Deakin University MAA363 Corporate Accounting Assignment - Question 1

This assignment solution addresses key concepts in corporate accounting, specifically focusing on lease accounting under IFRS. Part A explores the differences in the reduction of carrying amounts between lease assets and liabilities, and analyzes management's response to new lease accounting requirements. Part B requires the preparation of a lease payment schedule and relevant journal entries for Red Ltd. Part C delves into the meaning of 'true and fair view' in financial reporting and discusses the appropriateness of a single, global set of accounting standards. The solution demonstrates an understanding of accounting principles, financial statement analysis, and the implications of accounting standards on business practices. The assignment incorporates calculations and workings to support the answers, providing a comprehensive overview of the subject matter.

Department of Accounting
MAA363 CORPORATE ACCOUNTING
ASSIGNMENT - Trimester 3, 2019
Question ONE Proforma
Family name: First names:
Deakin ID
Deakin Username:
SPECIAL INSTRUCTIONS:
 The DUE DATE for submission of this question is Tuesday 17 December,
2019 before 11.59 pm (AEST).
 Question (Part A, Part B and Part C) must be completed and submitted on
this proforma.
 Please ensure that you understand the University rules on plagiarism – it must
be your own work.
 Include your answer in sections provided but include WORKINGS on the
LAST PAGES.
 You can create more lines on the lease schedule and journal entry tables etc.
by placing the cursor at the end of the last row and pressing TAB.
 Insert your name and student ID in the footer.
 You are not required to submit a hard copy.

Written Assignment - Question 1 (Proforma) MAA363 Corporate Accounting
PART A:
1) Why would the carrying amount of a lease asset typically reduce more quickly than the
carrying amount of a lease liability?
Answer:
Carrying amount of lease liability is the present value of periodic lease rentals
and other obligations that needs to be paid to the lessor throughout the term of the
lease. On the other hand, the present value of the lease rental plus any other expenses
minus lease revenues or incentives are recognised as the lease asset. Lease assets are
generally written off as per the periodic depreciation expenses, while the lease liability is
written off on the basis of payment of lease rentals (Hoyle, Schaefer and Doupnik 2015).
Each of the lease rentals is segregated into two parts, one is the interest expense
and the other is the principal payment. The lease liability is reduced by the amount of
principle payments. Initially, the interest expenses becomes higher and the principle
payment remains comparatively lower. Hence, initially, the lease liability is written off
slowly while the lease assets is written off quickly as compared to the lease liability
(Hoyle, Schaefer and Doupnik 2015).
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Written Assignment - Question 1 (Proforma) MAA363 Corporate Accounting
2) How do you think that the management of reporting entities will respond to the new
requirements for leases? Do you think it will affect how or whether they lease assets, and if
so, why?
Answer:
The new requirement of lease accounting requires the company to recognise the
lease liability as well as the lease assets in the books of accounts initially. The present
value of all the lease obligations are recognised and recorded as the lease liability and
the value of lease liability plus any other lease obligation as reduced by any lease
incentives are recognised and recorded as the lease assets (Pacter 2014).
The new accounting standard requires to write off the lease liability with the
amount of principle lease repayment. The periodic lease rentals are segregated into
interest expense and principle repayment as based on the implicit interest rate. The
difference between the periodic lease rentals and the respective interest expenses is
considered as the principle repayment and reduced from the lease liability. On the other
hand, the lease assets is also written off based on the periodic depreciation expense as
per the assets class (Yu and Wahid 2014).
Therefore, the new accounting requirements is more transparent and gives a
complete and accurate picture of the lease liability and lease assets at a given point of
time from the perspective of the lessee. Though, the new requirements are quite a
complex in nature and requires various changes in the current accounting process and
method of lease accounting, managers should accept and adopt in the business to
achieve more transparent and effective financial reporting (Yu and Wahid 2014).
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Written Assignment - Question 1 (Proforma) MAA363 Corporate Accounting
PART B
1) Prepare a schedule of lease payments for Red Ltd, for the period from lease inception to
the end of the agreement.
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Date Lease Payment Interest
expense
Principal
reduction Lease liability

Written Assignment - Question 1 (Proforma) MAA363 Corporate Accounting
2) Provide all journal entries relevant to the lease contract in the accounts of Red Ltd.
i) At the inception of the lease (1/7/2018).
ii) As at 31/12/2018, including depreciation charges.
iii)At the end of the lease contract, including the depreciation charges.
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Date Particulars Dr Cr

Written Assignment - Question 1 (Proforma) MAA363 Corporate Accounting
PART C
1) The Corporations Act requires directors to ensure that financial reports give a ‘true and
fair view’. What does the term ‘true and fair view’ mean?
Answer:
Financial statement is the ultimate result of the whole accounting process.
Financial reporting is the process of preparing final financial statement and
reporting such material information which are necessary to understand the financial
performance and financial position of a business organisation for a particular
period.
Reporting financial information or reporting financial performance and
financial position of the business is a primary objective of the financial accounting.
Stakeholders of a business organisation depends on such financial reports for
understanding the financial performance and position of the business and to make
various decision relating to the business organisation (Hoyle, Schaefer and Doupnik
2015).
Understanding the need and importance of the financial reporting, it can
easily be observed that, the information reported in the financial report must be free
from any material misstatement and intentional misrepresentation. The concept of
true and fair view requires the financial statement to be depicting the true picture of
the financial performance and financial position of the business. Therefore, the
directors of the company must ensure that the financial reports as reported by the
business must show the true result of the financial performance of the business and
must represent the true financial position of the business organisation (Hoyle,
Schaefer and Doupnik 2015).
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Written Assignment - Question 1 (Proforma) MAA363 Corporate Accounting
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Written Assignment - Question 1 (Proforma) MAA363 Corporate Accounting
2) Do you believe that it is appropriate that we have a single, global set of accounting
standards that has global applicability? Explain your answer.
Answer:
Financial accounting is the process of recording, classifying, summarising and
reporting financial transactions of a business organisation. Various companies may
follow different accounting policies and rules for their day to day accounting and
reporting. Though there are some generally accepted accounting rules and principles,
most of the countries have different accounting rules, regulations and standards.
Companies of the respective country are mandatorily required to comply with such
accounting standards, rules and regulations (Ebaid 2016).
As most of the countries are having their own accounting rules, regulations and
standards, and different governing bodies, the reporting of financial information may
not be the same and comparable as well. Hence, there is a need for uniform and global
accounting and reporting standards, which will make the financial reporting uniform
and comparable (Ebaid 2016).
There are various such international accounting standards and reporting
standards which are aimed at increasing the uniformity in financial reporting but most
of the standards are optional in nature. Some of the countries adopted the international
accounting and reporting standards and made it mandatory for the companies but still
some of the countries and its companies are following their own accounting standards.
Hence, though there are some existing global accounting standards, it is not effective in
reality because of its application and non-application. If such international standards
are made mandatory for all the countries and its companies, the objective of uniform
accounting and reporting could be achieved in reality (Budding, Grossi and Tagesson
2014).
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Written Assignment - Question 1 (Proforma) MAA363 Corporate Accounting
REFERENCE LIST (if applicable)
Budding, T., Grossi, G. and Tagesson, T. eds., 2014. Public sector accounting. Routledge.
Ebaid, I.E.S., 2016. International accounting standards and accounting quality in code-law
countries: The case of Egypt. Journal of Financial Regulation and Compliance, 24(1), pp.41-59.
Flower, J. and Ebbers, G., 2018. Global financial reporting. Macmillan International Higher
Education.
Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015. Advanced accounting. McGraw Hill.
Klychova, G.S., Fakhretdinova, E.N., Klychova, A.S. and Antonova, N.V., 2015. Development of
accounting and financial reporting for small and medium-sized businesses in accordance with
international financial reporting standards. Asian Social Science, 11(11), p.318.
Maynard, J., 2017. Financial accounting, reporting, and analysis. Oxford University Press.
Nobes, C., 2014. International classification of financial reporting. Routledge.
Pacter, P., 2014. Global accounting standards-From Vision to reality. The CPA Journal, 84(1),
p.6.
Phillips, F., Libby, R. and Libby, P., 2015. Fundamentals of Financial Accounting. McGraw-Hill
Education.
Yu, G. and Wahid, A.S., 2014. Accounting standards and international portfolio holdings. The
Accounting Review, 89(5), pp.1895-1930.
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Written Assignment - Question 1 (Proforma) MAA363 Corporate Accounting
WORKINGS
Calculations and workings for all questions should be included here.
Please ensure you include them in the same order as your answers e.g. workings for
Part A in this section should appear before workings for Part B etc.
(add more rows as necessary)
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