FACULTY OF MANAGEMENT, LAW AND SOCIAL SCIENCE/SCHOOL OF MANAGEMENT
INTERNATIONAL ACCOUNTING AND REPORTING
Submission Date: 18/01/2021 at 3:00 pm
INSTRUCTIONS FOR CANDIDATES
Segment disclosures are widely regarded as some of the most useful disclosures in financial reports because of the extent to which they disaggregate financial information into meaningful and often revealing groups.
Critically discuss SIX causes of differences in accounting practices used in different countries.
You must discuss, with relevant examples, how a particular factor contributes to or leads to a particular difference in accounting practices.
Multinational enterprises design International Transfer Pricing (ITP) systems to achieve their global objectives.
Discuss both internal and external factors affecting the ITP systems.
On 1 January 2015, Star Ltd acquired 75% of the ordinary shares of Shine Ltd in Hong Kong to form Star-Shine Group (SSG). At that date the balance on the retained earnings of Shine Ltd was Hong Kong Dollars (HK$) 1,700,000. The non-controlling interest in Shine was measured as the proportionate share of the net assets of the subsidiary. No shares have been issued by Shine since acquisition. The summarised income statements and balance sheets of Star Ltd and Shine Ltd as at 31 December 2019 were as follows:
|Income Statement for the year ended 31 December 2019|
|Cost of sales||23,463,000||5,583,600|
|Profit before tax||10,537,560||2,851,200|
|Profit after tax||7,864,560||2,138,400|
|Balance Sheet as on 31 December 2019|
|Investment in Shine Ltd||267300||–|
|Total current assets||5,818,050||2,376,000|
|Total current liabilities||4,752,000||2,781,788|
|Total assets less liabilities||6,679,350||4,108,612|
|Capital and reserves|
The following further information is available:
At 1 January 2015 GB£ 1= HK$ 15.52
Average for the year ending 31 December 2019 GB£ 1= HK$ 10.05
At 31 December 2018/ 1 January 2019 GB£ 1= HK$ 9.92
At 31 December 2019 GB£ 1= HK$ 10.25
Special Plc has an issued share capital at 1 January 2019 of 1,000,000 ordinary shares of 20p each and 50,000 convertible preference shares of £1 each. The preference shares are classified as equity receiving a dividend of £2.50 per share. These shares are convertible in 2025 on the basis of one ordinary share for one preference share.
There is also loan capital of 10% convertible loan of £250,000. The loan is convertible in 2028 on the basis of 500 ordinary shares for each £1,000 of loan, and the tax rate is 40%.
Earnings after tax for the year ended 31 December 2019 are £5,000,000.
Services Ltd incurred research and development costs of $10 million on a project to develop product A in 2018. The research phase can be clearly distinguished from the development phase of the project. Total costs in the research phase are $6 million, and in the development phase total costs are $4 million. All of the IAS 38 criteria have been met for recognition of the development costs as an asset. Product A was brought to market in Year 2019 and is expected to be marketable for five years. Total sales of Product A are estimated at more than $100 million.
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