Case question - Quean bean
Information relevant to questions 16–20
The accountant of Quean bean is considering a number of transactions and events and how they should be treated in accordance with the concepts and qualitative characteristics of financial information as set out in the Conceptual Framework.
During the year ended 31 March 2020, Quean bean experienced the following transactions or events:
(1) The company's statement of profit or loss, prepared using historical costs, showed a loss from operating its shops, but Quean bean is aware that the increase in the value of its properties during the period far outweighs the operating loss.
(2) Inventory has up to this year been valued using FIFO but the accountant is considering changing to the weighted average method for the year to 31 March 2020.
(3) Quean bean sold an asset to a finance company and immediately leased it back for the remainder of its useful life. The transaction met the criteria to be recognised as a sale under IFRS 15 Revenue from Contracts with Customers. The accountant has decided that this should be treated as a sale and leaseback and has accounted for it accordingly.
1. The accountant is aware that some members of the board of Lisbon have little understanding of accounting and he is worried about his presentation of the financial statements at the board meeting.
In accordance with the Conceptual Framework, how should the accountant deal with this situation?
2. In looking at issue (1) above, the accountant decides that the properties should be revalued. Which concept or qualitative characteristic has been applied in making this decision?
3. Which concept or qualitative characteristic has influenced the decision in (3) above?
4. In applying the enhancing qualitative characteristic of comparability, how should the change of inventory valuation basis be accounted for?
5. Because of the loss arising from operating the shops, the accountant is considering whether Lisbon is a going concern. If it was decided that Lisbon was no longer a going concern at 31 March 2020, which of the following is correct in accordance with the Conceptual Framework?