Following the retirement of her father, the new Chief Executive of Gold is proposing to change how certain items have been accounted for in Gold’s draft financial statements for the year ended 31 December 2017.

Proposal 1 Inventory, which is currently considered in aggregate on a FIFO basis, will be measured on a weighted average basis so that all items of inventory are measured on a similar basis.

Proposal 2. Plant and machinery, which is currently depreciated using the reducing balance method at 20% per annum, will be depreciated straight-line over five years and the depreciation will be charged to net operating expenses rather than cost of sales, as is currently the case.

Proposal 3 Interest incurred in connection with the construction of plant and machinery, which was previously written off to the statement of profit or loss and other comprehensive income, will be added to the cost of the plant and machinery.

Proposal 4 Following a discussion with an art dealer in December 2017, the new Chief Executive of Gold discovered a painting that had hung in her father’s office for many years could fetch at least €1,000,000 at auction. It is intended to sell the painting at auction as soon as possible and recognise the €1,000,000 gain in the financial statements for the year ended 31 December 2017.

Proposal 5 Gold received a letter in January 2018 from Bling Limited (“Bling”), a company that had used Gold’s precious metals in the manufacture of jewellery during 2017. However, the innovative design of the jewellery has not proved popular and sales have been poor. Bling has threatened to sue Gold for loss of earnings of €1,000,000 on the grounds that the precious metals are ‘useless’. The Chief Executive of Gold proposes to net the gain on the sale of the painting against the threatened claim for loss of earnings.

Requirement Prepare a memorandum to the new Chief Executive of Gold explaining the accounting implications of each of the proposals.