financial reporting

ASSESSMENT BRIEF Subject Code and Title ACC2100 Financial Reporting

Assessment Assignment

Individual/Group Individual

Length Not applicable

Learning Outcomes LO 2 Explain the technical and conceptual aspects of selective accounting standards that address issues in financial reporting

LO 3 Employ the requirements of relevant accounting standards and conceptual accounting knowledge to solve financial reporting problems

Submission Friday, 22 October 2021,11.55 pm

Weighting 30%

Total Marks 30 marks

Instructions:

Prepare your work using Word (not excel). All submissions must be submitted with a signed Ozford Institute of Higher Education Cover Sheet via Moodle.

Part A ( 20 Marks) Question 1 (5 Marks) In 20X0, BP who operated an oil exploration platform in the Gulf of Mexico suffered a leak and caused a toxic oil spill which went on for months. Legal proceedings are started seeking damages from the entity, but it disputes liability. Up to the date of authorisation of the financial statements for the year to 31 December 20X0 for issue, the entity’s lawyers advise that it is probable that the entity will not be found liable. However, when the entity prepares the financial statements for the year to 31 December 20X1, its lawyers advise that, owing to developments in the case, it is probable that the entity will be found liable. Required: Does the entity need to recognise a provision or disclose a contingent liability for the damage at the following dates? Cite proper AASB pronouncements and specific guidelines to back-up your answer. (a) At 31 December 20X0 (2.5 Marks) (b) At 31 December 20X1 (2.5 Marks) Question 2 (10 Marks) On 31 March 2021, JJ Ltd has entered into an agreement to lease a machine from a manufacturer, AA Ltd.

Length of lease, non-cancellable 5 years

Commencement date 1 July 2021

Annual lease payment, commencing 1 July 2021 $20,000

Usual selling price of (fair Value) the Machine at 1 July 2021 $80,000

Lessor’s carrying amount of the machine at 1 July 2021 $70,000

Estimated useful life of the Machine 7 years

Estimated residual value of the plant at the end of its economic life $7,500

Residual value at the end of the lease term, 100% is guaranteed by Jubilee Ltd.

$3,000

Interest rate implicit in the lease 12%

Required: (a) Prepare a schedule of lease payments for the entire lease term and the journal entries for JJ Ltd

in respect of the lease for the financial year ended 30 June 2022 and 2023 only. (5 marks) (b) Prepare a schedule of lease receipts for the entire lease term and the journal entries for the

manufacturer, AA Ltd for the financial year ended 30 June 2022 and 2023 only in respect of the lease for the lease term (5 marks)

The following page contains some templates that you can use to answer the question.

Schedule of Lease Payments

Year Lease Liability Opening Bal.

$

Lease Liability after Lease Instalment Payment $

After payment

Interest @ 12%

$

Lease Liability Closing Bal.

$

Schedule of Lease Receipts

Year

Lease Receivable and Interest Receivable

Opening

Lease Instalment Received 1st July

Lease Receivable

after receiving the instalment

Interest Income

Lease receivable including Interest

Receivable 30th June

Question 3 (5 Marks) In 2021, Esme Ltd decided to develop a new type of roof tiles which will double-up as solar panels, The material to be used are silicon cells which when shaken by sunlight produces electrons which will be the source of electricity. In 2021, Esme Ltd spent $500,000 on research to gain knowledge of different silicon cells that can be used. Esme Ltd believed this knowledge could be utilised to bring significant future economic benefits to the company. In 2022, Esme Ltd proceeded to develop a prototype of the silicon roof tiles and consulted a number of experts for their opinions regarding the durability and efficiency of the new product. The company incurred total costs of $600,000 in developing the prototype in 2022. The experts’ comments were very encouraging. Construction companies even put in orders ahead of production to buy the silicon roof tiles. Anticipating a substantial market demand, Esme Ltd spent $20,000 on legal costs to register a patent for the new roof tiles. The patent has a life of 5 years, after which time other producers may copy the silicon roof tiles. In 2023, Esme Ltd conducted a large-scale marketing campaign for new roof tiles at total costs of $700,000. The marketing campaign indicated a huge demand for the product. Within four months, total orders for over $3 million worth of roof tiles were received. Esme Ltd consulted an accounting firm to estimate the present value of revenues from the new product at $16 million. The company’s Chief Financial Officer decided that he would like to have this present value of the roof tiles recognised in the company’s financial statements at its fair value. While the accounting company determined that the present value is $16 million, a major competitor of Esme Ltd made a legally binding offer to buy the patent for new product at a price of $11 million. Required: Describe how to account for the events and costs incurred each year.. Note: You are expected to refer to the relevant sections and paragraphs in AASB 138 Intangible

Part B (10 Marks) Select two public limited companies listed on the Australian Securities Exchange (ASX) that are in the same industry and immediately inform your lecturer for approval. Go to the website of your selected companies. Then go to the Investor Relations section of the website. This section may be called, “Investors”, “Shareholder Information” or similar name. Download your company’s latest annual reports consecutively for last three years and save them in your computer. Do not use your companies’ interim financial statements or their concise financial statements. Please read the financial statements (balance sheet, statement of comprehensive income, statement of changes in owner’s equity) very carefully. Also please read the relevant footnotes of your companies’ financial statements carefully and include information from these footnotes in your answer. Required: You are required to complete the following tasks: (a) Owners’ Equity (3 Marks)

(i) From your companies’ financial statements, list each item of equity and write your understanding of each item. Discuss any changes in each item of equity for your firms over the past year articulating the reasons for the change.

(ii) Provide a comparative analysis of the debt and equity position of the two firms that you have selected

(b) Other Comprehensive Income Statement (4 Marks)

(i) What items have been reported in the other comprehensive income statement for each company?

(ii) Why have these items not been reported in Income Statement/Profit and Loss Statements? (iii) Provide a comparative analysis of the items shown in the other comprehensive income

statement section for the two companies. If these items were included in the income statement / profit and loss statements of each company, how would the profit attributable to shareholders of the company be affected?

(c) Employee Benefits (3 Marks)

Provide a comparative analysis of the reporting employee benefits by the two companies that you have chosen.