Question 2 You are the financial controller of TEG, a listed entity which prepares consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). You have recently produced the final draft of the financial statements for the year ended 30 September 2019 and these are due to be published shortly. The chief executive officer, who is not an accountant, reviewed these financial statements and prepared a list of queries arising out of the review. Query One The notes to the financial statements say that plant and equipment is held under the 'cost model'. However, property which is owner-occupied is revalued annually to fair value. Changes in fair value are sometimes reported in profit or oss but usually in other comprehensive income'. Also, the amount of depreciation charged on plant and equipment as a percentage of its carrying amount is much higher than for owner occupied property. Another note says that property we own but rent out to others is not depreciated at all but is revalued annually to fair value. Changes in value of these properties are always reported in profit or loss. I thought we had to be consistent in our treatment of items in the accounts. Please explain how all these treatments comply with relevant reporting standards Query Two When reading the accounting policies note in the consolidated financial statements I notice that we measure all of our reehold properties using a fair value model but that we measure our plant and equipment using a cost model. I further notice that both of these asset types are shown in the property, plant and equipment figure which is a single component of non-current assets in the consolidated statement of financial position. It makes no sense to me that assets which are shown as property, plant and equipment are measured inconsistently. If it's OK to measure different parts of property, plant and equipment using two different measurement models, why not use the fair value model for the more eadily accessible properties and use the cost model for the properties in remote locations to save on time and cost? Query Three As you know, in the year to September 2019 we spent considerable sums of money designing a new product. We spent the six months from October 2018 to March 2019 researching into the feasibility of the product. We charged hese research costs to profit or loss. From April 2019, we were confident that the product would be commercially successful and we fully committed ourselves to financing its future development. We spent most of the rest of the year developing the product, which we will begin to sell in the next few months. These development costs have been recognised as intangible assets in our statement of financial position. How can this be right when all these research and development costs are design costs? Please justify this with reference to relevant reporting standards. Required: Provide answers to the queries raised by the chief executive officer Query One Query Two Query Three (7 marks) (6 marks) (5 marks) (5 marks) (40 marks) Professional marks Total marks Question 2 You are the financial controller of TEG, a listed entity which prepares consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). You have recently produced the final draft of the financial statements for the year ended 30 September 2019 and these are due to be published shortly. The chief executive officer, who is not an accountant, reviewed these financial statements and prepared a list of queries arising out of the review. Query One The notes to the financial statements say that plant and equipment is held under the 'cost model'. However, property which is owner-occupied is revalued annually to fair value. Changes in fair value are sometimes reported in profit or oss but usually in other comprehensive income'. Also, the amount of depreciation charged on plant and equipment as a percentage of its carrying amount is much higher than for owner occupied property. Another note says that property we own but rent out to others is not depreciated at all but is revalued annually to fair value. Changes in value of these properties are always reported in profit or loss. I thought we had to be consistent in our treatment of items in the accounts. Please explain how all these treatments comply with relevant reporting standards Query Two When reading the accounting policies note in the consolidated financial statements I notice that we measure all of our reehold properties using a fair value model but that we measure our plant and equipment using a cost model. I further notice that both of these asset types are shown in the property, plant and equipment figure which is a single component of non-current assets in the consolidated statement of financial position. It makes no sense to me that assets which are shown as property, plant and equipment are measured inconsistently. If it's OK to measure different parts of property, plant and equipment using two different measurement models, why not use the fair value model for the more eadily accessible properties and use the cost model for the properties in remote locations to save on time and cost? Query Three As you know, in the year to September 2019 we spent considerable sums of money designing a new product. We spent the six months from October 2018 to March 2019 researching into the feasibility of the product. We charged hese research costs to profit or loss. From April 2019, we were confident that the product would be commercially successful and we fully committed ourselves to financing its future development. We spent most of the rest of the year developing the product, which we will begin to sell in the next few months. These development costs have been recognised as intangible assets in our statement of financial position. How can this be right when all these research and development costs are design costs? Please justify this with reference to relevant reporting standards. Required: Provide answers to the queries raised by the chief executive officer Query One Query Two Query Three (7 marks) (6 marks) (5 marks) (5 marks) (40 marks) Professional marks Total marks