Answer to Question #237621 in Economics for Josef

Question

Two transactions took place in the year which met the definition and recognition criteria

of an expense. The transaction did, however, have a distinct difference which is

highlighted below:

(i)

Transaction one resulted in the decrease of the bank account, an asset; and

(ii)

Transaction two resulted in a loan liability being created

As the accountant was confused with the conceptual treatment of the transactions, he

examined another set of financial statements, showing non-compliance with IFRS, which

treated transaction one as an expense but transaction two as the issue equity preference

shares. The accountant has therefore decided to follow this treatment but is concerned it is

not correct. Do you agree with the treatment? (4 marks)

Answer 1

I disagree with the adjustment because the loan commitment has not been paid off.