Question

Core Apple Ltd is a computer software business that operates nationally in Australia. The business generates revenues of approximately $40 million annually and 50% of its assets are funded by debt. Core Apple Ltd was structured as a partnership with 4 partners. 1 of the partners is employed as part of Core Apple’s management team, while the remaining 3 partners are not involved in the day-to-day business. Glenn, the Chief Financial Officer, is unsure as to whether Core Apple Ltd is required to produce general purpose financial reports, which are financial reports prepared by reporting entities.

REQUIRED:

Explain whether Core Apple Ltd is a reporting entity, which is required to prepare general purpose financial reports. Justify your answers with reference to the SAC 1 definition of a reporting entity and the indicators used to assess whether there are likely to be users who depend on general purpose financial reports.

Answer 1

As per paragraph no. 35,36,37 we understand following

Bases that have been proposed for identifying the entities which should be permitted to depart from these Statements and Standards are: (a) the size of the entity - that is, entities classed as small in relation to certain size benchmarks, based on any combination of turnover, assets and number of employees, would be permitted to depart;(b) ownership characteristics - for example, privately-owned entities would be permitted to depart, whereas publiclyowned entities would not be permitted to depart; and (c) a combination of size and ownership characteristics - for example, privately-owned entities which are classed as small would be permitted to depart from the Statements and Standards.

In this Statement the need to prepare general purpose financial reports is linked to the existence of users dependent on those reports as a basis for making and evaluating resource allocation decisions. The existence of users dependent on general purpose financial reports is not determined by either the size or the ownership characteristics of an entity. Accordingly, the bases outlined in paragraph 35 are not supported by this Statement. However, the reporting entity concept enunciated herein embodies a concept of differential reporting in that certain entities will not be identified as reporting entities and thus would not be required to prepare general purpose financial reports or comply with Statements of Accounting Concepts and Accounting Standards in the preparation of other financial reports. The entities which need not prepare general purpose financial reports are those in respect of which it is reasonable to expect that users dependent upon information contained in general purpose financial reports for making and evaluating resource allocation decisions do not exist.

it is likely that some types of entities will be identified as reporting entities by this Statement, while others will not. Accordingly, in most instances the following private sector entities are unlikely to be required by this Statement to prepare general purpose financial reports: sole traders, partnerships, privately-owned companies and trusts other than those where funds are subscribed by the public. There may be some instances when it is considered necessary or desirable that a general purpose financial report about an entity in these categories be prepared, for example when a privately-owned company intends to raise funds from the public. In these circumstances the report is required to comply with all Statements of Accounting Concepts and Accounting Standards. In the public sector, although most government departments and statutory authorities are likely to be required to prepare general purpose financial reports, the financial characteristics of some authorities and government agencies will mean that they will not be required by this Statement to prepare such reports.

Conclusion"-

In our scenario core apple is registere as partnership firm where only 1 partner is active partner and other partner are sleeping partner

our 50% of assets is funded by debt

If we considerd that cor apple is partnership firm and it is private entity then it does not require to preare general purpose financial statement but it is a wron opinion now we understand why

a) there are 4 partner out this only one partner is active partner so other 3 partner dont have much interfare in business so they will rely on work which is done by active partner

b) Our 50% of assets is funded by debt so the debt provider should have an accurate financial statement to take decision whether to provide loan or loan

The sleeping partner and debt provider is person who are taking decision based on financial statement so it is compulsary to prepare general purpose financial statement.

Kindly rate my answer if your query got solved. and if not then raise your query in comment section