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financial reporting

Questions and Answers of Financial Reporting

What are the consolidated financial statements?
Translation into functional and presentation currency    LO4, 5 On 1 July 2020, Basil Ltd, an Australian company, acquired all the issued shares of Fawlty Ltd, an UK company. At this date,
Translation into functional and presentation currency    LO4, 5 Canberra Ltd, an Australian company, acquired all the issued shares of Washington Ltd, a US company, on 1 January 2020. At
Translation into presentation currency   LO5 Lion Ltd is an international company resident in Singapore. It acquired the issued shares of an Australian company, Koala Ltd, on 1 July 2019 for
Translation into presentation currency   LO5 On 1 July 2018 Emu Ltd, an Australian company, acquired shares in Cantonese Ltd, a company based in Hong Kong. At this date, the equity of Cantonese
and assume an average exchange rate of 1.70 for January–June 2021. Required 1. If the functional currency for Bear Ltd is the US dollar, prepare the financial statements of Bear Ltd at 30 June 2021
Translation into presentation currency   LO5 Use the information in exercise
Translation into functional currency   LO4 On 1 July 2020, Echidna Ltd, an Australian company, acquired the issued shares of Bear Ltd, a company incorporated in the United States. The draft
Translation into functional currency   LO5 On 1 January 2019, Southern Ltd formed a company, Cross Ltd, in the United States to sell Australian products such as boomerangs and cuddly toy koalas
Translation into functional currency  LO4, 5 Maylay Ltd, a company incorporated in Singapore, acquired all the issued shares of Victoria Ltd, a Hong Kong company, on 1 July 2019. The trial balance
Translation into functional and presentation currency  LO4, 5 Sydney Ltd is a manufacturer of sheepskin products in Australia. It is a wholly owned subsidiary of a Hong Kong company, Wan Chai Ltd.
Identifying the exchange rate  LO3 The accounts listed below are those for Peak Ltd, a foreign subsidiary in Hong Kong, that maintains its accounting records in Hong Kong dollars (HK$). The
Multiple choice  LO2, 3, 4 Select the best answer for each of the following items. 1. The account balances of a foreign subsidiary are to be translated from the local currency into the functional
DETERMINATION OF FUNCTIONAL CURRENCY Victory Ltd is an Australian company with two overseas subsidiaries, one in Indonesia and the other in South Korea. The Indonesian subsidiary has as its major
DETERMINATION OF FUNCTIONAL CURRENCY Foreign Ltd is a Queensland software developer that specialises in software that controls the operations of open cut mining. To exploit opportunities in the US
DETERMINATION OF FUNCTIONAL CURRENCY Case A An Indonesian operation manufactures a product using Indonesian materials and labour. Patented processes and senior operations staff are supplied by its
DETERMINATION OF FUNCTIONAL CURRENCY Case A A Malaysian operation manufactures a product using Malaysian materials and labour. Specialised equipment and senior operations staff are supplied by its
FINANCIAL REPORTING In its 2013 annual report (p. 106), Wesfarmers Limited notes that the functional currency and presentation currency of Wesfarmers Limited and its Australian subsidiaries are the
CASE STUDY FINANCIAL REPORTING In Note 1 (p. 105) of the 2013 annual report of the Qantas Group, the following information was provided. Translation of Foreign Operations Assets and liabilities of
Why are gains/losses on translation into the presentation currency taken to a foreign currency translation reserve rather than to profit or loss for the period?
How are statement of profit or loss and other comprehensive income items translated from functional currency to presentation currency?
How are statement of profit or loss and other comprehensive income items translated from the local currency into the functional currency?
What guidelines are used to determine the functional currency of an entity?
What is meant by ‘functional currency’?
Options, shares, dividends, reserves    LO6, 8 The statement of changes in equity for Salmon Ltd for the year ended 30 June 2020 was as shown below. SALMON LTD Statement of changes in equity
Dividends, share issues, share buybacks, options and movements in reserves    LO6, 7, 8, 9 Chilli Crab Ltd, a company whose principal interests were in the manufacture of fine leather shoes
Shares, options, dividends and reserve transfers    LO6, 8, 9 The equity of Raw Prawn Ltd at 30 June 2019 consisted of: 400 000 ordinary ‘A’ shares issued at $2.00, fully paid $800 000
Share issues, options, statement of changes in equity    LO6, 8, 9 On 30 June 2019, the equity accounts of Crayfish Ltd consisted of: 120 000 ordinary shares, issued at $2.50 each, fully
Buyback of shares   LO7 Lobster Ltd decided to repurchase 10% of its ordinary shares under a buyback scheme for $5.60 per share. At the date of the buyback, the equity of Lobster Ltd consisted
Issue of option and shares, forfeiture of shares   LO6, 8 Prepare ledger accounts to record the following transactions for Sea Snake Ltd. 2020 July 1 A prospectus was issued inviting
Share issue, options   LO6, 7 On 30 June 2018, the equity accounts of Moray Ltd consisted of: 175 000 ‘A’ ordinary shares, issued at $2.50 each, fully paid $437 500 50 000 6% cumulative
Dividends, calls on shares and bonus issues   LO6, 8, 9 The equity of Sea Horse Ltd at 1 January 2020 was as follows. Share capital 600 000 shares fully paid $600 000 400 000 shares issued for
Rights issues and placement of shares   LO6 At 1 July 2019 Surf Cat Ltd reported that it had a share capital of $800 000 resulting from the issue of 400 000 shares. The following transactions
Issues of shares and options  LO6 White Foam Ltd has been investigating the expansion of the company into new areas of development. In order to fund these new investments the company needs an
Rights issue  LO6 Sunny Day Ltd needs to raise funds for mining projects in Western Australia. It currently has share capital of $2 million dollars and has issued 1 million shares. The directors
Movements in reserves and retained earnings  LO8 Sunshine Ltd undertook the following transactions during the financial year ended 30 June 2019. (a) Transferred $68 000 from the general reserve to
Placement of shares, rights issues  LO6 The directors of Sunny Palms Ltd are considering increasing its share capital. However they are unsure as to whether they should pursue a placement of
Share buybacks  LO7 The group accountant of Ship Ltd has been given the task of accounting for a repurchase of shares by the company. The company is repurchasing 5 million shares at a cost of $2
Application accounts  LO5, 6 Sea Horse Ltd has announced a renounceable rights issue of 1‐for‐4 based on shares held at 2 July 2019. The shareholders have to exercise their rights by 31 August
Dividends  LO8, 9 The directors of Surf Ltd are preparing the annual report for the company at 30 June 2019. The directors anticipate that the company will pay a dividend of $1.00 per share
Cash trust accounts  LO5, 6 In accounting for the funds received by the company in the process of raising capital, it is sometimes necessary to raise a cash trust account. However, the cash trust
Reserves  LO8 Crab Ltd in its statement of financial position at 30 June 2019 reported the existence of two reserves: • an asset replacement reserve created to inform shareholders of the
Placement of shares  LO6 Sun Ltd is in need of an injection of capital. The directors are considering whether to raise capital via a public issue or by placing new shares with a selected group of
Repurchase of shares  LO7 The directors of Sand Ltd are considering spending $5 million in a repurchase of the company’s shares. Some directors argue that this outlay requires the company to use
RESERVES In its consolidated balance sheet, Qantas Airways Ltd (2013, p. 100) provided the following information. EQUITY 2013 2012 $m $m Share capital 4 693 4 729 Treasury shares (43) (42) Reserves
RIGHTS ISSUES The following is an extract from a letter sent on 22 February 2017 by Oz Outback Ltd to its shareholders in relation to a rights issue by the company. Required A client who holds shares
CASE STUDY PRIVATE PLACEMENT Mining company Aeon Metals Ltd announced plans to raise $1 150 000 through a placement of 5 227 273 ordinary fully paid shares at $0.22 per share to institutional
For what reasons may a company make an appropriation of its retained earnings?
Discuss whether it is necessary to distinguish between the different components of equity rather than just having a single number for shareholders’ equity.
What is a private placement of shares? What are the advantages and disadvantages of such a placement?
Discuss the nature of a rights issue, distinguishing between a renounceable and a non‐renounceable issue.
When is a cash trust raised?
A company has a share capital consisting of 100000 shares issued at $2 per share, and 50000 shares issued at $3 per share. Discuss the effects on the accounts if: (a) the company buys back 20000
Explain the difference between a renounceable and a non‐renounceable rights issue.
Explain when an options reserve would be raised.
The telecommunications industry in a particular country has been a part of the public sector. As a part of its privatisation agenda, the government decided to establish a limited liability company
Explain the nature of a reserve. How do reserves differ from the other main components of equity?
What are the minimum factors required under AASB 2/IFRS 2 to be taken into account in option‐pricing models?
Considering accounting theory   LO1, 2, 3, 4, 7 Technology Enterprises Ltd, a listed company, commenced a research and development (R&D) project in July 2019 to modify the method of recharging
Research and development outlays    LO4 Future Ltd has been involved in a project to develop an engine that runs on fuel extracted from sugar cane. It started the project in February 2020.
Research and development outlays    LO4 A small manufacturing company, Stirling Ltd, has significantly increased it expenditure on research and development over the past year. Required
Recognition of intangible assets    LO4 Jersey Ltd is unsure of how to obtain computer software. Four possibilities are: 1. purchase computer software externally, including packages for
Research and development   LO4 Pharma Labs Ltd manufactures and distributes a wide range of general pharmaceutical products. Selected preliminary figures for the reporting period ended 31
Internally generated intangible assets   LO4 In their article entitled ‘U.S. firms challenged to get “intangibles” on the books’, Byrnes and Aubin (2011) noted that in the United States
Recognition of intangible assets   LO3, 4 The latest annual report of Heeler Ltd states that the principal activities of the group are ‘the production and broadcasting of television
Recognition of intangible assets   LO3, 6, 7 The Public Relations Institute of Australia provided these statements on its website, www.pria.com.au, on 30 April 2014: During an event organised
Intangible assets acquired in a business combination   LO4 As reported by Edwards (2013), when Yahoo acquired Tumblr for US$1.1 billion it recognised three amortisable intangible assets,
Financial statements and intangible assets  LO1 Upton (2001, p. 50) notes: There is a popular view of financial statements that underlies and motivates many discussions of intangible assets. That
Brands and formulas  LO3, 4 Wayne Upton (2001, p. 71) in his discussion of the lives of intangible assets noted that the formula for Coca‐Cola has grown more valuable over time, not less, and
Recognition of intangible assets  LO3 Dory Ltd has the following: 1. the cost of purchasing a trademark 2. unrecovered costs of a successful lawsuit to protect a patent 3. goodwill acquired in the
Recognition of intangible assets  LO3 Flash Ltd has the following: 1. an investment in a subsidiary company 2. training costs associated with a new product 3. the cost of testing in search for
Research and development  LO4 Salmon Ltd’s research and development section has an idea for a project on using cane toad poison for medicinal purposes. The board of directors believes the
Recognition of copyright  LO4, 7 Sarah Ltd acquired two copyrights during 2019. One copyright related to a textbook that was developed internally at a cost of $10 500. This book is estimated to
Useful life of trademark  LO2, 4, 6 Snapper Ltd holds a trademark that is well known within consumer circles and has enabled the company to be a market leader in its area. The trademark has been
ACCOUNTING FOR INTANGIBLE ASSETS Mags Ltd is an Australian mail‐order company. Although the sector in Australia is growing slowly, Mags Ltd has reported significant increases in sales and net
CASE STUDY ACCOUNTING FOR BRANDS West Ltd is a leading company in the sale of frozen and canned fish produce. These products are sold under two brand names. • Fish caught in southern Australian
Explain how intangible assets are initially measured, and whether the measurement differs depending on whether the assets are acquired in a business combination or internally generated by an entity.
What intangible assets can never be recognised if internally generated? Why?
What are the factors a manager might consider in making various expensing–capitalising choices?
Explain the following agency problems that can arise in the relationship between owners and managers: (a) the horizon problem (b) risk aversion (c) dividend retention.
Identifying reportable segments    LO5, 6 The following information concerning eight operating segments has been presented to the CODM of a large retail company. Segment Total revenue
Disclosing segment information    LO5, 6 Neenish Ltd is a diversified manufacturing company. The CODM has been presented with the following information concerning eight operating segments
Analysing the segment information    LO7 Shakes Ltd is a listed diversified manufacturing company. It is listed on the London Stock Exchange and produces most of its products in China and
Reportable segments, allocating amounts to segments   LO5, 6, 7 Sellsit Ltd is a listed diversified retail company. Its stores are located mainly in Australia. It has three main types of
Disclosures   LO5, 6 Makesit Ltd, a listed manufacturing company, has two reportable segments, A and B. Both A and B are manufacturing segments. Required For each item listed, state whether or
Disclosures   LO5, 6 Jag Ltd has three reportable segments, A, B and C, which represent distinct geographical areas. The CODM receives financial information about the geographical areas.
Analysing the information provided   LO5 Using the information provided about Rocky Ltd in exercise 20.4, analyse the relative profitability of the reportable segments.
Identifying reportable segments   LO5 Rocky Ltd is a listed diversified retail company. Its stores are located mainly in Australia. It has three main types of stores: general department stores,
Identifying reportable segments  LO5 Using the information from exercise 20.2, identify Yacon Ltd’s reportable segments.
Aggregating operating segments  LO5 Yacon Ltd is a listed manufacturing company. It produces most of its products in Australia but exports 90% of these products to the United States, Canada and
Defining operating segments  LO4 AASB 8/IFRS 8 sets out three criteria that need to be met in order to identify an operating segment. Required List the three criteria.
EXPERIENCE OF IFRS 8 Download the document ‘Post‐implementation Review: Operating Segments’. Referring to page 7 of this document, prepare a brief report that summarises the key issues
CASE STUDY CONTROVERSY OVER IFRS 8 Download the document ‘EU Adoption of the IFRS 8 Standard on Operating Segments’. Refer to the section headed ‘Segment Reporting’ and prepare a summary of
Evaluate whether the reconciliations required by paragraph 28 of AASB 8/IFRS 8 address a concern about lack of comparability between entities caused by management’s ability to select any
The 75% threshold relating to revenue refers to ‘external revenue’. Explain what is meant by external revenue and how a segment could generate revenue that is not external.
Describe how an entity determines its chief operating decision maker.
Distinguish between an operating segment and a reportable segment.
Discuss the concerns raised about IFRS 8 (AASB 8) when it was first introduced. Compare the views of users and preparers when analysing these concerns. Do you think the concerns expressed by users
Explain what the ‘management approach’ used in AASB 8/IFRS 8 means.
AASB 8/IFRS 8 anticipates that some entities not within its scope might voluntarily disclose segment information. Do you think many reporting entities would voluntarily provide these disclosures?

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