SEMESTER FALL 2019
FINANCIAL ACCOUNTING II (MGT401)
ASSIGNMENT NO. 01
DUE DATE: NOVEMBER 28, 2019 Assignment
Topic: “Related Parties” and “Inventory Valuation”
Part A:
MARKS: 20
The following transaction occurred between “C” Ltd and its parent, “T” Industries, for the financial year ended 31st December, 2015.
C Ltd borrowed an amount of Rs. 275,000 as a medium term loan from clean bank on 31st December 2015.
The bank was not willing to grant the loan unless T Industries signed a guarantee against the loan.
The loan is repayable in 24 monthly installments, the first on 31st January 2016. The market related interest rate on this loan is 20% per year compounded monthly.
T industries do not make use of the debt in the financing of its operations. Requirement:
Discuss whether or not the above mentioned related party transaction requires disclosure in the financial statements of the parent company “T” Industries.
Part B:
Fast Trading Corporation purchases motorcycles from various countries and exports them to Europe. Fast Trading Corporation has incurred these expenses during 2005:
| (a) Cost of purchases (based on vendors’ invoices) Rs. 100,000 |
| (b) Trade discounts on purchases Rs. 5,000 |
| (c ) Import duties Rs. 2,000 |
| (d) Freight and insurance on purchases Rs. 1,000 |
| (e) Other handling costs relating to imports Rs. 3,500 |
| (f) Salaries of accounting department Rs. 5,000 |
| (g) Sales commission payable to sales agents Rs. 1,000 |
| (h) After-sales warranty costs Rs. 500 |
Required:
Fast Trading Corporation is seeking your advice on which costs are permitted under IAS 2 to be included in cost of inventory.
