Assignment - Semester 2, 2012
Part A: The Company
Sirtex is a Medical company that produces and distributes SIR – Spheres microspheres which are fluid medical treatments for treating liver cancer. This treatment is said ‘to target tumours with internal radiation without causing significant side effects to the normal cells around the tumour.’ (Sirtex 2011, p.2). Sirtex has created this so that it’s another way of treating liver cancer other than radiotherapy (Sirtex 2011).
There are four members in the board of directors in Sirtex Medical Ltd: Independent Directors:
Richard Hill – Non-executive Director, Chairman (Sirtex 2011) Dr. John Eady – Non-executive Director, Deputy Chairman (Sirtex 2011) Grant Boyce – Non-executive Director (Sirtex 2011)
And one member of the Board who is non-independent:
Gilman Wong – Executive Director and Chief Executive Officer (Sirtex 2011)
How does Sirtex account for expenditure during the research phase of a project? Sirtex said that ‘expenditure during the research phase of a project is recognised as an expense when incurred’ (Sirtex 2011, p.31).
List all the criteria that development costs must satisfy before Sirtex capitalises (recognises as an asset) these costs. These development costs are capitalised if ALL of the following is demonstrated: * the technical feasibility of completing the intangible asset so that it will be available for use or for sale. * the intention to complete the intangible asset and use or sell it. * the ability to use or sell the intangible asset.
* the intangible asset will generate future economic benefits. * adequate technical, financial, and other resources to complete the development and to use or sell the intangible asset are available the expenditure attributable to the intangible asset during its development can be reliably measured. (Sirtex 2011, p. 14)
What was the impact of this accounting policy on Sirtex’s 2011 statement of financial position? Until all of the criteria is satisfied, total assets of Sirtex’s 2011 is unevaluated due to the fact that development costs that’s reported on the balance sheet isn’t recorded due to some of it might not have met the criteria.
What was the impact on Sirtex’s 2011 reported profit before tax? They might have trouble with tax calculation later on.
Which method of depreciation does Sirtex use to depreciate plant and equipment? Plant and equipment is depreciated on a straight line basis which means that the depreciation amount is written off from the original cost of the asset over its expected useful life (Sirtex 2011).
What is the underlying assumption of this method in relation to the usefulness of plant and equipment? By assuming this straight line basis method, the actual value of the plant and equipment is then inaccurate due to the fact that it is done over a formulated straight line method. To determine the actual value of the assets, this accounting method of depreciation is not a choice.
What do the long-term provisions relate to?
Long term provisions is more or less related to the non-current liabilities of the company as Sirtex mentioned that it ‘has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.’ (Sirtex 2011, p. 31)
What were the amounts of additional provisions AND amounts used with respect to this item in 2011? The amount of additional provisions for the long-term is ‘$105,000’ for 2011 and for short-term is ‘$7,311,000’ for 2011. The closing balance for long-term provision total is ‘$360,000’, and a short-term provision is ‘$5,084,000’. (Sirtex 2011, p. 45)
Describe the purpose of the external auditor’s report (that is, the Independent Auditor’s Report To the Members of Sirtex Medical Limited). The purpose of the external auditor’s...