Basis of Preparation The financial statements have been prepared in accordance w

Question

Basis of Preparation The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements have been prepared under the historical cost convention as modified by the revaluation of the rigs. Rigs include drilling equipment, well control equipment, electrical equipment, power plant, and so on.

Required:

A. Since the financial statements are prepared in U.S. dollars, does this imply that the financial statements are prepared in accordance with U.S. GAAP? Why or why not?

B. List three major differences between this balance sheet in comparison to balance sheets prepared under U.S. GAAP.

C. Evaluate the performance of the company using the income statement. What appears to be the cause of the major change in performance?

Challenger Limited Balance Sheets for the year ended at 31 December ( U.S dollars) 2007 2008 Assets Non-Current Assets Property , plan and equipment $152,425,129.00 $49,410,844.00     Total non-current assets $152,425,129.00 $49,410,844.00 Current assets Spare parts inventory $6,956,849.00 $12,874,676.00 Receivables and prepayments $40,518,272.00 $18,887,780.00 Due from related parties $519,044.00 $140,136.00 Cash and Cash equivalents $2,842,879.00 $2,753,003.00       Total Curent assets $50,837,044.00 $34,655,595.00 Total Assets $202,262,173.00 $84,066,439.00 Equity and liabilities Equity    Capital $64,957,265.00 $50,000,000.00 Additional Paid-in Capital $70,795,653.00 $15,000,000.00 Revaluation reserve $16,782,544.00 $1,403,983.00 Other -$1,368,122.00 R/E $9,240,432.00 $2,314,787.00      Total Equity $160,407,772.00 $68,721,770.00 Liabilities Non-Current Liabilities Borrowings $4,545,190.00 $738,499.00    Total Non-Current Liabilities $4,545,190.00 $738,499.00 Current Liabilities Borrowings $13,554,645.00 $2,676,000.00 Trade and other payables $14,060,820.00 $7,016,164.00 Current Tax liabilities $4,062,411.00 $2,869,643.00 Provisions $491,280.00 Divididends and redemption payable $3,078,302.00 $2,044,363.00 Due to related parties $3,061,753.00     Total Current Liabilities $38,309,211.00 $14,606,170.00 Total liabilities $42,854,401.00 $15,344,669.00 Total equity and liabilities $203,262,173.00 $84,066,439.00

Explanation / Answer

A. No it is not imple from it that if Balance sheet is prepared in U.S. Dollors it is in accordance with U.S. GAAP. to be in accordance with U.S. GAAP it has to followed each and every principal while preparing according to U.S. GAAP.

B. three major differences:

1. Under U.S. GAAP , Balance sheet is generally presented as total assets balancing to total liabilities and shareholders’ equity. Items presented on the face of the balance sheet are similar to IFRS but are generally presented in decreasing order of liquidity. The balance sheet detail should be sufficient to enable identification of material components. Public entities should follow specific SEC guidance.

2. Under U.S. GAAP ,Off-setting is permitted where the parties owe each other determinable amounts, where there is an intention to offset and where the offsetting is enforceable by law. but under IFRS,Assets and liabilities cannot be offset, except where specifically permitted by a standard. Financial assets and financial liabilities are offset where an entity has a legally enforceable right to offset the recognized amounts and intends to settle transactions on a net basis or to realise the asset and settle the liability simultaneously.

3. Extraordinary items are prohibited under IFRS but in US GAAP, These are defined as being both infrequent and unusual. Extraordinary items are rare. Negative goodwill arising in a business combination is written off to earnings as an extraordinary gain, presented separately on the face of the income statement net of taxes. Disclosure of the tax impact is either on the face of the income statement or in the notes to the financial statements.

C. As per the income statment it is clear from it that company's sales has been increased to very extent and company was able to reduce it various costs in order to increase profitabality due to whoch Gross profit margin has increased. so it shows that company is performing very good.

The major change in the performance is due to decease in expenses and increase in other incomes of the company effectively.

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