Questions and Answers of Financial Reporting

Explain the purpose of the Dow Jones Sustainability Indices.
Some of the traditional sustainability reports are an integrated report, a triple bottom line report, and a CSR report. Research the background of these reports and explain the difference between
There are no IFRS accounting standards for the reporting of social and environmental activities. Evaluate what issues this presents for the preparation of financial reports.
You are the accountant of a company that is considering expanding its operations to a developing country. The CEO has asked for a report outlining what issues the company should consider from an ESG
Explain why rotation (change) of the lead auditor is important.
Explain why composition of the Board of Directors is important.
Explain the difference between an emissions trading scheme and a carbon tax. What are some of the benefits and limitations of each?
Research and prepare a report on the different approaches for accounting for carbon emissions under the EU ETS.
Explain double materiality. Do you think stakeholders are interested in the impact of climate-related risks on the firm or the impact of the firm on climate? Which stakeholders would they be? If you
Obtain and read the joint AASB–AUASB 2019 statement on climate-related and other emerging risks. What specific AASB/IFRS accounting standards might be affected by climate change risks?
In this chapter we have touched on several important developments in sustainability reporting. Describe any recent developments by visiting the following websites.• GRI, www.globalreporting.org•
AASB 8/IFRS 8 applies to the financial statements whose debt or equity instruments are traded in a public market. Whereas, most accounting standards apply to all reporting entities. Why do you think
Distinguish between an operating segment and a reportable segment.
Describe how an entity determines its chief operating decision maker.
The 75% threshold relating to revenue refers to ‘external revenue’. Explain what is meant by external revenue and how a segment could generate revenue that is not external.
Explain why the disclosure requirements of AASB 8/IFRS 8 are said to be less prescriptive compared with those of other standards.
AASB 8/IFRS 8 requires entities to disclose information about products and services, geographical areas and major customers. Discuss why such information may benefit users of financial statements.
The controversy of segment reporting is that it is based on information provided to the CODM. Some argue that this makes segment reporting non-comparable. Others argue that it is valuable because
Download the document Post-implementation Review: Operating Segments. Referring to page 7 of this document, prepare a brief report that summarises the key issues identified in the feedback received
AASB 8/IFRS 8 sets out three criteria that need to be followed in order to identify an operating segment.Required List and briefly explain the three criteria.
Kaikoura Ltd is a listed manufacturing company with only one main product line:scientific equipment. A second but very small product line is the data analysis software, which customers typically
Using the information from Exercise 21.2, identify Kaikoura Ltd’s operating segments.Exercise 21.2Kaikoura Ltd is a listed manufacturing company with only one main product line:scientific
Parattah Ltd is a listed diversified retail company. Its stores are located mainly in Australia.It has three main types of stores: general department stores, liquor stores and specialist toy stores.
Using the information provided about Parattah Ltd, analyse the relative profitability and contribution of the reportable segments.
The following is taken from a 5 year review in the annual report of Esperance:A new chair of the audit committee seeks your advice. Write a report with your advice on the following issues:Required A
An entity may report significant profits and negative net cash flows from its operating activities or significant accounting losses and positive net cash flows from its operating activities. How can
How are the techniques for preparing a consolidated statement of cash flows adjusted when the group has obtained or lost control of a subsidiary during the period?
The accountant for Elton Ltd prepared the following statement of cash flows.The managers were worried that investors would be displeased by the negative operating cash flow and that the company’s
Mauve Ltd has the following balances.For the year to 30 June 2023, Sales amounted to $$3$ 500 000, doubtful debts expense was $$75$ 000, discount allowed was $$45$ 000, and cost of sales was
At 30 June 2022, Tangerine Ltd had accounts receivable of $$200$ 000. At 30 June 2023, accounts receivable was $$240$ 000 and sales for the year amounted to $$2$ 100 000.
The following information has been compiled from the accounting records of Benji Ltd for the year ended 30 June 2023 in relation to its financing activities.Required Determine the amount of net cash
What disclosures are required by AASB 101/IAS 1 regarding accounting policies?
Why might there be a change in an entity’s accounting policy?
How should a change in an entity’s accounting policy be applied?
Why would an accounting estimate change and how is the change accounted for?
What is a prior period error? How and when is it corrected?
What is the difference between ‘retrospective application’ and ‘retrospective restatement’?
When is it impracticable to make a retrospective change in an accounting policy or a retrospective restatement to correct an error?
Outline the concept of materiality as it applies to financial reporting.
Explain the difference between adjusting and non-adjusting events occurring after the end of the reporting period. Describe the difference in the way such events impact on the preparation of
The board of directors of Gazelle Ltd has resolved to change the company’s accounting policy for capitalising gains or losses on its cash flow hedges recognised in other comprehensive income. To
Assume the change in the accounting policy for capitalising hedge gains or losses was due to the issue of a revised accounting standard, AASB 9/IAS 9 Financial Instruments, which requires all hedge
Aardvark Ltd is a catering company specialising in providing catering services to remote area mine sites. The company has operations in Australia but during the current year it acquired significant
The statement of financial position of Waterbuck Ltd as at 30 June 2023 includes an asset ‘Debenture money receivable $$500$ 000’ and a liability ‘Debentures $$500$ 000’. Note 12 to the
Assume, however the contract was signed with the private investor on 29 June 2023 to issue the debt on 17 July.Required Comment on the accounting treatment of the debenture issue in accordance with
The directors of an Australian company, Moose Ltd, have formed a view that compliance with a particular AASB standard will mean the company’s financial statements will not provide a true and fair
Yak Ltd estimates its future liability for repairs to products sold with a 12-month warranty as a percentage of its net credit sales. Warranty expense and actual repair costs for the last 2 years
Macaw Ltd operates a fleet of fishing trawlers. The following events took place after the end of the reporting period, 30 June 2023, but before the date the accounts were authorised, 15 September
The following relate to Dog Ltd.(a) The useful life of depreciable plant is determined as being 5 years.(b) Dog Ltd depreciates non-current assets.(c) Dog Ltd uses straight-line depreciation.(d) Dog
The annual audit of the accounting records and draft financial statements of Mole Ltd as at 30 June 2023 revealed the following errors and omissions.(a) Credit notes totalling $75 000 relating to
In order to comply with AASB 108/IAS 8, determine whether the following changes should be accounted for prospectively or retrospectively.1. A change in accounting estimate.2. A voluntary change in an
On 1 July 2017, Swan Ltd acquired a building for $12 500 000 with an estimated life of 25 years and a residual value of nil. Swan Ltd uses the straight-line method of depreciation. Based on expert
What is the earnings per share ratio used for?
Jonty states that "Tamar Limited is a better investment than Rapid Limited because it has a higher EPS". Evaluate.
How is diluted EPS affected by issued options where the exercise price is above the average market price?
How is diluted EPS affected by issued options where the exercise price is below the current market price?
When calculating EPS, the directors of Pique Limited are not sure how to, or if they need to, include ordinary shares that would be issuable under employee share‐based payment schemes. They argue
Visit the websites of two Australian companies in the same industry and access their latest annual reports.Required Extract information on the use of EPS and 1. Describe how many times and where in
If an entity presents both consolidated and separate financial statements, which statements are used for the calculation of basic EPS? Give reasons for your answer.
There was no non-controlling interest in the discontinued operations.At the beginning of the reporting period the company had 1 000 ordinary shares outstanding.The company had no share issues during
Dumbarton Ltd has 80 000 ordinary shares on issue. The company announced a 1-for-4 rights issue with an exercise price of $$5$ for each right. The market price of one ordinary share immediately
Assume that in exercise 20.4 Dumbarton Ltd announced the rights issue at the beginning of its reporting period (1 July 2023) and the last date for exercising the rights was 1 October 2023. Dumbarton
An entity announces a share split to occur in the current reporting period. There is no consideration payable by existing shareholders and therefore no corresponding increase in the entity’s
On 31 December 2024, Caradoc Ltd has 50 000 ordinary shares outstanding. The only change in share outstanding during this period was a 1 for 2 bonus issue on 1 March 2023.Caradoc Ltd’s profit
Amphion Ltd determines its profit attributable to ordinary shareholders for the reporting period ended 30 June 2024 as $$52$ 180.The company has calculated its weighted average number of ordinary
Temeraire Ltd has 100 000 ordinary shares outstanding during the reporting period ended 30 June 2024. The profit attributable to parent shareholders (there are no discontinued operations or
At the beginning of the current reporting period (1 January 2023) Atropos Ltd has 60 000 ordinary shares on issue. The company announced a 1‐for‐5 rights issue on 1 January 2023.The exercise
Papillion Ltd operates an executive performance share plan. Under this plan, the company grants rights to employees which are convertible into ordinary shares of the company. It also grants options
Discuss whether warranties that accompanying a sale of goods is a performance obligation of the contract with the customer and how it affects the sales recognition.
Sahara Ltd sells goods to Jackson Ltd. The agreement between the two parties states that Jackson Ltd pays for the goods in advance of delivery which will occur in 12 months’ time. Control of the
State whether each of the following is true or false.1. ‘Income’ means the same as ‘revenue’.2. All ‘revenue’ is ‘income’.3. ‘Gains’ are always recognised net under IFRSs.4.
State whether each of the following is true or false.1. Revenue is measured at the fair value of the consideration given by the seller.2. Revenue is measured at the transaction price that is
On 1 February 2024, FastNet Ltd entered into an agreement with Smith Ltd to develop a new database system (both hardware and software) for Smith Ltd. The agreement states that the total consideration
In each of the following situations, state at which date, if any, revenue will be recognised.1. A contract for the sale of goods is entered into on 1 May 2024. The goods are delivered on 15 May 2024.
All Star Ltd provides a bundled service offering to Bruce Ltd. It charges Bruce Ltd $28 000 for initial connection to its network and two ongoing services — access to the network for 1 year and
Swablu Ltd sells office equipment to Chantelle Ltd. Rather than paying in cash, Chantelle Ltd will transfer some furniture to Swablu Ltd. The furniture is recorded in Chantelle Ltd's account at a
Logistics Ltd provides professional advisory services to develop internal and external reporting systems to facilitate the integration of various forms of capital (financial, mechanical, human,
What is the purpose of a statement of financial position? Discuss the factors to consider when assets and liabilities are classified into current and non-current.
What is the purpose of statement of profit or loss? Why other comprehensive income is presented separately from the profit or loss?
Statement of profit or loss can be presented either by nature or by function of the expenses. Explain the difference between these classifications.
Review the published financial reports of the following companies and report on the information applicable to the statement of profit or loss and other comprehensive income.Determine whether the
A first-time shareholder has approached you requesting some advice. The shareholder has received the company’s annual report and noticed the following statement in the summary of significant
Any judgements made by management when applying the entity’s accounting policies that have significant effect on amounts recognised in the financial statements must also be disclosed. What
Marsha Ltd has recently hired a trainee who is unsure of the presentation of income and expense items recognised in a period and what items to be presented in other comprehensive
The directors of an Australian company that is required to prepare financial reports under the Corporations Act conclude that applying the requirements of AASB 136/IAS 36 Impairment of Assets would
The general ledger trial balance of David Ltd at 30 June 2022 includes the following asset and liability accounts. • The lease liability (k) includes an amount of $$26$ 000 for lease payments
The general ledger trial balance of Jojoba Ltd includes the following asset accounts at 30 June 2023.• Jojoba Ltd’s investments are part of a long-term investment strategy.• The company
The general ledger trial balance of DEF Ltd includes the following accounts at 30 June 2023.• DEF Ltd recognised a loss on valuation of $$1500$ net of tax for financial assets recognised at fair
The general ledger trial balance of Phillip Ltd includes the following accounts at 30 June 2023.• A revaluation gain of $$22$ 000 net of tax was recognised for financial assets recognised at fair
The shareholders’ equity section of the statement of financial position of Marvel Ltd at 30 June 2023 is as follows.• Marvel Ltd issued 10 000 shares at $$3.00$ each on 31 May 2023 for cash.•
Fine Company Ltd is a retailer that imports about 30% of its goods. The following foreign exchange gains and losses were recognised in profit during the year.Materiality has been determined as $5
The summarised general ledger trial balance of Snovel Ltd, a manufacturing company, includes the following accounts at 30 June 2023.
The general ledger trial balance of Caitlin Ltd, an investment company, includes the following revenue and expense items for the year ended 30 June 2023.• The revaluation gain for financial assets
The general ledger trial balance of Anastasia Ltd includes the following accounts at 30 June 2023.• The financial assets are bonds that are measured at fair value, with changes in fair value
Consider the following items for Xavier Ltd at 30 June 2023.(a) Loss on revaluation of financial assets recognised at fair value through other comprehensive income(b) Finance expenses(c) Aggregate
Consider the following items for Kateri Ltd at 30 June 2023:(a) Contingent liabilities(b) Dividends paid(c) Cash and cash equivalents(d) Capital contributed during the year(e) Revaluation gain on
Outline how the measurement of an equity-settled share-based payment transaction may differ based on who the counterparty to the transaction is.
Distinguish between the two types of vesting conditions.
Describe the accounting treatment of share-based payment transactions with cash alternatives where the counterparty has the choice of settlement.
Are the following statements true or false?(a) Goods or services received in a share-based payment transaction must be recognised when they are received.(b) Historical volatility provides the best

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