You are the Chief Financial Controller of Lay Choo Ltd and Your Company Owns a Substantial: Financial Accounting and Reporting (FAR) Assignment, ISCA, Singapore

Case Scenario

You are the Chief Financial Controller of Lay Choo Ltd and your company owns a substantial number of ordinary shares in Louis Ltd.

Due to COVID-19 circuit breaker measures, your company has canceled the Annual General Meeting (AGM) for your shareholders. As the Chief Financial Officer, you have been tasked to prepare a set of “meaningful” financial statements to be sent to your shareholders.

Accompanying your financial statements is a written report to educate your shareholders about the financial statements you are going to send to them.

Do note that your shareholders have no financial knowledge at all and do not understand the nature and purpose of the “meaningful” financial statements you have prepared for them. Your written report should enlighten them as much as possible about the purpose and meaning of the financial information you have presented.

Below are the audited financial statements for both companies.

Additional information pertaining to business activities:

1. Lay Choo Ltd has only one investment, which is 75,000 ordinary shares of Louis Ltd purchased from Louis Ltd’s shareholders on 1 July 2019. As for Louis Ltd, it owns shares and bonds of many other companies for trading in the stock exchange.

2. Both Lay Choo Ltd and Louis Ltd did not issue any new shares or dividends during the year.

3. During the year, Lay Choo Ltd earned sales revenue of $50,000 from Louis Ltd while Louis Ltd also sold inventory to Lay Choo Ltd at a selling price of $30,000.

4. By the end of the year, Lay Choo Ltd sold away all the inventory purchased from Louis Ltd while $10,000 out of the $50,000 inventory sold to Louis Ltd remained unsold. These unsold inventories were originally purchased by Lay Choo Ltd at a cost of $8,000.

5. As for the amounts owing between each other, only $10,000 owing to Lay Choo Ltd was still outstanding as Lay Choo Ltd has already paid in full for its purchase of inventories from Louis Ltd.

6. To celebrate the successful acquisition of shares in Louis Ltd on 1 July 2019, Lay Choo Ltd sold a used machine to Louis Ltd on 2 July 2019 at a discounted price of $90,000 as the machine still had a net book value of $100,000 on 30 June 2019. That equipment had a remaining useful life of 2 years from 1 July 2019 and depreciation expense is included in operating expenses for both companies using the straight-line method.

Part 1 – Preparation of Financial Statements

Task:

Assume you are the Chief Financial Officer of your company which is listed in the stock exchange.

In preparation for the company’s Annual General Meeting, you are required to produce financial statements showing financial position as well as financial performance for your company shareholders.

Part 2 – Explanation of Financial Information

Task:

Due to COVID-19, the company’s Annual General Meeting has been canceled. As the Chief Financial Officer of your company, you are required to produce a written report explaining in detail the financial information presented in your financial statements you prepared in Part 1.

Do note that your shareholders may be financially illiterate and also do not know about any relationship, your company may have with another company.