Australian

School of Business
ACCT1501 Accounting and Financial Management 1A
Session 1 2013

TUTORIAL WEEK 10 Solutions to Tutorial Questions

Tutorial Questions:
v DQ 6.4, 6.7, 7.32; Problems 6.4, 6.14 & Case7A
DQ6.4
Answer will vary according to the company selected. But general CEO comments include:
company performance, highlights of the past years performance, any significant changes in
staff, business, future plans, corporate governance disclosure. Others items can be added to
this list.
This task was planned to get students active and engaged in the learning process, ask them
what companies they researched, what the CEO disclosed in his statement, and perhaps
compile a list on the white board. Get them to identify any different types of information
disclosed by the CEO. CEOs will not disclose company sensitive information as this relates
to their competitive advantage. Current issues in the reporting field concerning the newly
proposed integrated reporting format relates to forward looking information and predicting
performance, the disclosure of company sensitive info & director liability. This DQ is
designed as a way of making students aware of these issues.
Students should be encouraged to compare the CEOs statement to the auditor report, we
could say one is based on quantitative factual and historical information and the other may be
a more qualitative comments and speculative, although it still provides a view of past
performance.
DQ6.7
Examples of trade-offs among accounting principles.
i Prudence versus reliability. Prudence states that under uncertainty, assets, revenues
and profit should not be overstated and liabilities, expenses and losses should not be
understated. However if prudence involves deliberately biasing important numbers
reliability is adversely affected.
ii Comparability versus consistency. If some other companies with which a company
is likely to be compared change their accounting methods, the company has to decide
whether to change its methods also for the sake of comparability, even though that
will mean that its own figures are not consistent over time.
iii Reliability versus relevance. To get more reliable information it may be necessary to
wait until some major uncertainties are resolved, so that you do not have to estimate
them. However decision-makers need timely information relevant to their decisions.
As time passes, reliability rises and timely relevance falls, so it is necessary to find
some mid-point where there is enough of both.

DQ7.32
Integrated Reporting is a strategic approach to explaining how an organization uses the
resources and relationships available to it in order to create and sustain value in the short,
medium and longer term, including how the organization has performed in the past and plans
to perform in an uncertain future
Problem 6.4
1 This procedure violates the historical cost concept. The computer service being used are
those of the computer it acquired at a cost of $2 million, and not the computer it proposes to
buy in three years. The problem of providing funds to acquire the next computer is obviously
of concern to management, but cost of computer services during the next three years is some
portion of the historical cost of $2 million paid for the present computer. The procedure
followed will overstate expenses, understate income and understate the valuation of the
computer on the balance sheet.
2 The procedure followed by the Duchess Oil Company violates the concepts of historical cost
and conservatism. The increase in the estimated value of natural gas and oil should not be
recorded in the accounts until revenue is fully realised. Historical cost should be the primary
basis of measurement and upward valuation is subject to a wide margin of error and contrary
to conservatism. The practice results in an overstatement of assets and an overstatement in
income.
3 The directors are violating the concept of disclosure. The basic function of accounting is to
make information available in a form and manner, which will enable the user to make a fair
appreciation of the situation. In this case vital information is being withheld from the
shareholders.
4 Although Zig-Zag Ltd. Is disclosing the changes in depreciation method, its lack of
consistency leads to the publication of reports which are neither reliable, logical or
comparable. Flexibility is permissible but such arbitrary changes only lead to distortion.
5 Saturated Ltd. Is violating the accounting period concept which involves the division of the
life of an enterprise into equal periods to enable revenue of a period to be matched with
expense income in earning that revenue. In this case a loss from a later period has been
assigned in error to the current period, reducing income and retained earnings. The cyclone
loss should be presented as a footnote to the financial statements under the full disclosure
principle and referred to in the directors report.
6 The concept involved here is that of materiality and it has been used appropriately. The
capitalisation and subsequent depreciation of minor items is unnecessary in the case of large
enterprises and does not lead to improved communication.
7 BNM Insurance is practising extreme conservatism and violating criterion of reliability. The
understatement of retained profits and buildings in the balance sheet is misleading to readers
of BNM Insurances reports and fails to disclose a true and fair view of the position of the
enterprise.

Problem 6.14
Note: It is usual to keep the land and the building in separate accounts, since the building will
depreciate and the land will not.
Book value of:
Land
$
$175,000
0

Building
$
0
$690,000

20,000

460,000

40,000

195,000

1,190,000

The purchase price was for the site (land).

Only $690,000 should be included as the building asset, since
$10,000 was wasted and did not better the building.
Machinery installation should not be a part of either land or building,
but in a separate location on the long-term assets part of the balance
sheet under a heading such as machinery asset.
Grading and draining make the land suitable to build on without
causing damage to the structure.
There are many choices in regard to this issue, as with events in
accounting. We chose $460,000 to be appropriate, since it is the
market value of the work done. However, most companies wouldnt
bother figuring this out and would just record the $500,000 paid.
As with machinery installation, the purchase of machinery and delivery
charges should not be included in either land or building but in a
separate noncurrent asset account.
Parking lots make the land, and therefore the site, usable. This
classification is difficult because parking lots are part of the land, but
they depreciate because of weather and use. Smith Co. would
probably record it as a third, separate asset and so did we.
Replacement of windows is a maintenance expense and therefore not
part of the asset.
This classification depends upon whether the architect worked on the
land and/or the building. Since most of the work was likely for the
building, it was added to the buildings value.
Total book values

CASE 7A
1.
Woolworths is earning global and domestic respect and recognition for the
integrity and depth of its Corporate Responsibility Programs
We do our utmost to provide the very best choice, value, quality and service
possible and to deliver these as responsibly as we can.
Since 2007 Woolworths has invested $55.7m in energy efficiency projects across
their business. Savings from this investment will reach $93m in 2015.
Woolworths corporate responsibility report has received an A+ rating from the
Global Reporting Initiative (GRI)
(pages 4&5)
2.
Customers
Investors
Employees
Suppliers
Communities
Governments and Regulators
Non-government organisations (NGOs) (pages 6 & 7)
3.
Customers
o Value for money, choice, quality, good service and healthy options.
Investors
o Competitive returns on their investment.
o Disclosure on risk identification and mitigation in areas of climate change
and water.
Communities
o Be good neighbours and invest in local communities.
4. The report was assured by an independent assurer Net Balance.
5.
- Some planned additional improvements to its management information systems in
relation to product quality assurance as well as human resources
- Continuously ensuring capacity building and support to staff responsible for data
collection and analysis processes, particularly where new resources are tasked
with reporting responsibilities
- Further improving consistency in data collection across all reporting areas and
divisions by using more consistent categories and boundaries for performance data
aggregation
- Establishing and documenting formal data management and reporting protocols
and procedures for performance metrics
- Formalising the process for corporate responsibility issues identified through
stakeholder engagement channels and for informing report content on an annual
basis
- Enhancing current processes for reviewing material issues on an annual basis to
feed into existing risk management frameworks, including a focus on potential
cross divisional financial impacts of corporate responsibility related risks and
issues
- Considering additional channels for providing concise and relevant corporate
responsibility performance information to select specific communities, customer
groups and other stakeholder to extend its disclosure reach
(page 53)

6. a.
-
-
b.
-
7.
-
-

Woolworths uses the Global Reporting Initiative (GRI) Framework

Woolworths uses the GRI Sustainable Reporting Guidelines G3.1
Woolworths received an A+ rating from the GRI
137,979 MWh of electricity was saved in 2011
Savings were a result of energy efficiency technology installed prior to the end of
2011
(page 25)

8.
-
-

10.9% (compared to business-as-usual projections)

Carbon emissions effectively stayed at the same level as 2010 (4.09 Mt) despite
the growth of the business.
(page 26)
9. An overall 40% reduction (page 26).
10. $55.7 million (page 26)
11. $93 million (page 25)
12. Significant investment in low carbon technology
(page 28)
13. Investment in energy efficiency
Changing to refrigerants with a lower global warming potential
Improvements in logistics (page 28)
14. Energy Efficiency Opportunities (EEO)
National Greenhouse and Energy Reporting (NGER)
(page 33)
15. Energy intensity (MJ/m) has decreased since 2009
o 2009 3178 MJ/m
o 2010 3092 MJ/m
o 2011 3006 MJ/m
(page 2)
Energy intensity (GJ/$m EBIT) decreased since 2010
o 2010 3,497 GJ/$m EBIT
o 2011 3,325 GJ/$m EBIT
(page 24)