Accounting and Financial Reporting

This document provides a comprehensive study material on accounting and financial reporting. It includes solved assignments, essays, and dissertations on various topics related to accounting and financial reporting. The document covers topics such as statements of comprehensive income, balance sheet, statement of changes in equity, footnotes, tax calculation, and significant accounting policies. It also discusses adjusting and non-adjusting events according to IAS 10.

Accounting and Financial
Reporting
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Question 1
(a)
Statements of comprehensive income
For the year ended 31st December 2018
Particulars Amount (IN $ NZD)
Total Revenue:
Sales 54,00,000
Less: Sales return 675,000
Less: Cost of sales 13,80,000 33,45,000
Gross Profit 33,45,000
Add: Income
Accrued interest on Term Deposit1 647.26
Fees Income 1,47,000
Less: Advance received 1,10,250 36,750
Less: Expenses
Provision for Doubtful Debts2 27,100
Commission on sales 53,000
Wages & Salaries
Administration 510,000
Less: Accrued 48,000 462,000
Finance 270,000
Less: Accrued 51000 219,000
Sales 330,000
Less: Accrued 27,000 303,000
Insurance 30,000
Less: Prepaid 5,000 25,000
Depreciation
On building 27,000
On Machinery 31,500
37,397.26
(12,43,600)
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On Vehicles 96,000
Operating profit before impairment 21,38,797.26
Impairment in patents 21,000
Operating profit after impairment 21,17,797.26
Income tax expenses (30% on
21,17,797.26)
6,35,339.178
Profit or (Loss) for the year 14,82,458.082
Other Comprehensive Income
Profit or (Loss) for the year 14,82,458.082
Gain- asset revaluations 48,000
Loss – Financial assets held for resale (44,000)
Gain – translation of foreign operations 26,000
Total Comprehensive (Loss) or Profit for
the year
15,12,458.082
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Balance sheet
As at 31st December 2018
Assets In NZD ($)
Current Assets
Cash and Cash Equivalents 40,000
Trade and other receivables3 134,900
Inventory 222,000
Prepaid Insurance 5,000
Total Current assets 401,900
Non- current assets
Land 1,350,000
Building (900,000 – 4,000) 896,000
Machinery (210,000 – 10,500) 199,500
Vehicles (480,000 – 96,000) 384,000
Patents (135,000 – 21,000) 114,000
Term deposit 90,000
Trademarks 120,000
Total Non-current assets 31,53,500
Total Assets (Current Assets + Non-
Current Assets)
35,55,400
Liabilities
Current Liabilities
Trade and other payables 62,000
GST Payable 37,000
Accrued expenses 126,000
Total Current Liabilities 225,000
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Non- Current Liabilities
Mortgage Loan 105,000
Term Loan 113,000
Total Non- Current Liabilities 218,000
Total Liabilities 443,000
Equity
Share capital (900,000 + 900,000) 18,00,000
Share in Meridian Energy 203,000
Retained earnings 249,000
Financial assets available for sale
reserve
64,000
Assets revaluation reserve 132,000
Translation of foreign operations
reserve
55,000
Total Equity and liabilities 35,55,400
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Statement of Changes in Equity
For the year ended 31st December 2018
Particulars In NZD ($)
Share capital 900,000
Additional Issue 900,000
Total Comprehensive (loss) or Income for
the year
18,00,000
Transaction with owners in their capacity
as owners
Dividend Paid (100,000)
Interim Dividend paid (72,000)
Profit for the year 14,82,458.082
Total comprehensive income for the year 31,10,458.082
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(b) (i) Footnotes
1. Accrued interest on Term deposit = 90,000*3.5/100*75/365 = $647.26
2. Provision for doubtful debts
Bad- debts $15,000
Add: Further Bad- debts $8,000
$ 23,000
Add: New Provision 5% on (150,000 – 8,000) $7,100
$ 30,100
Less: Old Provision $ 3,000
Total $ 27,100
3. Accounts Receivable
Given in Trial Balance $ 150,000
Less: Further Bad- debts $ 8,000
Less: New Provision $ 7,100
Accounts Receivable $ 134,900
4. Intangible Assets
Patents $ 135,000
Less: Impairment $ 21,000
$ 114,000
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5. Tax Calculation
Profit for the year $ 21, 17,797.26
Tax expenses (30% on $ 21, 17,797.26) $ 6,35,339.178
(ii) General Information
 This report follows the rules of NZ IAS and every transaction is recorded as per
the rules prepared by the New Zealand IAS.
 The period covered in this report was 31st December 2018 and the monetary
units are NZD ( New Zealand Dollar)
(iii) A summary of significant accounting policies including:
 Each statement in this report followed the compliance of GAAP (Generally Accepted
Accounting Principles) because with the help of GAAP rules the investors can easily
trust on the company. It is a framework of accepted accounting standards,
procedures; standards that organizations and their accountant how to make the
financial statement must follow these rules when they compile their annual reports.
GAAP improves the communication clarity of financial information.
 Like GAAP rules this report also follows the compliance with NZ IFRS to show
genuine transactions in the annual report of the company. In these various rules and
regulations regarding the preparation of financial statements are stated in an
appropriate manner. NZ IFRS covers all the IFRS standards which should be
followed by both domestic and foreign company.
 In preparation of financial statements the company commonly adopted historical cost
for measurement. In historical cost, the assets of the company should be valued on
their buying price or the actual amount paid for purchasing the assets. NZ IFRS
requires that assets should be reported on the balance sheet of a company at
historical cost.
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 Accounts receivable records in the balance sheet after doing adjustment regarding
bad- debts and provision for doubtful debts.
 Accounts receivable is the amount payable to a company resulting from the
company providing products or services on a credit basis. It is recorded on the
assets side of the balance sheet under the head of current assets. If any payment is
not received from the customers it will be treated as bad- debts for the company.
 Bad-debts are also used for receivable notes that will not be receivable by the
company from its debtors. The bad- debts are related with accounts receivable and it
is shown on the debit side of the income statement as uncollectible account expense
or bad- debts expense.
 Inventory valuations as per cost.
 Inventory costs are the costs which are related to storage, procurement and
inventory management. It basically involves costs like carrying, ordering and
stockout costs.
 Inventory review policies are two types
 Continuous review policy
 Periodic review policy
In continuous review policy, the inventory level is reviewed on a regular basis and the
management of the company makes a decision on that basis in which they decide how
much inventory should be there in the manufacturing system and how much order
should place to suppliers whereas in periodic review policy the management reviewed
inventory level at regular intervals and after such review they place order in an
appropriate quantity which is required in the manufacturing units.
 IAS 16 Property, Plant and Equipment give an outline and framework to the
company. Property, Plant, and equipment are firstly measured at cost, afterward, it is
calculated either using a revaluation or cost method and finally depreciated so that
its amount of depreciable is assigned on a regular basis over its valuable life.
 According to IAS 16, property, plant and equipment are valued at cost minus
accumulated depreciation and any impairment losses. IAS 16 framed standards for
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recognizing plant, property and equipment as assets and the cost of it recognized as
an asset if, and only if:
 The cost of plant, property, and equipment can be measured reliably; and
 The economic benefits of future related to plant, property, and equipment will
flow to the company.
 A written-down is a reduction in the value of the book of assets whose market value
(fair) has less the book value and thus become an impaired asset. This method
includes the usage of a pre-determined percentage of the book value of the asset at
the opening of every financial year. The depreciation amount decreases year after
year.

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Question 2
(a) According to IAS 10 for “Non- Adjusting Events” take place after the reporting
period but before the authorization of financial statements and are indicative of the
conditions which arose after the date of reporting.
The loss on sale of inventory which arises after the reporting period because of natural
disasters like fire or earthquake is considered as Non- Adjusting Events.
$20,000 will be considered as next financial year loss and shown in the statement of
income.
(b) Adjusting events take place after the date of reporting but before the authorization
date of financial statements and also offer further or additional related evidence to the
conditions which existed at the date of reporting.
This receipt of information after the date of reporting but confirming that the asset is
impaired existed at the date of reporting. So, $100,000 is the income of the financial
year i.e. 31st March 2017.
(c) The information receipt regarding the bankruptcy of a customer after the date of
reporting and also offers evidence that the debt has become irredeemable and the
company should make an adjustment the receivable value which should be stated in the
statement of financial position in the financial year. So it a part of Adjusting events and
also considered it in the financial statement. $87,000 was part of financial year income
and included in the statement of income as a bad-debts.
(d) The court case commences after the reporting date is the part of Non- adjusting
events and also not considered in the financial statement of the company. So, this
damage should be included in the financial statement of next year. These expenses
included in the income statement for the next year and not part of the current financial
year i.e. March 2017.
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Disclosures
IAS 10 requires the entity to disclose the following:
 Its impact on the financial statement.
 The authorization date of financial statements and authority which related.
 The nature of such event and
 The entity should disclose for non- adjusting events.
Note: If any event takes place after the date of financial statement authorization, it will
be not considered as adjusting or non- adjusting event. It will also outside the IAS 10
scope. IAS 10 needs an event which occurs after the date of reporting but also before
authorization date of statements of financial and it materially impacts the going concern
status of the company. Such an event will also treat as an event of adjusting and the
company will also prepare the financial statement on the basis of break up.
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