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Rakon Limited is a company based in New Zealand that manufactures Frequency Timing Solutions for a wide range of applications, primarily quartz crystal and temperature- Compensated Crystal Oscillators (TCXO). Rakon specializes in supplying frequency-control products to the GPS industry. The users of financial statements include present and potential investors, employees, lenders, suppliers and other trade creditors, customers, governments and their agencies, and the public. They use financial statements in order to satisfy some of their different needs for information. These needs include the following: Investors. The providers of risk capital and their advisers are concerned in the risk inherent in, and return provided by their investments. They need information to help them whether they should hold, buy or sell. Shareholders are also interested in information, which enables them to Asses the ability of the entity to pay dividends. Employees. Employees and their representative groups are interested in the information about the stability and profitability of their employers. They are also interested in information, which enables them to asses the ability of the entity to provide remuneration, retirement benefits and employment opportunities. Lenders. Lenders are interested in information that enables them to determine whether their loans, and interest attaching to them, will be paid when due. Suppliers and other trade creditors. Suppliers and other trade creditors are interested in information that enables them to determine whether amounts owing to them will be paid when due. Trade creditors are most likely to be interested in an entity over a short period than lenders unless they are dependent upon the continuation of the entity as a major customer. Customers. Customers have an interest in information about the continuance of an entity. Especially when they have a long-term involvement with, or are dependent on, the entity. Governments and their Agencies. Governments and their agencies are interested in the allocations of resources and therefore, the activities of entities. They also require information in order to regulate the activities of entities, determine taxation policies and as the basis for national income and similar statistics. Public. Entities affect members of the public in a variety of ways. For example, entities may make a substantial contribution to the local economy in many ways, including the number of people they employ and their patronage of local suppliers. Financial statements may assist the public by providing information about the trends and recent developments in the prosperity of the entity and the range of its activities. NZ Framework 6 financial statements are prepared and presented at least annually and are directed toward the common information needs of a wide range of users. Some of those users may require, and have power to obtain information in addition to that contained in the financial statements. Many users however have to rely on the financial statements as their major source of financial information and such financial statements should, therefore be prepared and presented with their needs in view. NZ Framework 12 The objective of financial statements is to provide information about the financial position, performance and changes in financial positions of an entity that is useful to a wide range of users in making economic decisions.

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Rakon Ltd. Rakon Crystal (Chengdu) Co Limited Rakon Temex SAS a. Assets = Liabilities + Equity $269,093,000 = $64,127,000 + $204,966,000 b. This accounting equation always holds true because this equation states that the value of the assets is equal to the value of the liabilities plus equity. This is just another way of saying the same thing. Because the equity is defined as the value of the assets minus the value of the liabilities then this equation is always true by definition. It is the same view of the same business resources, The assets shows what resources the business owns while liabilities plus equity tells us who supplied these resources to the business and how much each group supplied.

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5.

a. International Accounting standard for inventories. The objective of this Standard is to prescribe the accounting treatment for inventories. A primary issue in accounting for inventories is the amount of cost to be recognized as an asset and carried forward until the related revenues are recognized. This Standard provides guidance on the determination of cost and its subsequent recognition as an expense, including any write-down to net realizable value. It also provides guidance on the cost formulas that are used to assign costs to inventories. The accounting concept of depreciation means the spreading or allocating of the cost of a fixed asset over its estimated useful life. Inventories shall be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The cost of inventories shall be assigned by using the first-in, first-out (FIFO) or weighted average cost formula. An entity shall use the same cost formula for all inventories having a similar nature and use to the entity. b. Yes, Rakon Ltd. group has applied the measurement rule. In page 11 Notes to the Financial Statements - Inventories 2.8 Inventories are stated at the lower of cost (weighted average cost) or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

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Depreciation in accounting concept is the spreading or allocating the cost of a fixed asset over its estimated useful life. Depreciation is a method in accounting that systematically distributes or allocates the cost or other basic value of a fixed asset over its estimated useful life by periodic charges to expense or against a revenue. Amortization - Preferred term for the apportionment (charging or writing off) of the cost of an intangible asset as an operational cost over the asset's estimated useful life. It is identical to depreciation, the preferred term for tangible assets. Yes, the group has applied this concept within the financial statements. It can be found in page 10 of under the notes to the financial statements - 2.7. Intangible assets- (b) Patents, trademarks, licenses, order backlogs and software Identifiable intangible assets that are acquired by the Group are stated at cost less accumulated amortization and impairment losses. Subsequent expenditure on intangible assets is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. Expenditure on internally generated goodwill and brands is recognized in the statement of comprehensive income as an expense as incurred. Amortization is charged to the statement of comprehensive income on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Acquired patents and licenses are amortized over their anticipated useful lives of 7-10 years. Acquired trademarks are amortized over their contractual lives of 18 months. Software assets, licenses and capitalized costs of developing systems are recorded as intangible assets and amortized over a period of 3-5 years unless they are directly related to a specific item of hardware and recorded as property, plant and equipment.

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The accounting policies the group has chosen to account for current assets can be found in page 11 under 2.10 Financial Instruments B. Trades and other Receivables Trade and other receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. Collectability of trade receivables is reviewed on an ongoing basis. Debts, which are known to be uncollectable, are written off. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the assets carrying amount and the present value of estimated future cash flows, discounted at the effective

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interest rate. The amount of the provision is recognized in the statement of comprehensive income.

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A.) Group $79,035,000 + Parent $36,469,000 = Total $115,504,000 B.) Straight Line Basis Method C.) They might have chosen this method because Straight Line is the simplest and most commonly used depreciation method.

10. a.) Contingent liabilities are liabilities that may or may not be incurred by an entity depending on the outcome of a future event. These liabilities are recorded in a company's accounts and shown in the balance sheet when both probable and reasonably estimable. It is a possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the accounting entity b.) There are no contingent liabilities relating to the groups interest in the associates, and no contingent liabilities of the associates themselves. Rakon Limited Annual Report 2011 pages 3738. 11. Details of all the expenses are not listed in the group income statement because it takes too much space and makes the statement of comprehensive income a bit harder to read. The expenses are grouped and totaled into categories to save space. Other information on expenses can be found in the Operating Expenses page 25, Employee Benefit Expenses page 26, and Income Tax Expense page 26 of Rakon Limited Annual Report 2011. 12. The group has a negative cash flow for the year 2011. The net cash flow from operating activities decreased from $1,010,000 in 2010 to negative $4,081,000 in 2011. The negative Net cash flow from investing activities increased from $8,948,000 in 2010 to $38,757,000 in 2011. Net Cash flow from financial activities decreased from $54,078,000 in 2010 to $19,787,000 in 2011. 13. The groups operating revenue increased from $144,513,000 in 2010 to $189,314,000 in 2011 the gross profit increased from $47,455,000 in 2010 to $62,769,000 in 2011. These changes may have been caused by an increase in mark-up price of products, increase in advertising, seasonal sales etc. 14. a. The groups surplus for the year in 2011 is $7,316,000. b. The reason for the change from 2010($17,837,000) to $7,316,000 in 2011 is the increase in sales revenue from $144,513,000 in 2010 to $4189,314,000 in 2011 that could have been caused by an increase in mark-up price of products. Another reason is the increase of operating expenses. This increase could have been caused by more advertising to promote the products that lead to the increase of operations revenue. Another possible cause of the change is the increase of other operating income from $1,615,000 in 2010 to $2,525,000 in 2011. 15. a. Solvency Test is the measurement of accounting ratios.
A company must be able to pay its debts as they become due in the normal course of business; and The value of its assets must be greater than the value of its liabilities (including contingent liabilities).

Measuring the financial soundness of a business enterprise and its ability to meet short-term obligations when they are due. Solvency ratios are rations that indicate the ability of a company to meet its long-term obligations on a continuing basis and thus to survive over a long period of time. The solvency test must be met on an amalgamation or if a company proposes to: Make a distribution; Repurchase or redeem shares; Provide discounts to shareholders; Reduce shareholder liability; or Provide financial assistance for acquiring the companys own shares.

b. 16. a. Consolidation in accounting term is the combining of assets, liabilities, equity and operating accounts of a parent firm and its subsidiaries into one financial statement. b. Consolidation will apply to the Rakon Limited and subsidiaries group of companies to combine all their accounts into one instead of having individual ones.

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17. Business segmental reporting is giving separate accounts of a company's individual divisions, subsidiaries or other segments. In an annual report, the purpose of business segment reporting is to provide an accurate picture of a public company's performance to its shareholders. For upper management, business segment reporting is used to evaluate each segment's income, expenses, assets, and liabilities and so on in order to assess profitability and riskiness. Segment Reporting (NZIAS 14) -This standard shall be applied by entities whose equity or debt securities are publicly traded and by entities that are in the process of issuing equity or debt securities in public securities market.