

g) If audited GAAP financial statements are required and an organization prefers cash basis, they can make any necessary adjustments when closing the books. Likewise, an organization may find it less confusing to have their audited financial statements match their internal financial statements. Whatever basis of accounting you choose, make sure the option you select provides useful information to all stakeholders.

h) concepts relating to capital and capital maintenance and depreciation,

part 2:-

ABC Ltd should show the amt of $3,400,000 in direct exp .