Short answer question:
1. When the IASB’s accounting standard on intangible assets was used for the first time in many countries (e.g. in Australia and the European Union from 2005) it meant that many intangible assets that were previously recognised as assets within the statement of financial position (balance sheet) were no longer eligible for capitalisation. Rather, they were required to be expensed as incurred. Provide an explanation of the effect of this new standard to a senior colleague using your recently acquired knowledge of the debt contracting perspective.
2. Mad Men Limited is about to upwardly revalue its non-current assets as of 27th June 2017. The effect will be the total assets of the company increases as does shareholder’s equity. Mad Men would like a written and oral briefing on what this means for them. They have significant bank loans contingent on capital assets and also pay their managers through a bonus scheme. Utilise (i) the debt hypothesis perspective, and (ii) the bonus hypothesis, in your response to them.
3. Currently it is not standard practice for companies to disclose terms and conditions of their debt arrangements, however investors cannot determine the risk of investing in a company if they do not have information about debt covenants. Your client is concerned that they should be disclosing their debt covenants and would like an explanation of the complex issues at stake here.
