Ans 1:-

The Corporations Act 2001 sets out statutory requirements for financial reporting. The main
requirements are:

● To maintain financial records (s 286)

● To prepare an annual financial report and a directors' report (s 292)
● To have the financial report audited (s 301)
● To send the financial report, directors' report and auditor's report to members (ss
314–5)
All companies must keep appropriate and adequate written financial records (s 286) and
these records must correctly record and explain its transactions, financial performance and
position and allow for ‘true and fair’ financial statements to be prepared and audited.

Ans 2:-

The Accounting standards AASB101 of financial statements is to provide information about

the financial position, financial performance and cash flows of an entity that is useful to a
wide range of users in making economic decisions. To meet that objective, financial
statements provide information about an entities annually are as follows:

● assets • liabilities • equity • income and expenses, including gains and losses • other
changes in equity • cash flows
The Accounting standards AAS134 of financial reporting improve the ability of investors,
creditors, and others to understand an entity’s capacity to generate earnings and cash flows
and its financial condition and liquidity. Following are the entities to include in their financial
statements are as under:

(a) each disclosing entity required to prepare half-year financial reports in

accordance with Part 2M.3 of the Corporations Act;

(b) interim financial reports that are general purpose financial reports of each
other reporting entity; and

(c) interim financial reports that are, or are held out to be, general purpose
financial reports.

Ans 3:-

The Accounting Standards AASB101 require a statement of financial position as at the end
of the period to include in the face of 8.3 Statement of Profit and Loss and other
Comprehensive Income.

Ans 4:-

An income statement summarizes revenues and expenses and gains and losses, and ends
with the net income for a specific period. However, to comprehend and analyze profits, you
need to understand income statement items that require special disclosure which I discuss in
this post. The Income Statement below contains items that require special disclosure. These
items are lettered to identify them for discussion.
There are six common items of income statement requires disclosure, as follows:
● Unusual or Infrequent Item Disclosed Separately
● Equity in Earnings of Nonconsolidated Subsidiaries
● Discontinued Operations
● Extraordinary Items
● Cumulative Effect of Change in Accounting Principle
● Minority Share of Earnings

Ans 5:-

The objective of this Standard is to prescribe the basis for presentation of general purpose
financial reports, to ensure comparability both with the entity’s financial reports of previous
periods and with the financial reports of other entities. To achieve this objective, this
Standard sets out overall requirements for the presentation of financial reports, guidelines for
their structure and minimum requirements for their content. The recognition, measurement
and disclosure of specific transactions and other events are dealt with in other Australian
Accounting Standards.

Ans 6:-

As part of “expenses recorded on books this year not deducted on this return,” corporations
report expenses or the portion of expenses that are greater for book income than for taxable
income. An example of such a transaction is any book expense for travel and entertainment
in excess of the deductible limits set for tax reporting.

An accounting standard is a common set of principles, standards and procedures that define
the basis of financial accounting policies and practices. Accounting standards improve the
transparency of financial reporting in all countries. In the United States, the Generally
Accepted Accounting Principles form the set of accounting standards widely accepted for
preparing financial statements. International companies follow the International Financial
Reporting Standards, which are set by the International Accounting Standards Board.

Accounting standards specify when and how economic events are to be recognized,
measured and displayed. External entities, such as banks, investors and regulatory
agencies, rely on accounting standards to ensure relevant and accurate information is
provided about the entity. These technical pronouncements have ensured transparency in
reporting and set the boundaries for financial reporting measures.

Ans 7:-
Cash equivalents are short-term, highly liquid investments that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of changes in value.

Disclosure requirements of Accounting Standard AASB107 on the statement of cash flow:

● Each shall be classified in a consistent manner from period to period as operating,

investing or financing activities.
● The total amount of interest paid during a period is disclosed in the cash flow
statement whether it has been recognised as an expense in the income statement or
capitalised in accordance with the allowed alternative treatment
● Interest paid and interest and dividends received are usually classified as operating
cash flows for a financial institution
● Dividends paid may be classified as a financing cash flow because they are a cost of
obtaining financial resources.

Ans 8:-

Direct Method
The direct method is easier to comprehend, as it takes into account all major classes of cash
payments and receipts to arrive at a net cash position for cash from operating, investing, and
financing activities.
Indirect Method
The indirect method uses a company's net income, as reported from its income statement,
as a starting point before making adjustments for all cash and non-cash related items to
arrive at a cash position.

Ans 9:-

Cash comprises cash on hand and demand deposits. A statement of cash flows, when used
in conjunction with the rest of the financial statements, has to provide the information that
enables users to evaluate the changes in net assets of an entity, its financial structure
(including its liquidity and solvency) and should have the ability to affect the amounts and
timing of cash flows in order to adapt to changing circumstances and opportunities. Historical
cash flow information has to often used as an indicator of the amount, timing and certainty of
future cash flows.

Ans 10:-

A complete set of financial statements comprises:

(a)a statement of financial position as at the end of the period;

(b) a statement of profit or loss and other comprehensive income for the period;

(c) a statement of changes in equity for the period;

(d) a statement of cash flows for the period;

(e) notes, comprising significant accounting policies and other explanatory information;

(f) comparative information in respect of the preceding period as specified in paragraphs 38

and 38A; and

(g) a statement of financial position as at the beginning of the preceding period when an
entity applies an accounting policy retrospectively or makes a retrospective restatement of
items in its financial statements, or when it reclassifies items in its financial statements in
accordance with paragraphs 40A–40D.

Ans 11:-

The cash flow statement shall report cash flows during the period classified by operating,
investing and financing activities and the debtors can be calculated by reconstructing the
debtors control account as under:

● An entity presents its cash flows from operating, investing and financing activities in
a manner which is most appropriate to its business.
● A single transaction may include cash flows that are classified differently.

Ans 12:-

Basic Formula
The basic formula for operating cash flow is earnings before interest and taxes, or EBIT, plus
depreciation and minus taxes. As an example, assume your company made $150,000 in
EBIT during the previous quarter. Depreciation was $10,000 and taxes were $35,000.
Therefore, operating cash equals $150,000 plus $10,000, minus $35,000, which is
$125,000.

Cash Flow Implications

Operating cash flow is one of a handful of tools used by creditors to evaluate your ability to
borrow.

Ans 14:-

When one public company buys another, stockholders in the company being acquired will
generally be compensated for their shares. This can be in the form of cash or in the form of
stock in the company doing the buying. Either way, the stock of the company being bought
will usually cease to exist.
Ans 15:-

(a) requires an entity the parent that controls one or more other entities subsidiaries to present
consolidated financial statements;
(b) defines the principle of control, and establishes control as the basis for consolidation;
(c) sets out how to apply the principle of control to identify whether an investor controls an
investee and therefore must consolidate the investee;
(d) sets out the accounting requirements for the preparation of consolidated financial statements;
(e) defines an investment entity and sets out an exception to consolidating particular subsidiaries
of an investment entity.

Ans 16:-

An entity shall adjust the amounts recognised in its financial statements to reflect adjusting
events after the reporting period.

The receipt of information after the reporting period indicating that an asset was impaired at
the end of the reporting period, or that the amount of a previously recognised impairment
loss for that asset needs to be adjusted. For example:

(i) the bankruptcy of a customer that occurs after the reporting period usually confirms
that the customer was credit-impaired at the end of the reporting period;
(ii) the sale of inventories after the reporting period may give evidence about their net
realisable value at the end of the reporting period.
(iii) the determination after the reporting period of the cost of assets purchased, or the
proceeds from assets sold, before the end of the reporting period.

Ans 17:-

In the full goodwill method, goodwill is calculated as the difference between the total fair
value of the target company and the fair value of it net identifiable assets. In such situations
there are two possible methods for calculation of goodwill: difference between total fair value
of company and total fair value of net identifiable asset that is the full goodwill method or the
difference between purchase consideration and the acquirer's share of fair value of net
identifiable assets that is the partial goodwill method.

Ans 18:-

Tracking intercompany transactions is perceived as one of the most common problems

with financial consolidation Intercompany transactions are transactions that happen between
two entities of the same company. Not adjusting intercompany transactions results in
consolidated financial statements that do not offer a true and fair view of the group’s financial
situation. In journal entries each transactions leads to a pair of journal entries: A debit to one
account and an equal, offsetting credit in another. Transactions are like Purchase,
Acquisition, Expense, payment, borrowing, sale closing, revenue received, bad debt write
off, dividend declared.

Ans 19:-

The consolidation perspective from a consolidation viewpoint, reported amount for a fixed
asset cannot change merely because the asset has been moved to a different location within
the consolidation group. All intercompany transactions must be eliminated in consolidation.

● The transfer of non-depreciable assets is very similar to transfer of inventory

● Intercompany transfers of services when one company purchases services from a
related company, the purchaser typically records an expense and the seller records
revenue.
● Prepare equity-method entries and elimination entries for the consolidation of a
subsidiary following upland land transfer.

20.

On 1 july 95 aspley ltd purchased all of the issued capital of bracken ridge ltd for
$55000.

Ordinary Share: $20000

General Share: $10000
Retained Profits: $5000

At 1 July 95:
Net fair value of identifiable assets and liabilities of Bracken RIdge Ltd=
($20 000 + $10 000 + $5 000) (equity)=$35000
Consideration transferred=$55 000
Goodwill acquired=$55 000 – $35000=$3 000
= 20000

Worksheet entries at 1 July 95:

Goodwill Dr 20000
Business combination valuation reserve Cr 20000

Pre-acquisition entries:
Retained Profit Dr 5000
Ordinary Share Dr 20000
General Share Dr 10000
Business combination valuation reserve Dr 20000
Shares in Bracken RIdge Ltd Cr 55000

Share class Number of shares Paid Up capital

Ordinary Class X 6000 60000

Ordinary Class Y 50000 200000

Ordinary Class Z 20000 20000

Total 76000 280000

Sales Budget

Unit Qty Price Value

Victoria

Backward Chef 5000 750 $3750000

Master Chef 1800 1500 $2700000

New South Wales

Backward Chef 4200 800 $3360000

Master Chef 1600 1600 $2560000

Queensland

Backward Chef 4600 850 $3910000

Master Chef 1900 1700 $3230000

Total sales $19510000

Production Budget:

Backyard Chef Master Chef

Expected Units to be sold 13800 5300

Plus desired inventory july 31 1600 500

Total 15400 5800

Less estimated inventory july 1400 600

1

Total units to be produced 14000 5200

Direct Material purchases budget for july

Grates (units) Stainless steel Burner Shelves

subassemblies

Backyard Chef 14000* 3 14000 * 20lbs 14000* 2 14000* 5

=42000 =280000 subassemblies =70000
=28000

Master chef 5200* 6 5200 * 45 lbs 5200 * 4 5200 * 6

=31200 =234000 subassemblies =31200
=20800

Plus desired 800 2100 550 350

inventory july 31

Total 74000 516100 49350 101550

Less Estimated 1000 1800 500 300

Inventory july 1

After less 73000 514300 48850 101250

Total units to be 73000* $20.00 514300 * $6.00 48850 * $105.00 101250 * $7.00
purchased *
Unit price

Total direct $1460000 $3085800 $5129250 $708750

material to be
purchased

Total $10383800

Direct labour Cost Budget :

Hours required for Stamping Depart Forming Depart Assembly Depart

production

Backyard Chef 8400 11200 21000

Master Chef 4160 7800 13000

Total 12560 19000 34000

Hourly rate 12560 * $18 19000 * $14 34000 * $12

Total direct labour $226080 $266000 $408000
cost

Total $900080