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Frays Case Analysis

Advance financial account

Frays is a private company thinking about going public. As an advisor to the management I strongly suggest that Frays comply to IFRS. This recommendation is based on the fact that financial statement should be prepared according to the needs of the reader. That being said, in context where a company is operating globally and is thinking about going public the readers of the statement is most likely going to change in a near future. Consequently, it is to Frays advantage to make their financial statements comparable and easily understandable globally. In this sense, the following analysis will assume that all recommendations for the December 31 2011 financial statements are done according to IFRS regulations.
It is important to understand what functional currency is Frays using before proceeding any further. Assuming that Frays sales to Mostress Inc (MI) are only a portion of their total sales and that MI is their only international distributor is it safe to believe most of Frays sales are done in Canada and in Canadian dollars. Additionally, labour, materials and all other cost associated with production along with managerial cost are also done in Canada and most likely denominated in Canadian dollars. Based on these two primary indicators we have to considering the Canadian dollar as the functional currency.

The first step to understanding the accounting implication of the MI transaction is to determine if the transaction gave Frays control over MI. In this case, the only two plausible answer are either Frays has control or significant influence over MI. The answer will have considerable impact on the accounting implications for Frays.

First, Frays purchased 49% of voting common share, generally this is not sufficient to have control over another company since more than 50% is usually required. However, there are secondary indicators to consider. For example, if the remaining shareholders covey



Bibliography: "IAS Plus: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations." Deloitte -- IASPlus. Web. 31 Mar. 2011. <http://www.iasplus.com/standard/ifrs05.htm>. "IAS Plus: IAS 28, Investments in Associates (Equity Method)." Deloitte -- IASPlus. Web. 31 Mar. 2011. <http://www.iasplus.com/standard/ias28.htm>. Hilton, Murray W., and Darrell Herauf. Modern Advanced Accounting in Canada. [Whitby, Ont.]: McGraw-Hill Ryerson, 2010. Print. Brushett, Bill. "GAAP for Private Business or IFRS - What Is the Best Choice for You?" Grant Thornton (2009).Http://www.grantthornton.ca/resources/insights/TLs/PHBs/GAAP%20for%20private%20business%20or%20IFRS.pdf. Web.

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