Advanced Financial Accounting: Lease, Liabilities, and EPS Analysis

This report provides a comprehensive analysis of advanced financial accounting practices, specifically focusing on lease accounting, liabilities including provisions and contingent liabilities, and earnings per share (EPS). The report examines the compliance of two Australian Stock Exchange-listed companies, Acacia Coal Limited and Abilene Oil and Gas Limited, with relevant accounting standards, including AASB 117 and the upcoming IFRS 16. The analysis includes a detailed review of each company's annual reports to assess their lease disclosures, liabilities reporting, and EPS calculations. The report highlights the differences in accounting treatments, particularly regarding the transition to IFRS 16, and the impact on financial statements. It also explores the disclosure requirements for liabilities, provisions, and contingent liabilities, as well as the presentation of EPS. The report concludes by summarizing the findings and comparing the compliance of both companies with the accounting standards, providing insights into best practices and areas for improvement.

Running head: ADVANCED FINANCIAL ACCOUNTING
Advanced financial Accounting
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................3
Firm’s disclosure to leasing for exploring compliance with relevant accounting standard:......3
Analyzing the annual report of Acacia coal limited relating to lease disclosure:......................4
Analyzing the annual report of Abilene Oil and gas limited relating to lease disclosure:.........5
Firm’s disclosure of liabilities including provisions and contingent liabilities for exploring
compliance with relevant accounting standard:.........................................................................8
Analyzing the annual report of Abilene Oil and Gas limited relating to liabilities disclosure:. 9
Analyzing the annual report of Acacia coal limited relating to liabilities disclosure:.............11
Firm’s disclosure of earnings per share for exploring compliance with relevant accounting
standard:...................................................................................................................................13
Analyzing the annual report of Acacia coal limited relating to earnings per share disclosure:
..................................................................................................................................................14
Analyzing the annual report of Abilene Oil and Gas limited relating to earnings per share
disclosure:................................................................................................................................16
Conclusion:..............................................................................................................................19
Reference List:.........................................................................................................................20

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Introduction:
The report is prepared to explain and demonstrate the compliance of the companies
listed on Australian stock exchange concerning various particular areas. Selected company
for illustrating the compliance disclosure are companies from energy sectors that is Acacia
Coal limited and Abilene Oil and Gas limited. Explanation of disclosure is done in several
areas such as leasing, liabilities that includes contingent liabilities and provisions and earning
per shares. Report is prepared to explore the comparison of both the chosen organizations in
areas of lease, liabilities and intangible assets. Evaluation of the compliance disclosure in the
selected areas is done by conducting analysis of annual report of these companies. Acacia
coal limited is a public listed company on Australian stock exchange that is engaged in
development and exploration of coal and mine. It is based in West Perth in Australia. On
other hand, Abilene Oil and Gas limited is an oil exploration, production and development
company having interest in oil operating assets based in South Melbourne in Australia. For
the evaluation of the disclosure of accounting, standard requirement in respect of three
selected areas, which is leasing, liabilities and earnings per share is done by analyzing their
respective financial reports.
Discussion:
Firm’s disclosure to leasing for exploring compliance with relevant accounting
standard:
The accounting treatment for lease is currently treated under the standard AASB 117
where the liability pertaining to lease relating to future payments is measured at present value
and it is discounted at the rate that is implicit in the lease. Lease incorporate the payment such
as fixed payment, amount that is payable under a residual value guarantee and lease
incentives that are deducted from payments. Two types of expenses are recognized over the

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lease terms and this involves depreciation on the right to use assets and the interest on lease
liabilities. For the operating lease, recognition of lease payment by lessor should be
recognized as income on any systematic basis and on a straight-line basis. Costs of assets
shall be recognized by lessor including the depreciation that is incurred on the earning of
lease as an expense (aasb.gov.au, 2018). The determination of whether the underlying assets
should be recognized as operating lease for impairment and accounting for any impairment
loss should be done in accordance with IAS 136. Any considerable changes in carrying
amount of the net investment of operating leases should be provided with a qualitative and
quantitative explanation (Carlon et al., 2015). A maturity analysis of all the receivable
concerning lease payments should be recognized by organization. Disclosure requirements
leading to assets that are subjected to operating leases shall be done in accordance with the
other applicable standards.
Under the existing lease accounting standard, classification of lease is done to the
extent of rewards and risks that is incidental to leased assets ownership with the lessee or
lessor. Classification of lease as finance lease is done if the rewards and risks incidental to
ownership is transferred substantially (Hoggett et al., 2015). On other hand, if there is no
substantial transfer of all rewards and risks to the assets ownership, then lease is regarded as
operating lease.
Analyzing the annual report of Acacia coal limited relating to lease disclosure:
It has been ascertained from the annual report of the companies that is Acacia coal
limited and Abilene Oil and Gas limited that they currently comply with existing leasing
standard that is AASB 117. While evaluating the annual report of Acacia Coal limited, the
information about leases is mentioned in the notes to financial statements. Acacia coal group
is required to comply with the minimum obligations concerning expenditures as specified by

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Queensland state government for maintaining the current rights of tenure to exploration
tenements (acaciacoal.com.au, 2018).
Exploitation of group related to lease forms the basis of future evaluation of
expenditure and capitalized exploration. Currently the group is undergoing the assessment of
the adoption of new leasing standard IFRS 16 and its influencing their operating lease. On the
implementation of the standard, there will be capitalization of right to use assets in the
statement of financial position that is measured at unavoidable future lease payments present
value to be made over the lease term (acaciacoal.com.au, 2018).
Annual report of Acacia limited does not make a detailed disclosure of the lease in the
notes to financial statements. Company has employed the existing lease standard AASB 117,
they are seeking adaption of the new lease standard that is AASB 116, and this will lead to

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elimination of classifications of finance and operating lease. There will be capitalization of
right to use assets in the financial statements that are subjected to exceptions and the
measurement is done using the present value of unavoidable payment relating to future lease
over the term of lease. Adoption of new lease standard will be providing several benefits to
company relating to lease recognition (Narayanaswamy, 2017).
Analyzing the annual report of Abilene Oil and gas limited relating to lease disclosure:
Abilene has fifty percent net working interest in leases that covers approximately
15000 acres of Wherry Oil fields and Welch Bornholdt. Company has announced it in
financial year 2015 about its agreement to fund exercise across the final and third option of
acquiring leases in some project. On other hand, the application of new lease standard by
Abilene Oil and Gas limited, some of the expectations concerning the organization is related
to short-term lease or lease hat are less than 12 months and leases of low value assets
(abilene.com.au, 2018). There will be depreciation charge of leased assets and recognition of
leased liabilities as interest expenses. However, the expenses under the new standard will be
higher as against expenses recorded under the AASB 117. There will be separation of
components of principal and interest under the new standard. Company regarding the new
standard assesses changes and it is expected that there will not be any material impact on the
financial statements. However, from the analysis of the annual reports of both the companies,
it can be seen that there was not much information was provided regarding lease and the
obligations to lease standard. Additional information was not made in the annual reports
relating to leasing standard.

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There was no detailed disclosure about leases agreement and currently, organization
does not have any lease contracts as depicted from the statement of financial position.
However, they make the implementation of the existing lease standard.
Abilene Oil and Gas limited will be replacing existing lease standard by the new
standard IFRS 116 that will lead to elimination of lease classification. Under the new
standard, expenses incurred on organization relating to lease contracts will be more under the
new standard compared to existing standard. There will be replacement in operating expenses
by depreciation of profit and loss along with interest expenses that will lead to improved

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operating expenses. Moreover, there will be separation of lease payments into both principal
and interests and there will not be any substantial change in lessor amount of lease.
Now, on comparing the disclosure requirement concerning leases of both the
companies, it can be inferred that there is no detailed presentation of lease arrangement of
organization. Nonetheless, users will be able to make the identification of compliance with
the existing lease standard that is AASB 117. Abilene Oil and Gas limited as well as Acacia
coal limited does not have lease contracts in the current year as well as previous financial
year. This was clearly identified from the balance sheets and there was no mention about
leases in the notes to financial statement. Both the organizations are intending to replace the
existing standard of lease with new lease standard that leads to better accounting treatment of
lease and more transparent and faithful representation of lease agreements. The introduction
of new lease standard will help in bringing much needed transparency and faithful
representation of contracts relating to lease, as there will be better-balanced lease versus buy
decisions by management (Hoggett et al., 2014). Elimination of lease classification and its
disclosure on balance sheet will end up making rough estimates and arrive at accurate lease
commitments.
Firm’s disclosure of liabilities including provisions and contingent liabilities for
exploring compliance with relevant accounting standard:
An entity is required to disclose the carrying amount at the beginning of each
financial period. Any amount of additional provisions that is made by reporting entity and
any increase in provision will also mentioned in the financial statement. Any unused amounts
that will be received during the period are to be mentioned. For each class of provisions,
entity should make the disclosure of expected timings and nature of obligations, amount of
any expected reimbursement in the financial statements. Any indications leading to

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uncertainties should also be disclosed in the report. In relation to contingent liabilities, an
entity is required to make disclosure about the description of contingent liabilities along with
the nature of descriptions. An entity should make disclosure about the link between
contingent liabilities and provisions when the contingent liability and provisions are arising
from the same set of circumstances. Recognition of contingent liabilities are done when the
entity has present obligations and when there is probability of outflow of economic benefits
for settling the obligations (Jouber et al., 2017).
For accounting for provision and contingent liabilities, it is required by entities to
comply with IAS 137. Provisions are required to be recognized by entities when there are
present obligations and there is a reliable that can be made for the obligations. Measurement
of provisions is done for the settlement of present obligations and at the best estimate of
expenditures. This incorporates time value of money, uncertainties and risk considerations
and future events in the evidence of sufficient objectives. Recognition of contingent liabilities
is prohibited by organization as per IAS 137 when the recognition criteria is not met under
present obligations and existence of other possible obligations as confirmation is required for
reporting entity present obligations leading to resources outflow.
Analyzing the annual report of Abilene Oil and Gas limited relating to liabilities
disclosure:
The financial report of Abilene Oil and Gas limited is prepared on a going concern by
contemplating realization of assets and settlement of liabilities in the ordinary course of
business. Financial report does not incorporate any adjustments relating to recoverability and
classification of liabilities that might be incurred should the consolidated entity does not
continue as going concern. Total amount of liabilities of the group is divided into current

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liabilities and noncurrent liabilities. Amount of net current liabilities stood at $ 4268528 as
depicted in the consolidated financial statement (abilene.com.au, 2018).
Abilene Oil and gas limited does not have any amount of contingent liabilities for the
year ending 31st December, 2016. Consolidated entity derecognizes the total amount of
liabilities if it loses control over as subsidiary. Liabilities are recognized at fair value and the
liabilities that are disclosed on the statement of financial position are based on noncurrent and
current classification. It is required by the standard for financial liabilities to relate the portion
of alterations in the fair value by relating it to the credit risks of own entity. Judgement and
estimates is continually evaluated by the management of group in relation to liabilities,
provisions and contingent liabilities (abilene.com.au, 2018). Equity method of accounting is
used to incorporate the liabilities of joint venture or associates in the consolidated financial
statements.

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The maturity profiles of financial liabilities are matched for managing the liquidity
risks associated with the company. Disclosure of consolidated entity’s liabilities is done at
fair value using fair value hierarchy and this helps in reflecting the input significance used in
making measurements (abilene.com.au, 2018). Provisions are one of the components of
noncurrent liabilities.
Abilene Oil records total amount of provisions and Gas limited for the financial year
2017 and 2016 stood at $ 259809 and $ 189934 respectively (abilene.com.au, 2018).
Analyzing the annual report of Acacia coal limited relating to liabilities disclosure:
From the analysis of annual report, it can be seen that Acacia does not have any
noncurrent liabilities attributable to it in the recent financial years. The financial statement of
organization is prepared on an ongoing basis by making the settlement of all liabilities that is
incurred in the ordinary course of business. There should be classification of liabilities should
the organization does not continue as a going concern (acaciacoal.com.au 2018). It has been
ascertained that the financial report has been prepared in conformation with the requirements
of AASB by affecting the accounting policies and reported amount of liabilities.
Measurement of non contingent liabilities are done by group by discounting the expected
future cash flow that would reflect the current assessment of market relating to the time value
of money at the pre tax rate. Liabilities of subsidiary is derecognized by the group upon the

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loss of control and the liabilities that are denominated in the foreign currencies are translated
into functional currency at the reporting date at the given exchange rate. Moreover, liabilities
denominated at fair values are retranslated into foreign currency if they are measured at fair
value. Only when the organization ahs the intention of realising liabilities and assets
simultaneously, then there is offsetting of financial assets and liabilities (Callen, 2015).
Recognition of non-derivative financial liabilities is done at fair value and it is done at the
trade date when the company becomes party to contractual instruments provisions.
Measurement of such financial assets is done at amortised cost subsequent to this recognition
by using method of effective interest rate (acaciacoal.com.au 2018). Other liabilities relating
to employee benefits are done at the reporting date and at the amounts that are expected to be
paid during the liabilities settlement. Organization has not recorded any contingent liabilities
and no disclosure has been made for the same.
In relation to contingent liabilities, measurement of contingent liabilities is done by
discounting the expected future cash flow at the pre tax rate that reflects the market
assessment in the current scenario. Any contingent considerations are incorporated in the
finance cost. There were no contingent liabilities that are recorded in the financial year