Page 26 - CIMA MCS Workbook May 2019 - Day 2

ADVANCED FINANCIAL REPORTING (F2) ‐ PRACTICE TASKS

TASK 3 – FINANCIAL REPORTING ISSUES

Trigger and task

You receive the following email

From: Jacob Larsson (Sales and Marketing Director)
To: Finance Manager
Subject: Corvola Prefabricated Manufacturers blog

I’ve just been reading the latest blog and it included some food for thought.

Although my thoughts are not yet formalised, I’d like your input on a couple of financial reporting
issues as my knowledge on that subject is sadly lacking.

Jord Homes recently started making sales in countries neighbouring Corvola. Currently we are still
able to manufacture and organise delivery, build and installation from our one site. In terms of
foreign currency issues, from my perspective, this seems reasonably straightforward as
substantially all costs are incurred in C$, and our sale contracts require all customers, wherever
they are based, to pay us in C$. There may be some small elements of cost incurred in another
currency when installing abroad, but not to the extent that they are a significant issue.

The blog refers to the significant opportunities available in North America. Given the distance
involved (over 3,000 miles) and the logistical difficulties of transporting individual, tailored
prefabricated houses for assembly and installation, our current working methods may not be
appropriate.

Currently, I’m struggling trying to understand how the following would be dealt with in the
financial statements:

1 Jord Homes would quote its house prices in North America in US$, rather than C$, as is
currently the case. It would also source and use materials in North America, using local
companies to prepare the materials to our precise specification. I expect that North
American companies would require payment to be made by us in US$.
2 I expect that there would be considerable time and cost incurred recruiting and training a
workforce in North America before we were able to do take any orders from customers for
houses.
Please explain how these issues would be accounted for in the annual financial statements.

Jacob

Prepare a response to Jacob’s email. (Time: 45 minutes)

KAPLAN PUBLISHING 45