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Week 2 Tutorial Questions

1) The document discusses various topics in accounting including decision making, emerging technologies influencing the industry, and the conceptual framework for financial reporting. 2) It presents a case study asking whether celebrities employed by retailers should be considered assets and recognized on the balance sheet. 3) It also includes a problem asking how various elements of a magazine company's proposed advertising campaign should be treated, including costs, revenue recognition, sales returns, and additional revenue from a bundled offer.

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Avneel Kumar
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21 views

Week 2 Tutorial Questions

1) The document discusses various topics in accounting including decision making, emerging technologies influencing the industry, and the conceptual framework for financial reporting. 2) It presents a case study asking whether celebrities employed by retailers should be considered assets and recognized on the balance sheet. 3) It also includes a problem asking how various elements of a magazine company's proposed advertising campaign should be treated, including costs, revenue recognition, sales returns, and additional revenue from a bundled offer.

Uploaded by

Avneel Kumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Week 2 Tutorials

Chapter 1: Decision making and the role of accounting


2. Accounting is described as the language of business, and everyone is affected by the
business world. Discuss if everyone should be required to study accounting.

4. ‘Accounting is irrelevant in decision making because the information it provides relates


only to the past.’ Evaluate this remark.

8. List some emerging technologies that are currently influencing the accounting
industry.

- Refer students to their Reading Article – Perusall Network like a pro: How to
maximise LinkedIn

Chapter 10: Regulation and the Conceptual Framework

4. Briefly explain the nature of the Conceptual Framework for Financial Reporting, and
discuss the perceived advantages and disadvantages of having a conceptual framework.

Exercise 10.10

Assets and asset recognition

For several seasons, Megan Gale and Jennifer Hawkins have been employed by David Jones
Limited and Myer Limited respectively in order to attract more fashion-conscious customers to
their stores. This strategy has met with some success and their continued employment at fashion
events in the future for their respective companies appears assured.

Required
(a) Discuss whether Megan Gale and Jennifer Hawkins should be regarded as assets of David
Jones Limited and Myer Limited respectively. Discuss also whether they should have
been recognised on the statement of financial position/balance sheet of the respective
companies as assets.
(LO6 and LO7)

1
Week 2 Tutorials

Problem 10.21

Revenues and expenses

Celebrity Monthly is a glossy monthly magazine that has been on the market for nearly 2 years. It
currently has a circulation across several countries of 1.6 million copies per month. Currently,
negotiations are under way for the company that produces the magazine, among other publications,
to obtain a loan from a bank in order to upgrade production facilities. The company is currently
producing close to capacity and expects to grow at an average of 15% over the next 3 years.

After reviewing the financial statements of the company, the bank loan officer, Joe Teller, has
indicated that a loan could be made if the company is able to improve its debt–equity ratio (non-
current liabilities divided by equity) and current ratio (current assets divided by current liabilities)
to a specified level.

The company’s marketing manager, Jess Smith, has devised a plan to meet these requirements.
Smith indicates that an advertising campaign can be initiated immediately to increase the com-
pany’s circulation. The campaign would include:
an offer to subscribe to Celebrity Monthly at 75% of the normal price for 1 year
a special offer to all new subscribers to receive another of the company’s publications, Age of
Discovery, at a guaranteed price of $8; Age of Discovery usually sells for $15.95 and costs $11 to
produce
an unconditional guarantee that any subscriber will receive a full refund if dissatisfied with the
magazine.

Although the offer for a full refund is risky, Smith claims that very few people ask for a refund
after receiving half of their subscription issues. Smith also claims that other magazine companies
have tried this sales campaign and have had great success, with an average cancellation rate of
only 25%. Overall, these other companies increased their initial circulation threefold, and in the
long run increased circulation to twice that which existed before the promotion. Furthermore, 80%
of the new subscribers are expected to take up the Age of Discovery offer. Smith feels confident
that the increased subscriptions from the campaign will increase the current ratio and reduce the
debt–equity ratio to the required levels. The managing director agrees.

You are the accountant for the company, and must give your opinion of the accounting treatment
for the proposed campaign.

Required
(a) In light of the Conceptual Framework, explain:
i. how you would treat the costs of the advertising campaign
ii. when revenue should be recognised from the new subscriptions
iii. how you would treat sales returns stemming from the unconditional guarantee
iv. how the extra $8 received per Age of Discovery should be recorded..

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