ACC705 Corporate Accounting Proof Reading Services

ACC705 Corporate Accounting Proof Reading Services

Introduction

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.

Question 1

Prepare the consolidated worksheet entries for the consolidated financial statements prepared by Lisa Ltd at 30 June 2016.

Answer:

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

2. BCVR Journal entries at 1 January, 2016

(To record patent at fair value not recorded in books)

Contingent Liability

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

Inventory Sold

DR Cost of Sale                                                                   18,000

                     CR Income Tax Expense                                                      5,400

                     CR BCVR                                                                                 12,600

(To record sale of revalue inventory)

Depreciation

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)

Transfer

DR BCVR                                                                              59,900                                               

CR Retained Earnings                                                                               59,900

(To record transfer from BCVR)

Question 2

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.

Answer:

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

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

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)

Conclusion

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.

References

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.