Accelerated Earnings Inc. (Company)has an operating line of credit with the local bank that is secured by accounts receivable and inventory.
The Company purchased inventory whenever the price was low during the year and has a substantial amount on hand at year end. The inventory price has increased substantially at year end. The Controller recorded the following journal at year end:
$\begin{array}{llcc}
\text {Dr } & \text { INVENTORY } &120,000\
\quad\quad \text {Cr. } & \text { GAIN ON INVENTORY }&&120,000\
\end{array}$
Required:
a)Who are the users of the Company's financial statements and what is their informational need?
b)What part of the IFRS Conceptual Framework is violated by this journal entry?
c)What is the impact of this journal entry on the Company's users?
d)What correction is required?

Question

Accelerated Earnings Inc. (Company)has an operating line of credit with the local bank that is secured by accounts receivable and inventory.
The Company purchased inventory whenever the price was low during the year and has a substantial amount on hand at year end. The inventory price has increased substantially at year end. The Controller recorded the following journal at year end:
 $\begin{array}{llcc}
  \text {Dr  } & \text {  INVENTORY }  &120,000\
\quad\quad \text {Cr.   } & \text { GAIN ON INVENTORY }&&120,000\
\end{array}$
 Required:
a)Who are the users of the Company's financial statements and what is their informational need?
b)What part of the IFRS Conceptual Framework is violated by this journal entry?
c)What is the impact of this journal entry on the Company's users?
d)What correction is required?

Quizplus · Accepted Answer

The Answer of Accelerated Earnings Inc. (Company)has an operating line of credit with the local bank that is secured by accounts receivable and inventory.
The Company purchased inventory whenever the price was low during the year and has a substantial amount on hand at year end. The inventory price has increased substantially at year end. The Controller recorded the following journal at year end:
 $\begin{array}{llcc}
  \text {Dr  } & \text {  INVENTORY }  &120,000\
\quad\quad \text {Cr.   } & \text { GAIN ON INVENTORY }&&120,000\
\end{array}$
 Required:
a)Who are the users of the Company's financial statements and what is their informational need?
b)What part of the IFRS Conceptual Framework is violated by this journal entry?
c)What is the impact of this journal entry on the Company's users?
d)What correction is required?

Accelerated Earnings Inc Dr INVENTORY 120,000Cr. GAIN ON INVENTORY 120,000\begin{array}{llcc} \text {Dr } & \text { INVENTORY } &120,000\\\quad\quad \text {Cr. } & \text { GAIN ON INVENTORY }&&120,000\\\end{array}Dr Cr. ​ INVENTORY GAIN ON INVENTORY ​120,000​120,000​

Accelerated Earnings Inc $\begin{array}{llcc} \text {Dr } & \text { INVENTORY } &120,000\\\quad\quad \text {Cr. } & \text { GAIN ON INVENTORY }&&120,000\\\end{array}$