1、I have been told by a colleague who is studying accounting that our current accounting policy in relation to dividend
Posted: Thu May 26, 2022 8:14 am
1、I have been told by a colleague who is studying accounting
that our current accounting policy in relation to dividend may not
be correct or in accordance with accounting standards. My colleague
stated that many public companies have dividend policies, which
have been communicated to shareholders as to the amount of the
fully franked distribution, which will be paid to shareholders. It
may be argued that such a policy provides the company with a
constructive liability to pay the dividend. Currently, the dividend
is not treated as constructive liability in Cairns Ltd. Could you
please advise whether the constructive liability should arise?
2. Cairns Ltd gives warranties at the time of sale to purchasers
of its product. Under the terms of the contract for sale, the
company undertakes to remedy, by repair or replacement,
manufacturing defects that become apparent within three years from
the date of sale. As this is the first year that the warranty has
been available to Product X, there is no data from the firm to
indicate whether there will be claims under the warranties.
However, industry research suggests that it is likely that such
claims will be forthcoming. Should a provision be recognized in
accordance with accounting standards?
3. I am very concerned about the depreciation charges being made
in relation to the company’s equipment. In particular, I believe
that the depreciation charges are not high enough in relation to
the factory machines because new technology applied in that area is
rapidly making the machines obsolete. In addition, the machines
will have to be replaced in the near future and, with the low
depreciation charges, the fund will not be sufficient to pay for
the replacement machines. However, my colleague suggested that I
should not worry about the depreciation charges due to the nature
of depreciation. Could you please advise me on this matter?
4.Currently, all non-current assets, including Land and
Buildings, Motor Vehicles and Furniture and Fixtures are reported
in the Statement of Financial Position at historical cost. I would
like to provide more relevant information to the users of our
financial statements, so I am considering whether to revalue the
non-current assets. But I have a problem that one of the buildings
is a heritage listed building which would be extremely difficult to
value. Can you please advise whether my proposed accounting
treatment regarding the revaluation is acceptable? If yes, how can
I solve the difficulty with the heritage listed building? What are
the disclosure requirements for this change? If not, please explain
the reasons. I would like to see appropriate references to support
your advice.
that our current accounting policy in relation to dividend may not
be correct or in accordance with accounting standards. My colleague
stated that many public companies have dividend policies, which
have been communicated to shareholders as to the amount of the
fully franked distribution, which will be paid to shareholders. It
may be argued that such a policy provides the company with a
constructive liability to pay the dividend. Currently, the dividend
is not treated as constructive liability in Cairns Ltd. Could you
please advise whether the constructive liability should arise?
2. Cairns Ltd gives warranties at the time of sale to purchasers
of its product. Under the terms of the contract for sale, the
company undertakes to remedy, by repair or replacement,
manufacturing defects that become apparent within three years from
the date of sale. As this is the first year that the warranty has
been available to Product X, there is no data from the firm to
indicate whether there will be claims under the warranties.
However, industry research suggests that it is likely that such
claims will be forthcoming. Should a provision be recognized in
accordance with accounting standards?
3. I am very concerned about the depreciation charges being made
in relation to the company’s equipment. In particular, I believe
that the depreciation charges are not high enough in relation to
the factory machines because new technology applied in that area is
rapidly making the machines obsolete. In addition, the machines
will have to be replaced in the near future and, with the low
depreciation charges, the fund will not be sufficient to pay for
the replacement machines. However, my colleague suggested that I
should not worry about the depreciation charges due to the nature
of depreciation. Could you please advise me on this matter?
4.Currently, all non-current assets, including Land and
Buildings, Motor Vehicles and Furniture and Fixtures are reported
in the Statement of Financial Position at historical cost. I would
like to provide more relevant information to the users of our
financial statements, so I am considering whether to revalue the
non-current assets. But I have a problem that one of the buildings
is a heritage listed building which would be extremely difficult to
value. Can you please advise whether my proposed accounting
treatment regarding the revaluation is acceptable? If yes, how can
I solve the difficulty with the heritage listed building? What are
the disclosure requirements for this change? If not, please explain
the reasons. I would like to see appropriate references to support
your advice.