Comprehensive External Reporting Report: Financial Statement Analysis

This report delves into the intricacies of external financial reporting, providing a comprehensive analysis of relevant accounting standards and practices. It begins by examining AASB 101, focusing on the presentation of financial statements, comparing single and multi-step income statement formats, and highlighting their respective advantages and disadvantages. The report then addresses AASB 110, discussing events occurring after the reporting period and their implications for financial statement adjustments and disclosures, using a fire incident at Wagga Ltd. as a case study. The report further includes detailed journal entries for share transactions, machinery revaluation, and impairment losses, providing practical examples of accounting procedures. Finally, the report explores impairment tests, the calculation of recoverable amounts, and the allocation of impairment losses, using a hypothetical scenario involving a Cash Generating Unit (CGU) to illustrate the process. The report also presents Wagga Ltd.'s income statement and related journal entries demonstrating the application of these concepts.

Running Head: EXTERNAL REPORTING
External Reporting
Name of the Student:
Name of the University:
Author Notes:

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EXTERNAL REPORTING
Table of Contents
Question 1........................................................................................................................................2
Part A...........................................................................................................................................2
Part B...........................................................................................................................................5
Part C...........................................................................................................................................6
Question 2........................................................................................................................................7
Question 3........................................................................................................................................8
Question 4........................................................................................................................................9
Part A...........................................................................................................................................9
Part B.........................................................................................................................................10
Reference list.................................................................................................................................12

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EXTERNAL REPORTING
Question 1
Part A
Accounting standard AASB 101 states the basis of presentation of financial statement to
make certain in the compatibility of the financial statement with the entity in the existing period
with the financial statement of other entities. It gives an overview of the requirement and
guideline for the presentation of financial statement. This standard is applicable for all the profit
oriented firms, public sectors and private sectors as well. This standard can be used to non-profit
organization by amending the description only (C. A. S., 2013). Under this standard those firms
whose share capital is not equity is required to adapt this financial statement presentation. A
structured representation of a financial statement helps the entity to get important information
like financial position and performance. This representation also helps to prepare cash flow
statement which can be used by a wide range of users for decision making purpose and to meet
the entities objectives by providing information about the asset, liabilities, shares, and other
information required to the external part of the entity (Abdel-Aziz & Larner, 2015).
Wagga ltd. is using single statement format to make their statement of profit and loss. In this
format all the expenses are included in one single column with subtotal and revenue in a single
column. This format is the simplest form of income statement presentation and is most
commonly used in businesses (A. C. P. N. S, 2014). This format is now days are not used as it
makes the user of the income statement to summarize the information separately present in the
income statement. Format of single statement is shown below:

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EXTERNAL REPORTING
Revenues xxx
Total revenue xxx
Expenses
Cost of goods sold xxx
Advertising xxx
Depreciation xxx
Rent xxx
Payroll taxes xxx
Salaries and wages
xxx
Supplies xxx
Travel and entertainment
xxx
Total Expenses xxx
Net Income xxx
From the above it can be seen that all expenses are added and totaled in one column while it does
not provide any financial information of the company to the outsiders. This format cannot be
used by public company or private banks as it does not provide much information about the
company. Then also having some lack of detail in single statement format it is easy to understand
and prepare able with less analysis so this format is used for internal purpose. Management
sometimes prefer this format for a single department of all other companies department to
analyze the performance of that division for a particular period to make some decision making
and set goals (A. S. E. & B. G. B, 2018).
Another format allowed by the AASB101 for presentation of the financial statement is multi step
income statement format where income, gains, losses and expenses are shown separately under

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EXTERNAL REPORTING
two categories operating and non-operating. In this format it separates all its activities so that the
users of it can understand the statements of the business easily. This format content more
information than single statement format so it is more preferable but still this format can cause
mislead information if the statement are altered (Coulton et al., 2016). This format helps the
investors and creditor to analyze the business performance. Format if multi statement is as
follows:
Revenues
Sales xxx
Cost of goods sold xxx
Gross margin xxx
Operating Expenses
Advertising xxx
Depreciation xxx
Rent xxx
Payroll taxes xxx
Salaries and wages xxx
Supplies xxx
Travel and entertainment xxx
Total Operating Expenses xxx
Other Income
Interest expense xxx
Interest income xxx
Total other income xxx
Net Income xxx
From the above format it can be seen that the cost of goods sold is shown separately from the
operating expenses which helps the management, investors and creditors to analyze the

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EXTERNAL REPORTING
efficiency of the financial statement. So multistep statement of profit and loss gives more details
than single statement but can mislead if not prepared correctly.
Both the formats are having their own benefits but among these two multi income statement is
more benefited like:
 It states that the gross profit amount with all other details which will help the users to
understand the statement and helps them to compare companies’ gross profit margin
(Hodgson & Russell, 2014).
 It provides a separate head for operating income which will help the investors and other
users to know the profit which is earned by the company from its primary activity.
 It helps to report about the net amount from all other items in the income statement and it
indicate as net income if the net amount is positive or shows as net loss in case of
negative amount.
Wagga ltd. is using single statement format as it is easy and simple to prepare. Company has to
make a single document in which all the income, expenses and the net income is provided and it
is a simplified way of keeping records for an accountant as it required few details and
calculations (Kober, Lee & Ng,2013). This statement is prepared just by adding all the incomes
and expense’s then subtracting them to get the net income which is a single figure amount which
is less likely to confuse the users.
Part B
Accounting standard AASB 110 explains about the events that occurred after the
reporting period. Its main objectives is to describes when an entity can adjust the event after the

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reporting period in its financial statement and the requirement of the disclosure that entity is
required to make when the event occurs after the reporting period.
Events that occurred between the reporting periods or within the financial year can be considered
in the preparation of the financial statement in that year while if the event occurred after the
reporting period or after the end of financial year than the event shall be disclosed in the notes of
the financial statement (Van Schependom et al., 2014). So in case of Wagga limited the fire
occurred on 20th august 2019 while their financial period ends on 30th June 2019 so the event
occurred after the reporting period further it can be classified into adjusting and non-adjusting
events. Whereas adjusting event occurs after the end of the reporting period which provide
further evidence about the condition at the end of the reporting period. Non-adjusting event are
those events where entity does not adjust them with the financial statement after the end of the
reporting period.
In case of wagga limited adjustment for the loss from fire is to be disclosed in the financial
statement as in the question said that the amount of loss is considered as material.
Part C
Wagga ltd.
income statement
for the year ended 30t June 2019
Particulars amount ($)
Revenue 1180000
sale of office building 35000
interest revenue 180000
rent received 20000
other income 18500
distribution expenses -40000
sales return -15000
depreciation on inventories -25000
administrative expenses -15000
interest expenses -25000

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EXTERNAL REPORTING
loss from fire -16000
other expenses -47000
profit before income tax 1250500
income tax expenses -128000
profit after tax 1122500
Question 2
journal entries
date Particulars
amount
(Dr.)
amount
(Cr.)
13-Sep-
18 Bank a/c…….Dr. 3500000
To share application a/c 3500000
(being application of 1500000 shares received)
12-Oct-
18 Share application a/c ….Dr. 3500000
To share capital a/c (1500000*2) 3000000
To Share Allotment (250000*2) 500000
(being application transferred to capital account on pro rata basis)
20-Oct-
18 Share allotment A/c ……Dr. 1500000
To share capital a/c 1500000
(being allotment money transferred to capital account)
20-Nov-
18 Bank a/c …….Dr. (1500000-500000) 1000000
To share allotment a/c 1000000
(being allotment money received )
10-Jan-
19 Share Final Call 750000
To Share Capital 750000
(being final call amount transferred to capital account)
10-Jan-
19 Bank 737500
Calls in arrear 12500
To Share Final Call 750000
(being calls money received with arrear of 25000 shares)

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EXTERNAL REPORTING
17-Jan-
19 Share Capital 87500
To Calls in arrear 12500
To Share forfeiture 75000
(being share in arrear are forfeited)
17-Jan-
19 Bank 70000
Share forfeiture 17500
To Share Capital 87500
(being share forfeited transferred to capital account)
22-Jan-
19 Share Issue Expenses 7500
Bank 7500
(being share expenses amounted to $7500)
22-Jan-
19 Share Forfeiture 7500
Share issue Expenses 7500
(being share issue cost)
22-Jan-
19 Share Forfeiture 50000
Bank 50000
(being surplus amount refunded)
Question 3
Journals
date Particulars amount(Dr.) amount(Cr.)
1-Jul-16 Machinery a/c ……Dr. 120000
To Bank 120000
(being machinery purchased)
30-Jun-17 Depreciation a/c ….Dr. 20000
To Accumulated Depreciation 20000
(being depreciation charged for 2016)
30-Jun-17 Accumulated Depreciation a/c …Dr. 20000
To Machinery a/c 20000

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EXTERNAL REPORTING
(being depreciation transferred to accumulated depreciation)
30-Jun-17 Machinery a/c ….Dr. 10000
To Gain 10000
(being gained due to WDV revalued)
30-Jun-18 Depreciation a/c …Dr. 30000
To Accumulated Depreciation a/c 30000
(being depreciation charged for 2017)
30-Jun-18 Accumulated Depreciation a/c ….Dr. 30000
To Machinery a/c 30000
(being depreciation transferred to accumulated depreciation)
1-Jul-18 Loss on revaluation a/c ….Dr. 18000
To Machinery a/c 18000
(being loss incurred due to change in WDV)
31-Dec-
18 Bank a/c …Dr. 52000
Loss a/c ….Dr. 10000
To Machinery a/c 62000
(being loss incurred for selling)
Question 4
Part A
Impairment test is an accounting procedure used to find out whether the asset is impaired or
not. In IAS 36 impairment of asset is used to find the recoverable amount of an entities asset.
Under US GAAP it is stated that if the carrying value of an asset exceeds the sum of expected
cash flow of an asset than that asset will be known as impaired (Nobes & Zeff, 2016). There are
some indicators which help to know whether the asset is impaired or not is as follows:
 Obsolesce of old technology due to invention of modern technology.
 Decrease in net cash flow from asset.

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EXTERNAL REPORTING
 Damage to the asset due to fire.
 Decrease of market value of assets.
Carrying Value of CGU 635000
Fair value less Cost to sell 530000
Value in use 575000
Net Recoverable Amount 575000
Impairment Loss (635000-575000) 60000
GL 20000
Land(150000-130000) 20000
P&M 20000
journal entries
Particulars amount (Dr.) amount (Cr.)
Impairment Loss 60000
To GL 20000
To Land 20000
To P&M 20000
Part B
Impairment loss is a reduction in the carrying amount of an asset that decreases by its fair
value while the fair value reduced below the carrying amount (Standard, 2015). In low cost asset
impairment loss is not recognizable as it does not worth for the accounting department to spent
time on this.
journal entries
Particulars amount (Dr.) amount (Cr.)
P&M 15000

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EXTERNAL REPORTING
To Impairment Loss 15000
Depreciation ((60000-20000+15000)/3) 18333
To Accumulated Depreciation on Plant 18333