ACC510 S1 Financial Reporting: A Detailed Analysis of Barra Resources

This report provides a detailed analysis of Barra Resources Limited's financial reporting practices based on their 2017 annual report. It examines the provisions and contingencies disclosed, including rehabilitation expenses and contingent liabilities related to terminated contracts, and discusses the recognition criteria and measurement issues associated with them. The report also analyzes the leased items recorded by the company, focusing on plant, property, and equipment, and explores the relevant classification and presentation requirements under AASB 16. A hypothetical scenario for reclassifying a leased item is presented, along with a discussion of the valuation method used for non-current assets, specifically financial assets, and an alternative valuation method using the equity method. The analysis concludes that Barra Resources Limited generally adheres to AASB norms, but suggests areas for improved disclosure to enhance financial reporting quality. Desklib provides access to a wealth of similar solved assignments and past papers for students.

Running head: FINANCIAL REPORTING
Financial Reporting
Name of the Student:
Name of the University:
Author’s Note:
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Table of Contents
Introduction:....................................................................................................................................2
1. Provisions and contingencies:......................................................................................................2
2. Recognition criteria and measurement issues:.............................................................................4
3. Arguments for and against the record of contingency in the financial report:............................4
4. Details of the leased items recorded or disclosed by Barra Resources Limited:.........................5
5. Classification and presentation requirements pertinent to leased items:.....................................7
6. Hypothetical situation for reclassifying a leased item:................................................................8
7. Valuation method of non-current asset:.......................................................................................9
8. Alternative valuation method for the non-current asset:...........................................................11
Conclusion:....................................................................................................................................12
References:....................................................................................................................................13

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Introduction:
The essay focuses on highlighting the issues to be identified after careful assessment of
Barra Resources Limited in order to determine whether the accounting statements are prepared in
compliance with the prevailing standards so that the overall reliability could be identified. The
latest annual report of the organisation is dissected to shed light on the important aspects
discussed in the paper. Thus, the aim of this paper is to provide a thorough insight and
assessment of the various accounting statements prepared on the part of Barra Resources
Limited.
1. Provisions and contingencies:
The contingencies that are disclosed in the accounting statements of the corporate entities
are segregated into different elements. In this regard, Abbott et al. (2016) cited that some assets
and liabilities are reported under contingencies that are yet to be accounted, as emergency
situation led to their occurrence. The main items that are considered under contingencies in an
organisation include guarantees, commitments related to capital expenditure, contingent
liabilities and others. Guarantees are defined as those financial contracts, which are realised as
liabilities in the characteristics of finance at the time of issuing the financial guarantee.
Commitments related to capital expenditure are the expenses where the parent organisation needs
to enter into agreements for the fully owned subsidiaries related to acquisition of fixed assets
such as plant, property and equipment. However, these two items are not mentioned in the annual
report of Barra Resources Limited in 2017.

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The only contingency mentioned in the annual report of the organisation is contingent
liabilities, which have direct association with the terminated contract. As per the latest annual
report of the organisation, no contingent liability has been recognised in 2017.
For provisions, the significant items that are recognised in the annual report of Barra
Resources Limited in 2017 include rehabilitation expenses and long service leave provision.
These are realised at the time the organisation has a current obligation due to a past event, the
likelihood of future compromise of economic benefits and reliable measurement of the provision
amount is possible. The provision amount that is reported in 2017 is $130,793 in contrast to
$111,635 in 2016.

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2. Recognition criteria and measurement issues:
Certain recognition criteria and measurement issues for contingencies as well as
provisions are inherent for the business organisations in Australia. For the mentioned contingent
liabilities, no amount has been recognised in both the years 2016 and 2017. On the other hand,
the realisation of provisions is made when the entity has existing constructive or legal obligations
and it is probable that the outflow of economic benefits would be required to settle the
obligations.
3. Arguments for and against the record of contingency in the financial report:
It could be evaluated that contingent liability is the only disclosed contingency in the
financial report of Barra Resources Limited in 2017. The contingent liabilities are realised as a
part of liability and they are incurred at the time of issuance. The fair value approach is used
mainly for recording the contingent liabilities. This contingency is not possible to be used for
other contingent liabilities, since they would not be identical and as a result, the treatment of
accounting elements would be represented wrongly (Crawford, Lont and Scott 2014). As a result,
impact would be severe on the qualitative characteristics pertaining to the financial statements. In
other words, the important qualitative features like understandability, comparability and
reliability aspects of these statements would be affected. The first aspect signifies the extent to

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which it is possible for the investors to gain an overview and analyse the financial statements.
Lastly, the comparability aspect denotes whether the preparation of the financial statements is
made in line with the right standard designed by the accounting authorities (Carey, Potter and
Tanewski 2014).
4. Details of the leased items recorded or disclosed by Barra Resources Limited:
As per the annual report of Barra Resources Limited in 2017, plant, property and
equipment are recorded in the form of financial leases and they are valued at $11,991 million in
2017 compared to $28,357 in 2016. Moreover, the rental expenses that are identified from its
annual report have been $68,684 in 2017, which were $64,941 in 2016. However, it has not
disclosed or recognised lease liabilities in both the years 2016 and 2017 (Barraresources.com.au
2018). In order to recognise leases in the annual report, the operating lease payments are reported
in compliance with “AASB 16 Leases”.

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5. Classification and presentation requirements pertinent to leased items:
The particular accounting standard available for lease treatment in accounting constitute
of AASB 16 and the financial statements associated with leases are developed in compliance
with the depicted standard (Henderson and O’Brien 2017). Moreover, the recognition of interest
is made depending on the lease term. The exceptions included in the annual report comprise of
leases, which have lower values and timeframes.
Plant, property and equipment are recorded in the form of financial leases and they are
valued at $11,991 million in 2017 compared to $28,357 in 2016. However, no lease liabilities
have been deemed to occur in 2016 and 2017 and thus, they are not reported as a separate item in
the balance sheet statement of Barra Resources Limited (Xu, Davidson and Cheong 2017).

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6. Hypothetical situation for reclassifying a leased item:
A hypothetical scenario has been assumed, in which property, plant and equipment is
treated as a lease item, which is ought to be reclassified. The following list of examples would
help in describing this particular situation:

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 The lessee takes over the asset ownership as soon as the lease term is completed (Holland
2016).
 The lessor provides the lessee with an option, in which the latter could buy the item from
the former at a price, which is lower than the market value.
 It is easy for the lessee to use the item due to certain in-built features, which eradicate the
need for further changes (Joubert, Garvie and Parle 2017).
7. Valuation method of non-current asset:
For this situation, a specific item is chosen from the non-current assets represented in the
balance sheet statement of Barra Resources Limited and thus, the significant descriptions are
given regarding that item. In this case, the item chosen is the financial assets, which are reported
in the balance sheet statement of the organisation and supporting notes regarding their treatment
are disclosed in the annual report. The balance sheet statement of the organisation clearly states
that the value of financial assets has been $91,249 in 2017, which was $114,000 in 2016. In this
regard, Martínez‐Ferrero, Garcia‐Sanchez and Cuadrado‐Ballesteros (2015) advocated that
financial assets denote those assets that occur from contractual agreements on future cash flows
or from owning equity instruments of another organisation. However, there is a significant
difference between property, plant and equipment and financial instruments, which is the
presence of counterparty.
For Barra Resources Limited, it has been evaluated that the recognition or de-recognition
of investments is made at the trading date, in which the sale or purchase of an investment is in a
contract. The terms need legal transfer of investment within the time limit developed by the
concerned market, which are gauged initially at fair value, net of transaction costs (Wong and

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Joshi 2015). The organisation classifies the financial assets into various categories and they are
identified as follows:
 Financial assets at fair value via profit and loss
 Available-for-sale financial assets
 Loans and receivables

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8. Alternative valuation method for the non-current asset:
An alternate method that could be used for valuing the financial assets is the equity
method. This is because this method would be extremely beneficial for important influence
investments or joint ventures, in which the voting interest is owned between 20% and 50%
(Nobes 2014). The investment account could rise or fall under the equity method depending on