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Case 1: You are in the financial team of local chain of coffee shop. The birth of this Coffeeshop Company can be traced back to
Case 1: You are in the financial team of local chain of coffee shop. The birth of this Coffeeshop Company can be traced back to 1999 when the first Coffeeshop opened its doors to its guests on a historical November day in Muscat, Oman. Characterized by a very special and friendly atmosphere, the Coffeeshop Company is a new, unique interpretation of the ever- popular traditional Omani coffee house culture, which was included in the UNESCO list of "intangible cultural heritage in 2014. The main approach of the Coffeeshop company design is to communicate to the customer a high-end elegant shop appearance telling the story of the birthplace and origins of original Omani coffee culture, it is intended for locations and areas with a more conservative and higher-income customer base. The company also has a cooler and trendier design line, intended for a younger, slightly more progressive crowd /customer base. Since 2014 the company have adopted IFRS in preparation of its financial statements. The company was founded by Ahmed who is also the CEO of the company. He recently attended a meeting with accounts department which was discussing various financial reporting issues. Following the seminar, he reviewed the financial statements for the year ended 31 December 2019. Based on this review he has prepared a series of queries relating which you are required to explain: Query 1: I am keen on understanding more about the discussion on our recent contract with Muscat international airport operator to use a space in the airport to sell our coffee for a period of five years. The contract states the amount of space and location of the space can be at any one of several boarding areas within the airport. It will be the airport that has the right to change the location of the space allocated to us at any time during the period of use. There is some cost to the airport for changing the space and we are required to use a kiosk that can be moved easily to any place which the airport desires. It is highly unlikely that there would be such circumstances that would require a change in the location. The company has all the night to sell their products under their own brand name. The contract requires our company to make fixed payments to the airport authority every month. It is the airport authority that would provide for cleaning and security services as part of the contract. Can you please explain as to how such contract with Muscat International Airport will be dealt as per the provisions of IFRS 16? Query 2: As you are also aware that we are also engaged in providing catering services, we have recently won a competition bid to provide catering services to a PDO Oman for three years. There was a considerable cost incurred by us to obtain the contract that included legal fees for due diligence, quality assurance and other costs that amounted to RO 10,000. These costs are expected to be recovered accordingly over a period of the contract. Can you please explain me the treatment of such cost as per the provisions of IFRS 15? Required: Provide answers to the questions raised by your managing director. Your answers should refer to relevant provisions of International Financial Reporting Standards (IFRS Standards). (2 x 5 marks = 10 marks Min 150 - 200 words) Case 1: You are in the financial team of local chain of coffee shop. The birth of this Coffeeshop Company can be traced back to 1999 when the first Coffeeshop opened its doors to its guests on a historical November day in Muscat, Oman. Characterized by a very special and friendly atmosphere, the Coffeeshop Company is a new, unique interpretation of the ever- popular traditional Omani coffee house culture, which was included in the UNESCO list of "intangible cultural heritage in 2014. The main approach of the Coffeeshop company design is to communicate to the customer a high-end elegant shop appearance telling the story of the birthplace and origins of original Omani coffee culture, it is intended for locations and areas with a more conservative and higher-income customer base. The company also has a cooler and trendier design line, intended for a younger, slightly more progressive crowd /customer base. Since 2014 the company have adopted IFRS in preparation of its financial statements. The company was founded by Ahmed who is also the CEO of the company. He recently attended a meeting with accounts department which was discussing various financial reporting issues. Following the seminar, he reviewed the financial statements for the year ended 31 December 2019. Based on this review he has prepared a series of queries relating which you are required to explain: Query 1: I am keen on understanding more about the discussion on our recent contract with Muscat international airport operator to use a space in the airport to sell our coffee for a period of five years. The contract states the amount of space and location of the space can be at any one of several boarding areas within the airport. It will be the airport that has the right to change the location of the space allocated to us at any time during the period of use. There is some cost to the airport for changing the space and we are required to use a kiosk that can be moved easily to any place which the airport desires. It is highly unlikely that there would be such circumstances that would require a change in the location. The company has all the night to sell their products under their own brand name. The contract requires our company to make fixed payments to the airport authority every month. It is the airport authority that would provide for cleaning and security services as part of the contract. Can you please explain as to how such contract with Muscat International Airport will be dealt as per the provisions of IFRS 16? Query 2: As you are also aware that we are also engaged in providing catering services, we have recently won a competition bid to provide catering services to a PDO Oman for three years. There was a considerable cost incurred by us to obtain the contract that included legal fees for due diligence, quality assurance and other costs that amounted to RO 10,000. These costs are expected to be recovered accordingly over a period of the contract. Can you please explain me the treatment of such cost as per the provisions of IFRS 15? Required: Provide answers to the questions raised by your managing director. Your answers should refer to relevant provisions of International Financial Reporting Standards (IFRS Standards). (2 x 5 marks = 10 marks Min 150 - 200 words)
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