Accounting and Financial Reporting

This document provides answers to questions related to changes in accounting standards and the importance of special financial reporting framework. It discusses the changes in accounting standards by AASB from December 2018 to March 2019, including the introduction of a standard on onerous contracts and the clarification of the definition of business. It also highlights the provisions stated in AASB 101 for the preparation of financial statements and provides recommendations for improving the presentation of financial statements.

Running head: ACCOUNTING AND FINANCIAL REPORTING
Accounting and Financial Reporting
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ACCOUNTING AND FINANCIAL REPORTING
Table of Contents
Answer to question 1:.................................................................................................................3
Answer to Question 2:................................................................................................................5
References::................................................................................................................................8

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ACCOUNTING AND FINANCIAL REPORTING
ANSWER TO QUESTION 1:
CHANGES IN ACCOUNTING STANDARD BY AASB FROM 1 DECEMBER
2018 TO 31 MARCH 2019
AUSTRALIAN
AASB 8: Right of Use
of Assets of Not for
Profits Entities) (20TH
DECEMBER 2018)::
The standards which was
implemented aimed to
provide temporary
solution to users for
selecting an appropriate
measure class to right of
use of an asset which is
under concessional lease
at the initial recognition
of the asset. In such a
situation the user has the
two options available to
him for measuring the
assets which are
measuring the assets at
cost as per “AASB 16
paragraph no 23-25” or it
can take it in fair value as
“AASB 16 paragraph no
25”.
Onerous contracts- Cost
of fulfilling a contract
(8th January 2019):
The intention behind
introducing a standard on
onerous contract is to
make amendments in
AASB 137 which
specifying cost related to
fulfilling a contract and
the same would also be
considering incremental
costs. The above-
mentioned costs would be
including material costs
and also a line of other
costs which are directly
related to the contract
(Aasb.gov.au, 2019). An
example to such a cost
can be given of
depreciation costs for an
equipment used for
performance of a
contract.
AASB 6:
Clarification
regarding definition
of Business in AASB
3
AASB effectively
clarified the definition of
business as well as
material definition with
the help of two new
amending standards. The
introduction of the new
standard is made so that
appropriate clarification
can be provided for the
definition of business
which is being laid out in
AASB 3. The
amendments which are to
be introduced include
minimum input and a
substantive procedure
which together gives
some output. In addition
to this, the new standard
also removes the
assessment which were
being made by market

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ACCOUNTING AND FINANCIAL REPORTING
participants who were
able to remove any
missing inputs or process
and still produce an
output. The standard even
provided certain
examples which would
help the users to identify
substantive processes.
The definition of business
is narrowed down by
including goods and
services and keeping out
the ability of the business
to reduce costs. In
addition to this, the
definition adds an optional
concentration which show
whether the business, it
activities and assets are
related or not.
Amendment of
Material Definition in
AASB 101 (20th
December 2018):
AASB has made
significant changes in
material definition with
the help of an amending
standard which was
introduced earlier this
year. The standard
“AASB 2018-7” provides
detailed explanation
related to material
definition as well its
application of the same in
other AASB standards
and pronouncements.
These amendments have
significant application
and therefore its is an
important amendment
made by AASB. The
abovementioned
amendments would be
made in “AASB 101
Presentation of Financial
Statements”. The standard
would be effective and
implemented on yearly
basis starting from 1st
January 2020 onwards
(Aasb.gov.au, 2019).
Survey results regarding
the importance of special
purpose financial
statements (13th
December 2018):
In order to identify the
usefulness of the special
financial reporting
framework a survey was
conducted in order to
understand the view
points of the users of the
financial statements. The
survey results showed
that around 78% of the
users of the financial
statements were of the
opinion that if the
statements fail to take
into consideration of
account measurement and
initial recognition them
this would be raising an
issue which needs to be
sorted by the AASB
Additional transitional
relief would be needed
for helping in equity and
consolidation accounting
practices (Aasb.gov.au,
2019).

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ACCOUNTING AND FINANCIAL REPORTING
ANSWER TO QUESTION 2
The provisions which are stated in AASB 101 makes it clear that all organization
which are operating in Australia needs to prepare their financial statements in such a manner
that they adhere to all current legislations and accounting regulations and standards. One of
the most important regulations is representation of general purpose financial statements
which can be easily compared with previous year and current years estimates. Therefore,
there are standards which are established which to ensure that the financial statements are
effectively prepared and follow a framework which meet all the needs and expectations of the
users of the financial statements (Aasb.gov.au, 2019).
As per the financial statement which is prepared by Whirl Limited, the financial items
are not properly segregated which also indicates that the same does not meet the standard of
presentation which is required. The users of the financial statement might find it difficult to
analyse. Another major thing missing is the classification of assets which are done on the
basis of current assets and non-current assets. The items are not segregated under such heads
which makes it difficult to understand. In the same way, the liabilities of the business also
need to be segregated on the basis of current and non-current liabilities.
As per “Paragraphs 66-76 of AASB 101”, the assets and liabilities of the business
can be projected on the basis of short term or long-term nature of the same. The different
forms of inventory which includes work-in-process, finished goods and raw materials needs
to be presented under a single head. The receivables need to be represented separately for
better clarity of items. These representations would represent input product which is very
significant for a business of manufacturing nature.
As per “Paragraph 54 of AASB 101” requires businesses to use equity method for
share investments. The representation of the shares is not appropriate for Whirl Limited as
the shares are not recorded at cost. There is also deferred and current tax liabilities in the
statement which should be considered together. The standard requires that such liabilities
needs to be recognised separately in order to ensure better presentation of the information.

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ACCOUNTING AND FINANCIAL REPORTING
The management needs to make some changes as the receivables need to be
recognised as an amount which will be recovered before and after 12 months period.
Therefore, the balance sheet needs to classify the receivables as current and non-current
receivables for better presentation of the information. The management of Whirl Limited
needs to provide appropriate disclosures as well in order to ensure that full information is
presented to the users of the financial statement.
In addition to this, it can be identified from the statement of profit or loss of Whirl
Limited that dividend payment is reported in the statement itself which means it is reported as
an business expenses. Instead, the dividend payment has to be recorded in the shareholders’
equity section in the balance sheet statement of the organisation. The business also needs to
represent the dividend payable per share by the company.
.

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ACCOUNTING AND FINANCIAL REPORTING
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