Issues In Financial Accounting 16th Edition Scott Henderson ,Graham Peirson ,Kathy Herbohn ,Tracy Artiach ,Bryan Howieson - Solutions

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Maria Boumas is a successful public practitioner. She has many clients but is particularly close to an elderly man who operates a hardware store. Boumas has, over many years, advised him on the management of his store and his financial affairs. The store is in a part of town that is slowly
Mary Donovan is an accountant with a large public practice. She has developed some expertise in providing accounting services to the hotel sector. Among her longstanding clients are Wolfgang and Heidi Flechner, who own and manage the Excelsior Hotel in Burra Wirra. The Flechners have worked
Why is ethics important to accountants?
How are financial reporting standards issued by the Australian Accounting Standards Board relevant to ethics?
‘Ethical standards may differ among different communities.’ Discuss.
‘It is acceptable for companies to engage in bribery in those countries where bribery is widely practised.’ Discuss. (LO3)
‘Ethics is only about ensuring that people do not do bad things.’ Discuss. (LO1)
As a student, is ethics something that you need to be concerned about only once you join the workforce or are there ethical issues that are important in your role as a student?
‘Ethics is a matter of personal judgement.’ Discuss. (LO1, LO2, LO3)
What is ‘ethical behaviour’? (LO1)
Mega Dump is a multinational company that is caught by the Emissions Trading Scheme(ETS) of a country called Utopia. Details of Utopia’s ETS are as follows.• It is a cap and trade scheme in which permits are traded in an active market.• Its annual compliance period is from 1 July of the
(a) Explain what is meant by a ‘cap and trade’ carbon emissions trading scheme.(b) Discuss the two general approaches to accounting for the rights and obligations arising from a carbon emissions trading scheme.(c) What was the approach adopted in Interpretation 3 ‘Emissions Rights’ issued
(a) Explain the reporting requirements of the National Greenhouse and Energy Reporting Act 2007.(b) Using your knowledge from (a), identify a company listed on the ASX which is required to report its carbon emissions and net energy consumption in accordance with the NGER Act. What is its carbon
‘There are few mandated carbon-related disclosures in Australia.’(a) Do you agree with this statement? Explain.(b) Does it necessarily follow that companies make few carbon-related disclosures in their financial statements? Explain. (LO7)
‘A high rate of corporate social responsibility information in the annual report does not equate to integrated reporting.’ Do you agree with this statement? Explain. (LO6)
Explain the relationship, if any, between sustainability reporting and integrated reporting. (LO6)
Explain what is meant by ‘integrated reporting’. Find an example of integrated reporting to illustrate your answer. (Hint: The IIRC provides examples of leading integrated reporting on its database .) (LO6)
(a) What are the GRI Guidelines, and how would they be of assistance to a company interested in preparing a sustainability report?(b) Find an example of a GRI-based report for an Australian company. (Hint: Use the database of GRI: .) Answer the following questions:(i) What is the level of
What is meant by ‘verification of sustainability reports/sections’? In your opinion, how important is verification?
‘In a sustainability report, the economic, environmental and social impacts are combined into a single bottom line performance measure.’ Comment on the accuracy of this statement. (LO5)
Define sustainability reporting. What are the main characteristics of a sustainability reporting approach? (LO5)
‘If environmental disclosures in business financial statements remain unregulated and in the hands of individual accountants, then financial reporting of the environmental impacts of businesses is likely to remain piecemeal and biased’ (Australian Financial Review, 22 March 1995, p. 34).
Describe the full cost approach to social responsibility accounting. What has been one of the most significant problems with this approach? Explain. (LO4)
Describe the quantitative approach to disclosing social responsibility. (LO4)
Discuss the cases for and against the inventory approach to the disclosure of social responsibility. (LO4)
‘A company that has a material breach of environmental regulations has no responsibility to report this breach.’ Discuss. (LO3)
Drugs for Life Ltd is a large chemical manufacturer that is listed on the Australian Securities Exchange. Discuss what corporate social responsibility requirements would likely be applicable to Drugs for Life. (LO3)
‘There is no mandatory reporting of corporate social responsibility in Australia.’ Evaluate this comment. (LO3)
Discuss how legitimacy theory can be used to explain voluntary corporate social responsibility reporting by companies. Can you find an example from the financial press to illustrate your answer? (LO2)
How can stakeholder theory be used to explain companies voluntarily undertaking corporate social responsibility reporting? (LO2)
What is enlightened self-interest? Can it be relied on to ensure socially responsible corporate behaviour? (LO2)
‘Society cannot reasonably expect an individual manufacturer to voluntarily shoulder extra cost in the name of social responsibility if its competitors are not doing the same.’Discuss. (LO1)
‘Unilateral voluntary socially responsible action is economically unjustifiable.’ Discuss. (LO1)
Why have governments found it necessary to pass anti-pollution legislation? (LO1)
‘Other things being equal, the worst polluters will appear (from their financial statements)to be the most profitable companies.’ Discuss, using examples. (LO1)
Your friend has observed that corporate social responsibility means that companies take responsibility for costs arising from their activities, such as the pollution of air and waterways, that had previously been imposed on society. These ‘social costs’ are referred to as externalities.(a) What
‘Corporate social responsibility’ seems to represent different things to different people.What is your understanding of this phrase? (LO1)
Access the most recent financial statements of Cochlear Ltd, a manufacturer and marketer of cochlear ear implants, at ,www.cochlear.com. and answer the following questions.(a) Explain how Cochlear Ltd is exposed to foreign currency risk.(b) Does Cochlear Ltd have any hedges of foreign currency risk
SA Co. sells widgets, which it purchases from a US supplier, WID Co. On 1 June 2020, SA Co. had a firm commitment to purchase 100 000 widgets on 1 July 2020 at an invoice amount of US$100 000. Payment for the purchase is due in 60 days on 1 September 2020. Assume that the purchase proceeds as
On 1 July 2020, Soas Company enters into a forward rate agreement with the Bank of South Australia to purchase US$100 000 on 1 October 2020. The forward rate agreement relates to the acquisition of an inventory of cardboard boxes on 1 July 2020 because the chief financial officer was concerned
ALH Ltd is an Australian company that sells machinery parts. On 3 March 2020, ALH sells€250 000 of inventory to a French company (spot rate A$1 5 €0.52). The sale is denominated in Euros and will be settled in Euros on 3 May 2020 (spot rate A$1 5 €0.54). The management of ALH Ltd is concerned
On 1 July 2019 an Australian company established Meggs Ltd as a foreign subsidiary, contributing A$1 million in capital. At the same time, Meggs Ltd borrowed FC400 000 at 20% per annum from a bank in the foreign country. The ledger account balances at 30 June 2020 for the foreign subsidiary are as
An Australian company, Drover Ltd, operating in New Zealand, established a US branch that commenced operations on 1 July 2017. The following statement of financial position extract has been prepared for the US branch as at 30 June 2020:Additional information • The acquisition dates of the assets
On 1 January 2020 an Australian company established a subsidiary in a foreign country, contributing A$1 million in capital. At the date the subsidiary was established the exchange rate was A$1 5 FC2. At the same time, the subsidiary borrowed FC500 000 from a bank in the foreign country. The
On 10 June 2020, Clayton Ltd places an order for goods from a supplier in London. The goods are supplied on terms that allow for payment 30 days after the goods are shipped.The goods are shipped FOB London on 11 June 2020. The cost of the goods is £500 000 and Clayton uses a perpetual inventory
Mornington Company Ltd, an Australian company, has a subsidiary in New Zealand. On 1 April 2019, Mornington Company purchased for A$50 000 a draft for NZ$52 500 and remitted it to the New Zealand subsidiary as a long-term, non-interest-bearing advance.The advance was to be repaid ultimately in
On 1 July 2018 an Australian company lent to its New Zealand subsidiary an amount of NZ$2.5 million for a period of six years. At the time the exchange rate was A$1 5 NZ$1.13.Assume the exchange rate was A$1 5 NZ$1.09 on 30 June 2019, while on 30 June 2020 the exchange rate was A$1 5
On 30 September 2020, an Australian company sold A$150 000 worth of goods to a company in Japan. On the same day, the Japanese company sold ¥4.3 million worth of goods to the Australian company.Both transactions were invoiced in US dollars. In each case the terms of sale required an immediate cash
A company in Melbourne sells merchandise to a company in Auckland on 3 November.The sales price is NZ$52 000 and the exchange rate on this date is A$1 5 NZ$1. Settlement of the invoice is made by the New Zealand company in New Zealand dollars on 10 December when the rate of exchange is A$1 5
Explain the necessary characteristics that a hedging relationship must display to qualify for hedge accounting in accordance with AASB 9.
Litra Ltd has a foreign currency payable of FC68 000 arising from the acquisition of inventory, which is payable in 60 days’ time. On the same date as the purchase of inventory occurred, Litra entered into a forward rate agreement with XY Bank for the delivery of FC68 000 in 60 days’ time.
Megatron Ltd has a loan commitment of US$230 000 that is payable in six months’ time.The management of Megatron is concerned about adverse exchange rate movements and wishes to hedge this loan. As a result, Megatron enters into a forward rate agreement to purchase US$230 000 in six months’
AASB 9 refers to the ‘hedged item’ and the ‘hedging instrument’. What is meant by these terms? Provide an example of each using a foreign currency transaction. (LO6)
(a) What is hedge accounting?(b) When are reporting entities allowed to apply hedge accounting principles in accordance with the requirements of AASB 9?(c) Identify the three types of hedges specified in AASB 9.(d) Briefly explain the accounting requirements of AASB 9 in relation to fair value
‘A hedging transaction may remove uncertainty, but there is still some risk.’ Discuss. (LO5)
What is a hedge transaction and how does it reduce a reporting entity’s exposure to foreign currency exchange rates? (LO5)
(a) What method does AASB 121 require for the translation of the financial statements of foreign operations from functional currency to presentation currency?(b) Why are any translation differences recognised in equity rather than as gains or losses in profit or loss in the statement of
(a) Under what circumstances, if any, is a domestic parent company justified in preparing consolidated statements that do not include a foreign subsidiary?(b) If a foreign subsidiary is excluded from the consolidation, what information should be presented in the consolidated statements?
‘Any evaluation of the performance of a foreign operation should not be based on the translated financial statements.’ Discuss. (LO4)
(a) Why is it necessary to translate the financial statements of foreign operations?(b) Briefly outline the translation method required in AASB 121 for circumstance (a)above. (LO4)
Outline the requirements of AASB 121 for the statement of financial position treatment of non-monetary items such as property, plant and equipment. (LO3)
Discuss the requirements of AASB 121 for the statement of financial position treatment of monetary items such as foreign currency receivables and payables. Do you agree with these requirements? Explain your answer. (LO3)
(a) What is the process of foreign currency translation?(b) AASB 121 ‘Foreign Currency Translation’ governs accounting for foreign currency translation. Give an example of one type of translation regulated by AASB 121. (LO2)
Distinguish between spot rates and forward rates, and explain when the use of each rate is appropriate. (LO2)
Distinguish between buying and selling rates of exchange. Explain why there is a difference between the two rates. (LO2)
ABC Company purchases goods from a foreign country and receives an invoice for FC100 000. At the date of purchase the exchange rate is A$1 5 FC6.10; at the date of settlement two months later the exchange rate is A$1 5 FC6.50. ABC Company complies with the requirements of AASB 121.(a) Does ABC
Magnolia is a multinational Australian company listed on both the ASX and the London Stock Exchange (LSE). It manufactures and sells sunglasses. Its sunglasses are manufactured in the Philippines, where it sources its labour and raw materials. Magnolia’s main markets for its product are located
An Australian company, Beds Ltd, operates a subsidiary in Auckland called Sheets Ltd.Usually, Sheets Ltd uses New Zealand dollars to pay suppliers of goods and services, and its customers settle their accounts in New Zealand dollars. Sheets’ operations have been financed by borrowings in Hong
What is the difference between the presentation currency and the functional currency of an entity? How would a reporting entity determine (a) the appropriate functional currency, and (b) the appropriate presentation currency? (LO1)
What are the alleged advantages and disadvantages of principles-based and rules-based accounting standards? Which type of accounting standards do you think is better? Provide reasons for your choice.
What is the difference between principles-based and rules-based accounting standards?Can any single set of accounting standards really be purely principles-based or purely rules-based? (LO8)
What are the benefits and costs of international convergence? (LO6, LO7)
‘Countries that decide to adopt IFRSs as their national accounting standards are only going to be disappointed by that choice.’ Discuss. (LO6, LO7)
(a) What was the policy of the Australian accounting standard setters on international convergence and harmonisation?(b) Is this policy still in effect? Explain. (LO3, LO4, LO5)
What were the implications for the AASB and financial reporting in Australia stemming from the FRC directive that Australia should adopt IFRSs as from 1 January 2005? (LO1, LO5, LO6, LO7)
Outline the three approaches identified in Policy Discussion Paper No. 1 for reducing the diversity in accounting standards between countries. (LO3)
What is the importance of the US to the global adoption of IFRSs? If the US decides not to adopt IFRSs for use by its domestic companies, what will be the implications for achieving a single set of global accounting standards? (LO2)
Study Figure 23.1 and identify the entities that are involved in the development of IFRS.Give reasons for adopting the structure depicted in the figure. (LO1, LO2)
How does the structure of the IASB differ from that of its predecessor, the IASC? Why would the IASC have chosen to restructure itself into the IASB? (LO1, LO2)
Prior to the FRC directive that Australia should adopt IFRSs as from 1 January 2005, what was the policy of the AASB with regard to international accounting standards? (LO1, LO3, LO5)
In general insurance, distinguish between investments, operating assets and financial assets. How are they accounted for? (LO3)
‘The measurement of outstanding claims liabilities is a relatively simple matter once the inflation rate and the discount rate have been determined.’ Discuss. (LO3)
11 ‘The amount of claim liabilities shown in the statement of financial position of a general insurer is based on informed estimation.’ Discuss. (LO3)
10 What are premium deficiencies? How are they accounted for? (LO3)
8 ‘Ideally, premium revenue should be allocated by reference to the probability of a claim.’Discuss. (LO3)
9 What is the attachment date? Why is it important? (LO3)
7 ‘Premiums collected by an insurance company are not necessarily income for the company.’ Discuss. (LO3)
6 Distinguish between short-tail business and long-tail business. How does accounting for these types of business differ? Give reasons. (LO3)
5 What types of risks are covered by general insurance? (LO3)
4 What is the liability adequacy test and when must the insurer perform this test? (LO2)
3 How is premium revenue received in advance recognised for fixed-fee service contracts? (LO2)
2 What is a fixed-fee service contract? (LO2)
14 In general insurance, are land and buildings operating assets or investments? Explain your answer. (LO3)
15 What are ‘acquisition costs’ as that term is used in the general insurance industry? How should acquisition costs be accounted for? (LO3)
What is reinsurance? How is it accounted for? (LO3)
What is the purpose of the investment activities of an insurer? Are these activities separate from the underwriting activities of the insurer? Should these activities be reported separately? Give reasons. (LO3, LO4)
How should outwards reinsurance and recoveries be treated in the financial statements of a general insurance company? (LO3)
What are the objectives of managing the investment portfolio of an insurance company?Are these objectives necessarily compatible? Explain your answer. (LO4)
‘The initial insurer is merely a conduit between the initial insured and the reinsurer. This means that outwards reinsurance premiums should be deducted from premium revenue.’Discuss. (LO3)
On what grounds can it be argued that owner-occupied buildings are investments rather than operating assets? (LO4 )

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Issues In Financial Accounting 16th Edition Scott Henderson ,Graham Peirson ,Kathy Herbohn ,Tracy Artiach ,Bryan Howieson - Solutions

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