Question 1 [15 marks]
Financial statement disclosures
One of the projects that the International Accounting Standards Board (IASB) is currently undertaking is the Disclosure Initiative project, with the aim of improving communication in financial reports.
The IASB has identified three main concerns about disclosures in financial statements, namely: there is not enough relevant information in the notes, there is irrelevant information in the notes, and there is ineffective communication of the information provided.
The IASB released a discussion paper in March 2017, DP 2017/1 ‘Disclosure Initiative – Principles of Disclosure’ and is currently seeking feedback on the disclosure issues identified and on the Board’s preliminary views on how to address them.
You are an investor who, for years, has struggled to work through and understand all of the note disclosures when analysing and comparing the financial reports of companies that you are considering investing in.
You are currently considering investing in either CBA or NAB. After reviewing and comparing the note disclosures provided in their 2017 annual reports, you plan to make a submission in response to the IASB’s discussion paper. In your submission, you plan to provide feedback in response to ‘Section 2 – Principles of Effective Communication’ of the discussion paper, given the difficulties that you have faced due to ineffective communication in financial reports.
In section 2 of the Discussion Paper, the IASB has proposed that a set of principles of effective communication be developed. The seven principles identified in the Discussion Paper are that information in the financial reports should be:
• Entity specific;
• Clear and simple;
• Organised to highlight important matters;
• Linked to related information;
• Free from unnecessary duplication;
• Comparable; and
• In an appropriate format.
• Discuss which of the seven principles of effective communication you feel are lacking the most in the note disclosures contained in the 2017 financial reports of CBA and NAB (and hence which principles you think that the IASB needs to put the most work into, in order to improve communication in financial reports).
• Suggest two specific changes that you think will make the biggest improvement to the effectiveness of note disclosures for investors like yourself, given the issues discussed above.
Question 2 [16 marks]
Accounting for share issues
On 1 February 2017, Beach Supplies Ltd was registered and issued a prospectus inviting applications for 2,000,000 shares, at an issue price of $3.50, payable as follows:
$1.00 on application
$1.50 on allotment (payment due within 1 month of allotment)
$0.60 on first call
$0.40 on final call
The issue is underwritten at a commission of $30,000.
By 28 February 2017, applications had been received for 1,900,000 shares. On 3 March, shares are allotted, and the underwriter forwarded the application and allotment money due on the 100,000 shares less their commission. All remaining allotment money is received by 3 April. Legal costs re company formation are $5,000 and are paid on 5 April. Share issue costs of $3,000 are also paid on the same date.
The first call is made on 10 April 2017, with money due by 10 May 2017. The final call is made on 15 May 2017, with money due by 15 June 2017. All money owing in relation to the two calls is received by the due dates except for the holders of 40,000 shares who did not pay either call, and the holder of another 10,000 shares who did not pay the second call. On 20 June 2017, as provided in the company’s constitution, the directors forfeited these 50,000 shares.
On 25 June 2017, the forfeited shares are reissued as fully paid for a consideration of $3.10 per share. Costs of forfeiture and reissue amounted to $10,000, and are paid. The constitution allows for the refund of any balance in the forfeited shares account after reissue to former shareholders, so refunds were made on 30 June 2017.
Prepare the journal entries to record the transactions of Beach Supplies Ltd up to and including that which took place on 30 June 2017. Show all relevant dates, narrations and workings.
Marking Guide – Question 2 Max. marks awarded
Journal entries 12
Narrations and workings 2
Question 3 [18 marks]
Accounting for income tax
The accounting profit before tax for the year ended 30 June 2017 for Aldee Ltd amounted to $235,000. It included the following income and expense items:
Royalties (exempt income) 15,000 CR
Interest revenue 16,000 CR
Annual leave expense 9,000 DR
Doubtful debts expense 3,800 DR
Depreciation – plant (15% per year, straight-line) 47,250 DR
Depreciation – motor vehicles (20% per year, straight-line) 20,000 DR
Insurance expense 14,000 DR
Rent expense 42,000 DR
Warranty expense 5,600 DR
Entertainment expense (not tax deductible) 4,000 DR
The draft statement of financial position at 30 June 2017 contained the following assets and liabilities:
Cash 46,000 22,500
Trade receivables 88,000 45,800
Less Allowance for doubtful debts (4,000) (2,200)
Inventory 57,100 54,300
Interest receivable 2,000 1,000
Prepaid insurance 4,000 1,000
Plant – cost 315,000 315,000
Less Accumulated depreciation (113,250) (66,000)
Motor vehicles – cost 100,000 100,000
Less Accumulated depreciation (70,000) (50,000)
Deferred tax asset ? 17,190
Trade payables 66,200 43,600
Provision for annual leave 15,600 11,000
Provision for warranties 14,200 11,600
Bank loan 130,000 150,000
Deferred tax liability ? 7,200
• The tax depreciation rate for plant is 20% per year, and motor vehicles is 15% per year, using the straight-line method.
• Tax deductions for annual leave, warranties, insurance are available when the amounts are paid, and not as amounts are accrued.
• Tax deductions are not available for doubtful debts. Tax deductions are only available when bad debts are written off.
• Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.
• Interest revenue is only taxable when amounts are actually received, and not as amounts are accrued.
• The deferred tax asset (DTA) balance at 30 June 2016 comprised:
– DTA’s relating to temporary differences: $11,190
– DTA’s relating to carried forward tax losses: $6,000
• Taxation legislation allows tax losses to be offset against future taxable profit.
• The tax rate is 30%.
i) Determine the balance of any current tax liability and deferred tax assets and liabilities as at 30 June 2017, in accordance with AASB 112. Use appropriate worksheets and show all necessary workings.
ii) Prepare the journal entries to record the current tax liability and movements in deferred tax assets and deferred tax liabilities.
Question 4 [16 marks]
Revaluation of property, plant and equipment
Sunshine Ltd reported the following information for plant and equipment in its statement of financial position at 1 July 2016:
Plant and equipment – at cost 1,000,000
Less: accumulated depreciation (305,000)
The records of Sunshine Ltd as at 1 July 2016 showed that the plant and equipment consisted of two items:
Plant X Plant Y
Cost 800,000 200,000
Carrying amount 575,000 120,000
Both items of plant are depreciated on a straight-line basis over 10 years. Plant X has an estimated residual value of $50,000, and Plant Y has an estimated residual value of nil.
On 1 July 2017, the directors of Sunshine Ltd decide to change from the cost model to the revaluation model. The following information applies:
1 July 2017 1 July 2018
Plant X Plant Y Plant X Plant Y
Fair value $460,000 $110,000 $410,000 $90,000
Remaining useful life 6 years 5 years 5 years 4 years
Estimated residual value $40,000 nil $40,000 nil
Assume a tax rate of 30%.
Prepare all relevant journal entries for Sunshine Ltd’s plant and equipment for the period 1 July 2016 to 30 June 2019 (including entries for depreciation and all necessary revaluation entries). Show narrations and all relevant workings.
Marking Guide – Question 4 Max. marks awarded
Journal entries 13
Question 5 [15 marks]
Impairment of assets
Gadgets Ltd has a division that represents a separate cash generating unit. At 30 June 2016, the carrying amounts of the assets of the division, valued pursuant to the cost model, are as follows:
Plant and equipment 600,000
Less: accumulated depreciation (200,000)
Accounts receivable 67,000
Carrying amount of cash generating unit 1,909,000
The receivables were regarded as collectable, and the inventory’s fair value less costs to sell was equal to its carrying amount. The patent has a fair value less costs to sell of $180,000, and the land has a fair value less costs to sell of $780,000.
The directors of Gadgets estimate that, at 30 June 2016, the fair value less costs to sell of the division amounts to $1,750,000, while the value in use of the division is $1,840,000.
As a result, management increased the depreciation of the plant and equipment from $40,000 p.a. to $45,000 for the year ended 30 June 2017.
By 30 June 2017, the recoverable amount of the cash generating unit was calculated to be $20,000 greater than the carrying amount of the assets of the unit.
Determine how Gadgets Ltd should account for the results of the impairment test at 30 June 2016 and 30 June 2017, and prepare any necessary journal entries. Show all workings and provide references to the relevant accounting standard to support your answer.
Marking Guide – Question 5 Max. marks awarded
Journal entries, calculations and workings for 2016 7.5
Journal entries, calculations and workings for 2017 7.5
Plato (understudy of Socrates) and Aristotle (understudy of Plato); two of the most influential pragmatists of the stunning time of Greek period; Plato and Aristotle have hugely helped political reason, aside particular spaces. This article will assess two various approachs while talking about the reasons of perception, contradiction and epistemology itself; as respects the cures on the perfect state by both these Socratic scholastics. A "State or polis" is in excess of a lawmaking body that is clear, governments change, yet a state drives forward. A state is the technique for rule over a portrayed or "sovereign" area. It is made up by an authority, an organization, courts and diverse establishments. (https://www.globalpolicy.org/countries a-states/what-is-a-state.html). Plato was the primary Greek researcher to endeavor a vigilant, ponder examination on methodical investigation in political idea. This exposition will besides analyze Socrates' effect on Plato. It at that point looks the Republic, and thinks about his model of an impeccable constitution. It at that point closes with a discussion of Aristotle's mind boggling and present day examination of political constitutions (Plato to Nato page 18) The perfect state The "Perfect" just suggests to a beginning of something in its aggregate faultlessness (flawlessness) Thusly, an impeccable state must be an express that is thought around a fulfilled standard. (http://www.oxforddictionaries.com/definition/english/perfect). A "State" is in excess of a council; that is clear. Governments change, however states continue on. A state is the strategy for rule over a portrayed or "sovereign" area. It is made up by an authority, an organization, courts and diverse establishments. (https://www.globalpolicy.org/countries a-states/what-is-a-state.html). In their understanding and dis-assention both Plato and Aristotle suggested what the romanticized states ought to be founded on and how they should be. For Plato and Aristotle, the finish of the state is great; as esteem (Justice) is the premises for the perfect state. Rulers= wisdom+ normal, Soldiers= Courage+ energetic, Artisans= Temperance+ Appetitive. The Ideal state led by the logician was made possible through an indulgent and intensive arrangement of direction. The theory of rationalist ruler was the linchpin of Plato's Ideal state. It was gotten from the conviction that the researcher had the information, judgment and preparing to lead. Choice like some other endeavors required capacities and abilities. Furthermore, its point was the general success of all. A decent ruler was one who spared the lives of his subjects, and additionally transformed them as individuals. A Philosopher is a perfect individual to lead, for he wouldn't be enthused about getting riches for intensification toward oneself. Socrates portrayed a rationalist as one who loved adroitness, had an energy for learning and was reliably and excited to learn. Moreover Socrates underlined on rationalists being people who valued reality. (A HISTORY OF POLITICAL THOUGHT: PLATO TO MARX, By SUBRATA MUKHERJEE, SUSHILA RAMASWAMY) A thinker by his grip of the possibility of good was best fit the bill to govern, inferring that learning could be gotten just by a chosen few who had the relaxation and the material solaces. Plato shared the general Greek impression of that recreation was basic for the quest for knowledge. A thinker would have the capacity to oversee Justice and Act for the benefit of the group. He would have a decent character, a quiet manner and a solid personality. He would have the characteristics of a ruler to be specific honesty high personality ness, teach and boldness. Plato granted the general Greek impression of that recreation was key for the journey for shrewdness. Logicians would have the ability to control Justice and Act for the advantage of the group; would have an average character, a cool way and a strong identity. A Philosophers would likewise have attributes of a ruler to be particular honesty high identity ness, request and intensity. (A HISTORY OF POLITICAL THOUGHT: PLATO TO MARX, By SUBRATA MUKHERJEE, SUSHILA RAMASWAMY Socrates examined the beginning of states and urban groups, and pointed out that they developed out of two reasons. The essential was basic need and the second the qualifications in aptitudes of individuals was not autonomous and depend finished on others for subsistence. Plato made two basic core interests. The vital was that every individual was a valuable unit, designated a particular errand with evident duties and benefits, which one was required to perform firmly and precisely. It moreover underlined how no one was bound to render a specific limit. Furthermore society was envisioned as an issue, exact whole, in light of the recognition of individual endowments and commitments. . (A HISTORY OF POLITICAL THOUGHT: PLATO TO MARX, By SUBRATA MUKHERJEE, SUSHILA RAMASWAMY Training for Plato was expected to make the most ideal condition for the supporting and headway of the human soul. In the Republic Plato committed more conspicuous space and consideration regarding gathering of spouses than to property. Since he was terrified by the discretionary position women held inside the family, limited to perform house hold errands. The impartial arrangement was engaged around the premises that women and men were unclear in standard improvements and workforces. Having delineated the purposes of enthusiasm of the Ideal state Plato reviewed four distinct sorts of administrations. Timocracy-worship for triumph and regard, desire and excitement in war and money making, Oligarchy-a state drove by the well-off few, individuals giving more astuteness in regards to wealth and money making and less to uprightness, Democracy-was depicted by allow, wastefulness, discourteousness, turmoil and the larger part manage man ease more vitality to his longings and yearnings, no demand or impediments and Tyranny-is portrayed by the nonattendance of sensitivity toward one's subjects and an aching to get every one of the one wishes. Every one of these administrations had a contrasting sort of person. The inescapable predetermination of each and every administration was abuse. Notwithstanding the way that Plato depicted how administrations declined into abuse, he didn't clear up how they could recover from persecution. (Vote based system As the Political Empowerment of the People: The Betrayal of an Ideal altered by Majid Behrouzi) The effect of Plato on Aristotle was noteworthy and inescapable, Aristotle granted to Plato on a wide range of points of view verbalized in the Republic, to be particular the order of individual slant, Justice as an issue or demand among parts, and the sureness of social classes. However he in like manner isolated from his educator a wide range of courses, particularly on the Ideal express, the estimation of ethics and the purposes behind upset. Aristotle's benchmarks of the brilliant mean, support of blended constitutions, trust in the desk class (white collar class) lead as being best to guarantee a consistent and driving forward government, and the need of property to ensure freedom and fulfill the feeling of possessiveness in the individual. Aristotle was cutting of the arrangement of the Ideal express that Plato represented in the Republic. He battled that Plato's complement on solidarity as opposed to concordance inside a state, would simply provoke extraordinary regimentation and the suspension of the state as a political connection. (. (Majority rules system As the Political Empowerment of the People: The Betrayal of an Ideal altered by Majid Behrouzi) Aristotle does not by any methods agree with Plato's assessment of administrations in the Republic. His Politics is, all things considered, a reply of the disputes made in the Republic. Aristotle portrays three unique administrations Kingship, Aristocracy and Polity. These administrations have deteriorate of administrations relating. Oppression, Oligarchy and Democracy. Sovereignty for Aristotle it is the most needed administration however in light of its ability to quickly change into persecution it isn't the best possible administration. Sovereignty is essential, it is the standard by one person who is ideal. In the Kingship there is emerge national and that is simply the King. This can be stood out somehow from Plato's exchange of the Philosopher King, in spite of the way that the King in such an administration require less be a Philosopher however not a Tyrant either. Privileged is portrayed as a similar administration for both Plato and Aristotle, the standard by the reasonable. Commonwealth is portrayed by Aristotle as a blend amongst Oligarchy and Democracy. Contingent on the rulers it can either be more seriously oligarchic or more vivaciously Democratic. The refinement between the two being that an Oligarchic Polity would be driven by two or three picked well off individuals, while the Democratic Polity would be controlled by the people. This administration is the thing that Aristotle calls the best possible administration because it incorporates the standard by the common class. The common class as often as possible makes up the most importantly tenants out of a city and along these lines the organization which mulls over them to be subjects thinks about the most help in the activity of the city. (. (A HISTORY OF POLITICAL THOUGHT: PLATO TO MARX, By SUBRATA MUKHERJEE, SUSHILA RAMASWAMY) Plato's political idea has been compacted as the "principle of the best man" – the academic ruler who alone knows the ideal benchmarks for the state. Also, representing is an ability; as the best man must be set up to run the show. Choice is moreover a great. Aristotle's choice conviction framework has been shortened as the "rule of the best laws" – a conventionally asked for constitution which includes awesome enactment. For him, but choice is a bent and an impeccable additionally; it is moreover a science (regardless of the way that Aristotle grasps legislative issues as a managing or pre>GET ANSWER