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Financial Reporting 4th Edition Janice Loftus, Ken Leo, Sorin Daniliuc, Belinda Luke, Hong Nee Ang, Mike Bradbury, Dean Hanlon, Noel Boys, Karyn Byrnes - Solutions
What is a corporate asset?
Are there limits in reversing past impairment losses?
Under FAS 28, if a client accelerates payment of one or more of the instalments before the due date, the bank may waive part of the profit that was agreed upon earlier. The deducted amount shall be credited to ____________________ Receivables Profit–Income Statement Deferred profit on Murabaha
On learning you studied ethics as part of your accounting degree, your co-worker in marketing says: 'What a waste of time. Surely there aren't any significant ethical issues in accounting. After all, numbers don't lie'.Required How would you respond to this view?
Consider the fundamental principles provided by APES 110. How easy are they to define and apply? To what extent would two impartial observers agree about whether there had been a contravention of the principles?Required Provide an example to support your answer.
Obtain a code of conduct from another profession (e.g. medicine, law, engineering). Required Compare and contrast this code with the elements of APES 110 that discuss principles, threats and safeguards. In light of this comparison, are there areas of APES 110 that could be improved?
Find a recent newspaper article that discusses unethical practices by an accountant or accounting firm.Required Analyse this case with reference to APES 110 and relevant ethical theories.
Tane has graduated from university and is about to sit his professional accounting exams. One of Tane's colleagues hands him an envelope and says they have a friend 'on the inside' who has provided a 'preview' of the exam.Required Does anything in APES 110 apply to this case? What about other
Mandawuy's company is planning to sell a subsidiary in the next 1 to 2 years. One of her co-workers is proposing a new accounting policy that will result in the subsidiary appearing more profitable. At the end of their presentation, they conclude by saying 'This new policy is technically legal, and
Luekaa's company regularly provides an information pack of key financial data to investment analysts that includes information on various business segments. Due to concerns about a struggling business line, the investor relations manager suggests consolidating these results with better performing
Yusuf's co-worker is usually very cheerful but he notices that they have barely spoken for the past few days. When Yusuf approaches them, they say 'Something very serious has happened between me and someone else in this company, but I just can't tell you about it. The problem is I don't know what
Name six current accounting standards that permit or require the use of fair values for the measurement of assets or liabilities.
What are the main objectives of AASB 13/IFRS 13? Discuss why such a standard was considered necessary.
Compare entry price to exit price for specialised plant. How does AASB 13/IFRS 13 resolve the debate on which price to use?
What are market participants? Is the entity applying AASB 13/IFRS 13 a market participant?
Discuss the three levels in the fair value hierarchy. Do you agree that the outcomes at all three levels should be described as 'fair values'?
How does fair value measurement differ for a non-financial asset, a liability and an entity's own equity instruments?
Fair values causing tension in the accounting profession Find and read the following article on the CA ANZ library website (http://library.charteredaccountantsanz.com): Cain, A 2013, 'Fair value continues to captivate', 2 July, Charter, vol. 84, no. 6, pp. 30-31.Required What difficulties have
Fair values and Enron Find and read the following article: Benston, G 2006, 'Fair value accounting: a cautionary tale from Enron', Journal of Accounting and Public Policy, vol. 25, no. 4, pp. 465-84.Required Describe the fair value accounting practices that emerged from the Enron scandal. In your
Fair values and the conceptual framework Find and read the following article: Whittington, G 2008 'Fair value and the IASB/FASB Conceptual Framework project: an alternative view', Abacus, vol. 44, no. 2, pp. 139-68. (There is also a commentary on this paper: Bradbury, M 2008 'Discussion of
Fair value accounting: the shortcomings Find and read the following article: Benston, \(\mathbf{G}\) 2008, 'The shortcomings of fair value accounting described in SFAS 157', Journal of Accounting and Public Policy, vol. 27, no. 2, March-April, pp. 101-14.Required Summarise Benston's main
Fair value measurement of equity instruments issued On 1 Aug. 2023, BetSports Ltd (an online gambling provider) issued 981 million ordinary shares to its parent company, TaxStars Inc. The shares were issued as consideration for the acquisition of \(100 \%\) of the shares of BetBetBet Pty Ltd
Fair value measurement disclosures Find a recent annual report of a top 50 company listed on the Australian Securities Exchange (www.asx.com.au) that includes some assets and/or liabilities measured at fair value at the reporting date.Required Consistent with the requirements of AASB 13/IFRS 13,
Notoro Ltd makes women's handbags. It operates a factory in an inner suburb of Perth. The factory contains a large amount of equipment that is used in the manufacture of handbags. Notoro Ltd owns both the factory and the land on which the factory stands. The land was acquired in 2014 for \(\$
An entity acquired a machine in a business combination that is held and used in its operations. The machine was initially acquired from a supplier and was then customised by the entity for use in its own operations. The highest and best use of the machine is its use in combination with other assets
A response to the IASB's Exposure Draft 2009/5 Fair Value Measurements, stated:In practical terms we doubt that an asset measured on any other basis than its intended use will provide more useful information to readers.The fact that, say, a site used for production would have a higher market value
Cellar Ltd is in the business of bottling wine, particularly for small wineries that cannot afford sophisticated technical equipment and prefer to concentrate on the growing of the grapes. The white wine and champagne bottles used by Cellar Ltd have a built-in insulation device that keeps the
Palm Ltd acquired a business that used a large number of assets that worked in combination to produce a product saleable in offshore markets. The assets of the business include a computer program that enables the inputs to the manufacturing process to be transferred in a predetermined routine.In
Dr Mosby owned a large house on a sizeable piece of land in Darwin. Dr Mosby was 92 years old and had become incapable of taking care of the large property. He wanted to move into a retirement village and so sold his property to the RuralMed Group, which was an association of doctors. The doctors
Brumby Ltd recognises that the concept of 'market participants' is an important part of the measurement of fair value. It has determined that market participants are buyers and sellers in the principal (or most advantageous) market for the asset or liability that have the following
In a business combination, Skyentist Ltd acquired inventory that is sold in three different markets: Market A, Market \(B\) and Market C. Some information gathered in relation to these three markets is as follows.Required Using the information provided, explain how Skyentist Ltd should measure the
On 1 January 2024, North Island Ltd issues at par \$2 million A-rated 5-year fixed rate debt securities with an annual coupon interest of \(6 \%\). On 31 December 2024, investments in the debt securities are trading as an asset in an active market at \(\$ 2100\) per \(\$ 2000\) of par value after
On 1 July 2024, Adnap Ltd assumed a decommissioning liability in a business combination. The entity is legally required to dismantle and remove an offshore oil platform at the end of its useful life, which is estimated to be 10 years. If Adnap Ltd were contractually allowed to transfer its
Wall Ltd and Door Ltd enter separate contracts to pay cash of \(\$ 100000\) to Bedroom Ltd in 5 years' time. Wall Ltd has a AA credit rating and can borrow at \(4 \%\). Door Ltd has a BBB credit rating and can borrow at \(10 \%\). At initial recognition, the fair value of the liability of each
On 1 January 2024, Koala Ltd issued at par in a private placement \(\$ 42\) million BBB-rated 5 -year fixed rate debt securities with an annual coupon interest rate of \(8 \%\) interest. At 31 December 2024, Koala Ltd still carried a BBB credit rating. Market conditions, including interest rates
Asset JPY is sold in three different active markets.- In Market I, the price that would be received is \$54; transaction costs are \(\$ 4\) and the transport costs are \(\$ 6\).- In Market II, the price that would be received is \(\$ 52\); transaction costs are \(\$ 4\) and the transport costs are
Explain the concept of lower of cost and net realisable value for inventories.
Which is more expensive to maintain: a perpetual method or a periodic method? Why?
In what circumstances must assumptions be made in order to assign a cost to inventories when they are sold?
'Estimating the value of inventories is not sufficiently accurate to justify using such an approach. Only a full physical count can give full accuracy'. Discuss.
What is the difference between the first-in, first-out formula and the weighted average formula of assigning cost?
Compare and contrast the impact on the reported profit and asset value for an accounting period of the first-in, first out formula and the weighted average formula.
Why is the lower of cost and net realisable value rule used in the accounting standard? Is it permissible to revalue inventories upwards? If so, when?
What effect do the terms of trade have on the determination of the quantity and value of inventories on hand where goods are in transit at the end of the reporting period?
Calculation of inventories You are part of the team auditing Wellington Ltd. The audit senior asks you to verify the inventories at 30 June 2025. The company uses a perpetual method to account for inventories. In undertaking the task you note that there is a shipping container beside the main
Inventories costs You have been assigned a new graduate as part of your audit team and they have asked you a number of questions in relation to accounting for inventories at the Lake Clifton Ltd plant.Required Prepare a response providing an answer and reasoning to their questions, as follows.1.
Purchase discounts Bunker Bay Ltd is considering alternative methods of accounting for the cash discounts it takes when paying for its supplies promptly.Required From a theoretical standpoint, discuss the acceptability of each of the following methods:1. financial income when payments are made 2.
Inventories costs As a new graduate you have been assigned to the accounting team led by Andy Steel. Andy wants to determine your expertise in relation to accounting for inventories and has given you the following list of questions.Required Andy has asked you to provide a detailed response.1. A
Disclosures relating to inventories Griffith Manufacturing Ltd reported inventories in its statement of financial position as follows:What additional disclosures might be necessary to present the inventories fairly? Inventories $75 511 500
Recording inventories transactions George Ltd began business on 1 March 2025. George balances the books at month-end and uses the periodic method. George Ltd's transactions for March 2025 are detailed below. George Ltd makes payments using electronic banking.Required Prepare journal entries for
Determining inventories cost and cost of sales (periodic method)Select the correct answer. Show any workings required and provide reasons to justify your choice.1. The cost of inventories on hand at 1 January 2025 was \(\$ 40000\) and at 31 December 2025 was \(\$ 35000\). Inventories purchases for
Assigning cost (perpetual method)Select the correct answer. Show any workings required and provide reasons to justify your choice.Alice Ltd uses the perpetual method. Alice Ltd's inventories transactions for May 2026 were as follows.1. What is the value of inventory at the end of May assuming
End-of-period adjustments An extract from Birkenhead Ltd's unadjusted trial balance as at 30 June 2026 appears below. Birkenhead Ltd's reporting period ends on 30 June and it uses the perpetual method to record inventories transactions.Additional information - On 24 June 2026, Birkenhead Ltd
End-of-period adjustments A physical count of inventories at 31 December 2025 revealed that Canterbury Pty Ltd had inventories on hand at that date with a cost of \(\$ 398\) 546. CanterburyPty Ltd uses the periodic method to record inventories transactions. Inventories at 1 January 2025 were \(\$
How should items of property, plant and equipment be measured on initial recognition?
Where a single amount is paid for a bundle of assets, how is the cost of each individual asset determined?
If an entity pays for property via the exchange of assets rather than cash consideration, how should cost be determined?
How is acquisition date determined?
Why would (should) an entity consider changing to an alternative measurement model?
What is meant by 'depreciation expense'?
Explain the underlying rationale of depreciation.
What is meant by 'useful life' and how is it determined?
Describe the four components of an accounting policy. Illustrate your answer with examples.
Differentiate normative accounting theory from positive accounting theory. Provide an example of each.
What is the difference between the deductive and inductive processes of developing a theory?
What is an agency relationship? Explain how monitoring costs, bonding costs and residual loss arise in agency relationships.
Why would managers' interests differ from those of shareholders?
Explain the following agency problems that can arise in the relationship between owners and managers:The horizon problem Risk aversion Dividend retention.
Outline the four agency problems that can arise in the relationship between lenders and managers.
What is a debt covenant and why is it used in a lending agreement?
Why would managers agree to enter into lending agreements that incorporate covenants?
How does accounting information reduce agency problems in relationships between management and shareholders?
How does accounting information reduce agency problems in relationships between management and debt holders?
What are the factors a manager might consider in making various expensing capitalisation choices?
What are political costs? How might political visibility influence accounting policy choice?
Distinguish between the three forms of market efficiency? Which form is more relevant for financial reporting? Justify your answer.
Mandy Ltd made the following disclosure in the notes to its financial statements about how it accounts for insurance premiums:Required 1. List the four components of an accounting policy decision.2. Analyse Mandy Ltd's policy for accounting for the insurance premium in terms of each component.
At the beginning of the current reporting period City Retail Ltd launched a new logo and spent \(\$ 500000\) on new signage for all its premises. The expenditure on signage was originally accounted for as part of property, plant and equipment. It was recognised as a depreciable asset with a useful
Rocky Retail Ltd had experienced a difficult year with declining sales as a result of increased competition from online retailers. The accountant for Rocky Retail Ltd presented a set of draft financial statements to management to review before the final set of financial statements were published.
Debt covenants and accounting information You have recently been appointed as a lending officer in the commercial division of a major bank. The bank is concerned about lending in the current economic environment, where there has been an economic downturn.Required Prepare a report outlining what
Management remuneration plans and performance\(\mathrm{XYZ}\) is a global financial institution with an executive remuneration scheme that includes both cash-based and share-based remuneration and a mix of shorter term and longer term awards. At least \(80 \%\) of the performance-based award is
Agency theory and management remuneration Publicly listed companies provide a remuneration report as a component of the annual report, which is often available on the company's website.Required Obtain the remuneration report for a publicly listed company. Examine the remuneration arrangement for
Debt covenants and agency relationships On 1 July 2022, Medical Supplies Ltd borrowed \$15 million to finance an investment in a laboratory for developing and testing surgical supplies. The loan is due 30 June 2032. The lender insisted on a debt covenant in the loan agreement, specifying that the
Accounting policies In small teams, obtain the financial statements of three publicly listed companies. Refer to the notes to the financial statements pertaining to accounting policies and the note pertaining to property, plant and equipment reported in the statement of financial
Investment property and efficient market hypothesis AASB 140/IAS 40 Investment Property permits preparers to choose either the cost model or fair value model for measurement of investment property after initial recognition. If the fair value model is adopted, changes in the fair value of
Mechanistic hypothesis and efficient market hypothesis Hudson Ltd had always classified interest paid as an operating cash flow. In 2024 Hudson Ltd changed its accounting policy and classified interest paid of \(\$ 50000\) as a financing cash flow in its statement of cash flows. The reported
Mechanistic hypothesis and efficient market hypothesis Due to a change of accounting standards Lily Ltd reclassified some of its financial instruments in preparing its financial statements for the year ended \(30 \mathrm{June} 2024\). The fair value of the financial instruments actually declined
Why is studying ethics important? What ethical challenges might you face during your accounting career?
Explain what is meant by acting in the 'public interest'. Why do you think that this concept is the overarching principle of APES 110?
Briefly explain each of the five fundamental principles of APES 110 (integrity, objectivity, professional competence and due care, confidentiality and professional behaviour).
Briefly explain each of the five threats to the fundamental principles of APES 110 (self-interest, self-review, advocacy, familiarity and intimidation).
Explain the concept of a 'safeguard' as discussed in APES 110.
Briefly explain why it is useful for accountants to understand a range of ethical perspectives despite having a professional code of ethics.
Briefly explain the difference between moral relativism and moral universalism. Which view is implicit in APES 110?
Briefly explain character ethics and the extent to which character-based concerns are reflected in APES 110.
Briefly explain utilitarianism and the extent to which utilitarianism concerns are reflected in APES 110.
Briefly explain duties and rights ethics and the extent to which duties and rights are reflected in APES 110.
Briefly explain discourse ethics and the extent to which discourse ethics are reflected in APES 110.
Briefly explain why a decision-making model can be useful in engaging with ethical issues and the elements of the DECIDE model.
ETHICAL DECISION MAKING Scenario I You are preparing a set of management accounts for the next board meeting and you are aware that the valuation of \(\mathrm{NewCo}\), a recently acquired subsidiary, will be an agenda item. When reviewing the NewCo valuation calculations, you notice that there
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