Explain the grounds upon which a person may be disqualified under the Company Directors Disqualification Act 1986.(10 marks)
(d) Sirus raised a loan with a bank of $2 million on 1 May 2007. The market interest rate of 8% per annum is tobe paid annually in arrears and the principal is to be repaid in 10 years time. The terms of the loan allow Sirusto redeem the loan after seven years by paying the full amount of the interest to be charged over the ten yearperiod, plus a penalty of $200,000 and the principal of $2 million. The effective interest rate of the repaymentoption is 9·1%. The directors of Sirus are currently restructuring the funding of the company and are in initialdiscussions with the bank about the possibility of repaying the loan within the next financial year. Sirus isuncertain about the accounting treatment for the current loan agreement and whether the loan can be shown asa current liability because of the discussions with the bank. (6 marks)Appropriateness of the format and presentation of the report and quality of discussion (2 marks)Required:Draft a report to the directors of Sirus which discusses the principles and nature of the accounting treatment ofthe above elements under International Financial Reporting Standards in the financial statements for the yearended 30 April 2008.
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(c) Discuss the ethical responsibility of the company accountant in ensuring that manipulation of the statementof cash flows, such as that suggested by the directors, does not occur. (5 marks)Note: requirements (b) and (c) include 2 professional marks in total for the quality of the discussion.
4 (a) A company may choose to finance its activities mainly by equity capital, with low borrowings (low gearing) or byrelying on high borrowings with relatively low equity capital (high gearing).Required:Explain why a highly geared company is generally more risky from an investor’s point of view than a companywith low gearing. (3 marks)
5 The directors of Quapaw, a limited liability company, are reviewing the company’s draft financial statements for theyear ended 31 December 2004.The following material matters are under discussion:(a) During the year the company has begun selling a product with a one-year warranty under which manufacturingdefects are remedied without charge. Some claims have already arisen under the warranty. (2 marks)Required:Advise the directors on the correct treatment of these matters, stating the relevant accounting standard whichjustifies your answer in each case.NOTE: The mark allocation is shown against each of the three matters
4 (a) Explain the meaning of the term ‘working capital cycle’ for a trading company. (4 marks)
(c) Critically discuss FOUR principal roles of non-executive directors and explain the potential tensions betweenthese roles that WM’s non-executive directors may experience in advising on the disclosure of theoverestimation of the mallerite reserve. (12 marks)
(c) Explain the benefits of performance-related pay in rewarding directors and critically evaluate the implicationsof the package offered to Choo Wang. (8 marks)
