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Application of Fundamental Principles of IFAC Code for Decision Making Assessment Answer


You work as a financial accountant for Dax Ltd. The company commenced business on 1 July 2017 and does not yet prepare its annual financial reports in accordance with International Financial Reporting Standards (IFRS).

The following key account balances have been extracted from the trial balance at 30 June 2019: 

Provision for damage from hailstorms $250 000 (Cr)

Hailstorms expense $250 000 (Dr)

Research and development expense $380 000 (Dr)

Inventories  $980 000 (Dr)

Dividend payable $85 000 (Cr)

Dividend proposed $85 000 (Dr)

Share investment (12,000 shares in Pacific Trustees Ltd)  $62 750 (Dr)

The financial accountant of Dax Ltd’s head office has instructed you to translate the above balances into IFRS. Requirements of IFRS relating to this question are summarised below:

• Extract from IFRS standard on Provisions: A provision should be recognised when an enterprise has a present obligation (legal or constructive) as a result of a past event; and it is probable that an outflow of economic resources will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation.

• Research and development costs can be carried forward subject to meeting IFRS criteria.

• Inventories must be valued at lower of cost or net realizable value.

• Financial assets such as short-term investments must be measured at market value.

Other relevant data:

1. There has never been a hailstorm in Dax Ltd’s place of operations.

2. Of the $380 000 research and development expense, $65 000 satisfies IFRS criteria to carry forward.

3. The share investment is held for short term profit-making purposes. As at reporting date, shares in Pacific Trustees Ltd were trading at $5 each on the local stock exchange.

4. The directors have recommended that a dividend of $85 000 be paid. The dividend is required to be approved by the company's shareholders. As of reporting date, the shareholders have not met to approve this dividend, but the directors have recorded $85 000 as dividend to be paid anyway.

5. As at reporting date the net realizable value of inventories was $1 000 000.


a) Prepare the necessary General Journal entries (Dr/Cr) to adjust the books of Dax Ltd to reflect the requirements of IFRS as at 30 June 2019. Narrations are not required.  (10  marks)

b) Show the impact of the above information on the relevant account balances as they will be disclosed in the Statement of Comprehensive Income (Profit and Loss Statement) and Statement of Financial Position (Balance Sheet) of Dax Ltd after taking into consideration the adjustments required to meet the requirements of IFRS as at 30 June 2019.  (5 marks)


a) The United States of America and Japan have a number of differences in their accounting regulatory environments. Discuss the differences in the legal systems and in the ownership and financing of companies to explain the accounting regulatory environments and accounting practices prevailing in both countries.  (10 marks)

b) Discuss whether it is in the best interest of Japanese economy to fully adopt the International Financial Reporting Standards (IFRS)?  (5 marks)

3) Critically evaluate the findings of Nair and Frank [1980] study? In particular, do you think the findings are still valid in the current era given that most countries are now moving towards accounting convergence? (10 marks) 

4) Raval Ltd, based in Sydney, Australia, has a wholly owned subsidiary in Singapore. The Singaporean subsidiary manufactures bicycles at a cost equal to A$20 per bicycle, which it sells to Raval Ltd at a price of A$100 each. Raval Ltd pays an import duty of 10 percent on the A$100 invoice price. 

The cost to transport the bicycles to Australia is $10 per unit and is paid by the Singapore subsidiary.

Raval Ltd sells the bicycles in Australia for A$200 each. 

The Australian tax authority discovers that Raval Ltd’s Singaporean subsidiary also sells its bicycles to other Australian customers at a price of A$80 each. 

The effective income tax rate in Singapore is 17 percent, and Raval Ltd’s effective income tax rate in Australia is 30%. 


Determine the PER UNIT financial impact of Raval Ltd management’s decision to allow its Singaporean subsidiary to charge a higher price to Raval Ltd than other customers in Australia.  (10 marks)

5) Mr Jones work as an audit partner and he is currently conducting the audit of the annual financial report of Discount Prices Limited (DPL) for 2018. 

DPL is a discount chain-store which sells women’s clothes. It has an excessively large inventory on hand and is in urgent need of additional cash. Faced with this financial crisis, DPL approached several of the manufacturers from whom it purchases. Apparel Ltd indicated a willingness to lend DPL $500 000 under certain conditions. First, DPL was to submit an audited financial report for the express purpose of providing the correct financial condition of the company. The second condition insisted upon by Apparel Ltd was that it obtain a secured position in all unsecured inventory, accounts and other related personal property. In due course, a security agreement was properly executed.

In preparing the financial report, DPL valued the inventory at cost, which was approximately $200 000 over the current fair market value. DPL also failed to disclose two secured creditors to whom substantial amounts were owed and who took priority over Apparel Ltd’s security interests.

DPL has now asked Jones to issue an unqualified opinion on their financial reports so that they are able to secure the loan from Apparel Ltd. The managing director also said that if Jones did not issue a clean audit report, DPL would sue Jones for substantial damages which would result from not getting the loan. Under this pressure Jones is now considering whether he adjusts the financial reports or issues his audit report without making any adjustments.


Determine what decision Mr Jones will make regarding whether or not to report the misappropriation by applying the fundamental principles of IFAC Code of Ethics for Professional Accountants


Answer to question no-1

1. 1 

As per the fundamental principle of IFAC  code of ethics , When an auditor come to conduct the audit then they are expected to follow all the ethical requirement as formed by the authority and also has to implement all the auditing standard as prescribed to maintained the independence of auditors.

In the given case shipping supervisor is trying to provide the gift to the auditor of inventory, this can influence the impact of audit procedure and shipping manager may also want from the auditor to do not disclose the non-compliance on his part to the top management of the company so that he will not be in any fear of job (Di, & Zhiming, 2007).

Hence Dan Folly should not accept the gift of $ 200 from the shipping manger as it will impact the independence of the audit procedure.


While conducting the audit, auditor is expected to have all the qualification and technical knowledge concerning to the audit so that an audit can be conducted as per the standard on auditing. If the any misstatement has found during the audit which is related to the past year then it has to be consider in current year audit report and financial adjustment has to be done by the top management of the company under the supervision of auditor (Tianxi, 2016).

In the given case Lin has stolen the cash from the company $ 200000 which has been discovered in current year now, Marry and his senior auditor has to bring the attention to top management and pass the journal entries for accounting adjustment in current year. Also this will be disclose in auditors report.

Answer to question no- 2

Question 2

Budgeted performance of Sam distributors

ParticularsTOPAUDExchange rate

Actual performance of Sam distributors

ParticularsTOPAUDExchange rate

Sam distributors booked there operating results at forecasted exchange rate of AU$0.30. and the exchange rate at year end is AU$0.25 and budgeted rate is AU$0.32, that is 28% higher than the actual exchange rate. Apart from this Starting exchange rate is AU$0.35 and forecast rate of Sam distributors is AU $0.30. With keeping in mind all such circumstances we can conclude that performance of Tongon manager is satisfactory. 

Answer to question no-3

Calculation of adjusted net profit according to IFRS
S. No.ParticularsAmount
1Net profit according to Malaysian GAAP 12,00,000.00 
2Add: Opening stock as per LIFO    9,50,000.00 
3Less: Opening stock as per FIFO  -6,80,000.00 
4Less: Closing stock as per LIFO  -7,50,000.00 
5Add: Closing stock as per FIFO    5,50,000.00 
6Less: Overcapitalization of research & Development Expense  -2,00,000.00 
7Add: Amortization of goodwill not allowed in IFRS       60,000.00 
Adjusted Net profit 11,30,000.00 
Calculation of adjusted operating cash flows according to IFRS
S. No.ParticularsAmount
1Net cash flows from operating activities according to Malaysian GAAP 19,00,000.00 
2Less: Interest received included in operating cash flow  -6,00,000.00 
Adjusted Operating cash flows 13,00,000.00 

Net cash from operating activities to net profit ratio = Adjusted operating cash flows according to IFRS / Adjusted Net profit according to IFRS

= 1300000/1130000 = 1.15

The generally acceptable ratio of the private venture capital firm is 1.5, but this ratio of Belly limited is 1.15. So belly limited is not able to obtain the financing from the Australian venture capital firm. 

Answer to question no-4

4 A 

 Yes it is true that Keiretsu groupings do exist I the japan and code-oriented system implemented through a strong central government to maintain the business economy of the country. Keiretsu groupings refer to the group of company in which shareholder are having the cross holding through the investment. In Japan they do have the Keiretsu groupings in their business culture so that it provide the shelter to the business economy and following are the example of the it (Tianxi,. 2016).

Example: - Bank of Tokyo –Mitsubishi is the top example of it. Mitsubishi have many other business under one roof as they have Mitsubishi trust and banking and Mitsubishi motors.

4 B

It is true that international financial reporting standard has establish the requirement of consolidation of financial statement of company for the purpose of global compliance and also attracting the global investors for the multinational company.

But national accosting system has also been implemented by some countries because they want their domestic company to show the single standalone financial statement which show the domestic financial position of the company. And all the subsidiary company should also show their standalone financial statement to show the financial position by their own business. 

Answer to question no-5

Management control system help the organization to find and resolve the problem before they provide any harm to the organization. It help to reduce the expenses and loss of the company by providing the holistic approach to achieve the goal and object of company (Gibson, & Frishkoff, 2019).

Achieving organization objectThis help in measuring the goal achievement of the company and if there is any problem that has been arising then it can be removed with in time limit. This will help the big organization to point towards the goal achievement.
Standards measurementManagement control system should be developed in such a way that it will compare the predetermined standard with actual performance of the each department so that desirable outcome can be achieve and variance can be removed.
Making efficient use of resourceManagement control system can help to analysis the requirement of the resource for the business in future time so that procurement can be done and managing the efficient use of resource.
Coordination between business activityEach department activity can be coordinate through the management system so that conflict between them does not arise and time and cost can be save for the company (Hoque, 2012).

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