Question

During the year ended 31 March 20X6, Lisbon experienced the following transactions or events. (1) Sold an asset to a finance company and leased it back for the remainder of its useful life. The accountant has decided that this should be treated as a secured loan. (11) The company's statement of profit or loss prepared using historical costs showed a loss from operating its shops, but the company is aware that the increase in the value of its properties during the period far outweighed the operating loss. (iii) Inventory has up to this year been valued using FIFO, but the accountant is considering changing to the weighted average method for the year to 31 March 20X6.

REQUIRED (A) The accountant is aware that some members of the Board of Lisbon have little understanding of accounting and he is worried about his presentation of the financial statements at the Board meeting. How should he deal with this situation?
(A) Provide a simplified summary
(B) Conduct a training session
(C) Hire a consultant
(D) Ignore the issue

Answer 1

The accountant should provide a simplified summary and consider conducting a training session for the board members of Lisbon to enhance their understanding of the financial statements. Hiring a consultant could also be beneficial, but ignoring the issue is not advisable.

Step-by-step explanation:

To address the situation where board members of Lisbon have little understanding of accounting, the accountant should aim to provide a simplified summary of the financial statements during the presentation, ensuring that all transactions and events are explained in a way that is easily understandable for individuals without an accounting background. This summary should clearly articulate the implications and reasons behind each transaction, such as the sale and leaseback being treated as a secured loan, the significance of revaluing assets despite operating losses, and the impact of changing inventory valuation methods. Additionally, providing a brief but targeted training session before the formal presentation can help board members better understand key accounting principles and concepts relevant to the financial statements. Hiring a consultant is another option; though it may involve additional cost, they can offer expertise in simplifying complex information and supporting the accountant's explanation. Ignoring the issue would be unwise as it could lead to misinformed decision-making.