Question one Tauriel, Gandalf and Bilbo are firms involved in the production and sale of high quality spare parts for vehicles; the following are draft financial statements: Statement of financial position as at 31st December 2021. Tauriel Gandalf Bilbo '000 '000 '000 Assets Non-current assets Property, Plant and Equipment (note 2) 2,250,000 900,000 800,000 Investment in Gandalf (note 3) 600,000 Investment in Bilbo (note 4) 500,000 Current assets 750,000 300,000 200,000 Total assets 4,100,000 1,200,000 1,000,000 Equity and liabilities Equity Ordinary share capital (1) Ordinary share capital (0.5) Ordinary share capital (1) Retained earnings Non-current liabilities Current liabilities Total equity and liabilities 200,000 300,000 100,000 3,300,000 660,000 700,000 400,000 200,000 240,000 200,000 4,100,000 1,200,000 1,000,000 Revenue Cost of sales Gross profit Investment income Administration costs Profit before tax Tax Profit after tax Tauriel Gandalf Bilbo '000 '000 '000 5,736,000 3,140,000 1,500,000 (3,000,000). (2,000,000) (900,000) 2,736,000 1,140,000 600,000 284,000 (200,000) (140,000) (80,000) 2,820,000 1,000,000 520,000 (720,000) (300,000) (160,000) 2,100,000 700,000 360,000 Notes to the accounts: 1. On 1st July 2021, Gandalf sold units with a total sales price of 250,000 units for 200 each to a single large customer. Included in the contract was a two-year service warranty covering all required repairs during this time. The normal selling price of the same merchandise would be 170 per unit without the warranty. As of 31st December 2021, Gandalf recognised 44,375,000 of revenue, included in the above accounts. Requirements: a) The accountant who posted Gandalf's sales in Note 1 is now worried that they treated this incorrectly. They come to you asking for help. Prepare a brief note for them showing the correct treatment and explaining why the correct treatment is consistent with International Financial Reporting Standards. Question one Tauriel, Gandalf and Bilbo are firms involved in the production and sale of high quality spare parts for vehicles; the following are draft financial statements: Statement of financial position as at 31st December 2021. Tauriel Gandalf Bilbo '000 '000 '000 Assets Non-current assets Property, Plant and Equipment (note 2) 2,250,000 900,000 800,000 Investment in Gandalf (note 3) 600,000 Investment in Bilbo (note 4) 500,000 Current assets 750,000 300,000 200,000 Total assets 4,100,000 1,200,000 1,000,000 Equity and liabilities Equity Ordinary share capital (1) Ordinary share capital (0.5) Ordinary share capital (1) Retained earnings Non-current liabilities Current liabilities Total equity and liabilities 200,000 300,000 100,000 3,300,000 660,000 700,000 400,000 200,000 240,000 200,000 4,100,000 1,200,000 1,000,000 Revenue Cost of sales Gross profit Investment income Administration costs Profit before tax Tax Profit after tax Tauriel Gandalf Bilbo '000 '000 '000 5,736,000 3,140,000 1,500,000 (3,000,000). (2,000,000) (900,000) 2,736,000 1,140,000 600,000 284,000 (200,000) (140,000) (80,000) 2,820,000 1,000,000 520,000 (720,000) (300,000) (160,000) 2,100,000 700,000 360,000 Notes to the accounts: 1. On 1st July 2021, Gandalf sold units with a total sales price of 250,000 units for 200 each to a single large customer. Included in the contract was a two-year service warranty covering all required repairs during this time. The normal selling price of the same merchandise would be 170 per unit without the warranty. As of 31st December 2021, Gandalf recognised 44,375,000 of revenue, included in the above accounts. Requirements: a) The accountant who posted Gandalf's sales in Note 1 is now worried that they treated this incorrectly. They come to you asking for help. Prepare a brief note for them showing the correct treatment and explaining why the correct treatment is consistent with International Financial Reporting Standards