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financial reporting

Questions and Answers of Financial Reporting

Discuss the three-level hierarchy for determining fair value under AASB 13/IFRS13 in the context of the ruling in respect of immature salmon.
Why is agricultural produce not remeasured to fair value during a reporting period?
How does a gain arise on initial recognition of a biological asset or agricultural produce?
How is the risk that future cash flows pertaining to biological assets may not eventuate as predicted taken into account when determining the fair value of a biological asset using the present value
What are the arguments for and against the use of fair value as the measurement basis for biological assets and agricultural produce? Explain why the IASB decided to require fair value.
Explain why the concept of ‘control’ is problematic when applying the recognition criteria of AASB 141/IAS 41.
Explain why IAS41 was a controversial standard when it was issued.
Measurement of E&E assets    LO4, 5, 6 During the year ended 30 June 2020, Resources Ltd explored four different areas of interest and spent $100 000 in each. The results of E&E activities
Specifying the level at which E&E assets are assessed for impairment    LO6 E&E activity in one of LNG Ltd’s areas of interest has not reached a stage that permits a reasonable assessment
Recognition of E&E assets   LO7 Mining Ltd has incurred the following costs during the period in relation to a specific area of interest. Its accounting policy is to capitalise all E&E costs on
Change in accounting policy   LO7 Oil Sands Ltd is a company involved in the search for, production of and sale of oil and gas resources. The company has been following an accounting policy of
Application of the revaluation model   LO6 Gold Ltd classifies its E&E assets as intangible assets. A new accountant has just been employed and has suggested that Gold Ltd should change its
Elements of cost of E&E assets   LO7 Mining Ltd has acquired a licence to explore a new area of interest and its accounting policy is to fully capitalise all of its E&E expenditures on an area
Impairment of E&E assets  LO7 During the year ended 30 June 2020, the management of LPG Ltd has been analysing its engineering reports for a specific area of interest, which indicate that sample
Obligations for removal and restoration  LO5 The management of Oil Ltd is concerned that the E&E activities it has commenced in a specific area will cause significant damage to the surrounding
USEFUL LIFE OF AN ASSET Pearl Mining Limited has a number of depreciable assets which it uses in a particular area of interest. Required Discuss the factors you would need to consider in determining
CAPITALISING COSTS The accountant of California Oil Limited has recommended to management that the company capitalise its E&E costs, as this will increase the company’s assets and have no effect on
CASE STUDY AREA OF INTEREST Redwoods Mining Limited has exploration licences for two areas. The first is in north-western Australia and is at the prospecting stage. The second is several hundred
Discuss the contemporary issues related to accounting for extractive activities.
Explain how E&E assets that are subsequently developed into producing assets are most commonly depreciated.
Discuss the two specific modifications a company could make to the impairment testing of E&E assets compared to other assets under AASB 136/IAS 36.
Explain how E&E assets should be classified in the financial statements.
If an entity wants to change its accounting policies applicable to E&E expenditures, discuss the issues it should consider.
Explain the measurement options of E&E assets available to companies, subsequent to initial recognition.
Discuss the scope of expenditures to which AASB6 is limited.
Discuss the complexities and considerations an entity involved in the extractive industries may face in determining the accounting policies to apply to expenditures it incurs.
Receivership and liquidation    LO9 On 31 March 2020, you were appointed receiver, at a remuneration of 5% of the gross proceeds on sale of assets, in respect of Cicada Ltd. Your appointment
Sale of assets, final distribution to shareholders    LO7, 8, 9 As a result of a court order, Spider Ltd went into liquidation on 30 June 2020. A statement of financial position prepared on
Report as to affairs and ledger accounts   LO9 The statement of financial position of Snail Ltd below was prepared at 30 June 2020, before liquidation proceedings commenced. SNAIL LTD Statement
Journal entries, given a report as to affairs   LO9 At 31 July 2020, the liquidator of Ladybird Ltd, who had been appointed by the court, prepared the report as to affairs shown below. LADYBIRD
Journal entries and ledger accounts for liquidation   LO9 The trial balance of Locust Ltd on 1 September 2021, the date on which the court ordered that the company be wound up, is presented
Ledger accounts, given a report as to affairs   LO9 Wasp Ltd went into liquidation on 31 March 2020. The report as to affairs prepared at that date is shown below. WASP LTD Report as to affairs
Ledger accounts for liquidation   LO9 Hornet Ltd went into voluntary liquidation on 1 January 2021, at which date the statement of financial position was as shown below. HORNET LTD Statement of
Order of payment of debts, journal entries for liquidation surplus   LO7, 9 Glowworm Ltd went into voluntary liquidation on 30 June 2021. The statement of financial position prepared on that
Ledger accounts for liquidation    LO9 A court order for the winding up of Slater Ltd was made on 31 March 2020. A statement of financial position prepared on that date was as follows.
Summary of affairs   LO9 The trial balance below is of Gnat Ltd’s accounts as at 30 June 2020. GNAT LTD Trial balance as at 30 June 2020 Debit Credit Share capital $315 000 Calls in arrears
Journal entries and ledger accounts for liquidation   LO9 The trial balance of Grasshopper Ltd on 1 June 2020, the date on which the court ordered that the company be wound up, is presented
Order of payment of debt and shareholders’ distributions   LO8, 9 Weevil Ltd went into liquidation on 31 March 2020, its equity being as follows. 75 000 ordinary shares issued and fully paid
Receipts and payments with final distribution to shareholders   LO8, 9 Butterfly Ltd went into liquidation on 30 June 2021, its equity being as follows. 20 000 10% preference shares each fully
Three main ledger accounts for liquidation   LO9 Insect Ltd went into voluntary liquidation on 30 June 2020. Its summarised statement of financial position at that date was as follows. INSECT
Distribution to different classes of shareholders   LO8 On 30 April 2020, Moth Ltd went into voluntary liquidation. At that date, equity comprised the following. Share capital: 100 000
Distribution to different classes of shareholders  LO8 On 1 December 2020, Rui Ltd went into liquidation. At that date, the equity of Rui Ltd comprised the following. 300 000 preference shares
Distribution to different classes of shareholders  LO8 On 1 December 2020, Meng Ltd went into liquidation. At that date, the equity of Meng Ltd comprised the following. 300 000 preference shares
Distribution to different classes of shareholders  LO8 On 1 December 2020, Yang Ltd went into liquidation. At that date, the equity of Yang Ltd comprised the following. 300 000 preference shares
Distribution to different classes of shareholders  LO8 On 1 December 2020, Leo Ltd went into liquidation. At that date, the equity of Leo Ltd comprised the following. 200 000 ‘A’ ordinary
Distribution to different classes of shareholders  LO8 On 1 December 2020, Cat Ltd went into liquidation. At that date, the equity of Cat Ltd comprised the following. 200 000 ‘A’ ordinary
Distribution to different classes of shareholders  LO8 On 1 September 2020, Mouse Ltd went into liquidation. At that date, the equity of Mouse Ltd comprised the following. 200 000 ordinary shares
Distribution to different classes of shareholders  LO8 On 31 May 2020, Termite Ltd went into liquidation. At that date, the equity of Termite Ltd comprised the following. 400 000 preference
Order of priority for paying creditors  LO7 Mosquito Ltd, whose capital consisted of $50 000 in fully paid shares, was wound up as a result of a court order. Its liquidator realised $671 650 from
CURRENT LIQUIDATIONS OF PREVIOUSLY LISTED COMPANIES Visit www.delisted.com.au or a similar website and present brief details of three companies that have been listed on the securities exchange, and
CASE STUDY LIQUIDATION OF A FAMILY COMPANY Assume that you are the managing director of a small, family‐owned proprietary company operating in Australia. The members of the company have decided to
Describe the accounts used in accounting for a liquidation.
Outline the powers of a liquidator in winding up a company (a) under a court order and (b) in a voluntary winding up.
What is the purpose of the report as to affairs (Form 507), the summary of affairs (Form 509) and the statement of receipts and payments (Form 524)?
Briefly discuss the ways in which a company may be wound up, indicating the likely circumstances in which each is applicable.
Outline the role of directors before and during voluntary administration.
Outline the role of an administrator appointed to a company which is insolvent.
Who can appoint a voluntary administrator?
Outline the role and powers of a receiver appointed by a secured creditor.
Who can appoint a receiver for a company facing financial difficulties?
Briefly describe the procedures through which the Corporations Act attempts to avoid liquidation of companies if possible.
Describe the meaning of ‘insolvency’ with regards to companies.
Consolidated financial statements including investments in associates    LO3, 4, 5, 7 Box Ltd acquired 90% of the ordinary shares of Jelly Ltd on 1 July 2015 at a cost of $150 750. At that
Consolidation worksheet entries including investments in joint ventures    LO3, 4 You are given the following details for the year ended 30 June 2020. Quokka Ltd Goanna Ltd Wallaroo Ltd
Accounting for an associate within — and where there are no — consolidated financial statements   LO3, 4, 5 On 1 July 2018, Flying Ltd purchased 40% of the shares of Fox Ltd for $63 200. At
Adjustments where investor does and does not prepare consolidated financial statements   LO4, 5, 6 On 1 July 2018, Saltwater Ltd acquired a 30% interest in one of its suppliers, Crocodile Ltd,
Investor prepares consolidated financial statements, multiple periods   LO4, 5 On 1 July 2018, Fluffy Ltd purchased 30% of the shares of Glider Ltd for $60 000. At this date, the ledger
Inter‐entity transactions where investor does not prepare consolidated financial statements  LO6 Dunnart Ltd owns 25% of the shares of its associate, Wallaroo Ltd. At the acquisition date, there
Inter‐entity transactions where investor has no subsidiaries  LO6 Dibbler Ltd acquired 20% of the ordinary shares of Potoroo Ltd on 1 July 2019. At this date, all the identifiable assets and
Accounting for an associate/joint venture by an investor  LO4 On 1 July 2019, Pygmy Ltd issued ordinary shares to acquire a 40% interest in Possum Ltd. On this date, these issued shares had a fair
Adjustments where investor prepares and does not prepare consolidated financial statements  LO3, 4, 5 Brown Ltd acquired a 30% interest in Bandicoot Ltd for $50 000 cash on 1 July 2018. The
EQUITY ACCOUNTING Event Hospitality & Entertainment Limited provided the following information in its 2016 annual report. Required Some investors in Event Hospitality & Entertainment Ltd who have
Talvez Ltd, a publicly listed company, has a 19.5% shareholding in another entity. The accountant is considering whether or not this investment satisfies the definition of an associate under AASB
NATURE OF A JOINT VENTURE On its website Cement Australia has a section titled ‘Associated companies’. Here it states that: To enable Cement Australia to offer a complete range of supplementary
NATURE OF A JOINT VENTURE A shareholder of CSR Limited has come to you confused about something they have seen in Note 23 of the company’s 2016 annual report. Under the heading Equity Accounting
CASE STUDY SIGNIFICANT INFLUENCE The accountant of Cornett Chocolates Ltd, Ms Fraulein, has been advised by her auditors that the entity’s investment in Concertina’s Milk Ltd should be accounted
Outline the accounting adjustments required in relation to transactions between the investor and an associate/joint venture. Critically evaluate the rationale for these adjustments.
How does joint control differ from control as applied on consolidation?
What is meant by ‘joint control’?
What factors could be used to indicate the existence of significant influence?
What is meant by ‘significant influence’?
Discuss the similarities and differences between the criteria used to identify subsidiaries and those used to identify associates.
Why are associates distinguished from other investments held by the investor?
What is an associate entity?
Undervalued assets, full and partial goodwill method, intragroup transactions   LO3, 4, 5, 6 On 1 July 2015, Fin Ltd acquired 75% of the issued shares (cum div.) of Whale Ltd for $67 500. At
Undervalued assets, full goodwill method, intragroup transactions   LO3, 4, 5, 6 Western Ltd acquired 75% of the issued shares of Quoll Ltd on 1 July 2015. In exchange for these shares, Western
Undervalued assets, partial goodwill method, intragroup transactions   LO3, 4, 5, 6 On 1 July 2018, Mallee Ltd acquired 80% of the issued shares (cum div.) of Fowl Ltd for $166 400. At this
Undervalued assets, full and partial goodwill method, intragroup transactions   LO3, 4, 6 On 1 July 2015, Jake Ltd acquired 75% of the issued shares of Aiden Ltd for $40 000. The following
Undervalued assets, partial goodwill method, intragroup transactions   LO4, 6 On 1 July 2018, Water Ltd paid $236 400 for 75% of the issued shares of Rat Ltd. At this date, the equity of Rat
Full goodwill method, intragroup transactions   LO4, 6 On 1 July 2014, Nate Ltd acquired 75% of the issued shares of Finn Ltd at a cost of $27 600. At this date, the equity of Finn Ltd
Undervalued assets, partial goodwill method, intragroup transactions   LO3, 4, 5, 6 On 1 July 2019, Marcus Ltd acquired 80% of the issued shares of Jett Ltd for $264 800. On that date, the
Undervalued and unrecorded assets, full goodwill method   LO3, 4, 5, 6, 7 On 1 July 2016, Riley Ltd acquired 70% of the issued shares (cum div.) of Tyler Ltd for $141 950. At this date, the
Undervalued and unrecorded assets, partial and full goodwill method   LO3, 4, 5 On 1 July 2017, Ben Ltd acquired 80% of the issued shares (cum div.) of Alex Ltd for $202 000 when the equity of
Undervalued assets, partial goodwill method  LO3, 4, 5 Noah Ltd purchased 75% of the issued shares of Cooper Ltd for $250 000 on 1 July 2013 when the equity of Cooper Ltd was as follows. Share
Undervalued assets, full goodwill method  LO3, 4, 5, 6 On 1 July 2019, Fur Ltd acquired 75% of the issued shares of Seal Ltd for $191 000 when the equity of Seal Ltd consisted of share capital of
Undervalued assets, full goodwill method  LO3, 4, 5, 6 On 1 July 2019, Huntsman Ltd acquired 90% the issued shares of Spider Ltd for $140 300. At this date the equity of Spider Ltd consisted of
Undervalued assets, full goodwill method   LO3, 4, 5, 6 On 1 July 2016, Liam Ltd acquired 60% of the issued shares of Charlie Ltd for $111 700 when the equity of Charlie Ltd consisted of: Share
Undervalued assets, partial goodwill method  LO3, 4, 5, 6 On 1 July 2016, Eli Ltd acquired 75% of the issued shares of Flynn Ltd for $125 750 when the equity of Flynn Ltd consisted of: Share
Undervalued assets, partial goodwill method, dividends  LO3, 4, 5, 6 On 1 July 2016, Leo Ltd acquired 80% of the issued shares of Bobby Ltd for $240 000 when the equity of Bobby Ltd consisted of:
Undervalued assets, full and partial goodwill method  LO3, 4, 5 On 1 July 2019, Ethan Ltd acquired 90% of the issued shares of James Ltd for $290 160. The equity of James Ltd at this date

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