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Question 4a

You are the financial controller of Omega, a listed company which prepares consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). The year end of Omega is 31 March and its functional currency is the $. Your managing director, who is not an accountant, has recently prepared a list of questions for you concerning current issues relevant to Omega:

(a) One of my fellow directors has informed me that on 1 January 2014 his spouse acquired a controlling interest in one of our major suppliers, Sigma. He seemed to think that this would have implications for our financial statements. I cannot understand why. Our purchases from Sigma were $1·5 million for each month of our year ended 31 March 2014 and I acknowledge this is a significant amount for us. However, I can’t see how the share purchase on 1 January 2014 affects our financial statements – all the purchases from Sigma were made at normal market rates, so what’s the issue? Please explain this to me and identify any impact on our financial statements. (7 marks)

Required:
Provide answers to the issues raised by the managing director.

Note: The mark allocation is shown against each of the three issues above

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