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financial reporting
Financial Reporting 2nd Edition Janice Loftus ,Ken Leo ,Sorin Daniliuc ,Belinda Luke ,Hong Nee Ang ,Karyn Byrnes - Solutions
Bonus issue of shares LO3 On 1 January 2019, Regis Ltd has 200 000 ordinary shares outstanding. On 1 March 2019, the company announces a bonus issue of 2 shares for every share held on that date. By the end of the year Regis Ltd’s profit attributable to ordinary shareholders amounts to
Categorising LO3 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 resources. Required Should the entity recognise the additional shares in the weighted
Measurement principles LO3 The directors of Singh Group have decided to repurchase 100 000 ordinary shares in an ‘on‐ market’ arm’s length transaction. Required Are the treasury shares acquired in this transaction included in the weighted average number of shares outstanding when
Measuring basic earnings per share LO3 On 30 June 2020, Samira Ltd determines profit attributable to ordinary shareholders as $450 000. At the beginning of the reporting period the company had 1 800 000 ordinary shares outstanding. The company had no share issues during the period. Required
Components of basic earnings per share LO3 Which of the following is a component of earnings used in the calculation of basic earnings per share? Give reasons for your answer. (a) Profit before tax expense (b) Preference dividends declared during the period (c) Income tax expense (d) Profit
Scope of AASB 133/IAS 33 LO2 If an entity presents both consolidated and separate financial statements, which statements are used for the calculation of basic earnings per share? Give reasons for your answer.
COMPARING EARNINGS PER SHARE Access the 2015 annual report of Wesfarmers Limited and compare the basic and diluted EPS results to those of Woolworths Limited for 2015 as provided throughout this chapter. Discuss which company appeared to have the better earnings per share results.
EARNINGS PER SHARE REPORTED IN NOTES Visit the websites of three Australian companies in the energy industry and access their latest annual reports. Compare the income statements and the notes to the financial statements with regards to information provided on the companies’ earnings per share.
CASE STUDY CONTINGENTLY ISSUABLE ORDINARY SHARES The directors of Carter Limited are not sure how to, or if they should, include ordinary shares issuable under employee share‐based payment schemes in the calculation of the company’s earnings per share. Required Advise the directors on the
Where are the basic and diluted earnings per share ratios presented in a set of financial statements?
Why are retrospective adjustments made to earnings per share ratios?
When determining the amount of the proceeds from options and warrants, how is the average share price established?
Explain how the amount of dilution from options is determined.
Explain the effect of potential ordinary shares on the calculation of diluted earnings per share.
Distinguish between basic earnings per share and diluted earnings per share.
What is the treatment applied to treasury shares when calculating the weighted average number of shares used in the earnings per share calculation?
Why is a time‐weighting factor used to determine the number of shares that is used in the calculation of basic earnings per share?
Where are the earnings per share figures for a parent entity presented?
What are the components in the numerator and the denominator in the earnings per share calculation?
Accounting policies LO1 At a meeting on 16 June 2019, the directors of Alpaca Ltd decided to change the company’s accounting policy in regard to research and development expenditure. • In previous years, research and development expenditure had been capitalised and amortised over 3
Accounting policies and changes in accounting estimates LO1, 2 Mouse Ltd traditionally estimated its allowance for doubtful debts as a percentage of net credit sales for the year. An analysis of the variance between the allowance amount and the actual bad debts written off for the past
Changes in accounting estimates LO2 On 1 July 2013, Bird Ltd acquired a building for $2 500 000 with an estimated life of 25 years and a residual value of nil. Bird Ltd uses the straight-line method of depreciation. Based on expert advice provided to Bird Ltd in 2019, it was decided the
Accounting policies, accounting estimates and errors LO1, 2, 4 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 accounting policy 3. A
Materiality, errors and events after the reporting period LO5, 6 You are currently auditing the financial statements and records of Buffalo Ltd for the year ended 30 June 2021. In the course of your investigations you uncover the following transactions that occurred after the end of the
Errors LO3 The annual audit of the accounting records and draft financial statements of Koala Ltd as at 30 June 2020 revealed the following errors and omissions. (a) Credit notes totalling $33 000 relating to June sales were posted against sales made in July. (b) The purchase price of $71
Events after the reporting period LO6 Sable Ltd has provided the following information concerning events occurring between the end of the reporting period and the date the accounts were authorised. This information is to be considered in the preparation of the financial statements for the
Materiality and events after the reporting period LO5, 6 The following information has been made available to you to assist in the preparation of the financial statements of Ant Ltd for the year ended 30 June 2021. (a) The company has been involved in a dispute with a government environment
Accounting policies and accounting estimates LO1 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 Ltd determines that it will calculate its
Events after the reporting period LO6 Cat Ltd operates a fleet of fishing trawlers. The following events took place after the end of the reporting period, 30 June 2019, but before the date the accounts were authorised, 15 September 2019. (a) On 17 July 2019, Cat Ltd’s main fishing fleet was
Accounting estimates and errors LO2, 3 Young 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 ending 30 June were as follows. Warranty provisions Actual
Accounting policies LO1 Wombat Ltd has provided the following information to help with the preparation of the accounting policy note to the financial statements for the year ended 30 June 2021. • Wombat Ltd values its inventories at the lower of cost and net realisable value. Costs are
Annual reporting requirements, true and fair view LO1, 5 The directors of an Australian company, Mango Ltd, have formed the view that compliance with a particular AASB standard will mean the company’s financial statements will not provide a true and fair view, which is contrary to the
COMPLIANCE WITH ACCOUNTING POLICY DISCLOSURE REQUIREMENTS Accounting policy disclosures contained in Notes 1 and 10 from CSR Limited’s 2016 annual report were provided in figure 18.1. Required Provide a brief description of CSR’s accounting policies with respect to: 1. compliance 2. currency 3.
EVENTS OCCURRING AFTER THE END OF THE REPORTING PERIOD The statement of financial position of Waterbuck Ltd as at 30 June 2020 includes an asset ‘Debenture money receivable $500 000’ and a liability ‘Debentures $500 000’. Note 12 to the accounts reveals that the issue of the debentures to a
MATERIALITY Antelope 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 long-term contracts in Pakistan and Nigeria. AASB 8/IFRS 8 Operating Segments requires
ACCOUNTING POLICIES Refer to case study 18.1. 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 gains or losses to be taken to profit or loss, thereby
CASE STUDY ACCOUNTING ESTIMATES The board of directors of Good Company 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 date, such gains or losses were capitalised to hedged items, but
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 financial statements.
Outline the concept of materiality as it applies to financial reporting.
When is it impracticable to make a retrospective change in an accounting policy or a retrospective restatement to correct an error?
What is the difference between ‘retrospective application’ and ‘retrospective restatement’?
Why would an accounting estimate change and how is the change accounted for?
What disclosures are required by AASB 101/IAS 1 regarding accounting policies?
Analysis of differences between profit and cash flows from operations LO1, 5 Obtain the financial statements of Bega Cheese Limited for 2015 or 2016, which includes 2015 comparative figures. The company’s profit for 2015 was $12 408 000. However, cash used in operations was $17 345
Preparing a statement of cash flows with notes LO2, 3, 5, 6 The statement of profit or loss and other comprehensive income and comparative statements of financial position of Blue Ltd were as follows. BLUE LTD Statement of financial position as at 31 December 2018 2019 Current assets
Preparation of statement of cash flows information LO2, 3, 4, 5 The statement of profit or loss and other comprehensive income and comparative statements of financial position of Amber Ltd are as follows. AMBER LTD Statement of financial position as at 31 December 2018 2019 Current assets
Preparation of a statement of cash flows LO3, 5 A comparative statement of financial position of Aqua Ltd is presented below. 30 June 2018 30 June 2019 Cash $120 000 $ 218 000 Trade receivables 184 000 204 000 Inventories 100 000 160 000 Land (at valuation) 50 000 62 000 Plant 460 000 520
Preparation of a statement of cash flows LO3, 4, 5 A summarised comparative statement of financial position of Bronze Ltd is presented below, together with a statement of profit or loss and other comprehensive income for the year ended 30 June 2019. 30 June 2018 30 June 2019 Cash $ 45 000 $
Preparation of a statement of cash flows LO4, 5 A summarised comparative statement of financial position of Crimson Ltd is presented below. 30 June 2018 30 June 2019 Cash $ 96 000 $ 49 000 Accounts receivable (net) 147 000 163 000 Prepayments 20 000 15 000 Inventories 60 000 104 000 Land 40
Presentation of a statement of cash flows LO3, 5 A summarised comparative statement of financial position of Denim Ltd is presented below, together with the statement of profit or loss and other comprehensive income for the year ended 30 June 2019. 30 June 2018 30 June 2019 Cash $ 30 000 $
Preparation of a statement of cash flows LO3, 4, 5 A summarised comparative statement of financial position of Fuchsia Ltd is presented below. 30 June 2018 30 June 2019 Cash $ 20 000 $ 91 000 Trade accounts receivable 65 000 90 000 Inventories 58 000 62 000 Prepayments 10 000 12 000 Land 80
Preparation of a statement of cash flows LO3, 5 A summarised comparative statement of financial position of Green Ltd is presented below. 30 June 2018 30 June 2019 Cash $ 40 000 $ 55 000 Trade receivables 92 000 140 000 Investments 35 000 30 000 Plant 130 000 180 000 Accumulated
Cash receipts from customers and cash paid to suppliers and employees LO5 The accounting records of Indigo Ltd recorded the following information. 30 June 2018 30 June 2019 Accounts receivable $40 000 $ 50 000 Inventories 32 000 34 000 Prepaid expenses 1 000 3 000 Accounts payable for
Net financing cash flows LO5 The following information has been extracted from the accounting records of Jade Ltd. 30 June 2018 30 June 2019 Borrowings $100 000 $200 000 Share capital 200 000 250 000 Property revaluation surplus 50 000 60 000 Retained earnings 75 000 95 000 Additional
Net investing cash flows LO5 The statement of financial position of Lilac Ltd at 30 June 2019 recorded the following items. 30 June 2018 30 June 2019 Land, at independent valuation $100 000 $120 000 Plant, at cost 70 000 85 000 Accumulated depreciation (20 000 ) (28 000) Investments at fair
Financing cash flows LO5 The following information has been compiled from the accounting records of Mustard Ltd for the year ended 30 June 2019. Dividends — paid $ 200 000 — dividend reinvestment scheme 120 000 Additional cash borrowing 300 000 Issue of shares — cash 300 000 — dividend
Investing cash flows LO5 The following information has been compiled from the accounting records of Royal Ltd for the year ended 30 June 2019. Purchase of land, with the vendor financing $100 000 for 2 years $350 000 Purchase of plant 250 000 Sale of plant: Carrying amount 50 000 Cash proceeds
Cash received from customers LO5 At 30 June 2018, Orange Ltd had accounts receivable of $200 000. At 30 June 2019, accounts receivable were $240 000 and sales for the year amounted to $2 100 000. Bad debts amounting to $50 000 had been written off during the year, and discounts of $17 000 had
Cash payments to suppliers LO5 Purple Ltd had the following balances. 30 June 2018 30 June 2019 Inventories $170 000 $210 000 Accounts payable for inventories purchases 51 000 65 000 Cost of sales was $1 700 000 for the year ended 30 June 2019. Required Calculate cash payments to suppliers for
Cash received from customers LO5 At 30 June 2018, Ruby Ltd had net accounts receivable of $180 000. At 30 June 2019, accounts receivable were $220 000 and sales for the year amounted to $1 800 000. Doubtful debts expense was $55 000 for the year. Discount allowed was $35 000 for the year.
CASH FLOWS OF TOP AUSTRALIAN COMPANIES Select three ASX-listed companies from different industries (e.g. metals and mining, telecommunication services, consumer staples). Go to www.asx.com.au and find the most recent annual financial statements of the three companies. Required Compare the
CLASSIFICATION OF CASH FLOWS The accountant for Delta Ltd prepared the following statement of cash flows. DELTA LTD Statement of cash flows for the year ended 30 June 2019 $’000 Cash flows from operating activities Cash received from customers 870 Cash paid to suppliers of goods and services (650
CASE STUDY INCREASING CASH FLOW, DECREASING PROFIT Lana Ferdinand, the owner-manager of a small proprietary company, had carefully monitored the cash position over the past financial year, and was pleased to note at the end of the year that the cash position was strong, and had shown a healthy 50%
The statement of cash flows is said to be of assistance in evaluating the financial strength of an entity, yet the statement can exclude significant non-cash transactions that can materially affect the financial strength of an entity. How does AASB 107/IAS7seek to overcome this issue?
Explain the required classifications of cash flows under AASB 107/IAS 7.
Current and deferred tax with prior year losses LO4, 5 The accounting profit before tax of Collingwood Ltd for the year ended 30 June 2020 was $175 900. It included the following revenue and expense items. Government grant (non‐taxable) $ 3 600 Interest revenue 11 000 Long service
Current and deferred tax LO4, 5 The accounting profit before tax for the year ended 30 June 2019 for Quamby Ltd amounted to $18 500 and included: Depreciation expense — motor vehicle (25% p.a., straight‐line) $ 4 500 Depreciation expense — equipment (20% p.a., straight‐line) 20
Recognition of deferred tax assets LO5 Paddington Ltd incurred an accounting loss of $7560 for the year ended 30 June 2020. The current tax calculation determined that the company had incurred a tax loss of $12 500. Taxation legislation allows such losses to be carried forward and
Current and deferred tax with tax rate change LO4, 5, 6 You have been asked by the accountant of Oakey Ltd to prepare the tax‐effect accounting adjustments for the year ended 30 June 2020. Investigations revealed the following information. (a) In September 2018, the Australian
Calculation of current and deferred tax, and prior year amendment LO3, 4, 5 The accounting profit before tax of Nebo Ltd for the year ended 30 June 2020 was $22 240. It included the following revenue and expense items. Government grant (non‐taxable) $ 3 600 Entertainment expense
Calculation of current tax liability and adjusting journal entry LO4 The profit before tax, as reported in the statement of profit or loss and other comprehensive income of Mackay Ltd for the year ended 30 June 2021, amounted to $60 000, including the following revenue and expense items.
Calculation of movements in deferred tax accounts LO5 The statement of financial position of Labrador Ltd at 30 June 2021 showed the following assets and liabilities. 2021 2020 Assets Cash $ 80 000 $ 85 000 Inventories 170 000 155 000 Accounts receivables 500 000 480 000 Allowance for
Current and deferred tax LO4, 5 Kilcoy Ltd has determined its accounting profit before tax for the year ended 30 June 2020 to be $256 700. Included in this profit are the items of revenue and expense shown below. Royalty revenue (non‐taxable) $ 8 000 Entertainment expense 1 700
Calculation of current and deferred tax, and adjustment entry LO4, 5 The profit before tax, as reported in the statement of profit and loss for Adeline Ltd for the year ended 30 June 2021, amounted to $100 000, including the following revenue and expense items. Sales revenue $650 000
Calculation of current and deferred tax, and adjustment entry LO4, 5 Bear Ltd’s accounting profit before tax for the year ended 30 June 2021 was $150 000. At 30 June 2020 and 30 June 2021, the company’s draft statements of financial position showed the following balances. 2020 2021
Calculation of current and deferred tax, and adjustment entry LO4, 5 Victory Ltd commences operations on 1 July 2020. One year later, on 30 June 2021, the entity prepares its first statement of comprehensive income and its first statement of financial position. The statements are prepared
Calculation of deferred tax, and adjustment entry LO5 The following information was extracted from the records of Jackson Ltd as at 30 June 2020. Carrying amount Tax base Asset (liability) Accounts receivable $150 000 $175 000 Motor vehicles 165 000 125 000 Provision for warranty (12 000) 0
Creation and reversal of a temporary difference LO5 Imbil Ltd purchased equipment on 1 July 2017 at a cost of $25 000. The equipment had an expected useful life of 5 years and was to be depreciated on a straight‐line basis. The tax depreciation rate for equipment of this type is 15% p.a.,
Creation and reversal of temporary differences LO5 The following are all independent situations. Prepare the journal entries for deferred tax on the creation or reversal of any temporary differences. Explain in each case the nature of the temporary difference. Assume a tax rate of 30%. 1.
Recognition of deferred tax assets LO5 Goldon Ltd manufactures its products in Australia and is subsidised by the Australian government, which is keen to retain a strong manufacturing sector in Australia. In the past, Goldon Ltd has relied heavily on the export of its products to the
Change in tax rates LO6 At 30 June 2020, Blue Ltd recognised a deferred tax asset of $9000 and a deferred tax liability of $12 000. This has resulted by applying a tax rate of 30%. The Australian government has determined to raise more revenue from companies by way of taxation. It announced
Current and future tax consequences LO3 Explain which of the following have current or future tax consequences. 1. Estimated warranty costs covering a 3‐year warranty period are expensed for financial reporting purposes over a 3‐year period but are treated as a tax deduction in the year in
Calculation of deferred tax LO5 The following information was extracted from the records of Gin Gin Ltd for the year ended 30 June 2021. GIN GIN LTD Statement of financial position (extract) as at 30 June 2021 Assets Accounts receivable $ 25 000 Allowance for doubtful debts (2000) $23 000
Calculation of current tax LO3, 4 Haden Ltd recorded an accounting profit before tax of $100 000 for the year ended 30 June 2022. Included in the accounting profit were the following items of revenue and expense. Entertainment expenses (non‐deductible) $ 2 000 Depreciation expense —
Calculation of current tax LO3, 4 Flaxton Ltd made an accounting profit before tax of $40 000 for the year ended 30 June 2021. Included in the accounting profit were the following items of revenue and expense. Donations to political parties (non‐deductible) $ 5 000 Depreciation expense —
Applying tax‐effect accounting LO1, 2, 3, 5 Orca Ltd applies the principles of tax‐effect accounting as per AASB 112/IAS 12 in accounting for company income tax. Orca Ltd calculates depreciation expense on its plant using the straight‐ line method, but applies an accelerated method for
Tax effects of a temporary difference LO4, 5 The following information was extracted from the records of Emerald Ltd for the year ended 30 June 2019 in relation to equipment that had cost $240 000 on 1 July 2016. Carrying amount $ Future taxable amount $ Future deductible amount $ Tax base $
INCOME TAX DISCLOSURES OF TOP AUSTRALIAN COMPANIES Select three companies listed on the ASX from different industries (e.g. Telstra, Woolworths and Fortescue Metals Group). Go to www.asx.com.au and find the most recent annual financial report of each of the three companies. Compare the information
RECOGNITION OF DEFERRED TAX ASSETS Shady Sheds Ltd manufactures prefabricated sheds, ranging from industrial sheds and garden sheds down to small items such as dog kennels. In recent years, Shady Sheds Ltd has recorded accounting losses. The company has retrenched several of its staff after
DEFERRED TAX BALANCES AND DISCOUNTING A fellow student said, ‘Deferred tax liabilities and assets should be measured using a discounted cash flow model. The deferred tax is paid or refunded in the future — that could be years away — so the time value of money should be taken into account’.
DEFERRED TAX ASSET OF A LOSS MAKING COMPANY Isa Ltd is a gold exploration company. Isa Ltd has recognised a deferred tax asset balance for tax losses in its statement of financial position for each of the past four years as follows. Isa Ltd ($000s) 2020 2021 2022 2023 Deferred tax asset 24 200 133
RECOGNITION OF TAX LOSSES Whale Ltd is engaged primarily in agricultural pursuits as well as in forestry products, including the management of its own forest reserves. Unfortunately, in the current year an eruption of a volcano in the mountain range bordering the company’s operations resulted in
CASE STUDY TAX‐EFFECT ACCOUNTING Every year companies in Australia generally expect to have to pay some of their earnings to the Australian government in the form of income tax. However, the amount paid to the government is rarely the amount reported as income tax expense in the statement of
‘Despite the fact that deferred tax liabilities and assets are recognised in respect of certain assets and liabilities, the income tax expense (or benefit) of such items is always recognised in the current year.’ Is this statement true? Discuss.
In AASB 112/IAS 12, criteria are established for the recognition of a deferred tax asset and a deferred tax liability. Identify these criteria, and discuss any differences between the criteria for assets and those for liabilities.
In tax‐effect accounting, the temporary differences between the carrying amount and the tax base for assets and liabilities leads to the establishment of deferred tax assets and liabilities in the accounting records. List examples of temporary differences that create: (a) deferred tax assets (b)
Are all temporary differences that exist at the end of the reporting period recognised as deferred tax assets or deferred tax liabilities?
What is a tax base and how are the tax bases for assets and liabilities calculated?
What are the steps involved in the calculation of deferred tax?
How is the taxable profit and the related current tax calculated?
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