Goodbuy Drugs Essay

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MGTC08 - L02 Case Assignment 2: Goodbuy Drugs Ltd To: Audit Committee From: CA/CGA/CMA Re: Goodbuy Drugs Ltd’s (GDL) 2012 Analysis Report for Audit Meeting This report has been prepared for the audit committee’s review and summarizes the 2012 accounting issues that GDL faces. It includes an analysis of the revised basic & diluted EPS calculations based on the recommendations. COMPANY BACKGROUND AND CONSTRAINTS GDL is a public company with operations in drug & food product retail as well as real estate. GDL’s shares are traded on the public market and follows IFRS reporting standards. It reports basic & diluted EPS before & after tax & capital gain for Y/E Dec 31 and emphasizes its before tax & capital gain EPS figures to shareholders over the after figures as it believes that capital gains are sporadic. However, given that real estate is a key operation of GDL, this emphasis is questionable and might mislead investors from the industry standard of after tax & capital gain EPS. USERS AND USER NEEDS The Audit Committee wants to solve the accounting issues in order to finalize the 2012 financial statements. It wants to ensure accurate and ethical reporting for fair representation of the company’s financial position. Shareholders want to see the company’s financial position and evaluate their investment stance. They will be interested in an increase in EPS figures from 2011, indicating company growth and increase in shareholder value. ISSUES 1. Nature of sale of real estate & leasing agreement with Sisson REIT The REIT units received on top of cash in the transaction are treated as equity investment assets under IFRS. Given this, and the fact that GDL entered into lease agreements with Sisson soon after for a portion of the sold properties might imply that Sisson is a Special Purpose Entity created by GDL to facilitate
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