Your elder brother Kazim has b
Your elder brother Kazim has been hired as CFO inSohar Power Company SAOG. Sohar Powercompany SAOG owns and operates the largest power generation andwater desalination plant inthe Sultanate. Sohar Power is incorporated in 2004. Since then, thecompany has built and ownsthe 585 MW electricity generation and 33 MIGD seawater desalinationplant. Sohar Power has ahistory of research and development in the field of powergeneration and water purification. It hasa long established policy for the treatment of expenditure onresearch and development, on whichit spends huge amount annually.Recently, Kazim becomes aware that an investment of OMR 100,000which was made last yearfor research and development programme, has not been properlyevaluated. Although in aggregateOMR 1 million has been spent, but Kazim thinks that the criteriafor the investment was not fairand clear. The director for the research committee did not assessproperly and the output of theinvestment was poor. Kazim enquires Mr. Abid, the director ofresearch committee to justify theinvestment. Abid replies by saying that they will satisfy theauditors in any way.However, the financial year end is only two months away and OMR 1million in write-off at thislate stage in the financial year would cause Kazim and his team indifficulties. The company hasto finalize the year-end report. Kazim called the meeting ofdirectors and discussed the issue.During the meeting they have serious reservations on researchcommittee. One of the directorssuggested that this amount will be considered as an asset and itwill be presented on the financialstatement for this year and it would be write off in the nextfinancial year.a. In your opinion, what decisions will be taken by Kazim tosatisfy the auditors and board ofdirectors of the company? How this transaction would be reflectedon financial statement of SoharPower? b. Abid, working on a high position in a company thinks thatauditors can be satisfied in anunethical manner. How could such an unethical behavior be alearning experience for the rest ofthe employees? In your opinion, who is to be blamed for thisincident in Sohar Power and why?
Answer:
solution:-
given data about the “sohar power” company SAOG.
a)
let us think about GAAP (sound accounting standard) withIFRS(international money related detailing standards)under IFRSrules. inquire about spending is treated as a cost every yearsimilarly likewise with GAAP.
- though advancement cost can be promoted if the conpany i.e”Sohar Power” can demonstrate that the advantages being developedwill turn out to be economically practical.
- the advantage of IFRS approach is that probably some innovativework cost can be benefited from the company ballance sheet asopposed to being caused as a costs on the announcement of benefitand misfortune ( P&L)
- Research and improvement in OMR is a drawn out speculation forSohar Power may bring about numerous long periods of income, Thustheoratically ought to be promoted as a benefits, notexpensed.
- Form a financial point of view it appears to be sensible thatinnovative work expenses ought to be promoted despite the fact thatits hazy how much future advantage they will make.
- in our case “Sohar Power Company SAOG” can assess its ecnomiclife and utilize that as a supposition for the amortigation timeframe.
For Example-If the benefit is given a business Life of 7 Years.at that point the R&D costs in every one of those 7 years mustbe obtained.So, the opinion of one of the course is supported andkazim can fulfill the auditers and boad. with above clarificationand models.
b)
- No, auditors can not be fulfilled in an unethical way. Abidisn’t right and his expectation were as well.
- This kind of practices which can prompt troublesomecircumstance for “Sohar power Co. unethical practices areconsidered as misepresentation of data and realities and can pullin punishment and corrective arrangement additionally for theSOAG.
- Unethical acts of miss driving data can profit in the short runyet for the drawn out development and sucess it ought to bemaintained a strategic distance from, and if not they were foundover the long haul.
- For the remainder of employees this circumstance might possiblyunfavorably affect this trest toward SOAG. since No employees needto work in an unethical association where ethical practicesethically, code of behaviors are maintained a strategic distancefrom.
- So these tyoe of practices ought to be rebuffed and dispensedwith to make worth and advantage and trust for differentemployees
- in my opinion Kazim more established sibling is answerable forthis R&D costs the explanation could be different yet in theevent that Sohar power has a past filled with R&D than how itturns out badly. at the point when it has a since quite a while agosettled arrangement.
- May be Kazim senior sibling isn’t capable each R&D willmake estimation of produce income is noe important the sucess ofResearch and advancement will rely upon may factors. there may be acircumstance of win-win or misfortune.
I hope it helps you
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