ACT 204 Advanced Financial Accounting 1 Homework Solution with IFRS

This assignment solution for ACT 204 Advanced Financial Accounting 1 addresses key concepts in financial accounting according to IFRS. It discusses the classification of assets and liabilities into current and non-current categories, emphasizing that while both are based on nature and timing, liabilities often require broader classification due to their diverse nature. The solution highlights the importance of classifying liabilities for both business managers and stakeholders to aid in decision-making. It also differentiates between provisions and contingent liabilities, explaining their recognition and reporting in financial statements. Furthermore, it breaks down the total cost of employment, demonstrating that an employee's take-home pay is only a fraction of the overall expenses incurred by the employer, including recruitment costs, payroll expenses, employee benefits, payroll taxes, and indirect expenses.

ACT 204 Advanced Financial Accounting
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Answer 1
The classification of assets is mainly done on the basis of their nature and function as per
the financial reporting rules and regulations provided by IASB (International Accounting
Standards Board). The assets are classified as current and non-current assets as per the IFRS
financial reporting standards. Current assets are the resources that are possessed by a firm to be
utilized within a year. On the other hand, non-current assets are regarded to be long-term
investment of a firm such as property, plant and equipment that are converted to cash in a
reporting period of more than a year.
Liabilities are also classified on the basis of their nature as current and non-current
liabilities. The current liabilities are regarded as obligations of a firm that are due to be paid
within a year and are met generally with the current assets base such as account payable, short-
term loans, employee benefits and accrued income taxes. Non-current liabilities are the
obligations that are to be repaid in a time period of more than a year of the normal operating
cycle of a business (Gordon Raedy and Sannella, 2018). Thus, it can be said that both the assets
and liabilities classification are based on the nature and timing basis. However, it has been
identified that business entities tend to disclose more information about the liabilities. The
liabilities are also classified on the liquidity basis also such as secured vs unsecured, source and
also some specific criteria such as mortgage and debentures. Thus, it can be said that
classification of assets and liabilities though based on the same principle as per IFRS but the
diverse nature of liabilities causes the need to classify them on broad basis (Greuning, 2009).
Answer 2
The business entities are required to pay out money for meeting their current and non-
current liabilities. The non-classification of liabilities would also require the business entities to
depict the total amount of outstanding debt at the end of the reporting period. Thus, it can be said
that classification of liabilities into current and non-current cannot be regarded as necessary as
businesses are eventually required to meet them. However, in this context it is important to
develop an understanding of the nature of liabilities the businesses own for the business
managers and the stakeholders as well (Gordon Raedy and Sannella, 2018). The business
managers need to gain information about the liabilities that they are required to repay within a
year and those that are required to be met in an operating cycle of more than 12 months. The
end-users of the financial reports such as investors, creditors, lenders and suppliers also require
gaining information on the type of liabilities the business firm owns. This is essential for them to
take adequate investment decisions to analyze the returns to be realized on the basis of the type
of liabilities the business owns. Thus, it can be said that classification of liabilities is essential for
a business firm to improve the information disclosed in the financial report. This is because the
nature of liabilities varies as per the type of business transactions and thus are need to recognized
into current and non-current liabilities section to improve the quality of financial disclosures
provided by a firm (Kieso, Weygandt and Warfield, 2010).
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Answer 3
Provisions are generally regarded to be something that are developed for the probable
decline in the value of an asset such as provision for bad debts or decline in an asset value. As
such, it can be said as the method of making arrangement for something that is likely to happen
in future for meeting its effects. It can be regarded as the amount that is set aside for meeting
probable and uncertain economic obligations of an entity. Provisions are recognized on the
balance sheet of an entity and then are transferred into the income statement to be classified as
expenses.
On the other hand, contingent liabilities are the probable outflows of cash associated with
particular business activities. The probability of occurrence of such business activities is very
low but businesses are required to make preparation for meeting any such event in the future
direction in the form of contingent liabilities. The example of contingent liabilities can be
dividend or increase in salary. The contingent liabilities can be classified on the basis of outcome
of a future event and is recorded only if it is probable to be occurred and the amount of cash
outflow can be estimated with accuracy. Contingent liabilities maintained by a business entity
are reported at the end of the balance sheet in the footnotes section (Kieso, Weygandt and
Warfield, 2010).
Answer 4
It is regarded to be true that the take home pay of an employee is only a part of the
overall cost of employment that an entity incur to employ an individual. This is because there are
other costs too that need to be considered while determining the overall cost of employment. The
first cost that an employee can incur on hiring an employee can be regarded as recruitment cost.
The cost includes the expenses incurred by a company for placing advertisements and in the
interviewing process of candidates. This is followed by payroll expenses that are relatively easy
to be predicted while determining the cost of employments as it is the salary that is provided to
an employee (Tisdale and Kennedy, 2009). It also includes the employee benefits that vary from
a company to another on the basis of the type of rewards and incentives provided to an employee
linked to the performance. In addition to these expenses, the employment cost also includes
payroll taxes, insurance retirement benefits and performance bonuses. Also, there are indirect
expenses associated with employment that depends on the use of official resources by an
employee such as office supplies, paper, IT tools and other such physical resources. Thus, it can
be stated that the overall cost of an employment for an employee is dependent on other factors
such as income tax, superannuation payments and various leaves related additional costs
(Snowden, 2018).
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References
Gordon, E.A., Raedy, J.S. and Sannella, A.J. 2018. Intermediate Accounting. Pearson Education.
Greuning, H. 2009. International Financial Reporting Standards: A Practical Guide. World
Bank Publications.
Kieso, D.E., Weygandt, J.J. and Warfield, T.D. 2010. Intermediate Accounting: IFRS
Edition. John Wiley & Sons.
Snowden, C. 2018. What Is The True Cost Of An Employee?. [Online]]. Avaiabe at:
https://www3.swipeclock.com/blog/what-is-the-true-cost-of-an-employee/ [Accessed on: 21
October 2018].
Tisdale, S. and Kennedy, P.B. 2009. The True Cost of Happiness: The Real Story Behind
Managing Your Money. John Wiley & Sons.
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