Page 19 - OCS Workbook - Day 2 Tasks (May 2018)

FINANCIAL REPORTING AND TAXATION (F1) - PRACTICE TASKS

EXERCISE 2 (NON- CURRENT ASSETS)

UPDATE

At the recent board meeting discussion focussed on the state of the luxury handbag industry.

Recent media reports and market research are suggesting that the luxury handbag industry is
facing slowdown due to the increase of outlet stores potentially devaluing the luxury brands. As a
result of this, Mansako’s main competitors have begun closing stores to streamline operations
and reduce operating costs.

Jonathan Young shared his concerns that Mansako may also need to look at its operations to stay
competitive.

TRIGGER
Today you receive the following email from Jonathan Young:

From: Jonathan Young, Operations Director.
To: Finance Officer
Subject: Streamline and refine operations

Hi

Following the slowdown in the sales of luxury handbags in the market I am becoming
increasingly concerned about the volume of sales we have at our existing stores. With the
internet sales making up an increasing proportion of the total sales, and in line with our short to
medium term strategy, I am keen to explore ways to refine and enhance the store network to
streamline operations.

We will be discussing this in further detail at the next Board meeting but I am unsure of the
accounting treatment and financial implications if we choose to close down some of our stores
to streamline operations. I am keen for clarity on the impact on the financial statements as we
will need to reassure our shareholders when plans are announced.

I would therefore appreciate it if you could address the following issues:

• Available options we have regarding streamlining our store network.
• How to go about reporting any store closure on our financial statements and how this
will affect the financial statements

Thanks in advance.

Jonathan Young
Operations Director

TASK
Respond to Jonathan’s email.
(Time allowed 30 Minutes)

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