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ACC705 Corporate Accounting Proof Reading Services
This assignment relates the accounting framework suggested by Australian Accounting Standards Board for the companies listed in Australia. AASB 101 relates to the standards and procedures to be followed for the preparation and presentation of financial statements of companies. The first question in this assignment includes the worksheet entries that need to be made by the holding company in event of consolidation of wholly owned subsidiary along with pre-acquisition analysis and Business Consolidation Valuation Reserve (BCVR) in context of a practical example related to this situation. The second question of the assignment includes preparation and presentation of statement of profit or loss and other comprehensive income for the year of a company in accordance with AASB 101.
Prepare the consolidated worksheet entries for the consolidated financial statements prepared by Lisa Ltd at 30 June 2016.
Lisa Ltd is the company which is acquiring another company Kam Ltd at the cost of $88,000. The consolidation process and the journal entries along with the pre-acquisition analysis and journal entries at the end of the year in accordance with AASB which is ‘Consolidated and Separate Financial Statements’ and AASB 10 ‘Consolidated Financial Statements’ are as follows:
Consolidated Worksheet entries for Lisa Ltd
1. Acquisition Analysis at 1 January, 2016
Book value of net assets
Total Book Value of net assets
Fair value adjustments
Fixtures & Fittings
Fair Value of identified net assets
Cost of Acquisition
2. BCVR Journal entries at 1 January, 2016
(To record inventory at Fair Value)
Fixtures & Fittings
DR Accumulated depreciation Fixtures & Fittings 20,000
CR Fixtures & Fittings
(To record at carrying amount)
DR Fixtures & Fittings
(To revalue to fair value)
(To record patent at fair value not recorded in books)
DR BCVR 4,500
DR DTA 10,500
CR Legal Claim 15,000
(To record contingent liability at fair value not recorded in books)
3. Pre-Acquisition Journal Entries as on 30 June, 2016
Particulars Amount DR Amount CR
DR Cost of Sale 18,000
CR Income Tax Expense 5,400
CR BCVR 12,600
(To record sale of revalue inventory)
DR Depreciation Expense 5,000
CR Accumulated Depreciation 5,000
(To record depreciation expense for next two years = 10,000/2)
DR DTL 1,500
CR Income tax expense 1,500
(To reverse DTL previously recognised)
DR BCVR 59,900
CR Retained Earnings 59,900
(To record transfer from BCVR)
Prepare a statement of profit or loss and other comprehensive income for Samoa Ltd, for the year ended 30 June 2016, and notes to the accounts in compliance with AASB 101. Please classify expenses by function.
As per Paragraph 99 of AASB 101 the entity while preparing its statement of profit or loss and other comprehensive income shall present an analysis of all the expenses recognised by it using a suitable basis of classification. Such basis for classification can be either bifurcation of these expenses according to their nature or according to their function in the entity whichever of the two can provide relevant and reliable information to the users of these financial statements. The second form of analysis is also known as ‘function by expense method’ or ‘cost of sales’ method of preparation of financial statements. Under this method expenses are classified on the basis of their function in relation to the sales such as administrative, distribution, marketing etc. The cost of sales is disclosed separately from other expenses to calculate the gross profit. As compared to the presentation based on classification by nature thus methods provides more relevant information to users as allocates cost as per their function rather than arbitrary allocation of the costs. This method is also considered reliable since it uses considerable judgement for the classification of expenses as per their function in the entity. The method used by Samoa Ltd. for preparation of its statement of profit or loss and other comprehensive income is classification of expense by function (Carey, 2014).
Statement of Profit or Loss and other Comprehensive Income of Samoa Ltd
For the year ended 30 June, 2016
Cost of Sales
Profit before interest tax and extraordinary items
Profit before tax and extraordinary items
Profit before tax
Profit After Tax
Notes to Financial Statements
1. Disclosure of accounting policy
The company has made analysis of its profit or loss for the year and expenses for calculation of profit on loss based on the second form of analysis as per AASB 101 which includes classification of expenses by function within the entity rather than their nature (Mayorga, 2012)
2. Profit from Extraordinary Items
Proceeds from sale of plant & machinery
Carrying amount of plant and machinery
Profit from sale of plant & machinery
Transfer from General Reserve
Profit from extraordinary items
3. Tax Expense for the year
The rate of tax applicable to the company is 30%. Therefore the tax expense of the company is 30% of its profit after interest and extraordinary items i.e., (1,108,000*0.30)
From the above statements and practical examples that have been used in preparing these statements and solving the question, it can be concluded that the listed public companies need to follow the guidelines and framework given by Australian Accounting Standards Board which is the regulatory body in Australia for regulating the accounting framework for financial statements within the country and issuing of standards which may be used by the entities in preparing their financial statements. This report has been prepared after detailed research and analysis of the accounting framework and related concepts and standards issued by AASB for the entities operating in Australia. The understanding can be developed by using this report about how the accounting concepts are applied in the preparation of financial statements of companies in Australia. Also it helps in understanding the process of consolidation and calculation and analysis of pre-acquisition amount and figures. Apart from this the method of classification of expenses by function while performing the analysis of expenses for calculation of profit or loss can also be understood by the solved question of an example related to a company indulged in business and having expenses related to production, distribution, marketing, administration and finance cost. Thus it can be concluded that this assignment can be used for developing and understanding the accounting concepts for preparation and presentation of financial s statements along with calculation of amounts to be used and applicable accounting standards issued by AASB.
Al Farooque, O. 2016, "Sustainable financial reporting practice in Australian companies - does quality matter?", The Journal of Developing Areas, vol. 50, no. 6, pp. 175-189.
Carey, P., Potter, B. & Tanewski, G. 2014, "Application of the Reporting Entity Concept in Australia", Abacus, vol. 50, no. 4, pp. 460-489.
Cheung, E., Evans, E. & Wright, S. 2010, "An historical review of quality in financial reporting in Australia", Pacific Accounting Review, vol. 22, no. 2, pp. 147-169.
Hodgson, A. & Russell, M. 2014, "Comprehending Comprehensive Income", Australian Accounting Review, vol. 24, no. 2, pp. 100-110.
Mayorga, D.M. & Sidhu, B.K. 2012, "Corporate Disclosures of the Major Sources of Estimation Uncertainties", Australian Accounting Review, vol. 22, no. 1, pp. 25-39.
Meade, J. 2012, "Reporting for reporting entities", Charter, vol. 83, no. 8, pp. 44.
WALKER, R.G. 2011, "Issues in the Preparation of Public Sector Consolidated Statements",Abacus, vol. 47, no. 4, pp. 477-500.