Qualitative characteristics , Financial Accounting

Assignment Help:

Since 1968, Dracula Limited has traded in Doncaster, South Yorkshire as a manufacturer of fancy-dress and theatrical costumes. It produces a wide range of general theatrical costumes, but its fancy-dress costumes are more specialised in that it manufactures chiefly vampire and bat costumes. The firm employs a large number of local people in the Doncaster area, and sources most of its raw materials for costume manufacture from textile firms in the north of England. It sells its costumes to fancy-dress shops and theatres locally and in London, but also exports its fancy-dress costumes to the USA, especially the state of Louisiana. Its main business rival is Goth Limited, a firm of similar size, which operates in the south-east of England.

Dracula Limited's four directors, Mr Lugosi, Mr Lee, Mr Langella and Mr Oldman, own 80 per cent of the shares in equal proportions, with the remaining 20 per cent being owned in equal proportions by Mr Harker, Mr Blade, Mr Van Helsing, Ms Buffy and Mr Stoker.

In the current economic recession, the business has not been doing very well and has made a small loss for its two most recent accounting periods, with its US exports being affected more adversely than other sales. However, Mr Lugosi, the managing director, has managed to convince the company's bank that, based on the success of films such as the 'Batman' and 'Twilight' series and the television series 'True Blood', business is likely to get better, and that it is now a suitable time to expand the range of fancy-dress costumes that the company manufactures into wolf, maenad, elf and fairy costumes. The bank has therefore agreed to lend Dracula Limited £4 million, repayable in full in ten years' time at an annual interest rate of 5 per cent. This £4 million will be classed as a long-term loan, and the influx of this amount of cash will exactly double the value of the net assets and capital shown in the most recent balance sheet. The money will be used to buy additional machinery, hire additional staff and provide extra working capital. The company's factory premises in Doncaster have been used as security for the loan. The other three directors are very surprised that Mr Lugosi has been so successful in convincing the bank to make such a loan to the company, and are concerned as to how this might be viewed by the company's stakeholders. Word has spread very rapidly in the local business community of Mr Lugosi's success in obtaining the loan.

Dracula Limited makes its full, audited financial statements available for each accounting period on its website.

The company also regularly supplies local schools with costumes for school plays free of charge and makes substantial annual donations to a local charity dedicated to the preservation of a rare species of bat, which inhabits caves in woodlands a few miles distant from the company's factory premises.

(a) Assume that you are the financial accountant for Dracula Limited and prepare a report for the directors, identifying the stakeholders who would have an interest in the company's financial performance and explaining how their interests might be affected by the company acquiring the loan.

(b) (b) Explain, by reference to the qualitative characteristics that determine the usefulness of information in financial statements, how disclosing the loan in the financial statements of Dracula Ltd, where it will appear in the balance sheet as a long-term liability (that is, one that lasts for more than one year), fulfils the requirement for information to be useful.

Guidance notes for Question 1 Your answer to Question 1 should not exceed 2,000 words in total. This limit includes all material you wish to include in your answer, other than any list of references to academic material(s). The above mark allocation indicates how you should allocate your word count between the parts of the question.


Related Discussions:- Qualitative characteristics

Sales volume reaches the maximum capacity, Sales volume reaches the maximum...

Sales volume reaches the maximum capacity of the new machine in Year 4. The positive NPV point to that the investment in Machine Two is financially acceptable althoug

Case law about investment, As an investor, you are considering buying stock...

As an investor, you are considering buying stock in a relatively new company. Medical Horizons, Inc., has been in existence for 10 years and is now about to go public. The first st

Trustees duties in administering the d of a, Trustee's duties in administer...

Trustee's duties in administering the D of A 1) To carry out the trusts of the D of A and to distribute the property assigned to him in accordance with the provisions of the D of

Good will on consolidation-consolidated balance sheet, Good will on consoli...

Good will on consolidation Good will on consolidation arises when the purchase consideration paid by the holding company is different from the value of the net assets acquired i

Evaluate price earnings ratio, Q. Evaluate Price Earnings Ratio? The P/...

Q. Evaluate Price Earnings Ratio? The P/E ratio is in general regarded as an important ratio for equity investors. The P/E for a company may be utilizing as a basis for compari

Prepare the statement of cash flows, The comparative balance sheets for 201...

The comparative balance sheets for 2013 and 2012 are given below for Surmise Company. Net income for 2013 was $80 million. SURMISE COMPANY Comparative Balance Sheets December 31, 2

What are the january cash collections from sales, O'Neill Co. has $298,106 ...

O'Neill Co. has $298,106 in accounts receivable on January 1. Budgeted sales for January are $840,001. O'Neill expects to sell 20% of its merchandise for cash. Of the remaining 80%

The fair-value method of accounting for nci., In the current year, Company ...

In the current year, Company A is formed with $630,000 in capital from the sale of 21,000 shares of stock at $30 a share. Company A, which has no other operations, immediately acqu

Quarterly cash payments budget, Emily Jackson, RSC Designs management accou...

Emily Jackson, RSC Designs management accountant, is in charge of preparing the master budget for 2013.  She has gathered the following information: 1. Annual profit for the 201

What is deferred taxation, Deferred taxation is caused by timing differenc...

Deferred taxation is caused by timing differences that arise when a transaction is recognized differently for accounting and tax purposes; for i.e, capital expenditure, that invol

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd