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Example 1
Identify the accounting issue(s) / problem(s) in each of the following scenarios?
a) Corporate Ltd paid $5,000 for office equipment that will last for four years, with maintenance service to be provided for two years.

b) Office Supplies sold office equipment to Corporate Ltd. Terms of the sale include two years maintenance to be provided by Office Supplies.

c) X Ltd acquired office premises for $1,000,000 paid in cash.

Example 2
Identify the four components of an accounting policy. Illustrate your answer with an example of an accounting policy for emission trading allowances that are received by the reporting entity from the government at no cost. The emission trading allowances will expire two years after they were received.
? Define – what element(s) of the financial statements
? Recognise – when should it be recognised
? How it should be MEASURED
? What is to be disclosed about the transaction/event/item

Example 3
Critically evaluate this statement.
“Regulators should not worry about what is reported because investors can’t be fooled if the market is efficient in the semi-strong form.”
Strength: In an efficient market prices reflect all publicly available information; investors are not fooled by how an item is reported. Elaborate with example.

Weakness: But this does not mean that what is reported does not matter
? Prices respond to available information____________________________________
? Investors could still be misled by
Example 4
The fair value of A Ltd’s financial assets declined by $2,500,000. However, A Ltd reclassified its financial assets because of a change in accounting standards. The effect of the reclassification was that changes in the fair value of the financial assets were not recognised in the 20X3 financial statements. Accordingly, A Ltd reported profit of $4,000,000 in 20X3, compared with $3,500,000 the year before. A Ltd disclosed the decline in the fair value of the financial assets in the notes to the financial statements.
Required
a) Calculate the amount of profit that would have been reported by A Ltd if the financial assets had not been reclassified.
b) Describe the mechanistic hypothesis. How does the mechanistic hypothesis predict investors, and therefore, share prices, would respond to the information reported in A Ltd’s financial statements for 20X3?

Describe the semi-strong form of market efficiency. What does it imply about how investors, and therefore, share prices, will respond to information reported in A Ltd’s financial statements for 20X3?