Accounting Assignment: Classification of Extua Company Shares

This accounting assignment focuses on the classification of Class A common shares issued by Extua Company for the acquisition of another company. The core issue revolves around whether these shares should be categorized under equity or liabilities on the balance sheet, which is crucial for accurately representing the company's financial performance. The assignment references AASB 132 to determine the correct classification, considering contractual obligations and definitions of equity instruments and financial liabilities. The analysis concludes that, based on the existence of a contractual obligation to pay either in cash or in its own share at the end of December 2018, the financial instrument is best classified as a financial liability. The assignment highlights the importance of adhering to accounting standards and the impact of proper classification on financial reporting. The student provides a detailed discussion referencing relevant facts, evidence, and guidelines from accounting standards and the final evaluation provides an informed opinion based on the analysis.

Running Head: Accounting Assignment
Student’s name
Course
Institution
Pro forma Schedule for Journal Entries
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Running Head: Accounting Assignment
ANALYSE (30 – 50 words)
Identify the issue and why it matters. Determine what you need to find out.
RESEARCH (300 words)
Present relevant facts and evidence, or issues.
Here, the main issue that needs to be identified is that whether the Class A common shares
which were accepted by the previous suppliers of Extua company against the payment for
the acquisition of their company is either to be listed under equity or the liabilities head.
Presentation under the correct head is very imperative ss balance sheet is one of the tools
to analyse a company’s performance
According to AASB 132, an issuer needs to identify whether the issued instrument s a
financial liability an asset or an equity instrument based on the definition and the
existence of contractual obligation. An equity instrument can be defined as any contract,
which after the deduction of all the liabilities shows a residual interest of another entity. A
financial liability as per AASB 132 can be defined as any liability, which is a contractual
obligation to deliver financial asset or cash to another equity or to exchange financial asset
or liabilities with another entity under unfavourable conditions. A financial instrument can
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Running Head: Accounting Assignment
EVALUATE & ANSWER (50 – 100 words)
Provide your opinion based on your discussion of relevant facts, evidence, or issues.
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be termed as an equity instrument if certain conditions are fulfilled like:
Based on the above discussion we can state that it is best if the Extua corporation term
the financial instrument as a financial liability and not as a financial equity because there
are certain conditions that needs to be fulfilled to be considered as an equity which are not
fully met. We can see that here a contractual obligation exist to pay either in cash or in its
own share at the end of December 2018. So, it is best to term it as a liability as of now.
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Running Head: Accounting Assignment
REFERENCES
Financial Instruments: Presentation. (2017). Retrieved 18 September 2017, from
http://www.aasb.gov.au/admin/file/content105/c9/AASB132_07-04_COMPoct09_02-10.pdf
Pro-rata Allotment and its Accounting Treatment. (2017). YourArticleLibrary.com: The Next
Generation Library. Retrieved 18 September 2017, from
http://www.yourarticlelibrary.com/accounting/share/pro-rata-allotment-and-its-accounting-
treatment/46864/
AASB 132 - Financial Instruments: Presentation - August 2015. (2017). Legislation.gov.au.
Retrieved 18 September 2017, from
https://www.legislation.gov.au/Details/F2015L01605/EnabledBy
IAS32/AASB132: Financial Instruments Presentation. (2017). Grant Thornton Australia |
Audit, Tax and Advisory. Retrieved 18 September 2017, from
https://www.grantthornton.com.au/insights/technical-publications--ifrs/ias32aasb132-
financial-instruments-presentation/
BarNet Jade - Find recent Australian legal decisions, judgments, case summaries for legal
professionals (Judgments And Decisions Enhanced). (2017). Jade.io. Retrieved 18 September
2017, from https://jade.io/j/?a=outline&id=500087
(e) AASB 132: Financial Instruments: Disclosure and Presentation (AASB 132) and AASB
139: Financial Instruments: Recognition and Measurement (AASB 139) for HOSPIRA (HSP).
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Running Head: Accounting Assignment
(2017). Wikinvest.com. Retrieved 18 September 2017, from
http://www.wikinvest.com/stock/HOSPIRA_(HSP)/Aasb_132_Financial_Instruments_Disclo
sure_Presentation_139_Recognition
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