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financial reporting
Financial Reporting 4th Edition Janice Loftus, Ken Leo, Sorin Daniliuc, Belinda Luke, Hong Nee Ang, Mike Bradbury, Dean Hanlon, Noel Boys, Karyn Byrnes - Solutions
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 value through other comprehensive income held during 2023.• No financial assets recognised at
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.• A transfer of \($8\) 000 was made from retained earnings to the general reserve.• Comprehensive
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 million for items recognised in profit or loss.Required Identify which of the above gains and losses
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 recognised at fair value through other comprehensive income held during the year ended 30 June 2023
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 recognised through the statement of profit or loss. When held-for-sale financial assets from this category
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 amount of dividends declared and paid during the year(d) Revaluation loss on building (not reversing
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 land (not reversing any previous revaluation)(f) Judgements that management has made in classifying
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 basis for forming reasonable expectations of the future price of share options.(c) Share appreciation
Sebastian Ltd grants its manager a share option plan conditional on the manager contributing 10% of his fortnightly salary of \($3000\) for the next 2 years. The fortnightly payments will be automatically deducted from the manager’s salary and held until either: the end of the two-year period
Visit the websites of three Australian companies and access their latest annual reports. View the remuneration report within the director’s statutory report. Compare these remuneration reports and discuss your findings, especially in relation to short-term and/or long-term incentive structures.
Mulgogi Ltd, a listed company, organises major sporting events. It acquires crowd control equipment in return for a liability for an amount based on the price of 1000 of its own shares.Required Is this a share-based payment transaction? Should Mulgogi Ltd recognise the acquisition cost as an asset
On 1 January 2023, Mainstay Ltd announces a grant of 1000 share options to each of its 15 senior executives. The grant is conditional on the employee continuing to work for Mainstay Ltd for the next 3 years. The fair value of each share option is estimated to be $40. On the basis of a weighted
An employee is offered the opportunity to contribute 10% of their annual salary of $3000 across the next 2 years to a plan under which they receive share options. The employee’s accumulated contributions to the plan may be used to exercise the options at the end of the 2-year period. The
An entity receives inventories from a counterparty in exchange for a liability based on the price of 4000 of the entity’s own shares. At the date of receiving the inventories, the entity’s shares have a market value of $12 each.Required Measure the value of this transaction and prepare an
At the beginning of year 1, Jordyn Ltd grants 500 share options to each of its 100 employees, conditional on the employee remaining in the employ of Jordyn Ltd over the next 2 years.The company estimates that the fair value of the options on grant date is \($8.\) On the basis of a weighted average
Mitchell Ltd grants 60 share options to each of its 200 employees. Each grant is conditional on the employee working for the company for the 3 years following the grant date. On grant date, the fair value of each share option is estimated to be $18. On the basis of a weighted average probability,
At the beginning of 2024, Brandon Ltd grants 4000 employee share options with an exercise price of \($40\) to its newly appointed chief executive officer, conditional on the executive remaining in the company’s employ for the next 3 years. The exercise price drops to \($30\) if Brandon Ltd’s
At the beginning of 2023, Strident Ltd grants 5 000 share options to a senior marketing executive, conditional on that executive remaining in the company’s employ until the end of 2025. The share options cannot be exercised unless the share price has increased from \($15\) at the beginning of
At the beginning of 2023, Albion Ltd grants 2000 share options to each of its 40 most senior executives. The share options have a life of 5 years and will vest at the end of year 3 if the executives remain in service until then. The exercise price is \($50\) and Albion Ltd’s share price is also
Treetop Ltd grants 500 share appreciation rights (SARs) to 10 senior managers, to be taken in cash within 2 years of vesting date on condition that the managers do not leave in the next 3 years. The SARs vest at the end of year 3. Treetop Ltd estimates the fair value of the SARs at the end of each
Twiggy 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 a major bushfire resulted in the destruction of 50 000 hectares of standing timber, harvested logs, forestry buildings
Nunya Ltd is a mining company. Nunya 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.At 30 June 2026, Nunya Ltd is in financial distress due to a cash shortage.Required The auditors of Nunya Ltd have
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.’Required Refer to AASB 112/IAS 12 and
Torana Ltd applies the principles of tax‐effect accounting as per AASB 112/IAS 12 in accounting for income tax. Torana Ltd calculates depreciation expense on its plant using the straight‐line method, but applies an accelerated method for tax purposes. As a result, tax depreciation in the year
Marrah Ltd made an accounting profit before tax of $150 000 for the year ended 30 June 2024. Included in the accounting profit were the following items of revenue and expense.Required 1. Calculate the current tax liability for the year ended 30 June 2024 for Marrah Ltd, and prepare the journal
Koona Ltd recorded an accounting profit before tax of $200 000 for the year ended 30 June 2024. Included in the accounting profit were the following items of revenue and expense.Required 1. Use a current tax worksheet to calculate the current tax liability for Koona Ltd for the year ended 30 June
At 30 June 2023, Burroo Ltd recognised a deferred tax asset of \($30\) 000 and a deferred tax liability of \($45\) 000 by applying an income tax rate of 30%. The government announced that it will increase the tax rate as of 1 July 2023 to 35%. In its deferred tax worksheet for the year ending 30
In the year ended 30 June 2023 the profits of Warrang Ltd have declined compared to the previous year as sales have fallen. As a result, in the year ended 30 June 2024 the company had to retrench some of its employees as it endeavoured to streamline its business and search for new markets.The
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 an income tax rate of 30%.1. The entity has an allowance for doubtful debts of
The statement of financial position of Tapu Ltd at 30 June 2024 showed the following assets and liabilities.• Accumulated depreciation of plant for tax purposes was \($157\) 500 at 30 June 2023, and depreciation for tax purposes for the year ended 30 June 2024 amounted to \($37\) 500.• The
Motu Ltd incurred an accounting loss of \($15\) 120 for the year ended 30 June 2024. The current tax calculation determined that the company had incurred a tax loss of \($25\) 000.Tax legislation allows such losses to be carried forward and offset against future taxable profits. The company had the
Explain the nature of retained earnings. How do retained earnings differ from share capital? How do they differ from reserves? In what sense are they the same?
Retained earnings arise from gains and losses whereas reserves are simply internal transfers. True or false? Explain your answer.
Prior to AASB 2/IFRS 2 companies liked issuing options to employees at no cost. Why do you think this is the case? Do you agree or disagree with objective in AASB 2/IFRS 2?
When is a cash trust raised?
Mining company Rock Solid Metals Ltd announced plans to raise \($1\) 000 000 through a placement of 5 000 000 ordinary fully paid shares at \($0.20\) per share to institutional investors to fund new surveys and drilling campaigns for its copper project. Prior to this announcement the
The following is an extract from a letter sent on 22 February 2024 by Westshore Ltd to its shareholders in relation to a rights issue by the company.Required A client who holds shares in Westshore Ltd has approached you in relation to this letter. She requires you to explain the nature of a
In its consolidated financial statements, Sandfords Ltd provides the following information.If equity is considered a residual, explain why a company should have reserve accounts? Use the data from Sanford’s to illustrate your discussion. STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30
In accounting for the funds received by the company in the process of raising capital, it is sometimes necessary to raise a cash trust account. However, the cash trust account is not always an appropriate account to use.Required Compare the various ways in which a company may increase its share
Jackknife Trucking Ltd has announced a renounceable rights issue of 1-for-5 based on shares held at 2 July 2024. The shareholders have to exercise their rights by 31 August 2024, and pay \($1\) per share on application. At the end of the company’s reporting period, 30 June 2024, 70 percent of the
Cradock Ltd has had a windfall gain of \($4\) million on a major foreign currency transaction. A director, representing a 40 percent share ownership in Cradock suggests the \($4\) million is used to repurchase the company’s shares. The chief financial officer, who is also a director, argues that
Placement of shares Fuyu Ltd is in need of an injection of capital. The directors are considering whether to raise capital via a public issue or by placing new shares with a selected group of new investors.Required Examine the factors that would motivate the directors to choose a placement of
Collingwood Kiwifruit Ltd in its statement of financial position at 31 December 2023 reports the existence of two new reserves:• an asset replacement reserve, which has been created to replace critical manufacturing assets in the next few years• an assets revaluation surplus, created when the
The directors of Pebbles Ltd are preparing the annual report for the company at 30 June 2024. The directors anticipate that the company will pay a dividend of $2.75 per share subsequent to the annual general meeting scheduled for 13 August 2024. This information will be included in the directors’
The directors of Wai-Sabii Ltd are considering increasing its share capital. However, they are unsure as to whether they should pursue a placement of shares or an accelerated rights issue. Some of the directors believe that this will target the same audience, namely institutional investors, and so
West Ltd needs to raise funds for mining projects in the Northern Territory. When it was first established it issued 2.0 million shares at \($1\) each. In the current year, the directors have decided to make a non-renounceable rights issue to existing shareholders of 200 000 new shares at an
Whiteroll Ltd has been investigating the expansion of the company into new areas of development. In order to fund these new investments, the company needs an increase in equity. On 1 April 2022 the company decided to make a public issue to raise \($1\) 800 000 for new capital development. The
Rights issue with options At 30 June 2021 Cellmid’s statement of financial position presents the following equityThe ordinary share capital of $56 064 284 comprises 125 246 865 shares. (The number of shares has been rounded down). Figure 14.5 contains extracts from a Cellmid Limited ASX release,
The audit and risk committee of Railnet Corporation Limited (RCL), were in a meeting with the auditors discussing the draft financial statements. Jaya Daji, an independent director, puts forward a proposal that RCL uses its Capital Gains Reserve (which is tax free to shareholders) to make a 1 for 1
Figure 14.10 provides a description of Wesfarmers Limited’s reserves. Figure 14.11 is the Wesfarmers’ statement of changes in equity.Required Show the journal entries for the following transactions in that statement:(a) Share-based payment transactions(b) Changes in the fair value of cash flow
The group accountant of Tomthumb Ltd has been given the task of accounting for a repurchase of shares by the company. The company is repurchasing 5 million shares at a cost of $2 each, paying for this in cash. However, the accountant is unsure which accounts should be reduced by the share buyback.
Bantam Ltd decided to repurchase 15% of its ordinary shares under a buyback scheme for \($3.20\) per share. At the date of the buyback, the equity of Bantam Ltd consisted of:The costs of the buyback scheme amounted to \($5\) 000.Required 1. Prepare the journal entries to account for the buyback.
Define a financial instrument and identify transactions that give rise to financial instruments and those that do not.
Define a financial asset and list some common examples.
Define a financial liability and list some common examples.
Define a derivative and explain how a hybrid contract can have an embedded derivative. List some common examples of derivatives and embedded derivatives.
Define an equity instrument and explain how it differs to a financial liability.
Explain why some preference shares are recognised as financial liabilities by the issuer while others are recognised as equity instruments.
What is a convertible note? How does the issuer of convertible notes initially recognise the notes in its financial statements?
Should the dividends on preference shares be recognised directly in equity or as an expense in profit or loss?
The initial recognition of a financial asset or financial liability is based on a ‘rights and obligations approach’. Discuss.
What is a regular way purchase or sale of a financial asset and what is the difference between trade date accounting and settlement date accounting?
When does an entity set off a financial asset and financial liability for presentation in its statement of financial position?
When does an entity derecognise a financial asset or financial liability?
How is the initial measurement of a financial asset determined? Explain how a gain or loss can arise on initial measurement of a financial asset.
How is the initial measurement of a financial liability determined and how does it differ to the initial measurement of a financial asset?
Describe the various approaches to subsequent measurement of financial assets permitted by AASB 9 and the circumstances in which each approach may be applied.
Explain how financial assets that are debt instruments, equity instruments or derivatives may subsequently be measured.
Describe the subsequent measurement of financial liabilities. What is the default category for subsequent measurement of a financial liability?
How is the loss allowance for financial assets measured for assets classified as:(a) Stage 1(b) Stage 2 or 3?
Disclosures are required in respect of the nature and extent of risks arising from financial instruments. What are the usual risks and what details must be included in the disclosures?
How are the current and future tax consequences of transactions or other events accounted for?
Provide five examples of differences in the treatment of revenues and expenses under GAAP and ITAA.
What are permanent and temporary differences between accounting and taxable profit?
How is the taxable profit and the related current tax expense calculated?
Provide three examples of how taxable revenues or tax deductions are determined with regards to some items disclosed in the statement of financial position based on the changes between the opening and ending balances of those items.
What is an ‘exempt income’ and how does it affect the calculation or recovery of carry‐forward tax losses?
What are the steps in the calculation of deferred tax?
What is a tax base?
How are tax bases for assets calculated?
How are tax bases for liabilities calculated?
Explain when a temporary difference is classified as deductible or taxable for an asset or liability.
Are all differences that exist at the end of the reporting period between the carrying amounts and tax bases of assets and liabilities recognised as part of deferred tax assets or deferred tax liabilities?
Explain the movements that occur in deferred tax accounts due to revaluation of noncurrent assets.
Explain the movements that occur in deferred tax accounts due to the recovery of a tax loss.
Can current or deferred tax assets and liabilities be offset against each other?
What characteristics should a contract have to be considered a lease?
What constitutes the ‘right to use’ of an identified asset?
What are ‘lease payments’?
What is meant by ‘the interest rate implicit in a lease’ and ‘the lessee’s incremental borrowing rate’?
How are leases to be accounted for by lessees according to AASB 16/IFRS 16?
How is the lease term identified and what happens if the assessment of the lease term changes subsequent to the commencement date according to AASB 16/IFRS 16?
What is the impact of residual value guarantees on lessee accounting according to AASB 16/IFRS 16?
What is the impact of variable lease payments on lessee accounting according to AASB 16/IFRS 16?
What is the impact of lease modifications on lessee accounting according to AASB 16/IFRS 16?
How are short-term leases and leases involving low-value assets accounted for according to AASB 16/IFRS 16?
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