P2-2

Fusters, Inc., provides audited financial statements to its creditors and is required to maintain certain covenants based on its debt to equity ratio and return on assets. In addition, management of Fusters receives a bonus partially based on revenues for the year. Information related to Fusters, Inc., follows.

1. Depreciation expense on the building for the year was $45,000. Because the building was increasing in value during the year, the controller decided not to record any depreciation expense in the current year.

2. New legislation was discussed by the government that would require new pollution control technology for companies such as Fusters. Prior to this, Fusters had been complying with all current requirements and otherwise believed that it was acting in an environmentally responsible manner. In anticipation of this legislation being passed next year, Fusters expects it will need to upgrade its equipment and has booked the following entry:

Equipment 121,000

Accounts Payable 121,000

3. During the year, the company sold certain equipment for $285,000, recognizing a gain of $45,000. Because the controller believed that new equipment would be needed in the near future, the controller decided to defer the gain and amortize it over the life of the new equipment that would soon be purchased.

4. An order for $61,500 was received from a customer on January 2, 2017, for products on hand. This order was shipped f.o.b. shipping point on January 9, 2017. The company made the following entry for 2016:

Accounts Receivable 61,500

Sales Revenue 61,500

Instructions

a) Discuss the reporting objectives of the users of Fusters' financial statements.

b) Comment on the appropriateness of Fusters' accounting procedures and their impact on the company's financial statement users, applying the current conceptual framework.

c) Discuss whether there are alternatives available under IFRS to provide the reporting desired by Fusters' management.