Glam Cosmetics Case Study
Question 1 – Reporting environment relevant information for an investment company
A year ago you bought shares in an investment company. The investment company in turn buys, holds and sells shares of business enterprises. You want to use the financial statements of the investment company to assess its performance over the past year. Required:
(a) In less than 250 words explain and identify in a bulleted listing what financial information about the investment company’s holdings would be most relevant to you? (6 marks)
(b) Knowing that the investment company earns profits from appreciation of its investment securities and from dividends received, in less than 200 words, explain how would the concepts of recognition in the conceptual framework apply here? (4 marks) (10 marks total)
a.
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As yet, it is too early for Glam Cosmetics’ management to be able to predict whether this project will prove to be commercially successful.
Required:
Explain in less than 200 words whether Glam Cosmetics should recognise this expenditure as an asset, justifying your answer by reference to the conceptual framework asset definition and recognition criteria.
The conceptual framework defines an asset as a controllable resource that is associated with a certain entity that may be brought by certain previous transactions / events, in which future economic benefits can flow to the entity. The definition satisfies the expenditure of the company in producing the new chemical-free cosmetics under the following aspects: (1) future economic benefits are expected to flow into the entity through the possible sales of the cosmetic producst; (2) it is a controllable resource; (3) a previous transaction or event is associated through the spending of the company with an amount of $220,000 in the
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