company accounts 494547

ANSWER ALL QUESTIONS QUESTION 1 A friend who likes to invest in the stock market made the following statements to you recently. “I don’t invest in entities that operate in service or knowledge – based industries because their financial statements don’t really reflect the true value of the entity. This makes it very difficult for me to make informed decisions about whether to invest or not.” REQUIRED: Discuss why an investor may arrive at the conclusion that the financial statements of entities operating in service and knowledgeable based industries are not useful for making investments decisions. (10 marks) Explain the recognition criteria that prevent human capital being recognized as an asset in the financial statements. (10 marks) (Total 20 marks) QUESTION 2 BNM is a knowledge – based business, which relies on key personnel and internally generated intellectual capital to generate revenue. BNM is listed on local exchange. The directors believe that the information provided by the annual financial report fails to provide a complete picture of the activities and economic environment in which BNM operates. They are keen to ensure that current and potential investors are aware of the intellectual property that is a primary resource in the business. The business has cultivated key customer relationship and as a result has secured four large contracts that will run for at least the next three years. The directors of BNM consider themselves to be socially and environmentally aware and have made efforts to improve the entity’s reputation as a good corporate citizen. They are considering including some form of additional narrative disclosure within the next annual report. REQUIRED: Discuss the potential advantages that could be gained by BNM if included voluntary narrative disclosure within the annual report. (6 marks) Discuss the potential drawbacks of voluntary disclosure being included in annual report. (6 marks) (Total 12 marks) QUESTION 3 The…