You are a trainee chartered accountant with Stand & Deliver. The financial accountant of Hood Limited (“Hood”), an audit client of your firm, has requested your advice on a number of issues prior to the commencement of the audit of the financial statements for the year ended 31 December 2017.

Issue 1 On 1 December 2017, Hood purchased equipment for $140,000, when the exchange rate was €1 : $5. At 31 December 2017 the exchange rate was €1 : $4.80. The account was settled on 28 February 2018 when €1 : $5.40.

Issue 2 In September 2017, Hood signed an agreement with Tuck Limited (“Tuck”), a finance company, to factor its trade receivables. Under the terms of the agreement, Tuck assumes legal title and responsibility for the collection of all Hood’s trade receivables. At the end of each month, Hood sells 90% of its trade receivables to Tuck with the remaining 10%, less a deduction for finance and administration costs, being paid to Hood only when the cash is received.

Any trade receivables that do not pay Tuck within 10 weeks of the debt being sold are transferred back to Hood and Hood refunds the cash advanced by Tuck.

Issue 3 During 2017, one of the directors of Hood, Mr Sherwood, purchased additional shares in Hood on the market. Another director, Mr Forest, who was also a partner in a firm of chartered surveyors, was paid €100,000 for property valuation work carried out by the surveying company.

Issue 4 On 1 January 2017, Hood issued four million €1 bonds at par, redeemable on 31 December 2025 at €2 per €1 bond. No interest is payable during the nine years from 1 January 2017 to 31 December 2025. The implicit rate of interest in the bond is 8%. Bondholders can elect to convert their bondholdings on 31 December 2025 into €1 ordinary shares on the basis of one €1 ordinary share for every one €1 bond held. The market price of each €1 ordinary share in Hood was €1.50 on 1 January 2017 and the share price is expected to increase by approximately 10 cent per annum.

Requirement Prepare a memorandum that explains how the above issues should be accounted for in the financial statements of Hood for the year ended 31 December 2017.