Task
This assessment task consists of five (5) questions. A total of 80 marks are allocated to the questions below, which will then be converted to a mark out of 15%.
All workings, when appropriate, must be shown to substantiate your answers.
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Get Help Now!Question 1 [16 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 Westpac Group or ANZ. After reviewing and comparing the note disclosures provided in their 2016 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.
The IASB is also of the preliminary view that it should develop non-mandatory guidance on the use of formatting in the financial statements. The IASB suggests that this guidance could help to improve the effectiveness of information communicated in the notes.
Required:
Download and the Discussion Paper DP 2017/1 ‘Disclosure Initiative – Principles of Disclosure’.
Download the 2016 annual reports for Westpac Group and ANZ. Review and compare the notes that form part of each entity’s financial reports.
Prepare a letter to the IASB. In your letter:
• Discuss which of the seven principles of effective communication you feel are lacking the most in the note disclosures contained in the 2016 financial reports of Westpac and ANZ (and hence which principles you think that the IASB needs to put the most work into, in order to make significant improvements to communication in financial reports).
• State whether you think that the guidance on the use of formatting in the financial statements (as discussed in section 2.16 – 2.22 of the Discussion Paper) should be developed, and whether you think that it would improve the effectiveness of information communicated in the notes. Explain why or why not
Accounting for share issues
The constitution of Harriette Ltd indicates that the company is able to issue up to 5,000,000 ordinary shares and 1,000,000 preference shares. Prospectuses are published on 1 January 2017, offering 1,000,000 preference shares at $2.00 payable in full on application by 31 March 2017, and 2,000,000 ordinary shares at $5.00 with $3.00 due on application by 31 March 2017, $1.50 due within one month of allotment, and $0.50 due on a call to be made by the directors at a later date.
By 31 March 2017, the company has received applications for 800,000 preference shares and applications for 2,200,000 ordinary shares. On 15 April 2017, the ordinary and preference shares are allotted. The ordinary shares are allotted to applicants on a pro-rata basis, and the excess application money is retained and credited against amounts due on allotment. All allotment money is received by 15 May 2017.
The directors make the call on the ordinary shares on 1 August 2017, with amounts due by 1 September. By this date, amounts due on 1,950,000 ordinary shares have been received. On 15 September 2017, the shares on which call money has not been received are forfeited and sold as fully paid. An amount of $4.20 is received for each share sold. Costs of the forfeiture and reissue amount to $7,500, and are paid. The constitution does not provide for refund of any balance in the forfeited shares account after reissue to former shareholders.
Required:
Prepare the journal entries to record the transactions of Harriette Ltd up to and including that which took place on 15 September 2017. Show all relevant dates, narrations and workings.
Question 3 [17 marks]
Accounting for income tax
Snowstorm Ltd, a ski/snowboard sales and hire business, commenced operations on 1 July 2016 and presents its first Statement of Profit or Loss and Other Comprehensive Income, and first Statement of Financial Position on 30 June 2017. The statements are prepared before considering taxation. The following information is available:
Extract from statement of profit or loss and other comprehensive income for the year ended 30 June 2017
Question 4 [16 marks]
Revaluation of property, plant and equipment
Snowy Ltd commences operations on 1 July 2015, and on this date, acquires two items of plant:
• Plant A: $150,000
• Plant B: $250,000
Both assets are depreciated on a straight-line basis. Plant A has an estimated useful life of 10 years, and an estimated residual value of $30,000. Plant B has an estimated useful life of 5 years, and an estimated residual value of $0.
At 30 June 2016, Snowy Ltd decides to use the revaluation model for the plant. The fair value of Plant A is $120,000, and the fair value of Plant B is $235,000. The remaining useful life of each item is 9 years for Plant A, and 4 years for Plant B. The estimated residual values remain unchanged.
At 30 June 2017, the fair value of Plant A is $115,000, and the fair value of Plant B is $130,000.
Assume a tax rate of 30%.
Required:
Prepare journal entries for Snowy Ltd at 1 July 2015, 30 June 2016 and 30 June 2017 to record the above (including entries for acquisitions, depreciation, and all revaluation entries). Show narrations and all relevant workings.
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