With reference to the relevant financial reporting and

Question

Question 1 - Parrotfish Limited is a company incorporated in Hong Kong. Its main business is the sales of three types of canned fish, tuna, salmon and red snapper. Parrotfish Limited allocates its resources based on the number of its product lines. Its financial year end is 31 December. It is the company policy to pay a year-end bonus of two-month salary for all staff members if the company had good corporate performance for the year.

The draft financial statements of Parrotfish Limited for the year ended 31 December 2016 are as below:

Statement of profit or loss and other comprehensive income for the year ended 31 December 2016

	$000
Revenue	9,800
Cost of sales	(4,600)
Gross profits	5,200
Administration expense	(700)
Distribution expense	(800)
Profits before tax	3,700
Taxation	(500)
Profits for the year (Note 1)	3,200
Other comprehensive income
Revaluation of property, plant and equipment	1,600
Total comprehensive income for the year	4,800

Statement of financial position as at 31 December

	2016	2015
	$000	$000
Non-current assets
Property, plant and equipment	13,800	12,000
Intangibles assets	4,700	4,500
Investment properties	5,900	5,500
	24,400	22,000
Current assets
Inventories	900	600
Trade receivables	800	500
Investment	850	800
Cash and bank	6,250	450
Total assets	33,200	24,350
Equity and reserves
Share capital	13,500	9,000
Retained profits	8,000	6,000
Other reserves	3,100	1,500
	24,600	16,500
Current liabilities
Trade payables	650	800
Other payables	700	400
Interest payables	200	300
Unearned revenue	200
Tax payables	400	650
Bank overdraft	650	700
Non-current liabilities
Bank loans	5,800	5,000
Total equity and liabilities	33,200	24,350

The following information is available:

1. Profits for the year had been arrived at after charging (crediting):

	$000
Depreciation charge	100
Impairment loss on accounts receivables recovered	(70)
Inventories written down	60
Finance cost	80

2. 250,000 ordinary shares were issued during the year at $18 per share.

3. The current assets investment was a 1-month term deposit.

4. It was Parrotfish Limited's policy to perform impairment loss test on its assets at year end. Impairment losses, if any, were written off immediately as expenses.

5. Sales (revenue) are approximately 90% credit and 10% cash.

On 1 July 2016, Parrotfish Limited acquired 100% equity interest of Sunfish Limited, which is a company incorporated in Hong Kong in 2012. The main business of Sunfish Limited is the sale of canned mackerel. Since the acquisition of Sunfish Limited, the total sales of canned fish reported by Parrotfish Limited increased by 50%, of which 40% was from the sales of canned mackerel.

Required:

a. Advise Parrotfish Limited whether year-end bonus for the year ended 2016 should be paid.

b. With reference to relevant financial reporting standards, advise Parrotfish Limited on the need to disclose the sales information of canned mackerel in the annual report.

Question 2 - Pigfish Limited is a company incorporated in Hong Kong. It has its financial year end at 31 December. Below is the trial balance of Pigfish Limited as at 31 December 2016:

	Note	Debit	Credit
		HK$'000	HK$'000
Property, plant and equipment		4,500
Accumulated depreciation			2,500
Investment in shares	1	8,000
Investment in share conversion option		2,000
Fixed deposit		3,000
Inventory		1,500
Accounts receivables		800
Cash		1,000
Accounts payable			1,300
Bank loans			1,000
Share capital			7,500
Retained profits - at 1 January 2016			8,200
Sales			5,000
Cost of sales		3,000
Depreciation expense		700
Operating expense		500
Interest expense		600
Dividend income			300
Dividend paid		200

Note 1: Investment in shares is for long-term investment purposes.

Required: With reference to the relevant financial reporting and accounting standards, discuss the appropriate accounting classifications and treatments of the following items:

i. Investment in shares

ii. Investment in share conversion options

iii. Bank loans