Financial Accounting Questions and Answers - PDF

Running head: FINANCIAL ACCOUNTING
Financial accounting
Name of the University
Name of the student
Authors note

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FINANCIAL ACCOUNTING
Table of Contents
Answer to Question 1:.....................................................................................................................2
Answer to Question 2:.....................................................................................................................7
Answer to Question 3:...................................................................................................................10
Answer to Question 4:...................................................................................................................14
Answer to Question 5:...................................................................................................................15
Reference list:................................................................................................................................17

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FINANCIAL ACCOUNTING
Answer to Question 1:
To,
Chairperson
International standard accounting board (IASB)
30 cannon street, London- EC4M 6XH, United Kingdom
Date: 30th April, 2018
Subject: Recommending and guiding on the improvement of effectiveness of communication.
Sir,
I am writing this letter to make some recommendations concerning the IASB proposition
relating to the effectiveness of communication after analyzing the annual report of companies.
Currently, I am seeking investments in two organizations or entities listed on Australian stock
exchange that is CBA (Common wealth bank of Australia) and NAB (National Australia bank).
It has been provided by the financial statements preparers that reporting the annual reports to its
external users is a perplexing task and therefore, the users perceive that the information is
displayed in a manner that is not sufficient and relevant for arriving at any investment decisions.
The poor organization and presentation of financial data drowns the informative and important
information presented in the annual reporting of entities (Beatty & Liao, 2014). Such situation
create difficult situation for investors in making viable financial decision. For the purpose of
making investment, I have analyzed the annual report of latest year of both the organization I am
looking for investment.

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FINANCIAL ACCOUNTING
After reviewing the annual report of both the organization that is bank, I have been able
to raise some concerns regarding their financial statements disclosures. There are not a detailed
explanatory notes and illustrative disclosures of financial data that is making it difficult for
investors to understand the financial data provided. There is a requirement for the banking
institutions to increase the effectiveness of communication through proper and in detail
disclosure of information. In terms of both disclosure and preparation of financial statements,
there is a need to standardize the presentation in accordance with the effective principles
depicted in the discussion paper that has been proposed by IASB (Warren & Jones, 2018).
I have reviewed the proposed set of effective communication principles that have been
developed by IASB (International Australian standard board). The seven effective principles
enable organization to effectively communicate the information that is presented in the financial
statements. In order for information to be effective to the users of financial statements, it is
outlined by the principles that such information should be clear and simple, specific to entity,
creating linkage to related information, highlighting important matters by organization,
comparable, free from duplication that is unnecessary and the data should be presented in an
appropriate format (iasplus.com 2018).
After analyzing and going through the annual report of both the organizations, it has been
discovered by me that the information contained therein does not provide users with the
appropriate disclosures. An annual report of both organization that is NAB and CBA does not
have any consistent segment definition and does not employ segmental approach for the
presentation of financial data (Capital.nab.com.au, 2018). All the information’s have been
disclosed in the notes to financial statements and there have not been any separate presentation
of the same. Therefore, it can be said that the relationship between available pieces of

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FINANCIAL ACCOUNTING
information are not highlighted properly and there is need to improve navigation. However, the
financial data for considerable number of period have been presented in the table format that
have helped in making comparison the performance of organization and forming a trend whether
there have been any improvement or deterioration. Moreover, the liquidity and credit risk have
not been shown separately and they have been disclosed in the notes to financial statements.
Both the banks have made appropriate disclosures about the Basel requirements that are
the measures and reforms for strengthening the banking industry regulations. All the Basel
requirements have been disclosed in the notes to financial statements by giving a detailed
explanation. Furthermore, I have also been able to identify the differences between both the
banks in terms of presentation of financial data in an appropriate format. Presentation of data in
an appropriate format is done by making use of lists, graphs, tables and list. It can be seen from
the annual report that National Australia bank has not made use of any graphs and lists for
disclosing the financial information. On other hand, Common wealth bank of Australia have
made a very limited use of graphs for presentation of financial information. The divisional
performance of CBA has been presented in tabular form and the summary of performance has
been explained in the notes to financial statements. On other hand, divisional performance of
NAB bank has been presented only in the table format and there is no further explanation about
the same.
I would like to make some recommendations that would help in improving the
effectiveness of the disclosures made in the financial statements that would be useful to investors
in comparing and analyzing the information. There is a need to make considerable improvement
in effectiveness of communication while presenting the financial report in light of the above
identified gaps. Therefore, in this regard, I would like to make some recommendations on the

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disclosure principles proposed by IASB so that improvement is made in communication of
financial information. The principle of entity specific should be incorporated so that information
is tailored according to entity of business. It would be preferable to present the specific
information in the annual report as investors can collect general information from other areas
other than annual report. There should not be any compromise on the usefulness of information
by easing the comparability of information across different reporting period. Such ease
comparison can be done by graphical presentation of data that would assist investors with
providing readily available information for comparison. Organization should make use of proper
formats by effectively using formatting techniques (Henderson et al. 2015). Several reports have
been published by banking institutions on recommending the use of graph and tables as there
exist uncertainty in annual report presentation using appropriate format. In generating effective
communication of financial information’s by both the banks, one of the recommended principles
would be effective use of formatting. Format development is dependant highly on entity specific
factors. According to reporting entity nature, different formats should be developed. However,
there should be some common formatting depending upon the operations and circumstances of
reporting entity. All such disclosures would be in the interest of preparers of financial statements
and investors. Therefore, with reference to the issues identified above regarding the disclosure of
financial information, is recommended to the reporting entities to incorporate some of the
effective communication principles such as an appropriate format, linked to related information,
comparable and entity specific. In addition to this, a clear objective of disclosures should be
outlined by the standard as it would help reporting entities in identifying the purpose of
requirement of disclosures (Jaggi, 2015). This would provide assistance to both investors and

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prepares of financial statements in preparing and understanding of the financial information in an
appropriate way.
As an investor, it would be recommended to IASB that they should urge reporting entities
on the adoption of effective communication principles so that their disclosure are understood in a
more appropriate and transparent manner and assist in financial decision making (Macve, 2015).
Furthermore, it is essential to make development on the guidance by taking into account the
factors that are specific to entities.
Yours sincerely,
ABC

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Answer to Question 2:

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FINANCIAL ACCOUNTING
Dr. Cr.
Date Amount Amount
28-02-2017 Bank A/c. Dr. $19,00,000
Underwritter A/c. Dr. $1,00,000
To. Share Application A/c. $20,00,000
03-03-2017 Bank A/c. Dr. $2,20,000
Underwritting Commission A/c. Dr. $30,000
To, Underwritter A/c. $2,50,000
Share Application A/c. Dr. $20,00,000
To. Share Capital A/c. $20,00,000
Share Allotment A/c. Dr. $30,00,000
To. Share Capital A/c. $30,00,000
03-04-2017 Bank A/c. Dr. $28,50,000
Underwritter A/c. Dr. $1,50,000
To. Share Allotment A/c. $30,00,000
05-04-2017 Legal Costs A/c. Dr. $5,000
Share Issue Costs A/c. Dr. $3,000
To. Bank A/c. $8,000
10-04-2017 Share 1st Call A/c. Dr. $12,00,000
To. Share Capital A/c. $12,00,000
10-05-2017 Bank A/c. Dr. $11,76,000
Calls-in-Arrear A/c. Dr. $24,000
To. Share 1st Call A/c. $12,00,000
15-05-2017 Share 2nd Call A/c. Dr. $8,00,000
Particulars
(Being application money received for 1,900,000 ordinary shares from
public and balance 100,000 shares taken by underwritter)
(Being application and allotment money received from underwritter
for 100,000 shares after deducting the underwritting commission)
(Being application money received for ordinary share capital
transferred to ordinary share capital)
(Being allotment money due on alloted shares)
(Being due allotment money received)
(Being 1st call money due on alloted shares)
(Being due call money received except for 40000 shares)
(Being legal costs and share issue costs paid)
In the books of Beach Supplies Ltd.
Journal Entries

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FINANCIAL ACCOUNTING
15-06-2017 Bank A/c. Dr. $7,80,000
Calls-in-Arrear A/c. Dr. $20,000
To. Share 2nd Call A/c. $8,00,000
20-06-2017 Share Capital A/c. Dr. $1,75,000
To. Calls-in-Arrear A/c. $44,000
To. Share Forfeiture A/c. $1,31,000
25-06-2017 Bank A/c. Dr. $1,55,000
Share Forfeiture A/c. Dr. $20,000
To. Share Capital A/c. $1,75,000
Cost of Forfeiture & Reissue A/c. Dr. $10,000
To. Bank A/c. $10,000
Share Forfeiture A/c. Dr. $1,11,000
To. Cost of Forfeiture & Reissue A/c. $10,000
To. Bank A/c. $1,01,000
(Being the balance of share forfeiture a/c. after adjusting with cost of
forfeiture and reissue refunded to the former shareholders)
(Being the 50000 shares, for which call money is due, forfeited
accordingly)
(Being the forfeited shares reissued for $3.10 per shares)
(Being cost of forfeiture and reissue of shares paid)
(Being due call money received except for 50000 shares)

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FINANCIAL ACCOUNTING
Answer to Question 3:
Particulars Amount Amount
Accounting profit before tax $2,35,000
Add:
Interest Received $15,000
Entertainment Expense $4,000
Doubtful Debt Expense $3,800
Annual Leave $9,000
Warranty Expense $5,600
Depreciation Expense for accounting purpose $67,250
Insurance $14,000 $1,18,650
$3,53,650
Less:
Royalties $15,000
Interest Revenue $16,000
Bad debt expense $2,000
Annual Leave Paid $4,400
Insurance Paid $17,000
Warranty Expense Paid $3,000
Depreciation Expense for Tax Purpose $78,000 $1,35,400
Taxable income $2,18,250
Less: Tax Losses from Previous Years $6,000
Net Taxable Income $2,12,250
Tax on taxable income @30% $63,675
Less: 30% Tax paid on Sales Revenue $1,04,895
Income Tax Refundable ($41,220)
Worksheet for Curret Tax Liability/(Refundable):

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FINANCIAL ACCOUNTING
Particulars Carrying Amount Tax Base Taxable
Temp’y Diffs
Deductible
Temp’y Diffs
$ $ $ $
Assets
Cash $46,000 $46,000
Trade Receivables $88,000 $88,000
Allowance for Doubtful Debts ($4,000) $0 $4,000
Inventories $57,100 $57,100
Prepaid Insurance $4,000 $4,000
Plant $3,15,000 $3,15,000
Accum. Depr.- Plant ($1,13,250) ($1,51,000) ($4,000)
Motor Vehicle $1,00,000 $1,00,000
Accum. Depr.- Motor Vehicle ($70,000) ($52,500) ($37,750)
Liabilities
Trade Payables $66,200 $66,200
Provision for Warranties $14,200 $14,200
Provision for Annual Leave $15,600 $15,600
Bank Loan $1,30,000 $1,30,000
Total Temporary differences $4,000 ($7,950)
Deferred tax liability (30%) $1,200
Deferred tax asset (30%) ($2,385)
Deferred Tax Worksheet:
Workings:
Particulars Accounting Tax
Plant-at Cost $3,15,000 $3,15,000
Depreciation 15% 20%
Depreciation Expenses p.a. $47,250 $63,000
Period of Utilization (in years) 2.397 2.397
Accumulated Depreciation $1,13,250 $1,51,000
Plant (net Value) $2,01,750 $1,64,000
Base

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FINANCIAL ACCOUNTING
Base
Particulars Accounting Tax
Motor Vehicles-at Cost $1,00,000 $1,00,000
Depreciation 20% 15%
Depreciation Expenses p.a. $20,000 $15,000
Period of Utilization (in years) 3.500 3.500
Accumulated Depreciation $70,000 $52,500
Motor Vehicle (Net Value) $30,000 $47,500
Particulars Amount
Doubtful Debt Expense $3,800
Add: Allownace for Doubtful Debts on 2016 $2,200
Less: Allownace for Doubtful Debts on 2017 $4,000
Bad Debt Expense $2,000
Annual Leave Expenses $9,000
Add: Prov. For Annual Leaves on 2016 $11,000
Less: Prov. For Annual Leaves on 2017 $15,600
Annual Leave Paid $4,400
Warranty Expense $5,600
Add: Prov. For Warranty for 2016 $11,600
Less: Prov. For Warranty for 2017 $14,200
Warranty Expense Paid $3,000
Insurance Expense $14,000
Add: Prepaid Insurance for 2017 $4,000
Less: Prepaid Insurance for 2016 $1,000
Insurance Paid $17,000
Interest Revenue $16,000
Add: Interesr Receivable for 2016 $1,000
Less: Interesr Receivable for 2017 $2,000
Interest received $15,000

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FINANCIAL ACCOUNTING
Particulars Amount Amount
Accounting Profit $2,35,000
Add:
Annual Leave Expenses $9,000
Doubtful Debts Expense $3,800
Depreciation-Plant $47,250
Depreciation-Motor Vehicles $20,000
Insurance Expense $14,000
Rent Expense $42,000
Warranty Expense $5,600
Entertainment Expense $4,000 $1,45,650
Less:
Royalties $15,000
Interest Revenue $16,000 $31,000
Sales Revenue $3,49,650
30% Tax paid on sales $1,04,895
Dr. Cr.
Date Amount Amount
30/06/2017 Income Tax Expense A/c. Dr. $63,675
Income Tax Refundable A/c. Dr. $41,220
To, Advance Tax Paid A/c. $1,04,895
Income Tax Expense A/c. Dr. $3,585
To, Deferred Tax Liability A/c. $1,200
To, Deferred Tax Assets A/c. $2,385
Profit & loss A/c. $73,260
To, Income Tax Expense A/c. $67,260
To, Deferred Tax Assets A/c. $6,000
(Being deferred tax assets and deferred tax liabilities recorded)
Particulars
(Being Income tax expenses adjusterd with advance tax paid
and income tax refundable recorded)
(Being income tax expense transferred to P/L A/c.)

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FINANCIAL ACCOUNTING
Answer to Question 4:
Dr. Cr
Date Amount Amount
30-06-2017 Depreciation Expense A/c. $95,000
Accum. Dep. - Plant X A/c. $75,000
Accum. Dep. - Plant Y A/c. $20,000
Accum. Dep. - Plant X A/c. $3,00,000
Loss on Revaluation A/c. $40,000
Plant X A/c. $3,40,000
Accum. Dep. - Plant Y A/c. $1,00,000
Gain on Revaluation A/c. $10,000
Plant B A/c. $90,000
Gain on Revaluation A/c. $10,000
Asset Revaluation Reserve A/c. $30,000
Loss on Revaluation A/c. $40,000
Deferred Tax Assets A/c. $3,000
Income Tax Expense A/c. $9,000
Deferred Tax Liabilities A/c. $12,000
30-06-2018 Depreciation Expense A/c. $92,000
Accum. Dep. - Plant X A/c. $70,000
Accum. Dep. - Plant Y A/c. $22,000
Accum. Dep. - Plant X A/c. $70,000
Gain on Revaluation A/c. $10,000
Plant X A/c. $60,000
Accum. Dep. - Plant Y A/c. $22,000
Gain on Revaluation A/c. $2,000
Plant Y A/c. $20,000
Gain on Revaluation A/c. $12,000
Asset Revaluation Reserve A/c. $12,000
Deferred Tax Assets A/c. $6,600
Income Tax Expense A/c. $6,600
30-06-2019 Depreciation Expense A/c. $96,500
Accum. Dep. - Plant X A/c. $74,000
Accum. Dep. - Plant Y A/c. $22,500
(Being depreciation charged on Plant X & Plant Y)
(Being Plant Y revalued at fair value and gain on revaluation recorded)
(Being the gain on revaluation transferred to asset revaluation
reserve)
(Being deferred tax recorded for the asset revaluation)
Journal Entries
(Being deferred tax recorded for the asset revaluation)
(Being depreciation charged on Plant X & Plant Y)
(Being depreciation charged on Plant X & Plant Y)
(Being Plant X revalued at fair value and loss on revaluation recorded)
(Being Plant Y revalued at fair value and gain on revaluation recorded)
(Being the gain and loss of revaluation transferred to asset revaluation
reserve)
(Being Plant X revalued at fair value and gain on revaluation recorded)
Particulars
In the books of Sunshine Ltd.

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Year Cost
Accum.
Depreciation
Opening
Balance
Estimated
Life (in years)
Residual
Value
Depreciation
p.a.
Closing
Value Fair Value
Revaluation
Gain/(Loss)
Deferred Tax
Assets/
(Liabilities)
2016-17 $8,00,000 $2,25,000 $5,75,000 10 $50,000 $75,000 $5,00,000 $4,60,000 -$40,000 -$12,000
2017-18 $4,60,000 6 $40,000 $70,000 $3,90,000 $4,10,000 $20,000 $6,000
2018-19 $4,10,000 5 $40,000 $74,000 $3,36,000
2016-17 $2,00,000 $80,000 $1,20,000 10 $0 $20,000 $1,00,000 $1,10,000 $10,000 $3,000
2016-17 $1,10,000 5 $0 $22,000 $88,000 $90,000 $2,000 $600
2016-17 $90,000 4 $0 $22,500 $67,500
Plant X
Plant Y
Computation of Revaluation Gain/(Loss) & Deferred Tax:
Answer to Question 5:
Dr. Cr.
Date Amount Amount
30-06-2016 Impairment Loss A/c. $69,000
Accum. Impairment Loss -Land A/c. $20,000
Accum. Impairment Loss -Patent A/c. $20,000
Accum. Impairment Loss -Goodwill A/c. $10,000
Accum. Impairment Loss -Plant & Equipment A/c. $19,000
Profit & Loss A/c. $69,000
Impairment Loss A/c. $69,000
30-06-2017 Accum. Impairment Loss -Plant & Equipment A/c. $19,000
Accum. Depr. -Plant & Equipment A/c. $1,000
Revaluation Reserve A/c. $20,000
In the books of Gadget Ltd.
Journal Entries
Particulars
(Being assets under the specific cash generating unit impaired)
(Being impairment loss transferred to P/L A/c.)
(Being the value of cash generating unit increased)
Workings:

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FINANCIAL ACCOUNTING
Particulars Amount
Fair Value,less, Cost to Sell $17,50,000
Value in Use $18,40,000
Recoverable Amount $18,40,000
(Higher of Fair Value & Value in
use)
Less: Carrying Amount of CGU $19,09,000
Total Impairment Gain/(Loss) ($69,000)
Calculation of Impairment Loss:
Particulars
Carrying
Amount Fair Value
Impairment
Loss
Total Impairment Loss $69,000
Less:
Cash $2,42,000 $2,42,000 $0
Land $8,00,000 $7,80,000 $20,000
Inventory $1,90,000 $1,90,000 $0
Accounts Receivable $67,000 $67,000 $0
Patent $2,00,000 $1,80,000 $20,000
Goodwill $10,000 $0 $10,000
Balance Impairment Loss $19,000
Particulars
Carrying
Amount
Net Carrying
Amount Weightage
Impairment
Loss
Balance Impairment Loss $19,000
Plant & Equipment $6,00,000
Accumulated Depreciation ($2,00,000) $4,00,000 100% $19,000
Total $4,00,000 $4,00,000 100% $19,000
Impairment Loss Allocation as per Weightage:
Allocation of Specified Impairment Loss:

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Reference list:
Beatty, A., & Liao, S. (2014). Financial accounting in the banking industry: A review of the
empirical literature. Journal of Accounting and Economics, 58(2-3), 339-383.
Capital.nab.com.au. (2018). Retrieved 30 April 2018, from https://capital.nab.com.au/docs/NAB-
2017-annual-financial-report.pdf
Commbank.com.au. (2018). Retrieved 30 April 2018, from
https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/
annual-reports/annual_report_2017_14_aug_2017.pdf
Disclosure initiative — Overview. (2018). Iasplus.com. Retrieved 30 April 2018, from
https://www.iasplus.com/en/projects/major/disclosure-initiative-overview
Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial accounting.
Pearson Higher Education AU.
Jaggi, B. (2015). RESEARCH IN FINANCIAL ACCOUNTING ACCOUNTING THEORY II
(26: 010: 652) Fall 2015.
Macve, R. (2015). A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.

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Scott, W. R. (2015). Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Warren, C. S., & Jones, J. (2018). Corporate financial accounting. Cengage Learning.