Question 1
The regulatory environment and financial reporting
You are employed in a large accounting firm which specialises in preparing general purpose financial reports for large companies that are listed on the Australian Securities Exchange (ASX). As the training manager, one of your key tasks is to prepare a regular newsletter for staff involved in the preparation of the above financial reports. The purpose of the newsletter is to keep staff updated on the latest financial reporting news, alerting staff of changes and developments that may impact their work, and provide enough information to staff to satisfy the following:
- For staff to understand the nature of the news / change / development and its potential impact (so staff can decide whether they need to investigate further given the nature of their own work);
- Provide directions to staff of where they can access further information on the news / change / development if they wish to (including website links where appropriate).
Required:
Prepare a 2 page newsletter that identifies and summarises changes / developments and news in the financial reporting environment for the period from 1 May 2018 to 31 July 2018.
Detailed guidelines for completing this task:
1. Identification of changes and developments
This will involve extensive research on a number of sources over the required period. You will need to identify and consider a range of developments/changes such as:
- Technical issues: for example the issue of new accounting standards, amendments to accounting standards, updates on AASB or IASB projects in progress, outcomes of AASB or IASB meetings, amendments to ASX listing rules.
- Regulation and monitoring of financial reporting: for example ASIC reviews on financial reporting.
- Political influences or other potential developments. 'Political' does not only mean action from politicians - it would also include lobbying/actions by other groups to promote their own interests - for example there may be articles about companies, or particular interest groups such as Group of 100, saying that if certain accounting standards are introduced this will disadvantage or have a negative impact.
You will need to consider both local (Australian) and international sources and developments.
The restriction of a 2 page newsletter means that you need to use your own judgment as to whether to include information about specific news items and changes / developments, and how much information to include. It is not intended that you provide complete details of changes / developments (although you may consider in particular cases that more detail is needed).
Given the target audience, it would be assumed that they have a working knowledge of common terms and abbreviations (such as AASB, IASB), so abbreviations may be used.
Question 2
Financial statement presentation
Appliances Ltd, a manufacturing company, commenced operations on 1 July 2017. The draft trial balance for the year ended 30 June 2018 has been prepared as follows:
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Appliances Ltd
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Draft trial balance as at 30 June 2018
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DATA
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DR ($)
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CR ($)
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Sales of goods
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12,230,000
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Interest income
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7,000
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Cost of sales
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4,685,000
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Marketing expense
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623,000
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Salaries and wages
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2,740,000
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Administration expenses
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143,000
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Annual leave expense
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210,000
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Doubtful debts expense
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62,000
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Depreciation expense
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0
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Interest expense
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64,000
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Other borrowing expenses
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6,000
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Other expenses
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95,000
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Warranty expense
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64,000
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Income tax expense
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0
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Cash on hand
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41,000
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Cash management account
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193,000
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Trade debtors
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3,276,000
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Allowance for doubtful debts
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219,000
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Raw material inventory
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624,000
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Finished goods inventory
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1,250,000
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Land
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500,000
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Buildings
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900,000
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Accumulated depreciation - buildings
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0
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Plant and equipment
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2,600,000
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Accumulated depreciation - plant and equipment
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0
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Patents
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150,000
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Deferred tax asset
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0
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Bank loan
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400,000
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Trade creditors
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615,000
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Provision for annual leave
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200,000
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Provision for warranty
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55,000
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Current tax liability
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0
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Dividends paid
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500,000
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Share capital
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5,000,000
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18,726,000
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18,726,000
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Additional information:
- The bank loan is repayable in 5 years.
- The provision for annual leave is payable within 1 year.
- The provision for warranty is in respect of a 12-month warranty given on certain goods sold.
- Share capital consists of 1,000,000 ordinary shares, fully paid to $5.00 each.
- Appliances Ltd is a reporting entity.
- Appliances Ltd uses the single statement format for the statement of profit or loss and other comprehensive income and presents an analysis of expenses by nature on the statement.
- In relation to the statement of financial position, where AASB 101 requires entities to disclose further sub-classifications of the minimum line items on the face of the statement or in the notes, the directors of Appliances Ltd want to report only the minimum line items on the face of the statement, and leave the sub-classifications to be disclosed in the notes.
Whilst reviewing the draft trial balance, you notice that depreciation and income tax have not been recognised as yet. The following information is available for these items:
- The buildings were purchased on 1 July 2017, and have a useful life of 30 years and estimated residual value of nil. The plant and equipment was also purchased on 1 July 2017, and has a useful life of 10 years and estimated residual value of $50,000. Depreciation is to be recognised on a straight-line basis.
- Income tax expense needs to be calculated at 30% of the accounting profit (you will need to prepare the statement of profit or loss and other comprehensive income after accounting for depreciation above to determine income tax expense). The deferred tax asset to be recognised as at 30 June 2018 is $142,200. The current tax liability to be recognised will be the sum of income tax expense and the deferred tax asset.
Required:
i) Prepare the journal entries to recognise depreciation and income tax in Appliances Ltd's accounting records as at 30 June 2018. After preparing the journal entries, enter the amounts from your journal entries into the draft trial balance.
ii) Prepare the statement of profit or loss and other comprehensive income, statement of financial position, and statement of changes in equity of Appliances Ltd for the year ended 30 June 2018 in accordance with AASB 101. Notes and comparative figures are not required.