External Reporting Analysis: AASB 101 and Dom Ltd Financial Statements

This report provides a comprehensive analysis of the external reporting practices of Dom Ltd, focusing on its financial statements as of June 30, 2017. The report, prepared for Jennifer by the Chief Accountant of Wesley Ltd, identifies key issues in the presentation of the statement of financial position, specifically concerning compliance with Australian Accounting Standard AASB 101. The analysis highlights the importance of presenting a true and fair view of the company's financial stability to stakeholders by correctly classifying assets, liabilities, and equity. The report critiques the existing financial statement, pointing out the lack of proper line item segregation and sub-headings, and provides recommendations for improvement, such as separating current and non-current assets and liabilities according to AASB 101 guidelines. The report also includes a revised statement of financial position for Dom Ltd, demonstrating the correct classification of assets, liabilities, and equity, and emphasizes the importance of following AASB 101 to facilitate informed decision-making by stakeholders. The report concludes with a reference to AASB 101 (2015) for further guidance.

RUNNING HEAD: EXTERNAL REPORTING
EXTERNAL REPORTING

EXTERNAL REPORTING 1
Contents
QUESTION 1...........................................................................................................................................2
Part a.................................................................................................................................................2
Part b.................................................................................................................................................5
REFERENCES..........................................................................................................................................7

EXTERNAL REPORTING 2
QUESTION 1
Part a
To: Jennifer
From: Chief Accountant of Wesley Ltd
Re: Preparation of Financial Statement
The main objective of this memo is to address the key problems which has occurred
during formulating the statement of financial position and also validate the key parts which
are need to be deliberated in accordance with AASB 101 of Presentation of financial
statements wherever required.
Before starting the preparation of financial statements it is important to identify the
type of organisation. In this case, Jennifer has prepared the statement of financial position of
Dom Ltd. After taken into consideration all the areas of this statement, it has been scrutinised
that the financial report has not been prepared in accordance with Australian Accounting
standard that is AASB 101.
The main requirement of making the financial statements is to show true and fair view
about the company’s financial stability which is useful to the stakeholders of the company.
Predominantly, the statements describe the company’s assets, equity, costs, revenues,
liabilities, cash flows and other things. The assets, liabilities and equity of the company
deliver information of the specific date particularly at the end of the reporting period
(AASB101, 2015).
However, in this case the financial statement of accounting period ended on 30 June
2017 was not presented in accordance with AASB 101. It should be flagrantly presented as
follows:

EXTERNAL REPORTING 3
 The Organisation name
 whether the financial statements consist of single entity or group of entities
 Accounting period
 Accounting currency
(AASB101, 2015).
According to AASB 101, it is very important to display line items on the face of the
statement together with headlines and sub-totals in order to reflect the true and fair view
about the company’s financial condition to the stakeholders.
For Instance, in the case of Dom Ltd,
i. Land
ii. Cash at bank
iii. Trade debtors
iv. Property, Plant and Equipment
v. Goodwill
vi. Intangible Assets
vii. Inventories
viii. Other Assets
ix. The total of Assets
x. bank Loans
xi. Trade Creditors
xii. Trade Payables
xiii. Financial liabilities
xiv. Provisions etc. and many more items.

EXTERNAL REPORTING 4
Thus, in accordance with the financial statements of Dom Ltd it clearly depicts that
users of the financial statements are not able to recognize and differentiate the line items and
users are also not able to make judgements. Therefore, it is advisable to separate the line
items with proper headings and sub-headings showing current assets, non-current assets,
current liabilities, non-current liabilities in their statements. Such as Inventories, cash and
cash equivalents, trade receivables are required to show under current assets whereas land,
Intangible assets, plant and equipment are required to show under non-current assets.
Similarly, short-term bank loans, trade payables, provisions are required to show under
current liabilities whereas long-term financial liabilities, long-term bank loans are required to
show under non-current liabilities. All the above classification should be sub-totalled and
presented as per the AASB 101. Hence on the basis of given statement of financial position
of Dom Ltd it depicts that users are not able to recognize the financial condition and also
cannot make judgements.
There are three main items shown in the statement of financial position are as follows:
 Assets
Assets are defined as resources which are owned by the company for which future
economic benefits are expected to flow to the company. For instance, in the case of
Dom Ltd there is an investment property which is an asset and it is related to the land
and short-term loans and therefore as per AASB 101 it should be bifurcated into non-
current assets and current liabilities. In addition to this, the assets are always
calculated as per going concern assumption and should be displayed at the specific
date of the reporting period.
 Liabilities
Liabilities are future obligations of a company as a result of past events are termed as
Liabilities. There are two types of liabilities such as current liabilities and non-current

EXTERNAL REPORTING 5
liabilities and these are bifurcated according to the obligation due dates. For instance,
in the case of Dom Ltd there is trade and other payables some portion of which are
repayable within a year and some payables are more than a year. As seen that total
trade and other payables are come under liabilities head but according to AASB 101 it
shall be bifurcated between current liabilities and non-current liabilities.
 Equity
Amount of funds invested by the shareholders in the company are called as Equity.
The equity portion should also consider retained profits if any. For instance, in the
case of Dom Ltd it is observed that ordinary share capital is given under liabilities
head which is wrong and it should be covered under Shareholder’s Equity head as per
AASB 101.
Therefore, it is highly advisable as a chief accountant of the Wesley Ltd to refer all
the aspects in preparing financial statements which are covered under AASB 101 and follow
AASB 101 which are helpful in decision making for the stakeholders.
Part b
Dom Ltd
Statement of financial position
as at 30 June 2017
Particulars $ $
ASSETS
Current Assets
Cash at bank 4000
Trade Debtors 160000
Other Assets 10000
Raw material inventory 40000
Total Current Assets 214000
Non-Current Assets
Property, Plant and Equipment 610000
Land 114000
Other Assets 36000
Intangible Assets 94000
Total Non-Current Assets 854000

EXTERNAL REPORTING 6
TOTAL ASSETS 1068000
LIABILITIES
Current Liabilities
Bank Loans 28000
other Loans 34000
Trade creditors 40000
Allowance for inventories 4000
Financial Liabilities 100000
Current Tax Payable 8000
Provision for warranty 40000
Total Current Liabilities 254000
Non-Current Liabilities
Trade creditors 70000
Financial Liabilities 500000
Total Non-Current Liabilities 570000
TOTAL LIABILITIES 824000
NET ASSETS 244000
EQUITY
Share capital 200000
Retained Earnings, 1 July 2016 20000
Reserves 24000
TOTAL EQUITY 244000
O
K

EXTERNAL REPORTING 7
REFERENCES
AASB101. (2015). Presentation of financial statements. retrieved on 20 September 2017
from file:///C:/Users/Tanvi%20Jain/Downloads/1707771_548068821_AASB10107-
15.pdf.