Financial Accounting: Analysis of Expenses, Accounting Policy, and Notes to Financial Statement

This document provides an analysis of expenses, accounting policy, and notes to financial statements of Adacel Technologies Limited. It covers the classification of expenses, accounting policy, revenue recognition concept, trade and other receivables, measuring the deferred tax assets and liabilities, cost of plant property and equipment, depreciation, revaluation, and impairment.

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Task 1...............................................................................................................................................2
Analysis of Expenses...................................................................................................................2
Task 2...............................................................................................................................................4
Accounting Policy.......................................................................................................................4
Task 3...............................................................................................................................................5
Notes to Financial Statement.......................................................................................................5
Reference.........................................................................................................................................8

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Adacel Technologies Limited
Task 1
Analysis of Expenses
a) Analysis of Expenses: The classification of the various expenses incurred by the
company will be done in accordance with the nature and function of the expenses. Adacel
Technologies Ltd has mostly classified the expenses of the company by function and
recognized them as and when incurred by the company. The expenses of the company
has been done according to the nature and in according to the Australian Accounting
Standard Board. The operating expenses/direct expenses and indirect expenses of the
company has been reported in the financial statement of the company (Kaplan and
Atkinson 2015). Depreciation/amortization of assets of the company was the key non-
cash charges paid by the company. Interest Expenses, operating lease expenses, interest
and finance charge and net forex gains and losses were the key expenses that were
recognized in the financial statement of the company (Annual Report 2018).

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b) Classification of Expenses: The classification of the various expenses of the company
has been done in accordance with the activities which ate undertaken by the management
of the business. The Classification of the expense has been done in accordance with the
accounting policy followed by the company. Historical cost, development cost and cost
incurred on the operations of the company were well classified by the company (Diewert
and Fox 2016). There are various costs which are incurred by the business and the
classification for the same depends on the nature of the activity or nature of expenses
which is made by the business. Cost incurred in terms of the development of the assets,
direct expenses, indirect expenses were all classified by the company according the
function and as they were recognized on the financial statement of the company. The
classification of the various expenses will also help the investors of the company in
assessing the various key details about the company.

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Task 2
Accounting Policy
The accounting policy followed by the company is in accordance with the Australian
Accounting Standard Board and on the basis of the same, the management of the company has
prepared the financial reports of the business (Carrol and Laing 2016). However, certain issues
can be identified from the annual reports of the business and the same are listed below in details:
 Revenue Recognition Concept: The concept of revenue recognition is not appropriately
followed by the management of the business and the same is highlighted by the auditor of
the business in the key audit matters section. The sales revenue of the business which is
recognized in the annual reports also includes project-based revenues (Holzmann and
Munter 2014). These project-based revenues must be recognized as and when the actual
contract is completed but the same is not the case here. Therefore, there is a problem with
the principle of revenue recognition which the management of the company needs to
improve (Diewert and Fox 2016).
 Trade and Other Receivables: The figure of trade receivables is overstated and the same
is not represented as per the requirements of accounting policies (Schulzke, Berger-
Walliser and Marchini 2013). The trade receivables figures include project-based
revenues which can only be shown as revenues after confirmation of client is received or
after achieving a milestone. The business has also not met proper invoicing and collection
for such projects.
 Measuring the Deferred Tax Assets and Liabilities: The measurement of deferred tax
assets and liabilities of the business is always factor of complexity for any kind of
business and the annual reports of the company shows that the same is considered

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considering temporary difference between tax amounts and carried forward of taxes of
the business. The measurement of the same is complex in nature and there is always a
chance that the same may not be appropriately represented in the annual reports of the
business.
Task 3
Notes to Financial Statement
Cost of Plant Property and Equipment: The cost incurred by the company in respect to the
acquisition cost of the asset was recorded at the historical cost for the company. The
measurement base used by the company is historical cost basis which the company has classify
for the purpose of classifying the same as held till maturity. The property plant and equipment
for the company is stated at cost less depreciation. The historical cost represented in the financial
statement of the company shows the amount that is directly attributable representing the
acquisition cost of the company. Other direct and indirect costs that are incurred by the company
in correspondence to the same is taken into consideration at the income statement after
classifying the type and nature of the expenses. The property plant and equipment is the key
asset of the company representing the major amount of the assets of the company relevant
information in regard to the same has been made in the financial statement of the company
(Tsamis and Liapis 2014).
Depreciation: The depreciation of the fixed assets of the company such as property, plant and
equipment is depreciated by using the straight line depreciation method. The depreciation on
plant and equipment of the company is calculated on a net basis after taking the salvage/residual
value of the asset of the company (Drew and Dollery 2015).

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The depreciation on the various assets of the company has been charged based on the
useful/economic life of the asset and the rate of fall in the capacity of the company. Depreciation
on the leasehold asset was charged at 5-20%, Furniture and Fittings 10-12.5%, Computer
Equipment’s 25% and Software 25-50%.
Revaluation: The revaluation of the assets of the company has been done in accordance with the
fair value of the assets of the company and the carrying value of the company. The assets of the
company is revalued when the economic benefits flowing to the company is substantially
different from the reported value in the financial report of the company then the assets of the
company is said to be revalued (Carrol and Laing 2016). The company revalues the assets of the
company after assessing the fair value and the carrying value of the asset and accordingly

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revalues the assets of the company. The revaluation of the assets of the company would reflect
material information about the company and the application of fair value accounting.
Impairment: The impairment of the intangible assets of the company like patents and software
is a crucial asset of the company in terms of the impairment of the assets of the company as the
depreciation rate associated with the same is around 25-50%. The material changes observed by
the company in the fair value and the carrying value of these intangible assets of the company
should be taken into consideration and relevant changes are made so that the financials of the
company represents economic reality.

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Reference
Annual Report. (2018). [ebook] Australia:
file:///C:/Users/ASUS/Downloads/3013775_1880453089_AnnualReportforAssignmentACC20%
20(1).pdf, pp.34-50. Available at: http://www.adacel.com [Accessed 31 Jan. 2019].
Barker, R. and Penman, S., 2016. Moving the conceptual framework forward: Accounting for
uncertainty. Unpublished paper, Oxford University and Columbia University.
Carrol, A. and Laing, G., 2016. Manipulation of Earnings through Correction of Prior Period
Errors (AASB108): An Empirical Test. e-Journal of Social & Behavioural Research in
Business, 7(1).
Diewert, W.E. and Fox, K.J., 2016. Sunk costs and the measurement of commercial property
depreciation. Canadian Journal of Economics/Revue canadienne d'économique, 49(4), pp.1340-
1366.
Drew, J. and Dollery, B., 2015. Inconsistent depreciation practice and public policymaking:
Local government reform in New South Wales. Australian Accounting Review, 25(1), pp.28-37.
Holzmann, O.J. and Munter, P., 2014. New revenue recognition guidance. Journal of Corporate
Accounting & Finance, 25(6), pp.73-76.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Schulzke, K.S., Berger-Walliser, G. and Marchini, P.L., 2013. Lexis Nexus Complexus:
Comparative Contract Law and International Accounting Collide in the IASB-FASB Revenue
Recognition Exposure Draft. Vand. J. Transnat'l L., 46, p.515.

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Tsamis, A. and Liapis, K., 2014. Fair Value and Cost Accounting, Depreciation Methods,
Recognition and Measurement for Fixed Assets. International Journal of Economics and
Business Administration, 2(3), pp.115-133.